UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 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): September 17, 2007
Transdel
Pharmaceuticals, Inc.
(Exact
Name of Registrant as Specified in Charter)
Delaware
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333-135970
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45-0567010
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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4225
Executive Square, Suite 460
La
Jolla, CA
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92037
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (858) 457-5300
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300
Park Avenue, Suite 1700
New
York, NY 10022
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(Former
name or former address, if changed since last report)
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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:
o
Written
communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting
material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
CURRENT
REPORT ON FORM 8-K
TRANSDEL
PHARMACEUTICALS, INC.
TABLE
OF CONTENTS
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Page
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Item
1.01
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Entry
into a Material Definitive Agreement
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1
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Item
2.01
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Completion
of Acquisition or Disposition of Assets
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1
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Merger
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1
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Description
of Our Company
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3
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Description
of Our Business
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4
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Management’s
Discussion and Analysis or Plan of Operation
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16
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Risk
Factors
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18
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Security
Ownership of Certain Beneficial Owners and Management
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31
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Executive
Officers and Directors
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31
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Certain
Relationships and Related Transactions
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35
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Item
3.02
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Unregistered
Sales of Equity Securities
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36
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Item
4.01
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Changes
in Registrant’s Certifying Accountant
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41
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Item
5.01
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Changes
in Control of Registrant
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42
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Item
5.02
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Departure
of Directors or Certain Officers; Election of Directors; Appointment
of
Certain
Officers; Compensatory Arrangements of Certain Officers
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42
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Item
5.03
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Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year
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42
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Item
5.06
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Change
in Shell Company Status
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43
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Item
9.01
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Financial
Statements and Exhibits
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43
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Item
1.01
Entry
into a Material Definitive Agreement
The
Merger
On
September 17, 2007, Transdel Pharmaceuticals, Inc., a Delaware corporation
(“Transdel”), entered into an Agreement of Merger and Plan of Reorganization
(the “Merger Agreement”) by and among Transdel, Trans-Pharma Corporation, a
privately held Nevada corporation (“Trans-Pharma”), and Trans-Pharma Acquisition
Corp., a newly formed, wholly-owned Delaware subsidiary of Transdel
(“Acquisition Sub”). Upon closing of the merger transaction contemplated under
the Merger Agreement (the “Merger”), Acquisition Sub merged with and into
Trans-Pharma, and Trans-Pharma, as the surviving corporation, became a
wholly-owned subsidiary of Transdel.
For
a
description of the terms of the Merger Agreement and the Merger, see the
descriptions thereof in Item 2.01 below, which disclosure is incorporated
herein
by reference.
Prior
to
the announcement by Transdel relating to the possibility of entering into
the
Merger, there were no material relationships between Transdel or Trans-Pharma,
or any of their respective affiliates, directors or officers, or any associates
of their respective officers or directors.
Item
2.01
Completion
of Acquisition or Disposition of Assets
Merger
The
Merger.
On
September 17, 2007, Transdel entered into the Merger Agreement with Trans-Pharma
and Acquisition Sub. Upon closing of the Merger on September 17, 2007,
Acquisition Sub was merged with and into Trans-Pharma, and Trans-Pharma became
a
wholly-owned subsidiary of Transdel.
Pursuant
to the terms and conditions of the Merger Agreement:
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·
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At
the closing of the Merger, each share of Trans-Pharma’s common stock
issued and outstanding immediately prior to the closing of the
Merger was
exchanged for the right to receive 0.15625 of one share of Transdel’s
common stock. An aggregate of 8,000,000 shares of Transdel’s common stock,
which includes 195,313 shares of restricted stock which are subject
to
forfeiture, were issued to the holders of Trans-Pharma’s common
stock.
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·
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Immediately
following the closing of the Merger, $1.5 million of convertible
notes of
Trans-Pharma (the “Notes”), plus all unpaid accrued interest, were assumed
by Transdel and subsequently converted into 1,530,177 shares of
Transdel’s
common stock.
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·
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Immediately
following the closing of the Merger, under the terms of an Agreement
of
Conveyance, Transfer and Assignment of Assets and Assumption of
Obligations, Transdel transferred all of its pre-Merger assets
and
liabilities to its wholly-owned subsidiary, Bywater Resources Holdings,
Inc. (“SplitCo”). Thereafter pursuant to a Split-Off Agreement, Transdel
transferred all of its outstanding capital stock of SplitCo to
a major
stockholder of Transdel in exchange for cancellation of 5,550,007
shares
of Transdel’s common stock held by such stockholder (the “Split-Off”),
which left 1,849,993 shares of Transdel’s common stock held by existing
stockholders of Transdel. These shares constituted the part of
Transdel’s
“public float” prior to the Merger that will continue to represent the
shares of Transdel’s common stock eligible for resale without further
registration by the holders thereof.
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·
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In
connection with the closing of the Merger, Transdel issued approximately
40.9 units in a private placement (the “Private Placement”), consisting of
an aggregate of 2,046,834 shares of Transdel’s common stock and five-year
warrants to purchase an aggregate of an additional 511,708 shares
of
common stock at an initial cash exercise price of $4.00 per share
and an
initial cashless exercise price of $5.00 per share, at $100,000
per
unit.
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·
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Upon
the closing of the Merger, Rolf Harms resigned as the sole officer
and
director of Transdel and simultaneously therewith a new board of
directors
was appointed. The new board of directors consists of the two current
members of the board of directors of Trans-Pharma, Juliet Singh,
Ph.D. and
Jeffrey J. Abrams, M.D.
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·
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Each
of Transdel, Trans-Pharma and Acquisition Sub provided customary
representations and warranties, pre-closing covenants and closing
conditions in the Merger Agreement.
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The
foregoing description of the Merger Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Merger
Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by
reference.
Following
(i) the closing of the Merger, (ii) the closing of the Private Placement,
(iii)
the conversion of the Notes and (iv) Transdel’s cancellation of 5,550,007 shares
in the Split-off, there were 13,427,004 shares of Transdel’s common stock issued
and outstanding. Approximately 59.6% of such issued and outstanding shares
are
held by the former stockholders of Trans-Pharma, approximately 15.2% is held
by
the investors in the Private Placement, approximately 13.8% is held by the
pre-Merger stockholders of Transdel and approximately 11.4% is held by the
former holders of the Notes.
Neither
Transdel nor Trans-Pharma had any options or warrants to purchase shares
of
capital stock outstanding immediately prior to the closing of the Merger.
However, immediately prior the Merger, Transdel adopted an equity incentive
plan
and reserved 1,500,000 shares for issuance as incentive awards to officers,
directors, employees and other qualified persons and following the Merger
Transdel issued options to purchase an aggregate of 600,000 shares of Transdel’s
common stock under such plan to Juliet Singh, Ph.D., Balbir Brar, D.V.M.,
Ph.D.,
John T. Lomoro, Jeffrey J. Abrams, M.D. and Ysabella Fernando.
The
shares of Transdel’s common stock issued to former holders of Trans-Pharma’s
capital stock in connection with the Merger, and the shares of Transdel’s common
stock and warrants issued in the Private Placement, were not registered under
the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon
the exemption from registration provided by Section 4(2) of the Securities
Act
and Regulation D promulgated under that section, which exempt transactions
by an
issuer not involving a public offering. These securities may not be offered
or
sold in the United States absent registration or an applicable exemption
from
the registration requirements. Certificates representing these shares contain
a
legend stating the same.
As
of the
date of the Merger Agreement there were no material relationships between
Transdel or any of its affiliates and Trans-Pharma, other than in respect
of the
Merger Agreement.
Changes
Resulting from the Merger.
Transdel
intends to carry on Trans-Pharma’s business as its sole line of business.
Transdel has relocated its executive offices to 4225 Executive Square, Suite
460, La Jolla, California 92037 and its telephone number is (858)
457-5300
.
The
Merger and its related transactions were approved by the holders of a requisite
number of shares of Trans-Pharma’s capital stock pursuant to a written consent
dated as of September 17, 2007. Under Nevada corporate law, Trans-Pharma’s
stockholders who did not vote in favor of the Merger may demand in writing,
pursuant to the exercise of their appraisal rights, that Trans-Pharma pay
them
the fair value of their shares. Determination of fair value is based on many
relevant factors, except that a court may disregard any appreciation or
depreciation resulting from the anticipation or accomplishment of the Merger.
As
of September 19, 2007, no holders of shares of Trans-Pharma’s common stock had
indicated their intention to seek appraisal of their shares.
Changes
to the Board of Directors and Executive Officers.
Upon
the
closing of the Merger, the then-current sole officer and director of Transdel
resigned and was replaced by new officers and directors. Immediately following
the closing of the Merger, Transdel’s board of directors was reconstituted to
consist of Juliet Singh, Ph.D. and Jeffrey J. Abrams, M.D. Following the
Merger,
Transdel’s officers consisted of the officers of Trans-Pharma immediately prior
to the Merger.
All
directors hold office for one-year terms until the election and qualification
of
their successors. Officers are elected by the board of directors and serve
at
the discretion of the board.
Accounting
Treatment.
The
Merger is being accounted for as a reverse-merger and recapitalization of
Trans-Pharma for financial reporting purposes. Consequently, the assets and
liabilities and the operations that will be reflected in the historical
financial statements prior to the Merger will be those of Trans-Pharma and
will
be recorded at the historical cost basis of Trans-Pharma, and the consolidated
financial statements after completion of the Merger will include the assets
and
liabilities of Transdel and Trans-Pharma, historical operations of Trans-Pharma
and operations of Transdel from the closing date of the Merger.
Tax
Treatment; Small Business Issuer.
The
Split-Off will result in taxable income to Transdel in an amount equal to
the
difference between the fair market value of the assets transferred and
Transdel’s tax basis in the assets. Any gain recognized, to the extent not
offset by Transdel’s net operating losses carry-forwards, if any, will be
subject to federal income tax at regular corporate income tax
rates.
Transdel
will continue to be a “small business issuer,” as defined under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), following the
Merger.
Description
of Our Company
Transdel
was incorporated in Delaware in January 2006 in order to conduct mineral
exploration activities. Immediately following the Merger, the existing assets
and liabilities of Transdel were disposed of pursuant to the
Split-Off.
Trans-Pharma
was formed in Nevada on July 24, 1998 as a specialty pharmaceutical company
focused on the development and commercialization of topically administered
medications.
After
the
Merger, Transdel succeeded to the business of Trans-Pharma as its sole line
of
business.
Description
of Our Business
As
used in this Current Report on Form 8-K, all references to “we,” “our” and “us”
for periods prior to the closing of the Merger refer to Trans-Pharma and
for
periods subsequent to the closing of the Merger refer to Transdel and its
subsidiaries.
Company
Overview
We
are a
specialty pharmaceutical company focused on the development and
commercialization of topically administered medications. Our lead topical
drug
candidate, Ketotransdel™, utilizes our proprietary Transdel™ cream formulation
to facilitate the passage of ketoprofen, a non-steroidal anti-inflammatory
drug
(“NSAID”), through the epidermis and into underlying tissues. Ketotransdel™
provides an alternative to the oral administration of cyclooxygenase-2 selective
NSAIDs (“COX-2 inhibitors”) and non-selective NSAIDs, which when administered
orally are associated with increased risk of adverse cardiovascular events,
gastrointestinal and other adverse complications. We successfully completed
a
Phase 1/2 trial for treating soft tissue pain and soreness in a delayed onset
muscle soreness model with Ketotransdel™.
We
believe that there is a multi-billion dollar void in the pain management
market
since the withdrawal of two popular COX-2 inhibitors, Bextra and Vioxx, in
2005
due to the increased risk of adverse cardiovascular events associated with
these
drugs. In addition, according to IMS Health, sales of Celebrex, the only
specific COX-2 inhibitor available in the United States today, have fallen
by
50% since 2005. Over-the-counter oral NSAIDs such as ibuprofen, the active
ingredient in Advil, Motrin and other pain medications, have also come under
scrutiny for increased cardiovascular and gastrointestinal risks. According
to
the National Center for Health Statistics, there are over 100,000
hospitalizations per year for NSAID related gastrointestinal complications
and
approximately 16,500 NSAID related deaths annually resulting in over $3 billion
per year in additional health care costs. In 2006, the Food and Drug
Administration (“FDA”) approved new requirements that professional labeling for
all over-the-counter and prescription NSAIDs, including COX-2 inhibitors,
include information about the potential cardiovascular and gastrointestinal
risks. We believe that these developments have resulted in demand for a
potentially safer method of administering NSAIDs.
The
transdermal application of NSAIDs using Ketotransdel™ may minimize the
cardiovascular, gastrointestinal and other adverse risks associated with
oral
administration of NSAIDs and COX-2 inhibitors. Transdermal application allows
for local delivery of the drug thus bypassing the gastrointestinal tract
and
reducing systemic exposure to the drug and thereby may result in a decreased
risk of cardiovascular, gastrointestinal, liver or kidney complications.
Therefore, we believe that Ketotransdel™ is positioned to satisfy a growing
demand for safer alternatives to oral NSAIDs and COX-2 inhibitors.
We
are
also investigating other drug candidates and treatments for transdermal delivery
using Transdel™ technology, our proprietary cream formulation, including
anesthetics, human hormone replacement and anti-nausea medications. Our patent
on the Transdel™ proprietary cream formulation covers the combination of the
cream formulation with other active drug ingredients in over 26 therapeutic
areas creating an opportunity to develop a number of potential drug candidates.
This patent covers composition of matter, methods of manufacture and methods
of
use of Transdel™.
Ketotransdel™
Ketotransdel™
is a cream formulation comprised of 10% of the NSAID ketoprofen. The formulation
is proprietary and efficiently allows the absorption of the drug through
the
epidermis. This product may be considered for patients with site specific
localized pain and who also (i) have a history of gastrointestinal,
cardiovascular, kidney or liver problems, (ii) are geriatric or pediatric
patients and/or (iii) are patients at risk for drug interactions.
We
selected ketoprofen as the active ingredient for Ketotransdel™ for its proven
clinical and medical track record for safety and efficacy with low incidences
of
kidney, liver and skin reactions when administered topically.
Figure
1, the structure of ketoprofen
Clinical
results with Ketotransdel™
Protocol
Ketotransdel™
was tested in a double blind, randomized placebo-controlled Phase 1/2 trial
at
the University of California Medical School, San Diego. The trial tested
the
efficacy and safety of topical Ketotransdel™ for the treatment of soft tissue
pain and soreness in a delayed-onset muscle soreness model. The objectives
of
the study were to evaluate: (i) the efficacy of Ketotransdel™ on muscle strength
compared with a placebo; (ii) the safety of Ketotransdel™ as a topical treatment
and (iii) the level of systemic absorption of topical Ketotransdel™. The placebo
consisted of the cream without an active pharmaceutical ingredient.
A
total
of 32 healthy males, ages 18 to 25, were exercised by rigorous knee extension
and flexion exercise, isolating the quadriceps muscle, to the point of complete
fatigue in both legs. After exercise, and every 8 hours thereafter, test
subjects applied either Ketotransdel™ or placebo to the quadriceps area on both
legs. The subjects were randomized into four groups, each containing 8 subjects:
groups 1 and 2 were a between-subject design, and groups 3 and 4 were a
within-subject design (see Table 1). Muscle soreness was evaluated at baseline,
24 and 48 hours by a validated visual analog scale recognized by the FDA
for
evaluating pain.
Table
1, protocol outline for Ketotransdel’s™ Phase 1 / 2 trial
Serum
levels of ketoprofen were quantitated at 24 and 48 hours.
Clinical
Results
Muscle
soreness at the three time points was analyzed separately for the Between-
and
Within- Subject designs. The Between-Subject groups (1 and 2) demonstrated
a
significant therapeutic effect from Ketotransdel™ versus placebo between 24 and
48 hours (* p = 0.0118), as shown in the graphic below.
Figure
2: VAS muscle soreness and pain (Between Subject Group) mean scores ± SE at 0,
24 and 48 hours
Similarly,
the Within-Subject groups (groups 3 and 4) showed significantly less muscle
soreness in the Ketotransdel™ legs relative to placebo legs (p = 0.0104) between
24 and 48 hours.
Figure
3: VAS muscle soreness and pain (Within Subject Group), mean scores ± SE at 0,
24 and 48 hours
Systemic
Absorption
The
concentration of ketoprofen in the sera of the test subjects at 24 and 48
hours
reached a maximum of 53 ng/mL in subjects administering the drug on both
legs
and a maximum of 31 ng/mL in those administering Ketotransdel™ on just one leg.
For comparison, a 200 mg oral dose of ketoprofen (Oruvail) resulted in a
peak
serum concentration of 3,400 ng/mL, or roughly 100-fold higher than seen
with
the Ketotransdel™ transdermal application. We concluded that topical
Ketotransdel™ has 1 to 5% of the bioavailability compared to that of oral
ketoprofen.
This
study demonstrated that Ketotransdel™ provided effective local delivery of
ketoprofen to provide statistically significant relief of pain and soreness
with
minimal systemic exposure to the drug. No adverse reactions to Ketotransdel™
were reported.
Meeting
with the FDA
We
had a
pre-Investigational New Drug (“IND”) application meeting with the FDA in August
2004 to review the results of our Phase 1/2 study and to discuss further
requirements for approval of Ketotransdel™. As a result of that meeting, the FDA
requested that a limited number of additional non-clinical studies be conducted.
At present, the FDA has not raised any significant issues with respect to
the
specifications or proposed manufacturing process for Ketotransdel™. We expect to
file the IND application for Ketotransdel™, containing our proposed Phase 3
clinical studies, prior to initiating our trials. At the 2004 Pre-IND meeting
with the FDA, the FDA indicated it is possible that a single Phase 3 clinical
trial could be designed to address all or most of the issues raised by the
FDA
relating to the approval of Ketotransdel™. The expected filing of the Phase 3
submission to the FDA will depend on a variety of factors including but not
limited to the completion of the manufacturing process for non clinical/clinical
supplies, and potentially the completion of the non clinical studies and
the
generation of data. Issues or problems encountered in any of these areas
may
result in delays in the filing of the IND for the Phase 3 trials. Our goal
is to
file with the FDA by the end of 2007 or beginning of 2008. If no major issues
are encountered, we anticipate starting our Phase 3 clinical trials as early
as
the first or second quarter of 2008. The trials could be completed approximately
6-9 months after the start date.
No
assurance can be given that the FDA will agree with our proposed clinical
trials
or non-clinical studies. The FDA may require that we conduct additional clinical
trials and non-clinical studies that we do not presently anticipate conducting
or to repeat studies that we have already conducted.
Upon
FDA
approval of Ketotransdel™ for treatment of soft tissue pain and soreness, we
intend to pursue FDA approval of Ketotransdel™ for other indications including
osteoarthritis. We believe that the clinical success of Ketotransdel™ will
facilitate the use of the Transdel™ delivery technology in other products.
During 2008, we will be exploring business opportunities for our other programs
using the Transdel™ delivery technology.
Market
and Opportunity
We
believe that the market for acute pain management to be $2.8 billion a year
and
the market for chronic pain management to be $3.0 billion per year. Due to
the
withdrawal of major COX-2 inhibitors and to the recognition of cardiovascular
risks associated with systemic NSAIDs, there is currently a multibillion
dollar
void in these markets. Oral NSAIDs remain one of the most prescribed classes
of
drugs in the pain management market. Over 30 million people worldwide use
prescription and over-the-counter NSAIDs daily. These data are illustrated
in
Figure 4 below.
Source:
IMS Health; IMS National Sales Perspectives, February 2006
Figure
4
However,
due to increased understanding of the cardiovascular and gastrointestinal
risks
associated with NSAIDs, the FDA approved new rules requiring that professional
labeling for all prescription and over-the-counter NSAIDs include information
on
such risks.
We
believe that the recognition of the risks associated with oral NSAIDs and
COX-2
inhibitors is creating a strong demand for safer methods of administering
NSAIDs
creating an opportunity for topical pain management products with low risk
of
cardiovascular and gastrointestinal complications, such as Ketotransdel™, to
capture a share of the pain management market. We believe that patients and
physicians are seeking safer pain medication alternatives and Ketotransdel™ will
be accepted by them.
Potential
Future Products
Presently,
Ketotransdel™ is our lead clinical product that utilizes our proprietary
Transdel™ technology. However, we believe that the clinical success of
Ketotransdel™ will facilitate the use of the Transdel™ technology in other
products. In addition, applying our Transdel™ technology to approved and
established drugs may allow for shorter topical drug candidate development
cycles. Table 2 below summarizes other drug candidates for transdermal delivery
using Transdel™ technology.
Market
|
Drug
Type
|
Primary
Treatment
|
Pain
Market
|
|
|
Cyclobenzaprine
|
Anticholergenic
|
Muscle
Spasms
|
Lidocaine
|
Anesthetic
|
Post-Herpetic
Neuralgia
|
|
|
|
Hormone
Replacement Market
|
Testosterone
|
Male
Hormone
|
Androgen
Deficiency (Natural Testosterone, Delayed Puberty, Impotence)
|
Progesterone
|
Female
Hormone
|
Regulation
of Ovulation and Menstruation
|
Estradiol
|
Female
Hormone
|
Menopause;
Deficiency in Ovary Function
|
|
|
|
Anti-Nausea
Market
|
Scopolamine
|
Alkaloid
|
Anti-nausea;
Sedative
|
Table
2: Potential future products utilizing Transdel™ technology
The
Transdel™ Technology
Transdel™
is our proprietary transdermal cream drug delivery system. Transdel™ is a
collection of pluronic lecithin organogels, which form creams that enable
transdermal delivery of drugs avoiding first pass metabolism by the liver
and
systemic exposure. Our U.S. issued patent on the Transdel™ proprietary cream
formulation covers the combination of the cream formulation with a number
of
other active drug ingredients including ketoprofen, steroid hormones, lidocane
and others. Transdel™ contains at least two distinct penetration enhancers,
which function synergistically to provide for rapid but controllable transport
of the medication from the cream into the skin.
Transdel™
has the following properties that make it an ideal vehicle for topical drug
administration:
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·
|
biocompatible
–
it
hydrates the skin;
|
|
·
|
enhanced
skin penetration – it has a balance of hydrophilic and hydrophobic
properties that allow efficient partitioning of drugs into the
skin;
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·
|
low
toxicity and biodegradable – its components are non-immunogenic and are
generally regarded as safe; and
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·
|
thermodynamically
stable, insensitive to moisture and resistant to microbial
contamination.
|
Other
key
features of Transdel™ technology include:
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·
|
rapid
and efficient transdermal drug
delivery;
|
|
·
|
enables
painless administration of medications and avoids stomach
irritation;
|
|
·
|
minimizes
dermal irritation;
|
|
·
|
considered
to be superior to other transdermal delivery preparations due to
the
synergetic effect of its skin penetration enhancers and
carriers;
|
|
·
|
highly
flexible – allows the delivery of a wide range of different
medications;
|
|
·
|
ease
of application, aesthetically acceptable and odorless;
and
|
|
·
|
produces
patentable new products when combined with established drugs or
new
drugs.
|
The
Transdel™ drug delivery system has three major components, which, when combined
in the proper manner, create a three-dimensional matrix that facilitates
dissolution and delivery of a drug through the skin. The Transdel™ drug delivery
system has desired skin adherence, spreadability, and cohesiveness for use
as a
topical agent. The biocompatibility of Transdel™ with human skin, its stability
with time, its skin penetrating qualities and its ability to carry large
doses
of drugs makes it an ideal drug delivery system without subjecting the patient
to potential gastrointestinal, kidney, cardiovascular or hepatic toxicities
associated with systemic exposure.
Competition
The
pharmaceutical industry is highly competitive. Our competitors include
manufacturers of prescription and over-the-counter pain relievers including
oral
NSAIDs and narcotic pain relievers doing business in the United States,
including Wyeth Pharmaceuticals, McNeil Consumer Healthcare and Pfizer.
Pharmaceutical companies are also developing their own transdermal delivery
systems for NSAIDs and other drugs.
In
addition to product safety, development and efficacy, other competitive factors
in the pharmaceutical market include product quality and price, reputation,
service and access to scientific and technical information. It is possible
that
developments by our competitors will make our products or technologies
uncompetitive or obsolete. Because we are smaller than many of our national
competitors, we may lack the financial and other resources needed to compete
for
market share in the pain management sector.
The
intensely competitive environment of the pain management products requires
an
ongoing, extensive search for medical and technological innovations and the
ability to market products effectively, including the ability to communicate
the
effectiveness, safety and value of branded products for their intended uses
to
healthcare professionals in private practice, group practices and managed
care
organizations.
Third
Party Service Agreements
We
contract with various third parties to provide certain critical services
including conducting clinical and non-clinical studies, manufacturing, certain
research and development activities, medical affairs and certain regulatory
activities and financial functions. If for any reason we are unable to maintain
our relationships with these third party contractors, this may have a material
adverse effect on our business, financial condition and results of operations.
Governmental
Regulation
Our
ongoing product development activities are subject to extensive and rigorous
regulation at both the federal and state levels. Post development, the
manufacture, development, testing, packaging, labeling, distribution, sales
and
marketing of our products will also be subject to extensive regulation. The
Federal Food, Drug and Cosmetic Act of 1983, as amended, and other federal
and
state statutes and regulations govern or influence the testing, manufacture,
safety, packaging, labeling, storage, record keeping, approval, advertising,
promotion, sale and distribution of pharmaceutical products. Noncompliance
with
applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production and/or distribution, refusal of
the
government to enter into supply contracts or to approve New Drug Applications
(“NDAs”), civil sanctions and criminal prosecution.
FDA
approval is typically required before each dosage form or strength of any
new
drug can be marketed. Applications for FDA approval must contain information
relating to efficacy, safety, toxicity, pharmacokinetics, product formulation,
raw material suppliers, stability, manufacturing processes, packaging, labeling,
and quality control. The FDA also has the authority to revoke previously
granted
drug approvals. Product development and approval within this regulatory
framework requires a number of years and involves the expenditure of substantial
resources.
The
current FDA standards of approving new pharmaceutical products are more
stringent than those that were applied in the past. Labeling revisions,
formulation or manufacturing changes and/or product modifications may be
necessary as a result of the FDA’s more stringent requirements. We cannot
determine what effect changes in regulations or legal interpretations, when
and
if promulgated, may have on our business in the future. Changes could, among
other things, require expanded or different labeling, the recall or
discontinuance of certain products, additional record keeping and expanded
documentation of the properties of certain products and scientific
substantiation. Such changes, or new legislation, could have a material adverse
effect on our business, financial condition and results of operations.
The
evolving and complex nature of regulatory requirements, the broad authority
and
discretion of the FDA and the generally high level of regulatory oversight
results in a continuing possibility that from time to time, we will be adversely
affected by regulatory actions despite ongoing efforts and commitment to
achieve
and maintain full compliance with all regulatory requirements.
FDA
Approval Process
FDA
approval is typically required before any new drug can be marketed. An NDA
is a
filing submitted to the FDA to obtain approval of new chemical entities and
other innovations for which thorough applied research is required to demonstrate
safety and effectiveness in use. The NDA must contain complete preclinical
and
clinical safety and efficacy data or a reference to such data. Since the
active
pharmaceutical ingredients in our topical drug candidates, such as ketoprofen,
have already been approved by the FDA, we are able to file NDAs under section
505(b)(2) of the Hatch-Waxman Act of 1984. Under Section 505(b)(2) we may
rely
on data from pre-clinical and clinical studies that were not conducted by
or for
us and for which we have not obtained a right of reference or use from the
person by or for whom the investigation was conducted. The FDA has determined
that 505(b)(2) NDA may be submitted for products that represent changes from
approved drugs in conditions of use, active ingredient(s), route of
administration, dosage form, strength, or bioavailability.
A
505(b)(2) applicant must provide the FDA with any additional clinical data
necessary to demonstrate the safety and effectiveness of the product with
the
proposed change(s). Consequently, although duplication of preclinical and
certain clinical studies is avoided through the use a 505(b)(2) application,
specific studies may be required. Such studies are typically conducted in
three
sequential phases, although the phases may overlap.
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Phase
1, which frequently begins with the initial introduction of the
compound
into healthy human subjects prior to introduction into patients,
involves
testing the product for safety, adverse effects, dosage, tolerance,
absorption, metabolism, excretion and other elements of clinical
pharmacology.
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Phase
2 typically involves studies in a small sample of the intended
patient
population to assess the efficacy of the compound for a specific
indication, to determine dose tolerance and the optimal dose range
as well
as to gather additional information relating to safety and potential
adverse effects.
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Phase
3 trials are undertaken to further evaluate clinical safety and
efficacy
in an expanded patient population at typically dispersed study
sites, in
order to determine the overall risk-benefit ratio of the compound
and to
provide an adequate basis for product
labeling.
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Each
trial is conducted in accordance with certain standards under protocols that
detail the objectives of the study, the parameters to be used to monitor
safety,
and efficacy criteria to be evaluated. Each protocol must be submitted to
the
FDA. In some cases, the FDA allows a company to rely on data developed in
foreign countries or previously published data, which eliminates the need
to
independently repeat some or all of the studies.
To
the
extent that the Section 505(b)(2) NDA is relying on the findings for an
already-approved drug, the applicant is required to certify that there are
no
patents for that drug or that:
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the
patent has expired;
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the
patent has not expired, but will expire on a particular date and
approval
is sought after patent expiration;
or
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the
patent is invalid or will not be infringed by the manufacture,
use or sale
of the new product.
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A
certification that the new product will not infringe the already approved
product’s patents or that such patents are invalid is called a paragraph IV
certification. If the applicant does not challenge the listed patents, the
Section 505(b)(2) NDA will not be approved until all the listed patents
claiming the referenced product have expired, as well as any additional period
of exclusivity.
If
the
applicant has provided a paragraph IV certification to the FDA, the
applicant must also send notice of the paragraph IV certification to the
relevant patent holders once the 505(b)(2) NDA has been accepted for filing
by
the FDA. The patent holders may then initiate a legal challenge to the
paragraph IV certification. The filing of a patent infringement lawsuit
within 45 days of receipt of a paragraph IV certification
automatically prevents the FDA from approving the Section 505(b)(2) NDA
until the earliest of 30 months, expiration of the patent, settlement of
the lawsuit or a decision in the infringement case that is favorable to the
Section 505(b)(2) applicant. Thus, a Section 505(b)(2) applicant may
invest a significant amount of time and expense in the development of its
products only to be subject to significant delay and patent litigation before
its products may be commercialized.
Notwithstanding
the approval of many products by the FDA pursuant to Section 505(b)(2),
over the last few years, certain brand-name pharmaceutical companies and
others
have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA
changes its interpretation of Section 505(b)(2), this could delay or even
prevent the FDA from approving any Section 505(b)(2) NDA that we submit.
As
a
condition of approval, the FDA or other regulatory authorities may require
further studies, including Phase IV post-marketing studies to provide additional
data. Other post-marketing studies could be used to gain approval for the
use of
a product as a treatment for clinical indications other than those for which
the
product was initially tested. Also, the FDA or other regulatory authorities
require post-marketing reporting to monitor the adverse effects of the drug.
Results of post-marketing programs may limit or expand the further marketing
of
the products.
The
FDA
closely regulates the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising, off-label
promotion, industry-sponsored scientific and educational activities and
promotional activities involving the Internet. A company can make only those
claims relating to safety and efficacy that are approved by the FDA. Failure
to
comply with these requirements can result in adverse publicity, warning letters,
connective advertising and potential civil and criminal penalties. Physicians
may prescribe legally available drugs for uses that are not described in
the
drug's labeling and that differ from those tested by us and approved by the
FDA.
Such off-label uses are common across medical specialties. Physicians may
believe that such off-label uses are the best treatment for many patients
in
varied circumstances. The FDA does not regulate the behavior of physicians
in
their choice of treatments. The FDA does, however, impose stringent restrictions
on manufacturers’ communications regarding off-label use.
In
2005,
the FDA asked the manufacturer of Celebrex, as well as all manufacturers
of
prescription and over-the-counter NSAIDs, to revise the labeling for their
products. Manufacturers of NSAIDs are being asked to revise their labeling
to
provide specific information about the potential risk of cardiovascular events
and gastrointestinal risks of their individual products. We are presently
analyzing how this pronouncement will effect the labeling of
Ketotransdel™.
Quality
Assurance Requirements
The
FDA
enforces regulations to ensure that the methods used in, and facilities and
controls used for, the manufacture, processing, packing and holding of drugs
conform with current good manufacturing practices (“cGMP”). The cGMP regulations
the FDA enforces are comprehensive and cover all aspects of operations, from
receipt of raw materials to finished product distribution, insofar as they
bear
upon whether drugs meet all the identity, strength, quality, purity and safety
characteristics required of them. To assure compliance requires a continuous
commitment of time, money and effort in all operational areas.
The
FDA
conducts pre-approval inspections of facilities engaged in the development,
manufacture, processing, packing, testing and holding of the drugs subject
to
NDAs. If the FDA concludes that the facilities to be used do not meet cGMP,
good
laboratory practices or good clinical practices requirements, it will not
approve the NDA. Corrective actions to remedy the deficiencies must be performed
and verified in a subsequent inspection. In addition, manufacturers of both
pharmaceutical products and active pharmaceutical ingredients used to formulate
the drug also ordinarily undergo a pre-approval inspection, although the
inspection can be waived when the manufacturer has had a passing cGMP inspection
in the immediate past. Failure of any facility to pass a pre-approval inspection
will result in delayed approval and would have a material adverse effect on
our
business, results of operations and financial condition.
The
FDA
also conducts periodic inspections of facilities to assess their cGMP status.
If
the FDA were to find serious cGMP non-compliance during such an inspection,
it
could take regulatory actions that could adversely affect our business, results
of operations and financial condition. Imported API and other components needed
to manufacture our products could be rejected by United States Customs. In
respect to domestic establishments, the FDA could initiate product seizures
or
request product recalls and seek to enjoin a product’s manufacture and
distribution. In certain circumstances, violations could lead to civil penalties
and criminal prosecutions. In addition, if the FDA concludes that a company
is
not in compliance with cGMP requirements, sanctions may be imposed that include
preventing the company from receiving the necessary licenses to export its
products and classifying the company as an “unacceptable supplier,” thereby
disqualifying the company from selling products to federal agencies.
We
believe that we and our suppliers and outside manufacturers are currently in
compliance with all FDA requirements.
Other
FDA Matters
If
there
are any modifications to an approved drug, including changes in indication,
manufacturing process or labeling or a change in a manufacturing facility,
an
applicant must notify the FDA, and in many cases, approval for such changes
must
be submitted to the FDA or other regulatory authority. Additionally, the FDA
regulates post-approval promotional labeling and advertising activities to
assure that such activities are being conducted in conformity with statutory
and
regulatory requirements. Failure to adhere to such requirements can result
in
regulatory actions that could have a material adverse effect on our business,
results of operations and financial condition.
Intellectual
Property
We
obtained a patent from the United States Patent and Trademark Office on our
Transdel™ technology in 1998, which affords protection of Transdel™ through
2016. This patent covers composition of matter, methods of use and methods
of
manufacture. This patent also covers the combination of the Transdel™
proprietary cream formulation with a number of other active drug ingredients.
A
Canadian patent is pending. At present, our patent strategies and evaluations
are ongoing and we plan to file multiple foreign patent applications in the
future.
Employees
We
currently have 4 employees, including 1 in management, 1 in research and
development, 1 in financial accounting and 1 in administration. We currently
believe that our employee relations are good.
Facilities
We
lease
approximately 1,403 square feet of office space in La Jolla, California for
$5,121 per month. The current lease term expires on October 15, 2007. We intend
to renew the lease prior to the expiration date. This facility serves as our
corporate headquarters.
We
believe our current facility is adequate for our immediate and near-term needs.
Additional space may be required as we expand our activities. We do not
currently foresee any significant difficulties in obtaining any required
additional facilities. In the opinion of the management, our property is
adequately covered by insurance.
Legal
Proceedings
To
our
knowledge, no legal proceedings, government or administrative actions,
investigations or claims are currently pending against us or involve us that,
in
the opinion of our management, could reasonably be expected to have a material
adverse effect on our business and financial condition.
Forward-Looking
Statements
This
Current Report on Form 8-K and other written reports and oral statements made
from time to time by us may contain so-called “forward-looking statements,” all
of which are subject to risks and uncertainties. Forward-looking statements
can
be identified by the use of words such as “expects,” “plans,” “will,”
“forecasts,” “projects,” “intends,” “estimates,” and other words of similar
meaning. One can identify them by the fact that they do not relate strictly
to
historical or current facts. These statements are likely to address our growth
strategy, financial results and product and development programs. One must
carefully consider any such statement and should understand that many factors
could cause actual results to differ from our forward looking statements. These
factors may include inaccurate assumptions and a broad variety of other risks
and uncertainties, including some that are known and some that are not. No
forward looking statement can be guaranteed and actual future results may vary
materially.
Information
regarding market and industry statistics contained in this Report is included
based on information available to us that we believe is accurate. It is
generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not reviewed
or
included data from all sources, and cannot assure investors of the accuracy
or
completeness of the data included in this Report. Forecasts and other
forward-looking information obtained from these sources are subject to the
same
qualifications and the additional uncertainties accompanying any estimates
of
future market size, revenue and market acceptance of products and services.
We
do not assume any obligation to update any forward-looking statement. As a
result, investors should not place undue reliance on these forward-looking
statements.
Management’s
Discussion and Analysis or Plan of Operation
This
discussion should be read in conjunction with the other sections of this Report,
including “Risk Factors,” “Description of Business” and the Financial Statements
attached hereto as Item 9.01 and the related exhibits. The various sections
of
this discussion contain a number of forward-looking statements, all of which
are
based on our current expectations and could be affected by the uncertainties
and
risk factors described throughout this Report as well as other matters over
which we have no control. See “Forward-Looking Statements.” Our actual results
may differ materially.
Overview
We
are a
specialty pharmaceutical company focused on the development and
commercialization of topically administered medications. Our lead topical drug
candidate, Ketotransdel™, utilizes our proprietary Transdel™ cream formulation
to facilitate the passage of ketoprofen, a NSAID, through the epidermis and
into
underlying tissues. We successfully completed a Phase 1/2 trial for treating
soft tissue pain and soreness in a delayed onset muscle soreness model with
Ketotransdel™.
Liquidity
and Capital Resources
Since
inception through June 30, 2007, we have incurred aggregate losses of $3.2
million. These losses are primarily due to general and administrative expenses
(which include research and development expenses). Our operations have been
financed through capital contributions and the issuance of notes and common
stock.
As
of
June 30, 2007, we had $1.4 million in cash. On September 17, 2007, pursuant
to
the Private Placement completed immediately following with the Merger, we raised
approximately $3.7 million of net proceeds through the issuance of the units
and
September 18, 2007, we accepted subscriptions for an additional $100,000 of
units. We expect that our capital resources will permit us to meet our
operational requirements through the first quarter of 2008. This expectation
is
based on our current operating plan, which may change as a result of many
factors. Therefore, to execute our operating plan through fiscal year 2008,
additional financing will be required and there can be no assurance that it
will
be available on terms favorable to us or at all. If adequate financing is not
available we may have to delay, postpone or terminate clinical trials and
curtail general and administrative operations. The inability to raise additional
financing would have a material adverse effect on us.
Research
and Development Activities
Our
current operating plan is focused on the research and development of our lead
drug candidate, Ketotransdel™.
We
expect
to file the IND application for Ketotransdel™, containing our proposed Phase 3
clinical studies, prior to initiating our trials. At the 2004 Pre-IND meeting
with the FDA, the FDA indicated it is possible that a single Phase 3 clinical
trial could be designed to address all or most of the issues raised by the
FDA
relating to the approval of Ketotransdel™. The expected filing of the Phase 3
submission to the FDA will depend on a variety of factors including but not
limited to the completion of the manufacturing process for non clinical/clinical
supplies, and potentially the completion of the non clinical studies and the
generation of data. Issues or problems encountered in any of these areas may
result in delays in the filing of the IND for the Phase 3 trials. Our goal
is to
file with the FDA by the end of 2007 or beginning of 2008. If no major issues
are encountered, we anticipate starting our Phase 3 clinical trials as early
as
the first or second quarter of 2008. The trials could be completed approximately
6-9 months after the start date.
No
assurance can be given that the FDA will agree with our proposed clinical trials
or non-clinical studies. The FDA may require that we conduct additional clinical
trials and non-clinical studies that we do not presently anticipate conducting
or to repeat studies that we have already conducted.
Upon
FDA
approval of Ketotransdel™ for treatment of soft tissue pain and soreness, we
intend to pursue FDA approval of Ketotransdel™ for other indications including
osteoarthritis. We believe that the clinical success of Ketotransdel™ will
facilitate the use of the Transdel™ delivery technology in other products.
During 2008, we will be exploring business opportunities for our other programs
using the Transdel™ delivery technology.
We
believe that our current staff is sufficient to carry out our business plan
and
we do not expect that the number of our employees will change in the near
future.
Off-Balance
Sheet Arrangements
Since
our
inception, except for standard operating leases, we have not engaged in any
off-balance sheet arrangements, including the use of structured finance, special
purpose entities or variable interest entities.
Risk
Factors
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our business,
financial condition or results of operation may be materially adversely
affected. In such case, the trading price of our common stock could decline
and
investors could lose all or part of their investment.
Risks
Relating to Our Business
Timing
and results of clinical trials to demonstrate the safety and efficacy of
products as well as FDA approval of products are uncertain.
We
are
subject to extensive government regulations. The process of obtaining FDA
approval is costly, time consuming, uncertain and subject to unanticipated
delays. Before obtaining regulatory approvals for the sale of any of our
products, we must demonstrate through preclinical studies and clinical trials
that the product is safe and effective for each intended use. Preclinical and
clinical studies may fail to demonstrate the safety and effectiveness of a
product. Even promising results from preclinical and early clinical studies
do
not always accurately predict results in later, large scale trials. A failure
to
demonstrate safety and efficacy would result in our failure to obtain regulatory
approvals. Moreover, if the FDA grants regulatory approval of a product, the
approval may be limited to specific indications or limited with respect to
its
distribution, which could limit revenues.
We
cannot
assure you that the FDA or other regulatory agencies will approve any products
developed by us, on a timely basis, if at all, or, if granted, that such
approval will not subject the marketing of our products to certain limits on
indicated use. Any limitation on use imposed by the FDA or delay in or failure
to obtain FDA approvals of products developed by us would adversely affect
the
marketing of these products and our ability to generate product revenue, as
well
as adversely affect the price of our common stock.
If
we fail to comply with continuing federal, state and foreign regulations, we
could lose our approvals to market drugs and our business would be seriously
harmed.
Following
initial regulatory approval of any drugs we may develop, we will be subject
to
continuing regulatory review, including review of adverse drug experiences
and
clinical results that are reported after our drug products become commercially
available. This would include results from any post-marketing tests or continued
actions required as a condition of approval. The manufacturer and manufacturing
facilities we use to make any of our drug candidates will be subject to periodic
review and inspection by the FDA. If a previously unknown problem or problems
with a product or a manufacturing and laboratory facility used by us is
discovered, the FDA or foreign regulatory agency may impose restrictions on
that
product or on the manufacturing facility, including requiring us to withdraw
the
product from the market. Any changes to an approved product, including the
way
it is manufactured or promoted, often require FDA approval before the product,
as modified, can be marketed. We and our contract manufacturers will be subject
to ongoing FDA requirements for submission of safety and other post-market
information. If we and our contract manufacturers fail to comply with applicable
regulatory requirements, a regulatory agency may:
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impose
civil or criminal penalties;
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suspend
or withdraw our regulatory
approval;
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suspend
or terminate any of our ongoing clinical
trials;
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refuse
to approve pending applications or supplements to approved applications
filed by us;
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impose
restrictions on our operations;
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close
the facilities of our contract manufacturers; or
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seize
or detain products or require a product
recall.
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Additionally,
such regulatory review covers a company’s activities in the promotion of its
drugs, with significant potential penalties and restrictions for promotion
of
drugs for an unapproved use. Sales and marketing programs are under scrutiny
for
compliance with various mandated requirements, such as illegal promotions to
health care professionals. We are also required to submit information on our
open and completed clinical trials to public registries and databases. Failure
to comply with these requirements could expose us to negative publicity, fines
and penalties that could harm our business.
If
we
violate regulatory requirements at any stage, whether before or after marketing
approval is obtained, we may be fined, forced to remove a product from the
market or experience other adverse consequences, including delay, which would
materially harm our financial results. Additionally, we may not be able to
obtain the labeling claims necessary or desirable for product
promotion.
Delays
in the conduct or completion of our clinical and non-clinical trials or the
analysis of the data from our clinical or non-clinical trials may result in
delays in our planned filings for regulatory approvals, and may adversely affect
our business.
We
cannot
predict whether we will encounter problems with any of our completed or planned
clinical or non-clinical studies that will cause us or regulatory authorities
to
delay or suspend planned clinical and non-clinical studies. Any of the following
could delay the completion of our planned clinical studies:
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failure
of the FDA to approve the scope or design of our clinical or non-clinical
trials or manufacturing plans;
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delays
in enrolling volunteers in clinical
trials;
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insufficient
supply or deficient quality of specific materials or other materials
necessary for the performance of clinical or non-clinical
trials;
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negative
results of clinical or non-clinical studies;
and
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serious
side effects experienced by study participants in clinical trials
relating
to a specific product.
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There
may
be other circumstances other than the ones described above, over which we may
have no control, that could materially delay the successful completion of our
clinical and non-clinical studies.
None
of our other product candidates have commenced any clinical
trials.
None
of
our product candidates, other than Ketotransdel™, have commenced any clinical
trials and there are a number of FDA requirements that we must satisfy in order
to commence clinical trials. These requirements will require substantial time,
effort and financial resources. We cannot assure you that we will ever satisfy
these requirements. In addition, prior to commencing any trials of a drug
candidate, we must evaluate whether a market exists for the drug candidate.
This
is costly and time consuming and no assurance can be given that our market
studies will be accurate. We may expend significant capital and other resources
on a drug candidate and find that no commercial market exists for the
drug.
Even
if
we do commence clinical trials of our other drug candidates, there are risks
and
uncertainties associated with such clinical trails.
We
have incurred losses in the research of and development of Ketotransdel™ and our
Transdel™ technology since inception. No assurance can be given that we will
ever generate revenue or become profitable.
Since
inception we have recorded operating losses. In addition, we expect to incur
increasing operating losses over the next several years as we continue to incur
costs for research and development and clinical trials, and in other development
activities. Our ability to generate revenue and achieve profitability depends
upon our ability, alone or with others, to complete the development of our
proposed products, obtain the required regulatory approvals and manufacture,
market and sell our proposed products. Development is costly and requires
significant investment. In addition, we may choose to license rights to
particular drugs. The license fees for such drugs may increase our
costs.
We
will
continue to incur losses as we continue to engage in the development of
Ketotransdel™ and develop other products. There can be no assurance that we will
ever be able to achieve or sustain market acceptance, profitability or positive
cash flow. Our ultimate success will depend on many factors, including whether
Ketotransdel™ receives the approval of the FDA. We cannot be certain that we
will be able to receive FDA approval for Ketotransdel™, or that we will reach
the level of sales and revenues necessary to achieve and sustain profitability.
Even with the proceeds from the Private Placement or with additional capital
following the Private Placement, we may not be able to execute our current
business plan and fund business operations long enough to achieve positive
cash
flow. Furthermore, we may be forced to reduce our expenses and cash expenditures
to a material extent, which would impair our ability to execute our business
plan.
As
of our last audit at the end of 2006, our independent registered public
accounting firm expressed doubt about our ability to continue as a going
concern.
There
can
be no assurance that we will ever be able to achieve or sustain profitability
or
positive cash flow. Based on our history of losses, our independent registered
public accounting firm has stated in their report accompanying their audit
of
our 2006 year-end financial statements that there was substantial doubt about
our ability to continue as a going concern. If we are not able to generate
revenue or raise additional capital, we may not be able to continue operating
our business.
Once
approved, there is no guarantee that the market will accept our products, and
regulatory requirements could limit the commercial usage of our products.
Even
if
we obtain regulatory approvals, uncertainty exists as to whether the market
will
accept our products or if the market for our products is as large as we
anticipate. A number of factors may limit the market acceptance of our products,
including the timing of regulatory approvals and market entry relative to
competitive products, the availability of alternative products, the price of
our
products relative to alternative products, the availability of third party
reimbursement and the extent of marketing efforts by third party distributors
or
agents that we retain. We cannot assure you that our products will receive
market acceptance in a commercially viable period of time, if at all. We cannot
be certain that any investment made in developing products will be recovered,
even if we are successful in commercialization. To the extent that we expend
significant resources on research and development efforts and are not able,
ultimately, to introduce successful new products as a result of those efforts,
our business, financial position and results of operations may be materially
adversely affected, and the market value of our common stock could decline.
We
may be the subject of product liability claims or product recalls, and we may
be
unable to obtain or maintain insurance adequate to cover potential liabilities.
Our
business exposes us to potential liability risks that arise from the testing,
manufacturing, marketing and sale of our products. In addition to direct
expenditures for damages, settlement and defense costs, there is a possibility
of adverse publicity as a result of product liability claims. Product liability
is a significant commercial risk for us. Some plaintiffs have received
substantial damage awards against pharmaceutical companies based upon claims
for
injuries allegedly caused by the use of their products. In addition, it may
be
necessary for us to recall products that do not meet approved specifications,
which would also result in adverse publicity, as well as resulting in costs
connected to the recall and loss of revenue.
We
cannot
assure you that a product liability claim or series of claims brought against
us
would not have an adverse effect on our business, financial condition, and
results of operations. If any claim is brought against us, regardless of the
success or failure of the claim, we cannot assure you that we will be able
to
obtain or maintain product liability insurance in the future on acceptable
terms
or with adequate coverage against potential liabilities or the cost of a
recall.
We
are in
the process of obtaining product liability insurance. However, we cannot assure
you that our insurance will provide adequate coverage against potential
liabilities. Furthermore, clinical trial and product liability insurance is
becoming increasingly expensive. As a result, we may not be able to maintain
current amounts of insurance coverage, obtain additional insurance or obtain
insurance at a reasonable cost or in sufficient amounts to protect against
losses that could have a material adverse effect on us.
If
our patents are determined to be unenforceable, or if we are unable to obtain
new patents based on current patent applications or for future inventions,
we
may not be able to prevent others from using our intellectual
property.
Our
success will depend in part on our ability to obtain and expand patent
protection for our specific products and technologies both in the United States
and other countries. We cannot guarantee that any patents will be issued from
any pending or future patent applications owned by or licensed to us.
Alternatively, a third party may successfully circumvent our patents. Our rights
under any issued patents may not provide us with sufficient protection against
competitive products or otherwise cover commercially valuable products or
processes. In addition, because patent applications in the United States are
maintained in secrecy for eighteen months after the filing of the applications,
and publication of discoveries in the scientific or patent literature often
lag
behind actual discoveries, we cannot be sure that the inventors of subject
matter covered by our patents and patent applications were the first to invent
or the first to file patent applications for these inventions. In the event
that
a third party has also filed a patent on a similar invention, we may have to
participate in interference proceedings declared by the United States Patent
and
Trademark Office to determine priority of invention, which could result in
a
loss of our patent position. Furthermore, we may not have identified all United
States and foreign patents that pose a risk of infringement.
The
use of our technologies could potentially conflict with the rights of
others.
The
manufacture, use or sale of our proprietary products may infringe on the patent
rights of others. If we are unable to avoid infringement of the patent rights
of
others, we may be required to seek a license, defend an infringement action
or
challenge the validity of the patents in court. Patent litigation is costly
and
time consuming. We may not have sufficient resources to bring these actions
to a
successful conclusion. In such case, we may be required to alter our products,
pay licensing fees or cease activities. If our products conflict with patent
rights of others, third parties could bring legal actions against us claiming
damages and seeking to enjoin manufacturing and marketing of affected products.
If these legal actions are successful, in addition to any potential liability
for damages, we could be required to obtain a license in order to continue
to
manufacture or market the affected products. We may not prevail in any legal
action and a required license under the patent may not available on acceptable
terms, if at all.
We
will be dependent on outside manufacturers for the manufacture of our products;
therefore, we will have limited control of the manufacturing process, access
to
raw materials, timing for delivery of finished products and costs. One
manufacturer may constitute the sole source of one or more of our products.
Third
party manufacturers will manufacture all of our products pursuant to contractual
arrangements. Certain of our manufacturers currently constitute the sole source
of one or more of our products. If any of our existing or future manufacturers
cease to manufacture or are otherwise unable to deliver any of our products
or
any of the components of our products, we may need to engage additional
manufacturing partners. Because of contractual restraints and the lead-time
necessary to obtain FDA approval of a new manufacturer, replacement of any
of
these manufacturers may be expensive and time consuming and may cause
interruptions in our supply of products to customers. As a result, using a
new
manufacturer could disrupt or delay our ability to supply our products and
reduce our revenues.
Because
all of our products are manufactured by third parties, we have a limited ability
to control the manufacturing process, access to raw materials, the timing for
delivery of finished products or costs related to this process. We cannot assure
that our contract manufacturers will be able to produce finished products in
quantities that are sufficient to meet demand or at all, in a timely manner,
which could result in decreased revenues and loss of market share. There may
be
delays in the manufacturing process over which we will have no control,
including shortages of raw materials, labor disputes, backlog and failure to
meet FDA standards. Increases in the prices we pay our manufacturers,
interruptions in our supply of products or lapses in quality could adversely
impact our margins, profitability and cash flows. We are reliant on our third
party manufacturers to maintain the facilities at which they manufacture our
products in compliance with FDA and other federal, state and/or local
regulations. If they fail to maintain compliance with FDA or other critical
regulations, they could be ordered to cease manufacturing, which would have
a
material adverse impact on our business, results of operations and financial
condition. In addition to FDA regulation, violation of standards enforced by
the
Environmental Protection Agency and the Occupational Safety and Health
Administration and their counterpart agencies at the state level, could slow
down or curtail operations of third party manufacturers.
We
also
rely on our outside manufacturers to assist us in the acquisition of key
documents such as Drug Master Files and other relevant documents that are
required by the FDA as part of the drug approval process and post-approval
oversight. Failure by our outside manufacturers to properly prepare and retain
these documents could cause delays in obtaining FDA approval of our drug
candidates.
We
are dependent on third parties to conduct clinical trials and non-clinical
studies of our drug candidates and to provide services for certain core aspects
of our business. Any interruption or failure by these third parties to meet
their obligations pursuant to various agreements with us could have a material
adverse effect on our business, results of operations and financial condition.
We
rely
on third parties to conduct clinical and non-clinical studies of our drug
candidates and provide us with other services. All third party contractors
are
subject to FDA requirements. Our business and financial viability are dependent
on the regulatory compliance of these third parties, and on the strength,
validity and terms of our various contracts with these third parties. Any
interruption or failure by these third party contractors to meet their
obligations pursuant to various agreements with us could have a material adverse
effect on our business, financial condition and results of operations. Any
delays that our third-party contractors may experience may be outside our
control.
If
we are unable to retain our key personnel and continue to attract additional
professional staff, we may be unable to maintain or expand our business.
Because
of the specialized scientific nature of our business, our ability to develop
products and to compete will remain highly dependent, in large part, upon our
ability to attract and retain qualified scientific, technical and commercial
personnel. The loss of key scientific, technical and commercial personnel,
especially our Chief Executive Officer, Juliet Singh, Ph.D. or the failure
to
recruit additional key scientific, technical and commercial personnel could
have
a material adverse effect on our business. While we have consulting agreements
with certain key individuals and institutions and have employment agreements
with our key executives, we cannot assure you that we will succeed in retaining
personnel or their services under existing agreements. There is intense
competition for qualified personnel in the areas of our activities, and we
cannot assure you that we will be able to continue to attract and retain the
qualified personnel necessary for the development of our business.
We
will need additional financing to execute our business plan and fund operations,
which additional financing may not be available.
We
have
very limited funds. Even with the proceeds of the Private Placement, we will
not
be able to execute our current business plan and fund business operations long
enough to achieve profitability. Our ultimate success will depend upon our
ability to raise additional capital. There can be no assurance that additional
funds will be available when needed from any source or, if available, will
be
available on terms that are acceptable to us.
We
will
be required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. Future
financings through equity investments are likely to be dilutive to existing
stockholders. Also, the terms of securities we may issue in future capital
transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights and the issuance
of
warrants or other derivative securities, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities
we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets, both generally and specifically in the pharmaceutical industry,
and the fact that we are not profitable, which could impact the availability
or
cost of future financings. If the amount of capital we are able to raise from
financing activities, together with our revenues from operations, is not
sufficient to satisfy our capital needs, even to the extent that we reduce
our
operations accordingly, we may be required to cease operations.
Risks
Relating to Our Industry
We
face intense competition, in particular from companies that develop rival
products to our products and from companies with which we compete to acquire
rights to intellectual property assets.
The
pharmaceutical industry is intensely competitive, and we face competition across
the full range of our activities. If we fail to compete successfully in any
of
these areas, our business, results of operations and financial condition could
be adversely affected. Our competitors include brand name and generic
manufacturers of pharmaceuticals specializing in transdermal drug delivery,
especially those doing business in the United States. In the market for pain
management products, our competitors include manufacturers of over-the-counter
and prescription pain relievers. Our other potential drug candidates will also
face intense competition from larger and more well established pharmaceutical
and biotechnology companies. Many of these competitors have significantly
greater financial, technical and scientific resources than we do. In addition
to
product safety, development and efficacy, other competitive factors in the
pharmaceutical market include product quality and price, reputation, service
and
access to scientific and technical information. It is possible that developments
by our competitors will make our products or technologies uncompetitive or
obsolete. Because we are smaller than many of our national competitors, we
may
lack the financial and other resources needed to compete for market share in
the
pain management sector.
The
intensely competitive environment of the pain management products requires
an
ongoing, extensive search for medical and technological innovations and the
ability to market products effectively, including the ability to communicate
the
effectiveness, safety and value of branded products for their intended uses
to
healthcare professionals in private practice, group practices and managed care
organizations.
We
may not be able to keep up with the rapid technological change in the
biotechnology and pharmaceutical industries, which could make our products
obsolete and reduce our potential revenues.
Biotechnology
and related pharmaceutical technologies have undergone and continue to be
subject to rapid and significant change. Our future will depend in large part
on
our ability to maintain a competitive position with respect to these
technologies. Any products that we develop may become obsolete before we recover
expenses incurred in developing those products, which may require that we raise
additional funds to continue our operations.
We
currently have no internal sales and marketing resources and may have to rely
on
third parties in the event that we successfully develop our product candidates
into commercial drug products.
To
market
any of our products in the United States or elsewhere, we must develop
internally or obtain access to sales and marketing forces with technical
expertise and with supporting distribution capability in the relevant geographic
territory.
We
may
not be able to enter into marketing and distribution arrangements or find a
corporate partner for our specific drug candidate or our other specific drug
candidates, and we are not likely to be able to market and distribute our
products ourselves. If we are not able to enter into a marketing or distribution
arrangement or find a corporate partner who can provide support for
commercialization of our products as we deem necessary, we may not be able
to
commercialize our products successfully. Moreover, any new marketer or
distributor or corporate partner for our specific combinations, with whom we
choose to contract may not establish adequate sales and distribution
capabilities or gain market acceptance for our products, if any.
Our
ability to generate revenues will be diminished if we fail to obtain acceptable
prices or an adequate level or reimbursement from third-party
payors.
If
we
succeed in bringing a specific product to market, we cannot be certain that
the
products will be considered cost effective and that reimbursement from insurance
companies and other third-party payors will be available or, if available,
will
be sufficient to allow us to sell the products on a competitive
basis.
Significant
uncertainty exists as to the reimbursement status of newly approved health
care
products. Third-party payors, including Medicare, are challenging the prices
charged for medical products and services. Government and other third-party
payors increasingly are attempting to contain health care costs by limiting
both
coverage and the level of reimbursement for new drugs and by refusing, in some
cases, to provide coverage for uses of approved products for disease indications
for which the FDA has not granted labeling approval. Third-party insurance
coverage may not be available to patients for any products we discover and
develop, alone or with collaborators. If government and other third-party payors
do not provide adequate coverage and reimbursement levels for our products,
the
market acceptance of these products may be reduced.
Changes
in the healthcare industry that are beyond our control may be detrimental to
our
business.
The
healthcare industry is changing rapidly as the public, governments, medical
professionals and the pharmaceutical industry examine ways to broaden medical
coverage while controlling the increase in healthcare costs. Potential changes
could put pressure on the prices of prescription pharmaceutical products and
reduce our business or prospects. We cannot predict when, if any, proposed
healthcare reforms will be implemented, and these changes are beyond our
control.
Risks
Relating to the Common Stock
We
may be unable to register all of the common stock included within the units
sold
in the Private Placement, in which case stockholders will need to rely on an
exemption from the registration requirements in order to sell such
shares.
We
are
obligated to file a “resale” registration statement with the SEC that covers all
of the common stock included within the units sold in the Private Placement
(including the shares of common stock underlying the warrants) within 90 days
after the closing of the Private Placement and to use our commercially
reasonable efforts to have such “resale” registration statement declared
effective by the SEC within 180 days after the closing of the Private Placement.
Nevertheless, it is possible that the SEC may not permit us to register all
of
such shares of common stock for resale. In certain circumstances, the SEC may
take the view that the Private Placement requires us to register the issuance
of
the securities as a primary offering. Without sufficient disclosure of this
risk, rescission of the Private Placement could be sought by investors or an
offer of rescission may be mandated by the SEC, which would result in a material
adverse affect to us. To date, the SEC has not made any formal statements or
proposed or adopted any new rules or regulations regarding Rule 415 promulgated
under the Securities Act as such rule applies to resale registration statements.
However, investors should be aware of the risks that interpretive positions
taken with respect to Rule 415 or similar rules or regulations adopted
subsequent to the date of this Report could have on the manner in which the
common stock may be registered or our ability to register the common stock
for
resale at all. If we are unable to register some or all of the common stock,
such shares would only be able to be sold pursuant to an exemption from
registration under the Securities Act, such as Rule 144, that permits the resale
of securities following twelve months after the issuance of such securities,
subject to certain volume limitations.
We
are subject to the reporting requirements of federal securities laws, which
can
be expensive to comply with.
We
are a
public reporting company and, accordingly, subject to the information and
reporting requirements of the Exchange Act and other federal securities laws,
including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”).
It
may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act.
We may need to hire additional financial reporting, internal controls and other
finance personnel in order to develop and implement appropriate internal
controls and reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain
the independent registered public accounting firm certifications required by
such act.
If
we fail to establish and maintain an effective system of internal control,
we
may not be able to report our financial results accurately or to prevent fraud.
Any inability to report and file our financial results accurately and timely
could harm our reputation and adversely impact the trading price of our common
stock.
Effective
internal control is necessary for us to provide reliable financial reports
and
prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an
effective control environment existed, and our business and reputation with
investors may be harmed. As a result, our small size and any current internal
control deficiencies may adversely affect our financial condition, results
of
operation and access to capital. We have not performed an in-depth analysis
to
determine if in the past un-discovered failures of internal controls exist,
and
may in the future discover areas of our internal control that need
improvement.
Public
company compliance may make it more difficult to attract and retain officers
and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. We
expect these new rules and regulations to increase our compliance costs in
2007
and beyond and to make certain activities more time consuming and costly. We
also expect that these new rules and regulations may make it more difficult
and
expensive for us to obtain director and officer liability insurance in the
future and we may be required to accept reduced policy limits and coverage
or
incur substantially higher costs to obtain the same or similar coverage. As
a
result, it may be more difficult for us to attract and retain qualified persons
to serve on our board of directors or as executive officers.
Because
we became public by means of a reverse merger, we may not be able to attract
the
attention of major brokerage firms.
There
may
be risks associated with becoming public through a “reverse merger.” Securities
analysts of major brokerage firms may not provide coverage of us since there
is
no incentive to brokerage firms to recommend the purchase of our common stock.
No assurance can be given that brokerage firms will, in the future, want to
conduct any secondary offerings on our behalf.
Mergers
of the type we just completed are usually heavily scrutinized by the SEC and
we
may encounter difficulties or delays in obtaining future regulatory
approvals.
Historically,
the SEC and Nasdaq have not generally favored transactions in which a
privately-held company merges into a largely inactive company with publicly
traded stock, and there is a significant risk that we may encounter difficulties
in obtaining the regulatory approvals necessary to conduct future financing
or
acquisition transactions, or to eventually achieve a listing of shares on one
of
the Nasdaq Stock Markets or on a national securities exchange. The SEC has
adopted rules dealing with private company mergers into dormant or inactive
public companies. As a result, it is likely that we will be scrutinized
carefully by the SEC and possibly by the National Association of Securities
Dealers or Nasdaq, which could result in difficulties or delays in achieving
SEC
clearance of any future registration statements, including the registration
statement we must file as a result of the Private Placement, or other SEC
filings that we may pursue, in attracting NASD-member broker-dealers to serve
as
market-makers in our stock, or in achieving admission to one of the Nasdaq
Stock
Markets or any other national securities market. As a consequence, our financial
condition and the value and liquidity of our shares may be negatively
impacted.
Our
stock price may be volatile.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
|
·
|
changes
in the pharmaceutical industry;
|
|
·
|
competitive
pricing pressures;
|
|
·
|
our
ability to obtain working capital
financing;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
limited
“public float” following the Merger, in the hands of a small number of
persons whose sales or lack of sales could result in positive or
negative
pricing pressure on the market price for our common
stock;
|
|
·
|
sales
of our common stock (particularly following effectiveness of the
resale
registration statement required to be filed in connection with the
Private
Placement);
|
|
·
|
our
ability to execute our business
plan;
|
|
·
|
operating
results that fall below
expectations;
|
|
·
|
loss
of any strategic relationship with our contract manufacturers and
clinical
and non-clinical research
organizations;
|
|
·
|
regulatory
developments;
|
|
·
|
economic
and other external factors; and
|
|
·
|
period-to-period
fluctuations in our financial
results.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.
We
have
never paid cash dividends on our common stock and do not anticipate doing so
in
the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors
affecting us at such time as our board of directors may consider relevant.
If we
do not pay dividends, our common stock may be less valuable because a return
on
your investment will only occur if our stock price appreciates.
Our
common stock may be deemed a “penny stock”, which would make it more difficult
for our investors to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act. The penny stock rules apply to companies whose common
stock is not listed on The Nasdaq Stock Market or other national securities
exchange and trades at less than $4.00 per share or that have tangible net
worth
of less than $5,000,000 ($2,000,000 if the company has been operating for three
or more years). These rules require, among other things, that brokers who trade
penny stock to persons other than “established customers” complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade penny stocks because of the requirements
of
the penny stock rules and, as a result, the number of broker-dealers willing
to
act as market makers in such securities is limited. If we remain subject to
the
penny stock rules for any significant period, it could have an adverse effect
on
the market, if any, for our securities. If our securities are subject to the
penny stock rules, investors will find it more difficult to dispose of our
securities.
Furthermore,
for companies whose securities are traded in the OTC Bulletin Board, it is
more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies and (3) to obtain needed
capital.
Offers
or availability for sale of a substantial number of shares of our common stock
may cause the price of our common stock to decline.
If
our
stockholders sell substantial amounts of our common stock in the public market,
including shares issued in the Private Placement upon the effectiveness of
the
registration statement required to be filed, or upon the expiration of any
statutory holding period, under Rule 144, or upon expiration of lock-up periods
applicable to outstanding shares, or issued upon the exercise of outstanding
options or warrants, it could create a circumstance commonly referred to as
an
“overhang” and in anticipation of which the market price of our common stock
could fall. The existence of an overhang, whether or not sales have occurred
or
are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity-related securities in the future
at a time and price that we deem reasonable or appropriate.
We
may apply the proceeds of the Private Placement to uses that ultimately do
not
improve our operating results or increase the value of our common
stock.
We
intend
to use the net proceeds from the Private Placement, including proceeds received
upon the exercise of any warrants, for professional fees, including costs and
expenses incurred in connection with the Private Placement and to complete
FDA
requirements for approval of Ketotransdel™ including clinical and non-clinical
studies, patents, business development, manufacturing of Ketotransdel™ and for
general working capital purposes. However, we do not have more specific plans
for the net proceeds from the Private Placement and our management will have
broad discretion in how we use these proceeds. These proceeds could be applied
in ways that do not improve our operating results or otherwise increase the
value of our common stock.
As
a result of management members being our largest stockholders, they can exert
significant control over our business and affairs and have actual or potential
interests that may depart from those of our
stockholders.
Our
executive management team owns a significant percentage of our common stock.
The
interests of such persons may differ from the interests of other stockholders.
As a result, in addition to their positions in management, such persons will
have significant influence over and control all corporate actions requiring
stockholder approval, irrespective of how our other stockholders may vote,
including the following actions:
|
·
|
elect
or defeat the election of our
directors;
|
|
·
|
amend
or prevent amendment of our Certificate of Incorporation or
By-laws;
|
|
·
|
effect
or prevent a merger, sale of assets or other corporate transaction;
and
|
|
·
|
control
the outcome of any other matter submitted to the stockholders for
vote.
|
Such
person’s stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, which in turn
could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
Security
Ownership of Certain Beneficial Owners and Management
The
following tables set forth certain information as of September 19, 2007
regarding the beneficial ownership of our common stock taking into account
the
consummation of the Merger, the conversion of the Notes, the closing of the
Private Placement and the consummation of the Split-Off by (i) each person
or
entity who, to our knowledge, owns more than 5% of our common stock; (ii) our
sole Named Executive Officer; (iii) each director; and (iv) all of our executive
officers and directors as a group. Unless otherwise indicated in the footnotes
to the following table, each person named in the table has sole voting and
investment power and that person’s address is c/o
4225
Executive Square, Suite 460, La Jolla, California 92037.
Shares
of
common stock subject to options, warrants, or other rights currently exercisable
or exercisable within 60 days of September 19, 2007, are deemed to be
beneficially owned and outstanding for computing the share ownership and
percentage of the stockholder holding such options, warrants or other rights,
but are not deemed outstanding for computing the percentage of any other
stockholder.
Name of
Beneficial Owner
|
|
Number of Shares Beneficially
Owned
|
|
Percentage
Beneficially Owned
(1)
|
|
Juliet
Singh, Ph.D.
|
|
|
1,953,125
|
|
|
14.5
|
%
|
Jeffrey
J. Abrams, M.D.
|
|
|
1,562,500
|
(2)
|
|
11.6
|
%
|
Joseph
Grasela
(3)
|
|
|
1,171,875
|
|
|
8.7
|
%
|
John
C. Grasela
(3)
|
|
|
1,171,875
|
|
|
8.7
|
%
|
All
executive officers and directors as a group (4 persons)
|
|
|
3,914,063
|
|
|
29.2
|
%
|
(1)
Based
on
13,427,004 shares of our common stock issued and outstanding.
(2)
Includes
1,562,500 shares of common stock held by the Abrams Family Trust with respect
to
which Jeffrey J. Abrams, M.D. is a trustee.
(3)
Joseph Grasela and John C. Grasela are adult siblings living in separate
households.
Executive
Officers and Directors
The
following persons became our executive officers and directors upon effectiveness
of the Merger and hold the positions set forth opposite their respective names.
Name
|
Age
|
Position
|
Juliet
Singh, Ph.D.
|
47
|
Chief
Executive Officer, Director
|
Balbir
Brar, D.V.M. Ph.D.
|
70
|
Vice
President, Research and Development
|
John
T. Lomoro
|
38
|
Chief
Financial Officer
|
Jeffrey
J. Abrams, M.D.
|
60
|
Director
|
Our
directors hold office for one-year terms until the earlier of their death,
resignation or removal or until their successors have been elected and
qualified. Our officers are elected annually by the board of directors and
serve
at the discretion of the board.
Biographies
Juliet
Singh, Ph.D.,
has been
a director and our chief executive officer since the Merger. Dr. Singh has
served as the Chief Executive Officer of Trans-Pharma since 2004. From 2000
to
2003, Dr. Singh was a corporate officer-vice president of regulatory affairs
and
quality assurance of Collateral Therapeutics, Inc., a developer of non-surgical
gene therapy products for the treatment of cardiovascular disease, which was
acquired by Schering AG in 2002. From 1996 to 2000, Dr. Singh was the director
of worldwide regulatory affairs for Allergan Corporation, where she oversaw
the
registration of BOTOX™ in the United States, Canada, Europe Asia, and South
America. Prior to joining Allergan, Dr. Singh was the assistant director of
regulatory affairs for Baxter Healthcare Corp., where she provided leadership
in
obtaining worldwide regulatory approval for recombinant factor VIII. Dr. Singh
holds a Ph.D. in endocrinology from the University of California, Davis.
Balbir
Brar, D.V.M., Ph.D.,
has been
our vice president of research and development since the Merger. Dr. Brar has
been a consultant to Trans-Pharma since 2004. From 1989 to 2002, Dr. Brar was
the Vice President of drug safety and research and development at Allergan
Corporation, where he oversaw the construction of a $75 million research and
development facility and developed drug safety evaluation programs. He made
major contributions to the development and world wide registration of six new
drugs including BOTOX™ at Allergan Corporation. From 1986 to 1989, Dr. Brar was
a Senior Director of Safety evaluations for Smith Kline Beecham, where he
participated in obtaining regulatory approval for Smith Kline Beecham’s first
major topical drug Tazarotene. From 1981 to 1986, Dr. Brar was the section
head
of toxicology at Revlon Pharmaceuticals, where he provided pre-clinical safety
data for a number of investigational new drugs. Dr. Brar holds a Doctor of
Veterinary Medicine from the Punjab University, India, and a M.S. and Ph.D.
from
Rutgers, The State University of New Jersey.
John
T. Lomoro
,
CPA
,
has
been our chief financial officer since the Merger and the chief financial
officer of Trans-Pharma since September 2007. From 2004 to 2007, Mr. Lomoro
was
the director of North American accounting for Carl Zeiss Vision Inc., a
privately held international optical lens manufacturing and distribution
company. From 2003 to 2004, Mr. Lomoro was the manager of financial reporting
and planning for dj Orthopedics, Inc., a publicly traded medical device
manufacturing company. From 2002 to 2003, Mr. Lomoro was a corporate accounting
manager at Wireless Knowledge, Inc. Mr. Lomoro’s experience also includes
approximately five years in public accounting as an audit manager at Ernst
&
Young LLP. Mr. Lomoro received a B.S. degree in accounting from St. Cloud State
University of Minnesota.
Jeffrey
J. Abrams, M.D.
,
has
been a director since the Merger. Dr. Abrams has been a director of Trans-Pharma
since 1998. Prior to joining Trans-Pharma, Dr. Abrams was a practicing primary
care clinician for over twenty years. Dr. Abrams received a B.A. from the State
University of New York at Buffalo, an M.D. from the Albert Einstein College
of
Medicine and an M.P.H. from San Diego State University.
There
are
no family relationships among our directors and executive officers.
Executive
Compensation
None
of
our executive officers received compensation in any form over the last two
fiscal years.
Outstanding
Equity Awards at Fiscal Year-End
As
of
December 31, 2006, there were no outstanding equity awards held by our Named
Executive Officer.
Employment
Agreements
We
have
entered into an employment agreement with Juliet Singh, Ph.D. to serve as our
chief executive officer until her employment is either terminated by us or
Dr.
Singh. Pursuant to this employment agreement, Dr. Singh is entitled to receive
an annual base salary of $195,000, subject to annual reviews by our board of
directors. Dr. Singh is also entitled to a performance-based bonus to be
comprised of cash and/or equity compensation. If we terminate Dr. Singh’s
employment without cause, we will pay Dr. Singh her then current annual base
salary for one year, payable in accordance with standard payroll procedures,
any
earned but unpaid base salary, any unpaid pro rata annual bonus and any amounts
necessary to reimburse Dr. Singh for employment related expenses and for unused,
but accrued, vacation days.
Director
Compensation
Following
the Merger, we will grant each of our directors options to purchase 10,000
shares of our common stock upon their initial election or appointment to the
board of directors, and options to purchase an additional 10,000 shares of
common stock annually upon their reelection to the board of directors. The
exercise price of each option shall be equal to the fair market value of our
common stock, but not less than $2.00 per share. The options will vest in full
on the first anniversary of the date of grant.
Board
of Directors and Corporate Governance
Upon
the
closing of the Merger, Rolf Harms resigned as the sole officer and director
of
Transdel and simultaneously therewith a new board of directors was appointed
consisting of Juliet Singh, Ph.D. and Jeffrey J. Abrams, M.D.
Code
of Ethics
We
have
adopted a written code of ethics that applies to our principal executive
officer, principal financial officer or controller, or persons performing
similar functions. The code of ethics is filed as exhibit 14.1 to our Annual
Report on Form 10-KSB for the fiscal year ended May 31, 2007.
Board
Committees
We
intend
to appoint such persons to the Board of Directors and committees of the Board
of
Directors as are expected to be required to meet the corporate governance
requirements imposed by a national securities exchange, although we are not
required to comply with such requirements until we elect to seek listing on
a
securities exchange. We intend that a majority of our directors will be
independent directors, of which at least one director will qualify as an “audit
committee financial expert,” within the meaning of Item 407(d)(5) of Regulation
S-B, as promulgated by the SEC. Additionally, the Board of Directors is expected
to appoint an audit committee, nominating committee and compensation committee,
and to adopt charters relative to each such committee, in the near future.
We do
not currently have an “audit committee financial expert” since we currently do
not have an audit committee in place.
Stock
Incentive Plan
On
September 17, 2007, our board of directors and stockholders adopted the 2007
Incentive Stock and Awards Plan (the “Plan”). The purpose of the Plan is to
provide an incentive to attract and retain directors, officers, consultants,
advisors and employees whose services are considered valuable, to encourage
a
sense of proprietorship and to stimulate an active interest of such persons
into
our development and financial success. Under the Plan, we are authorized to
issue incentive stock options intended to qualify under Section 422 of the
Code,
non-qualified stock options, stock appreciation rights, performance shares,
restricted stock and long term incentive awards. The Plan will be administered
by our board of directors until such time as such authority has been delegated
to a committee of the board of directors. On the closing date of the Merger,
certain of our executive officers and directors were granted options to purchase
common stock exercisable at $2.00 per share as follows:
Name
|
|
Shares
|
|
Vesting
Schedule
|
|
Expiration
|
Juliet
Singh, Ph.D.
|
|
200,000
|
|
33-1/3%
on the one, two and three year anniversaries of the grant
date
|
|
10
years from date of grant
|
Balbir
Brar, D.V.M., Ph.D.
|
|
200,000
|
|
33-1/3%
on the one, two and three year anniversaries of the grant
date
|
|
10
years from date of grant
|
John
T. Lomoro
|
|
150,000
|
|
33-1/3%
on the one, two and three year anniversaries of the grant
date
|
|
10
years from date of grant
|
Ysabella
Fernando
|
|
30,000
|
|
33-1/3%
on the one, two and three year anniversaries of the grant
date
|
|
10
years from date of grant
|
Jeffrey
J. Abrams, M.D.
|
|
10,000
|
|
first
anniversary of the grant date
|
|
10
years from date of grant
|
Juliet
Singh, Ph.D.
|
|
10,000
|
|
first
anniversary of the grant date
|
|
10
years from date of grant
|
Pursuant
to the terms of the Private Placement, for one year following the initial
closing of the Private Placement we may not issue options to purchase shares
of
our common stock at an exercise price below $2.00 per share. In addition,
for
a
period of 18 months following the initial closing of the Private Placement,
we
may not file a registration statement, including, without limitation, a
registration statement on Form S-8, covering the resale of any shares of common
stock issued pursuant to an employee benefit plan.
Furthermore,
we issued a restricted stock grant issued to Balbir Brar, D.V.M., Ph.D. for
195,313 shares of our common stock, which shares are subject to forfeiture
for a
period of 18 months following the Merger in the event that we terminate Dr.
Brar
for cause or he resigns for any reason other than good reason.
Certain
Relationships and Related Transactions
On
August
25, 2005, Trans-Pharma borrowed $36,500 from Dr. Abrams and issued Dr. Abrams
a
convertible promissory note in the original principal amount of $36,500 and
warrants to purchase 36,500 shares of Trans-Pharma’s common stock at an exercise
price of $0.001 per share, which following the Merger would be equivalent to
warrants to purchase 5,703 shares of our common stock at an exercise price
of
$0.007. On May 7, 2007, Dr. Abrams forgave the principle amount of the
convertible promissory note and all accrued interest thereon and agreed to
the
cancellation of the warrant. Dr. Abrams did not receive any shares of common
stock or other consideration in exchange for the forgiving the promissory note
or the cancellation of the warrant. The principal amount of the note and accrued
interest forgiven was recorded as additional paid in capital.
On
August
25, 2005, Trans-Pharma borrowed $5,000 from Dr. Singh and issued Dr. Singh
a
convertible promissory note in the original principal amount of $5,000 and
warrants to purchase 5,000 shares of Trans-Pharma’s common stock at an exercise
price of $0.001 per share, which following the Merger would be equivalent to
warrants to purchase 781 shares of our common stock at an exercise price of
$0.007. On May 7, 2007, Dr. Singh forgave the principle amount of the
convertible promissory note and all accrued interest thereon and agreed to
the
cancellation of the warrant. Dr. Singh did not receive any shares of common
stock or other consideration in exchange for the forgiving the promissory note
or the cancellation of the warrant. The principal amount of the note and accrued
interest forgiven was recorded as additional paid in capital.
On
January 10, 2007, Balbir Brar, D.V.M., Ph.D. purchased 900,000 shares of
Trans-Pharma’s common stock pursuant to a Restricted Stock Purchase Agreement
for an aggregate purchase price of $9,000. In connection with the Merger, these
900,000 shares of Trans-Pharma’s common stock converted into 140,625 shares of
Transdel’s common stock.
On
February 27, 2007, the Abrams Family Trust, with respect to which Jeffrey J.
Abrams, M.D. is a trustee, purchased 6,000,000 shares of Trans-Pharma’s common
stock pursuant to a Restricted Stock Purchase Agreement for an aggregate
purchase price of $6,000. In connection with the Merger, these 6,000,000 shares
of Trans-Pharma’s common stock converted into 937,500 shares of Transdel’s
common stock.
On
March
20, 2007, Juliet Singh, Ph.D. purchased 8,000,000 shares of Trans-Pharma’s
common stock pursuant to a Restricted Stock Purchase Agreement for an aggregate
purchase price of $8,000, which was paid by the cancellation of indebtedness
in
the amount of $8,000 owed to Dr. Singh. In connection with the Merger, these
8,000,000 shares of Trans-Pharma’s common stock converted into 1,250,000 shares
of Transdel’s common stock.
Board
Independence
We
do not
believe that either of our directors is an “independent director,” as that term
is defined by applicable listing standards of The NASDAQ Stock Market and SEC
rules, including the rules relating to the independence standards of an audit
committee and the non-employee director definition of Rule 16b-3 promulgated
under the Exchange Act.
Item
3.02
Unregistered
Sales of Equity Securities
Sales
by Trans-Pharma
Trans-Pharma
completed the offering of $1.5 million of the Notes to 14 accredited investors
on June 19, 2007. Trans-Pharma completed this offering pursuant to the Section
4(2) under the Securities Act and corresponding provisions of state securities
laws, which exempt transactions by an issuer not involving any public offering.
Immediately following the closing of the Merger, the Notes, plus all unpaid
accrued interest, were assumed by Transdel and subsequently converted into
1,530,177 shares of Transdel’s common stock.
Trans-Pharma
sold 25,500,000 shares of its common stock to a total of 7 purchasers consisting
of existing shareholders and management during the first quarter of 2007. The
total amount that Trans-Pharma received from this offering was $25,500.
Trans-Pharma completed this offering pursuant to the Section 4(2) under the
Securities Act and corresponding provisions of state securities laws, which
exempt transactions by an issuer not involving any public offering. In
connection with the Merger, the 25,500,000 shares of Trans-Pharma’s common stock
converted into 3,984,375.
Sales
by Transdel
On
September 17, 2007,
we
accepted subscriptions for a total of 39.9 units in the Private Placement,
consisting of an aggregate of 1,996,834 shares of the our common stock and
warrants to purchase an aggregate of 499,208 shares of common stock at an
initial cash exercise price of $4.00 per share and an initial cashless exercise
price of $5.00 per share, for a per unit purchase price of $100,000. We received
gross proceeds from such closing of the Private Placement of $3,951,667. In
addition, on September 18, 2007, we accepted subscriptions for an additional
1
unit in the Private Placement for gross proceeds of $100,000.
The
Private Placement was made solely to “accredited investors,” as that term is
defined in Regulation D under the Securities Act. The securities sold in the
Private Placement were not registered under the Securities Act, or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule
506)
under the Securities Act and corresponding provisions of state securities laws,
which exempt transactions by an issuer not involving any public
offering.
In
connection with the Private Placement, we paid WFG Investments, Inc., Granite
Financial Group, Inc. and Palladium Capital Advisors, LLC (together, the
“Placement Agents”) placement agent fees of $115,500, $28,000 and $14,000,
respectively, (equal to 7% of the aggregate purchase price of units sold to
investors in the Private Placement through the Placement Agents) and issued
the
Placement Agents three-year warrants to purchase an aggregate of 33,750 shares
of our common stock (equal to 3% of the common stock on which the cash fee
is
payable), at an initial cash exercise price of $4.00 per share and an initial
cashless exercise price of $5.00 per share. Granite Financial Group, Inc. and
Palladium Capital Advisors, LLC used the cash fees to purchase an aggregate
of
0.42 of one unit in the Private Placement. Granite Financial Group, Inc. and
Palladium Capital Advisors, LLC did not receive any cash fee or warrants in
connection with their own investment in us.
On
September 12, 2004, we issued a total of 5,550,007 shares of our common stock
to
Rolf Harms as founders’ shares pursuant to an exemption from registration under
Section 4(2) of the Securities Act.
We
completed an offering of 1,849,993 shares of our common stock at a price of
$0.0432 per share to a total of 41 purchasers in March 2006. The total amount
we
received from this offering was $80,000. We completed this offering pursuant
Rule 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws, which exempt transactions by an issuer
not
involving any public offering. None of the securities were sold through an
underwriter and accordingly, there were no underwriting discounts or commissions
involved.
Description
of Capital Stock
Authorized
Capital Stock
We
have
authorized 55,000,000 shares of capital stock, par value $0.001 per share,
of
which 50,000,000 are shares of common stock and 5,000,000 are shares of
“blank-check” preferred stock.
Capital
Stock Issued and Outstanding
After
giving effect to the issuance of 40.9 units in the Private Placement, the
conversion of the Notes, the Split-Off, the grant of new options under the
Plan
and the warrants issued in connection with the Private Placement, there are
issued and outstanding securities of the Company on a fully diluted
basis:
|
·
|
13,427,004
shares of common stock;
|
|
·
|
no
shares of preferred stock;
|
|
·
|
options
to purchase an aggregate of
600,000
shares
of common stock issued under the Plan immediately following the Merger
with an exercise price of $2.00 per share;
and
|
|
·
|
Warrants
to purchase 545,458 shares of common stock, of which includes (i)
warrants
to purchase
511,708
shares
of common stock were issued to investors in the Private Placement
at an
initial cash exercise price of $4.00 per share and an initial cashless
exercise price of $5.00 per share and (ii) warrants to purchase 33,750
shares of common stock were issued to placement agents in connection
with
the Private Placement.
|
Common
Stock
We
are
authorized to issue 50,000,000 shares of common stock. The holders of our common
stock are entitled to one vote per share on all matters submitted to a vote
of
the stockholders, including the election of directors. Generally, all matters
to
be voted on by stockholders must be approved by a majority of the votes entitled
to be cast by all shares of common stock that are present in person or
represented by proxy, subject to any voting rights granted to holders of any
preferred stock. Except as otherwise provided by law, and subject to any voting
rights granted to holders of any preferred stock, amendments to our Amended
and
Restated Certificate of Incorporation generally must be approved by a majority
of the votes entitled to be cast by all outstanding shares of common stock.
Our
Amended and Restated Certificate of Incorporation does not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of preferred stock created by the board of
directors from time to time, the holders of common stock will be entitled to
such cash dividends as may be declared, if any, by the board of directors from
funds available. Subject to any preferential rights of any outstanding series
of
preferred stock, upon our liquidation, dissolution or winding up, the holders
of
common stock will be entitled to receive pro rata all assets available for
distribution to such holders.
Preferred
Stock
We
are
authorized to issue 5,000,000 shares of “blank check” preferred stock, none of
which as of the date hereof is designated or outstanding. The board of directors
is vested with authority to divide the shares of preferred stock into series
and
to fix and determine the relative designation, powers, preferences and rights
of
the shares of any such series and the qualifications, limitations, or
restrictions or any unissued series of preferred stock.
Description
of Options
We
granted options to purchase 600,000 shares of our common stock to certain of
our
executive officers, directors and employees, effective upon the closing of
the
Merger. All such options were issued pursuant to the Plan and are exercisable
when vested at a price of $2.00 per share.
Description
of Warrants
We
issued
five-year warrants to purchase 511,708 shares of our common stock, at an initial
cash exercise price of $4.00 per share and an initial cashless exercise price
of
$5.00 per share, to investors purchasing units in the Private Placement. In
addition, we also issued a three year warrant to the Placement Agents to
purchase an aggregate of 33,750 shares of our common stock, at an initial cash
exercise price of $4.00 per share and an initial cashless exercise price of
$5.00 per share, in connection with its efforts as a placement agent in
connection with the Private Placement.
The
exercise price and number of shares of our common stock issuable on exercise
of
the warrants may be adjusted in certain circumstances, including in the event
of
a stock dividend, or our recapitalization, reorganization, merger or
consolidation. In addition, in the event that we issue shares of our common
stock at a price per share below $2.00 or securities exercisable for or
convertible into shares of common stock at an effective exercise or conversion
price below $2.00 per share during the period commencing on the initial closing
date of the Private Placement until the date a registration statement covering
the resale of the shares underlying the warrants is declared effective by the
SEC, then the cash exercise price of the warrants shall be automatically reduced
to 200% of the sub-$2.00 price and the cashless exercise price of the warrants
shall be automatically reduced to become 250% of the sub-$2.00
price.
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, we may, in our discretion, upon exercise, round up to
the
nearest whole number the number of shares of our common stock to be issued
to
the warrant holder or otherwise equitably adjust the exercise and exercise
price
per share.
We
may
redeem all, but not less than all, of the unexercised warrants included within
the units sold in the Private Placement, for $0.001 per share of common stock
underlying the warrants, upon 10 days prior written notice to the holders (the
“Redemption Period”); provided that (i) the closing sale price of our common
stock on the principal trading market where the common stock is approved for
quotation or principal national securities exchange where the common stock
is
listed exceeds $6.00 per share for 10 consecutive trading days and (ii) there
is
an effective registration statement covering the resale of the shares of common
stock underlying the warrants for the entire Redemption Period. The holders
may
exercise the warrants during the Redemption Period. Upon redemption of the
warrants, the holders will have no further rights with respect to the
unexercised warrants, except the right to receive the redemption
price.
Registration
Rights
Private
Placement
We
have
agreed to file, within 90 days of the final closing date of the Private
Placement, a registration statement (the “Registration Statement”) registering
for resale (i) the shares of common stock included in the units sold in the
Private Placement, (ii) the shares of common stock underlying the warrants
included in the units sold and (iii) the shares of common stock underlying
the
warrants issued to the Placement Agents in connection with the Private
Placement, consistent with the terms and provisions of the Registration Rights
Agreement from the Private Placement, attached hereto as Exhibit 10.3. We will
use reasonable efforts to cause the Registration Statement to be declared
effective by the SEC no later than 180 days after the final closing date filed.
We have agreed to maintain the effectiveness of the Registration Statement
until
the earlier of (i) the date on which all of the registrable shares may be resold
by the selling stockholders thereunder without registration and without regard
to any volume limitations by reason of Rule 144(e) under the Securities Act
or
any other rule of similar effect or (ii) 18 months following the final closing
date of the Private Placement. We have agreed to pay monetary penalties equal
to
one percent (1.00%) of the gross proceeds of the Private Placement for each
full
month that, among other things, (i) we are late in filing the Registration
Statement or (ii) the Registration Statement is late in being declared
effective; provided, that the aggregate of any such penalties shall not exceed
six percent (6%) of the gross proceeds of the Private Placement. However,
we
shall
not be obligated to pay any such liquidated damages if we are unable to fulfill
our registration obligations as a result of rules, regulations, positions or
releases issued or actions taken by the SEC pursuant to its authority with
respect to “Rule 415,” provided we register at such time the maximum number of
shares of common stock permissible upon consultation with the staff of the
SEC.
Notes
Pursuant
to the terms of the Notes, we agreed that should we propose to file a resale
registration statement under the Securities Act at any time on or before May
25,
2012 to register any of our securities under the Securities Act for sale to
the
public, whether for our own account or for the account of other security holders
or both (except with respect to registration statements on Forms S-4 or S-8
or
another similar form), then we would agree to register for resale in such
registration statement the common stock issued upon conversion of the Notes,
subject to customary issuer, placement agent and underwriter
cutbacks.
Lock-up
Agreements
We
have
obtain signed lock-up agreements from each of Trans-Pharma’s former
stockholders, together with each of our officers, directors and holders of
10%
or more of our common stock, pursuant to which they may not, subject to certain
exemptions, sell or otherwise transfer any shares of our common stock, whether
now owned or subsequently acquired, for a period of 18 months following the
final closing date of the Private Placement.
Indemnification
of Directors and Officers
Section
145 of the Delaware General Corporation Law (“DGCL”) provides, in general, that
a corporation incorporated under the laws of the State of Delaware, such as
us,
may indemnify any person who was or is a party or is threatened to be made
a
party to any threatened, pending or completed action, suit or proceeding (other
than a derivative action by or in the right of the corporation) by reason of
the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit
if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware
or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Our
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws provide that we will indemnify our directors, officers, employees and
agents to the extent and in the manner permitted by the provisions of the DGCL,
as amended from time to time, subject to any permissible expansion or limitation
of such indemnification, as may be set forth in any stockholders’ or directors’
resolution or by contract.
We
also
have director and officer indemnification agreements with each of our executive
officers and directors that provide, among other things, for the indemnification
to the fullest extent permitted or required by Delaware law, provided that
such
indemnitee shall not be entitled to indemnification in connection with any
“claim” (as such term is defined in the agreement) initiated by the indemnitee
against us or our directors or officers unless we join or consent to the
initiation of such claim, or the purchase and sale of securities by the
indemnitee in violation of Section 16(b) of the Exchange Act.
Any
repeal or modification of these provisions approved by our stockholders shall
be
prospective only, and shall not adversely affect any limitation on the liability
of a director or officer existing as of the time of such repeal or
modification.
We
are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or
not
the DGCL would permit indemnification.
Anti-Takeover
Effect of Delaware Law, Certain By-Law Provisions
We
are
subject to the provisions of Section 203 of the DGCL, an anti-takeover law.
In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a ‘‘business combination’’ with an ‘‘interested stockholder’’ for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in
a prescribed manner. For purposes of Section 203, a ‘‘business combination’’
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an ‘‘interested stockholder’’ is a
person who, together with affiliates and associates, owns, or within three
years
prior, did own, 15% or more of the voting stock.
Future
Stock Issuances
Pursuant
to the Subscription Agreement from the Private Placement, from the initial
closing date of the Private Placement until the earlier of (i) September 17,
2008 and (ii) the date that the SEC declared a registration statement effective
that registers the resale of the common stock issued in the Private Placement
and the common stock underlying the warrants issued in the Private Placement,
should we issue or sell any shares of any class of common stock or any warrants
or other convertible security pursuant to which shares of any class of our
common stock may be acquired at a price less than $2.00 per share, subject
to
certain exemptions, we shall promptly issue additional shares to each investor
in the Private Placement in an amount sufficient that the subscription price
paid in the Private Placement, when divided by the total number of shares issued
will result in an actual price paid by each investor per share equal to such
lower price.
Trading
Information
Our
common stock is currently approved for quotation on the OTC Bulletin Board
maintained by the NASD under the symbol TDLP.OB, but is not trading. As soon
as
practicable, and assuming we satisfy all necessary initial listing requirements,
we intend to apply to have our common stock listed for trading on the American
Stock Exchange or The Nasdaq Stock Market, although we cannot be certain that
any of these applications will be approved.
The
transfer agent for our common stock is American Registrar & Transfer Co. We
will serve as warrant agent for the outstanding warrants.
Item
4.01
Changes
in Registrant’s Certifying Accountant
Effective
as of September 17, 2007, we dismissed Webb & Company, P.A. (“Webb”) as our
independent accountants. Webb had previously been engaged as the principal
accountant to audit our financial statements. The reason for the dismissal
of
Webb is that, following the consummation of the Merger on September 17, 2007
(i)
the former stockholders of Trans-Pharma owned a majority of the outstanding
shares of our common stock and (ii) our primary business unit became the
business previously conducted by Trans-Pharma. The independent registered public
accountant of Trans-Pharma was the firm of KMJ | Corbin & Company LLP
(“KMJ”). We believe that it is in our best interest to have KMJ continue to work
with our business, and we therefore retained KMJ as our new independent
registered accounting firm, effective as of September 17, 2007. KMJ has offices
in Carlsbad and Irvine, California.
The
report of Webb on our May 31, 2007 financial statements did not contain an
adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to
uncertainty, audit scope or accounting principles, except that the report was
qualified as to our ability to continue as a going concern. The decision to
change accountants was approved by our board of directors on September 17,
2007.
During
our two most recent fiscal years and through the date of dismissal on September
17, 2007, there were no disagreements with Webb on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedure which, if not resolved to the satisfaction of Webb, would have caused
it to make reference to the matter in connection with its reports.
We
had
made the contents of this Current Report available to Webb and requested it
to
furnish a letter addressed to the SEC as to whether Webb agrees or disagrees
with, or wishes to clarify our expression of, our views, or containing any
additional information. A copy of Webb’s letter to the SEC is included as
Exhibit 16.1 to this Current Report.
As
of
September 17, 2007, KMJ was engaged as our new independent registered public
accounting firm. The appointment of KMJ was approved by our board of directors.
During our two most recent fiscal years and the subsequent interim periods
through September 17, 2007 (the date of engagement of KMJ), we did not consult
KMJ regarding either: (i) the application of accounting principles to a specific
completed or contemplated transaction, or the type of audit opinion that might
be rendered on our financial statements; or (ii) any matter that was the subject
of a disagreement as defined in Item 304(a)(1)(iv) of Regulation
S-B.
Item
5.01
Changes
in Control of Registrant
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
5.02
|
|
Departure
of Directors or Certain Officers; Election of Directors; Appointment
of
Certain Officers; Compensatory Arrangements of Certain
Officers
|
Transdel’s
sole officer and director resigned as of September 17, 2007, effective upon
the
closing of the Merger. Pursuant to the terms of the Merger Agreement, our new
directors and officers are as set forth therein. 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
5.03
Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year
On
September 17, 2007, our board of directors approved a change in our fiscal
year
from a fiscal year ending May 31 to a fiscal year ending on December 31. The
change in our fiscal year will take effect on September 17, 2007 and, therefore,
there will be no transition period in connection with this change of fiscal
year-end. Our 2007 fiscal year will end on December 31, 2007.
Item
5.06
Change
in Shell Company Status
As
a
result of the consummation of the Merger described in Item 2.01 of this Current
Report on Form 8-K, we believe that we are no longer a shell corporation as
that
term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange
Act.
Item
9.01
Financial
Statements and Exhibits
(a)
Financial
Statements of Businesses Acquired
.
In
accordance with Item 9.01(a), (i) Trans-Pharma’s audited financial statements
for the fiscal years ended December 31, 2005 and 2006, and (ii) Trans-Pharma’s
unaudited financial statements for the six-month interim periods ended June
30,
2007 and 2006 are filed in this Current Report on Form 8-K as Exhibit 99.1
and
Exhibit 99.2, respectively.
(b)
Pro
Forma Financial Information
.
In
accordance with Item 9.01(b), our pro forma financial statements are filed
in
this Current Report on Form 8-K as Exhibit 99.3.
(d)
Exhibits.
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report on Form 8-K.
Exhibit
No.
|
|
Description
|
2.1
|
|
Agreement
and Plan of Merger, dated as of September 17, 2007, by and among
Transdel
Pharmaceuticals, Inc., Trans-Pharma Corporation and Trans-Pharma
Acquisition Corp.
|
2.2
|
|
Certificate
of Merger, dated September 17, 2007, merging Trans-Pharma Acquisition
Corp. with and into Trans-Pharma Corporation
|
2.3
|
|
Articles
of Merger, dated September 17, 2007, merging Trans-Pharma Acquisition
Corp. with and into Trans-Pharma Corporation
|
3.1
|
|
Amended
and Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
September 13, 2007)
|
3.2
|
|
Amended
and Restated Bylaws (incorporated herein by reference to Exhibit
3.2 to
the Company’s Current Report on Form 8-K filed September 13,
2007)
|
10.1
|
|
Form
of Subscription Agreement
|
|
|
|
10.2
|
|
Form
of Warrant
|
10.3
|
|
Form
of Registration Rights Agreement
|
10.4
|
|
Form
of Lockup Agreement
|
10.5
|
|
Placement
Agent Agreement, dated September 17, 2007, between Trans-Pharma
Corporation and Granite Financial Group, LLC
|
10.6
|
|
Placement
Agent Agreement, dated September 17, 2007, between Trans-Pharma,
Inc. and
WFG Investments, Inc.
|
10.7
|
|
Placement
Agent Agreement, dated September 17, 2007, by and between Trans-Pharma
Corporation and Palladium Capital Advisors, LLC
|
10.8
|
|
Form
of Directors and Officers Indemnification Agreement
|
10.9
|
|
Assignment
of Employment Agreement, dated September 17, by and among Trans-Pharma
Corporation, Transdel Pharmaceuticals, Inc. and Juliet Singh,
Ph.D.
|
10.10
|
|
Employment
Agreement, dated June 27, 2007, by and between Trans-Pharma Corporation
and Juliet Singh, Ph.D.
|
10.11
|
|
Transdel
Pharmaceuticals, Inc.
2007
Incentive Stock and Awards Plan
|
10.12
|
|
Form
of 2007 Incentive Stock Option Agreement
|
10.13
|
|
Form
of 2007 Non-Qualified Stock Option Agreement
|
16
|
|
Letter
of Webb & Company, P.A.
|
21
|
|
List
of Subsidiaries
|
99.1
|
|
Trans-Pharma
Corporation financial statements for the fiscal years ended December
31,
2006 and 2005
|
99.2
|
|
Trans-Pharma
Corporation unaudited financial statements for the six months ended
June
30, 2007 and 2006
|
99.3
|
|
Pro
forma unaudited combined financial statements for the period ended
June
30, 2007 and for the period ended December 31, 2006
|
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 thereunto
duly authorized.
|
|
|
Date: September
21, 2007
|
|
|
|
|
|
|
Transdel
Pharmaceuticals, Inc.
|
|
|
|
|
By:
|
/s/
Juliet Singh, Ph.D.
|
|
Juliet
Singh, Ph.D.
|
|
Chief
Executive Officer
|
INDEX
TO EXHIBITS
Exhibit
No.
|
|
Description
|
2.1
|
|
Agreement
and Plan of Merger, dated as of September 17, 2007, by and among
Transdel
Pharmaceuticals, Inc., Trans-Pharma Corporation and Trans-Pharma
Acquisition Corp.
|
2.2
|
|
Certificate
of Merger, dated September 17, 2007, merging Trans-Pharma Acquisition
Corp. with and into Trans-Pharma Corporation
|
2.3
|
|
Articles
of Merger, dated September 17, 2007, merging Trans-Pharma Acquisition
Corp. with and into Trans-Pharma Corporation
|
3.1
|
|
Amended
and Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
September 13, 2007)
|
3.2
|
|
Amended
and Restated Bylaws (incorporated herein by reference to Exhibit
3.2 to
the Company’s Current Report on Form 8-K filed September 13,
2007)
|
10.1
|
|
Form
of Subscription Agreement
|
|
|
|
10.2
|
|
Form
of Warrant
|
10.3
|
|
Form
of Registration Rights Agreement
|
10.4
|
|
Form
of Lockup Agreement
|
10.5
|
|
Placement
Agent Agreement, dated September 17, 2007, between Trans-Pharma
Corporation and Granite Financial Group, LLC
|
10.6
|
|
Placement
Agent Agreement, dated September 17, 2007, between Trans-Pharma,
Inc. and
WFG Investments, Inc.
|
10.7
|
|
Placement
Agent Agreement, dated September 17, 2007, by and between Trans-Pharma
Corporation and Palladium Capital Advisors, LLC
|
10.8
|
|
Form
of Directors and Officers Indemnification Agreement
|
10.9
|
|
Assignment
of Employment Agreement, dated September 17, by and among Trans-Pharma
Corporation, Transdel Pharmaceuticals, Inc. and Juliet Singh,
Ph.D.
|
10.10
|
|
Employment
Agreement, dated June 27, 2007, by and between Trans-Pharma Corporation
and Juliet Singh, Ph.D.
|
10.11
|
|
Transdel
Pharmaceuticals, Inc.
2007
Incentive Stock and Awards Plan
|
10.12
|
|
Form
of 2007 Incentive Stock Option Agreement
|
10.13
|
|
Form
of 2007 Non-Qualified Stock Option Agreement
|
16
|
|
Letter
of Webb & Company, P.A.
|
21
|
|
List
of Subsidiaries
|
99.1
|
|
Trans-Pharma
Corporation financial statements for the fiscal years ended December
31,
2006 and 2005
|
99.2
|
|
Trans-Pharma
Corporation unaudited financial statements for the six months ended
June
30, 2007 and 2006
|
99.3
|
|
Pro
forma unaudited combined financial statements for the period ended
June
30, 2007 and for the period ended December 31, 2006
|
Exhibit
2.1
AGREEMENT
OF MERGER AND
PLAN
OF REORGANIZATION
BY
AND AMONG
TRANSDEL
PHARMACEUTICALS, INC.
TRANS-PHARMA
ACQUISITION CORP.
and
TRANS-PHARMA
CORPORATION
Dated
as
of September 17, 2007
AGREEMENT
OF MERGER AND PLAN OF REORGANIZATION
THIS
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this “
Agreement
”)
is
made and entered into on September 17, 2007, by and among TRANSDEL
PHARMACEUTICALS, INC., a Delaware corporation (“
Parent
”),
TRANS-PHARMA ACQUISITION CORP., a Delaware corporation (“
Acquisition
Corp.
”),
which
is a wholly-owned subsidiary of Parent, and TRANS-PHARMA CORPORATION, a Nevada
corporation (the “
Company
”).
W
I T N E
S S E T H :
WHEREAS,
the Board of Directors of each of Acquisition Corp., Parent and the Company
have
determined that it is fair to and in the best interests of their respective
corporations and stockholders for Acquisition Corp. to be merged with and into
the Company (the “
Merger
”)
upon
the terms and subject to the conditions set forth herein;
WHEREAS,
the Board of Directors of each of Parent, Acquisition Corp. and the Company
have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware (the “
DGCL
”)
and
the Nevada Revised Statutes (the “
NRS
”),
and
upon the terms and subject to the conditions set forth herein, in the
Certificate of Merger attached as
Exhibit
A
hereto
(the “
Certificate
of Merger
”)
and
the Articles of Merger attached as
Exhibit
B
hereto
(the “
Articles
of Merger
”);
WHEREAS,
the requisite stockholders of the Company (the “
Stockholders
”)
have
approved by written consent pursuant to Section 78.320 of the NRS this
Agreement, the Certificate of Merger, the Articles of Merger and the
transactions contemplated and described hereby and thereby, including, without
limitation, the Merger, and Parent, as the sole stockholder of Acquisition
Corp., has approved by written consent pursuant to Section 228 of the DGCL
this
Agreement, the Certificate of Merger, the Articles of Merger and the
transactions contemplated and described hereby and thereby, including, without
limitation, the Merger;
WHEREAS,
immediately following the Closing (as defined below), Parent (as it will exist
as of the closing of the Merger) will sell up to a maximum of $5,000,000 of
its
Units, with each “Unit” consisting of (i) 50,000 shares of its common stock and
(ii) a detachable redeemable five-year warrant to purchase 12,500 shares of
its
common stock at an initial cash exercise price of $4.00 per share and an initial
cashless exercise price of $5.00 per share, for a purchase price of $100,000
per
Unit, in a private placement offering to accredited investors (the “
Private
Placement
”)
for
the purpose of financing the ongoing business and operations of the Surviving
Corporation (as defined below) following the Merger; and
WHEREAS,
the parties hereto intend that the Merger contemplated herein 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.
THE
MERGER
Section
1.01
Merger
.
Subject
to the terms and conditions of this Agreement, the Certificate of Merger and
the
Articles of Merger, Acquisition Corp. shall be merged with and into the Company
in accordance with Section 252 of the DGCL and Section 92A.190 of the NRS.
At
the Effective Time (as defined below), the separate legal existence of
Acquisition Corp. shall cease, and the Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the
“
Surviving
Corporation
”)
and
shall continue its corporate existence under the laws of the State of Nevada
under the name “Trans-Pharma Corporation”.
Section
1.02
Effective
Time
.
The
Merger shall become effective upon the filing of (a) the Certificate of Merger
with the Secretary of State of the State of Delaware in accordance with Section
252 of the DGCL and (b) the Articles of Merger with the Secretary of State
of
the State of Nevada in accordance with Section 92A.190 of the NRS. The time
at
which the Merger shall become effective as aforesaid is referred to hereinafter
as the “
Effective
Time
.”
Section
1.03
Closing
.
The
closing of the Merger (the “
Closing
”)
shall
occur concurrently with the Effective Time (the “
Closing
Date
”).
The
Closing shall occur at the offices of Haynes and Boone, LLP referred to in
Section 10.01 hereof. At the Closing, all of the documents, certificates,
agreements, opinions and instruments referenced in Article VII will be executed
and delivered as described therein. At the Effective Time, all actions to be
taken at the Closing shall be deemed to be taken simultaneously.
Section
1.04
Certificate
of Incorporation, By-laws, Directors and Officers
.
(a)
The
Articles of Incorporation of the Company, as in effect immediately prior to
the
Effective Time, attached as
Exhibit
C
hereto,
as amended by the Articles of Merger, shall be the Articles of Incorporation
of
the Surviving Corporation from and after the Effective Time until amended in
accordance with applicable law and such Articles of Incorporation.
(b)
The
By-laws of the Company, as in effect immediately prior to the Effective Time,
attached as
Exhibit
D
hereto,
shall be the By-laws of the Surviving Corporation from and after the Effective
Time until amended in accordance with applicable law, the Articles of
Incorporation of the Surviving Corporation and such By-laws.
(c)
The
directors and officers listed in
Exhibit
E
hereto
shall be the directors and officers of the Surviving Corporation and Parent,
and
each shall hold his or her respective office or offices from and after the
Effective Time until his or her successor shall have been elected and shall
have
qualified in accordance with applicable law, or as otherwise provided in the
Articles of Incorporation or By-laws of the Surviving Corporation or the
Certificate of Incorporation or By-laws of Parent, as the case may
be.
Section
1.05
Assets
and Liabilities
.
At the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities and duties of each of
Acquisition Corp. and the Company (collectively, the “
Constituent
Corporations
”);
and
all the rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due
to
any of the Constituent Corporations on whatever account, as well as all other
things in action or belonging to each of the Constituent Corporations, shall
be
vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter
as
effectively the property of the Surviving Corporation as they were of the
several and respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise in either of such Constituent Corporations
shall not revert or be in any way impaired by the Merger; but all rights of
creditors and all liens upon any property of any of the Constituent Corporations
shall be preserved unimpaired, and all debts, liabilities and duties of the
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
Section
1.06
Manner
and Basis of Converting Shares
.
(a)
At
the
Effective Time:
(i)
each
share of common stock, par value $0.001 per share, of Acquisition Corp. that
shall be outstanding immediately prior to the Effective Time shall, by virtue
of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive one (1) share of common stock, par value
$0.001 per share, of the Surviving Corporation, so that at the Effective Time,
Parent shall be the holder of all of the issued and outstanding shares of the
Surviving Corporation;
(ii)
the
shares of common stock, par value $0.001 per share, of the Company (the
“
Company
Common Stock
”)
beneficially owned by the Stockholders listed on
Schedule
1.06
(other
than shares of Company Common Stock as to which appraisal rights are perfected
pursuant to the applicable provisions of the NRS and not withdrawn or otherwise
forfeited and shares of Company Common Stock set forth in Section 1.06(a)(iii)
hereof), shall, by virtue of the Merger and without any action on the part
of
the holders thereof, be converted into the right to receive the number of shares
of common stock, par value $0.001 per share of Parent (the “
Parent
Common Stock
”)
specified in
Schedule
1.06
for each
of the Stockholders, which shall be equal to 0.15625 of one share of Parent
Common Stock for each share of Company Common Stock with fractional shares
of
Parent Common Stock rounded up or down to the nearest whole share;
and
(iii)
each
share of Company Common Stock held in the treasury of the Company immediately
prior to the Effective Time shall be cancelled in the Merger and cease to
exist.
(b)
After
the
Effective Time, there shall be no further registration of transfers on the
stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock that were outstanding immediately prior to the Effective
Time.
Section
1.07
Surrender
and Exchange of Certificates
.
Promptly after the Effective Time and upon (a) surrender of a certificate or
certificates representing shares of Company Common Stock that were outstanding
immediately prior to the Effective Time or an affidavit and indemnification
in
form reasonably acceptable to counsel for Parent stating that such Stockholder
has
lost
its certificate or certificates or that such have been destroyed and (b)
delivery of a Letter of Transmittal (as described in Article IV hereof), Parent
shall issue to each record holder of Company Common Stock surrendering such
certificate, certificates or affidavit and Letter of Transmittal, a certificate
or certificates registered in the name of such Stockholder representing the
number of shares of Parent Common Stock that such Stockholder shall be entitled
to receive as set forth in Section 1.06(a)(ii) hereof. Until the certificate,
certificates or affidavit is or are surrendered together with the Letter of
Transmittal as contemplated by this Section 1.07 and Article IV hereof, each
certificate or affidavit that immediately prior to the Effective Time
represented any outstanding shares of Company Common Stock shall be deemed
at
and after the Effective Time to represent only the right to receive upon
surrender as aforesaid the Parent Common Stock specified in
Schedule
1.06
hereof
for the holder thereof or to perfect any rights of appraisal that such holder
may have pursuant to the applicable provisions of the NRS.
Section
1.08
Parent
Common Stock
.
Parent
agrees that it will cause the Parent Common Stock into which the Company Common
Stock is converted at the Effective Time pursuant to Section 1.06(a)(ii) to
be
available for such purposes. Parent further covenants that immediately following
the Effective Time, Parent will effect cancellations of its outstanding shares
of Parent Common Stock and that there will be no more than 1,850,000 shares
of
Parent Common Stock issued and outstanding, and that no other common or
preferred stock or equity securities or any options, warrants, rights or other
agreements or instruments convertible, exchangeable or exercisable into common
or preferred stock or other equity securities shall be issued or outstanding,
except as described herein.
Section
1.09
Operation
of Surviving Corporation
.
The
Company acknowledges that upon the effectiveness of the Merger, and the material
compliance by Parent and Acquisition Corp. with their respective duties and
obligations hereunder, 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
1.10
Further
Assurances
.
From
time to time, from and after the Effective Time, as and when reasonably
requested by Parent, the proper officers and directors of the Company as of
the
Effective Time shall, for and on behalf and in the name of the Company or
otherwise, execute and deliver all such deeds, bills of sale, assignments and
other instruments and shall take or cause to be taken such further actions
as
Parent, Acquisition Corp. or their respective successors or assigns reasonably
may deem necessary or desirable in order to confirm or record or otherwise
transfer to the Surviving Corporation title to and possession of all of the
properties, rights, privileges, powers, franchises and immunities of the Company
or otherwise to carry out fully the provisions and purposes of this Agreement,
the Certificate of Merger and the Articles of Merger.
ARTICLE
II.
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to Parent and Acquisition Corp. as
follows. Notwithstanding anything to the contrary contained herein, disclosure
of items in the draft Current Report on Form 8-K of Parent with respect to
the
Merger and the Private Placement, and all exhibits thereto, a copy of which
is
attached hereto as
Exhibit
F
(collectively, the “
Disclosures
”)
shall
be deemed to be disclosure of such items for all purposes under this Agreement,
including, without limitation, for all applicable representations and warranties
of the Company:
Section
2.01
Organization,
Standing, Subsidiaries, Etc
.
(a)
The
Company is a corporation duly organized and existing in good standing under
the
laws of the State of Nevada and has all requisite power and authority (corporate
and other) to carry on its business, to own or lease its properties and assets,
to enter into this Agreement, the Certificate of Merger and the Articles of
Merger and to carry out the terms hereof and thereof. Copies of the Articles
of
Incorporation and By-laws of the Company that have been delivered to Parent
and
Acquisition Corp. prior to the execution of this Agreement are true and complete
and have not since been amended or repealed.
(b)
The
Company has no subsidiaries or direct or indirect interest (by way of stock
ownership or otherwise) in any firm, corporation, limited liability company,
partnership, association or business.
Section
2.02
Qualification
.
The
Company is duly qualified to conduct business as a foreign corporation and
is in
good standing in each jurisdiction wherein the nature of its activities or
its
properties owned or leased makes such qualification necessary, except where
the
failure to be so qualified would not have a material adverse effect on the
condition (financial or otherwise), properties, assets, liabilities, business
operations, results of operations or prospects of the Company taken as a whole
(the “
Condition
of the Company
”).
Section
2.03
Capitalization
of the Company
.
The
authorized capital stock of the Company consists of 100,000,000 shares of
Company Common Stock, of which there are 51,200,000 shares of Company Common
Stock issued and outstanding, and such shares are duly authorized, validly
issued, fully paid and non-assessable, and none of such shares have been issued
in violation of the preemptive rights of any natural person, corporation,
business trust, association, limited liability company, partnership, joint
venture, other entity, government, agency or political subdivision (each, a
“
Person
”).
The
offer, issuance and sale of such shares of Company Common Stock were (a) exempt
from the registration and prospectus delivery requirements of the Securities
Act
of 1933, as amended (the “
Securities
Act
”),
(b)
registered or qualified (or were exempt from registration or qualification)
under the registration or qualification requirements of all applicable state
securities laws and (c) accomplished in conformity with all other applicable
securities laws. None of such shares of Company Common Stock are subject to
a
right of withdrawal or a right of rescission under any federal or state
securities or “Blue Sky” law. Except as otherwise set forth in this Agreement or
any Schedule hereto, the Company has no outstanding options, rights or
commitments to issue Company Common Stock or other Equity Securities (as defined
below) of the Company, and there are no outstanding securities convertible
or
exercisable into or exchangeable for Company Common Stock or other Equity
Securities of the Company. For purposes of this Agreement, “
Equity
Security
”
shall
mean any stock or similar security of an issuer or any security (whether stock
or Indebtedness for Borrowed Money (as defined below)) convertible, with or
without consideration, into any stock or other equity security, or any security
(whether stock or Indebtedness for Borrowed Money) carrying any warrant or
right
to subscribe to or purchase any stock or similar security, or any such warrant
or right.
Section
2.04
Indebtedness
.
The
Company has no Indebtedness for Borrowed Money, except as otherwise set forth
in
this Agreement or disclosed on the Balance Sheet (as defined below). For
purposes of this Agreement, “
Indebtedness
for Borrowed Money
”
shall
mean (a) all Indebtedness in respect of money borrowed including, without
limitation, Indebtedness that 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. Furthermore, for
purposes of this Agreement, “
Indebtedness
”
shall
mean any obligation of the Company which, under generally accepted accounting
principles in the United Stated (“
GAAP
”),
is
required to be shown on the balance sheet of the Company as a liability. Any
obligation secured by a mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (a “
Lien
”),
shall
be deemed to be Indebtedness, even though such obligation is not assumed by
the
Company.
Section
2.05
Company
Stockholders
.
Schedule
1.06
hereto
contains a true and complete list of the names of the record owners of all
of
the outstanding shares of Company Common Stock and other Equity Securities
of
the Company, together with the number of securities held or to which such Person
has rights to acquire. To the knowledge of the Company, there is no voting
trust, agreement or arrangement among any of the beneficial holders of Company
Common Stock affecting the nomination or election of directors or the exercise
of the voting rights of Company Common Stock.
Section
2.06
Corporate
Acts and Proceedings
.
The
execution, delivery and performance of this Agreement, the Certificate of Merger
and the Articles of Merger (together, the “
Merger
Documents
”)
have
been duly authorized by the Board of Directors of the Company and have been
approved by the requisite vote of the Stockholders, and all of the corporate
acts and other proceedings required for the due and valid authorization,
execution, delivery and performance of the Merger Documents and the consummation
of the Merger have been validly and appropriately taken, except for the filings
referred to in Section 1.02.
Section
2.07
Governmental
Consents
.
All
material consents, approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with any federal or
state
governmental authority on the part of the Company required in connection with
the consummation of the Merger shall have been obtained prior to, and be
effective as of, the Closing.
Section
2.08
Compliance
with Laws and Instruments
.
The
business, products and operations of the Company have been and are being
conducted in compliance in all material respects with all applicable laws,
rules
and regulations, except for such violations thereof for which the penalties,
in
the aggregate, would not have a material adverse effect on the Condition of
the
Company. The execution, delivery and performance by the Company of the Merger
Documents and the consummation by the Company of the transactions contemplated
by this Agreement: (a) will not cause the Company to violate or contravene
(i)
any provision of law, (ii) any rule or regulation of any agency or government,
(iii) any order, judgment or decree of any court, or (iv) any provision of
the
Articles of Incorporation or By-laws of the Company, (b) will not violate or
be
in conflict with, result in a breach of or constitute (with or without notice
or
lapse of time, or both) a default under, any indenture, loan or credit
agreement, deed of trust, mortgage, security agreement or other contract,
agreement or instrument to which the Company is a party or by which the Company
or any of its properties is bound or affected, except as would not have a
material adverse effect on the Condition of the Company and (c) will not result
in the creation or imposition of any Lien upon any property or asset of the
Company. The Company is not in violation of, or (with or without notice or
lapse
of time, or both) in default under, any term or provision of its Articles of
Incorporation or By-laws or of any indenture, loan or credit agreement, deed
of
trust, mortgage, security agreement or, except as would not materially and
adversely affect the Condition of the Company, any other material agreement
or
instrument to which the Company is a party or by which the Company or any of
its
properties is bound or affected.
Section
2.09
Binding
Obligations
.
The
Merger Documents constitute the legal, valid and binding obligations of the
Company and are enforceable against the Company in accordance with their
respective 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
2.10
Broker’s
and Finder’s Fees
.
Except
for fees paid to the placement agents as set forth in the Disclosures, 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.
Section
2.11
Financial
Statements
.
Parent
has previously been provided with the Company’s audited balance sheet (the
“
Balance
Sheet
”)
as of
December 31, 2006 (the “
Company
Balance Sheet Date
”)
and
the audited statements of operations and accumulated deficits and cash flows
for
the year ended December 31, 2006. Such financial statements are collectively
referred to as the “
Financial
Statements
”.
Such
financial statements (a) are in accordance with the books and records of the
Company, (b) present fairly in all material respects the financial condition
of
the Company at the dates therein specified and the results of its operations
and
changes in financial position for the periods therein specified and (c) have
been prepared in accordance with GAAP applied on a basis consistent with prior
accounting periods.
Section
2.12
Absence
of Undisclosed Liabilities
.
The
Company has no material obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, whether due or to become due), arising
out
of any transaction entered into at or prior to the Closing, except (a) as
disclosed in the Balance Sheet, (b) to the extent set forth on or reserved
against in the Balance Sheet or the notes to the Financial Statements, (c)
current liabilities incurred and obligations under agreements entered into
in
the usual and ordinary course of business since the Company Balance Sheet Date,
none of which (individually or in the aggregate) has had or will have a material
adverse effect on the Condition of the Company and (d) by the specific terms
of
any written agreement, document or arrangement identified in the
Disclosures.
Section
2.13
Changes
.
Since
the Company Balance Sheet Date, the Company has not (a) incurred any debts,
obligations or liabilities, absolute, accrued, contingent or otherwise, whether
due or to become due, except for fees, expenses and liabilities incurred in
connection with the Merger and related transactions and 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 Balance Sheet and current
liabilities incurred since the Company 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) materially and adversely affecting the Condition of the
Company, (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) 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 Condition of the Company 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)
has
been materially adverse, (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 Balance Sheet or its statement of income
for the period ended on the Company 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
$50,000 in the aggregate, or (r) entered into any agreement, or otherwise
obligated itself, to do any of the foregoing.
Section
2.14
Assets
and Contracts
.
(a)
Schedule
2.14(a)
contains
a true and complete list of all real property leased by the Company and of
all
tangible personal property owned or leased by the Company having a cost or
fair
market value of greater than $250,000. All the real property listed in
Schedule
2.14(a)
is
leased by the Company under valid leases enforceable in accordance with their
terms, and there is not, under any such lease, any existing default or event
of
default or event which with notice or lapse of time, or both, would constitute
a
default by the Company, and the Company has not received any notice or claim
of
any such default by the Company. The Company does not own any real
property.
(b)
Except
as
expressly set forth in this Agreement, the Financial Statements or the notes
thereto, or as disclosed in
Schedule
2.14(b)
hereto,
the Company is not a party to any written or oral agreement not made in the
ordinary course of business that is material to the Company. Except as disclosed
in
Schedule
2.14(b)
hereto,
the Company is not a party to any written or oral (i) agreement for the purchase
of fixed assets or for the purchase of materials, supplies or equipment in
excess of normal operating requirements, (ii) agreement for the employment
of
any officer, individual employee or other Person on a full-time basis or any
agreement with any Person for consulting services, (iii) indenture, loan or
credit agreement, note agreement, deed of trust, mortgage, security agreement,
promissory note or other agreement or instrument relating to or evidencing
Indebtedness for Borrowed Money or subjecting any asset or property of the
Company to any Lien or evidencing any Indebtedness, (iv) guaranty of any
Indebtedness, (v) other than as set forth in
Schedule
2.14(a)
hereto,
lease or agreement 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 $250,000 per year, (vi) agreement granting any preemptive
right, right of first refusal or similar right to any Person, (vii) agreement
or
arrangement with any Affiliate or any “associate” (as such term is defined in
Rule 405 under the Securities Act) of the Company or any present or former
officer, director or stockholder of the Company, (viii) agreement obligating
the
Company to pay any royalty or similar charge for the use or exploitation of
any
tangible or intangible property, (ix) covenant not to compete or other material
restriction on its ability to conduct a business or engage in any other
activity, (x) agreement to register securities under the Securities Act or
(xi)
collective bargaining agreement. Except as disclosed in
Schedule
2.14(b)
,
none of
the agreements, contracts, leases, instruments or other documents or
arrangements listed in
Schedules
2.14(a)
and
2.14(b)
requires
the consent of any of the parties thereto other than the Company to permit
the
contract, agreement, lease, instrument or other document or arrangement to
remain effective following consummation of the Merger and the transactions
contemplated hereby. For purposes of this Agreement, an “
Affiliate
”
shall
mean any Person that directly or indirectly controls, is controlled by, or
is
under common control with, the indicated Person.
(c)
The
Company has made available to Parent and Acquisition Corp. true and complete
copies of all agreements and other documents and a description of all applicable
oral agreements disclosed or referred to in
Schedules
2.14(a)
and
2.14(b)
,
as well
as any additional agreements or documents, requested by Parent or Acquisition
Corp. The Company has in all material respects performed all obligations
required to be performed by it to date and is not in default in any material
respect under any of the contracts, agreements, leases, documents, commitments
or other arrangements to which it is a party or by which it or any of its
property is otherwise bound or affected.
Section
2.15
Employees
.
The
Company has complied in all material respects with all laws relating to the
employment of labor, and the Company has encountered no material labor union
difficulties. Other than pursuant to ordinary arrangements of employment
compensation, the Company is not under any obligation or liability to any
officer, director or employee of the Company.
Section
2.16
Tax
Returns and Audits
.
(a)
All
required federal, state and local Tax Returns (as defined below) of the Company
have been accurately prepared and duly and timely filed, and all federal, state
and local Taxes (as defined below) 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 has been audited by any governmental
authority; and none of the Company’s state or local income or franchise tax
returns has been audited by any governmental authority. The reserves for Taxes
reflected on the Balance Sheet are and will be sufficient for the payment of
all
unpaid Taxes payable by the Company as of the Company Balance Sheet Date. Since
the Company 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. 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. The Company is not obligated to make a payment, nor is it a party
to any agreement that under certain circumstances could obligate it to make
a
payment that would not be deductible under Section 280G of the Code. The Company
has not agreed, nor is it required, to make any adjustments under Section 481(a)
of the Code (or any similar provision of state, local and foreign law), whether
by reason of a change in accounting method or otherwise, for any Tax period
for
which the applicable statute of limitations has not yet expired. The Company
(i)
is not a party to, nor is it bound by or obligated under, any Tax sharing
agreement, Tax indemnification agreement or similar contract or arrangement,
whether written or unwritten (collectively, “
Tax
Sharing Agreements
”),
and
(ii) does not have any potential liability or obligation to any Person as a
result of, or pursuant to, any such Tax Sharing Agreements.
(b)
For
purposes of this Agreement, the following terms shall have the meanings provided
below:
(i)
“
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
Regulation 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 clause (A) or
(B).
(ii)
“
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.
Section
2.17
Patents
and Other Intangible Assets
.
(a)
The
Company (i) owns or has the right to use, free and clear of all Liens, claims
and restrictions, 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 as now conducted or proposed to be
conducted 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 liability 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.
(b)
To
the
knowledge of the Company, the Company owns and has the unrestricted right to
use
all trade secrets, if any, including know-how, negative know-how, formulas,
patterns, programs, devices, methods, techniques, inventions, designs,
processes, computer programs and technical data and all information that derives
independent economic value, actual or potential, from not being generally known
or known by competitors (collectively, “
Intellectual
Property
”)
required for or incident to the development, operation and sale of all products
and services sold by the Company, free and clear of any right, Lien or claim
of
others;
provided
,
however
,
that
the possibility exists that other Persons, completely independently of the
Company or its employees or agents, could have developed Intellectual Property
similar or identical to that of the Company. The Company is not aware of any
such development of substantially identical trade secrets or technical
information by others. All Intellectual Property can and will be transferred
by
the Company to the Surviving Corporation as a result of the Merger and without
the consent of any Person other than the Company.
Section
2.18
Employee
Benefit Plans; ERISA
.
(a)
Except
as
disclosed on
Schedule
2.18
hereto,
there are 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 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. The plans listed on
Schedule
2.18
hereto
are hereinafter referred to as the “
Employee
Benefit Plans
.”
(b)
All
current and prior material documents, including all amendments thereto, with
respect to each Employee Benefit Plan have been made available to Parent and
Acquisition Corp. or their advisors.
(c)
To
the
knowledge of the Company, all Employee Benefit Plans are in material compliance
with the applicable requirements of ERISA, the Code and any other applicable
state, federal or foreign law.
(d)
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 that might reasonably
be expected to form the basis of any such claim or lawsuit.
(e)
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.
(f)
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 financial statements
of
the Company, 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.
(g)
No
events
have occurred or are 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
for other liabilities of such Employee Benefit Plan.
Section
2.19
Title
to Property and Encumbrances
.
The
Company has good, valid and indefeasible marketable title to all properties
and
assets used in the conduct of its business (except for property held under
valid
and subsisting leases that are in full force and effect and which are not in
default) free of all Liens and other encumbrances, except Permitted Liens and
such ordinary and customary imperfections of title, restrictions and
encumbrances as do not, individually or in the aggregate, materially detract
from the value of the property or assets or materially impair the use made
thereof by the Company in its business. Without limiting the generality of
the
foregoing, the Company has good and indefeasible title to all of its properties
and assets reflected in the Balance Sheet, except for property disposed of
in
the usual and ordinary course of business since the Company Balance Sheet Date
and for property held under valid and subsisting leases that are in full force
and effect and that are not in default. For purposes of this Agreement,
“
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 that 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.
Section
2.20
Condition
of Properties
.
All
facilities, machinery, equipment, fixtures and other properties owned, leased
or
used by the Company are in reasonably good operating condition and repair,
subject to ordinary wear and tear, and are adequate and sufficient for the
Company’s business.
Section
2.21
Insurance
Coverage
.
There
is in full force and effect one or more policies of insurance issued by insurers
of recognized responsibility, insuring the Company and its properties, products
and business against such losses and risks, and in such amounts, as are
customary for corporations of established reputation engaged in the same or
similar business and similarly situated. The Company has not been refused any
insurance coverage sought or applied for, and the Company has no reason to
believe that it will be unable to renew its existing insurance coverage as
and
when the same shall expire upon terms at least as favorable to those currently
in effect, other than possible increases in premiums that do not result from
any
act or omission of the Company. No suit, proceeding or action or, to the best
current actual knowledge of the Company, threat of suit, proceeding or action
has been asserted or made against the Company within the last five years due
to
alleged bodily injury, disease, medical condition, death or property damage
arising out of the function or malfunction of a product, procedure or service
designed, manufactured, sold or distributed by the Company.
Section
2.22
Litigation
.
There
is no legal action, suit, arbitration or other legal, administrative or other
governmental proceeding pending or, to the knowledge of the Company, threatened
against or affecting the Company or its properties, assets or business, and
after reasonable investigation, the Company is not aware of any incident,
transaction, occurrence or circumstance that might reasonably be expected to
result in or form the basis for any such action, suit, arbitration or other
proceeding. The Company is not in default with respect to any order, writ,
judgment, injunction, decree, determination or award of any court or any
governmental agency or instrumentality or arbitration authority.
Section
2.23
Licenses
.
The
Company possesses from all appropriate governmental authorities all licenses,
permits, authorizations, approvals, franchises and rights necessary for the
Company to engage in the business currently conducted by it, all of which are
in
full force and effect.
Section
2.24
Interested
Party Transactions
.
No
officer, director or stockholder of the Company or any Affiliate or “associate”
(as such term is defined in Rule 405 under the Securities Act) of any such
Person or the Company has or has had, either directly or indirectly, (a) an
interest in any Person that (i) furnishes or sells services or products that
are
furnished or sold or are proposed to be furnished or sold by the Company or
(ii)
purchases from or sells or furnishes to the Company any goods or services,
or
(b) a beneficial interest in any contract or agreement to which the Company
is a
party or by which it may be bound or affected.
Section
2.25
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 (as defined
below) 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 (as defined below).
(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 material adverse effect on the Condition of the Company.
(c)
There
are
no material pending or, to the knowledge of the Company, threatened, 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 material
adverse effect on the Condition of the Company.
(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 material adverse effect on the Condition
of
the Company.
(e)
For
purposes of this Agreement, the following terms shall have the meanings provided
below:
(i)
“
Environmental
Laws
”
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.;
the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801, et seq.; as any
of the above statutes have been amended as of the date hereof, all rules,
regulations and policies promulgated pursuant to any of the above 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.
(ii)
“
Hazardous
Material
”
shall
mean 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, 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.
Section
2.26
Questionable
Payments
.
Neither
the Company nor any director, officer or, to the knowledge of the Company,
agent, employee or other Person associated with or acting on behalf of the
Company, has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payments to government officials or employees
from corporate funds; established or maintained any unlawful or unrecorded
fund
of corporate monies or other assets; made any false or fictitious entries on
the
books of record of any such corporations; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
Section
2.27
Obligations
to or by Stockholders
.
The
Company has no liability or obligation or commitment to any Stockholder or
any
Affiliate or “associate” (as such term is defined in Rule 405 under the
Securities Act) of any Stockholder, nor does any Stockholder or any such
Affiliate or associate have any liability, obligation or commitment to the
Company.
Section
2.28
Duty
to Make Inquiry
.
To the
extent that any of the representations or warranties in this Article II are
qualified by “knowledge” or “belief,” the Company represents and warrants that
it has made due and reasonable inquiry and investigation concerning the matters
to which such representations and warranties relate, including, but not limited
to, diligent inquiry of its directors, officers and key personnel.
Section
2.29
Disclosure
.
There
is no fact relating to the Company that the Company has not disclosed to Parent
and Acquisition Corp. in writing that has had or is currently having a material
and adverse effect or, insofar as the Company can now foresee, will materially
and adversely affect the Condition of the Company. No representation or warranty
by the Company herein and no information disclosed in the schedules or exhibits
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
III.
REPRESENTATIONS
AND WARRANTIES OF PARENT AND ACQUISITION CORP.
Parent
and Acquisition Corp. represent and warrant to the Company as follows.
Notwithstanding anything to the contrary contained herein, disclosure of items
in the Parent SEC Documents (as defined below) shall be deemed to be disclosure
of such items for all purposes under this Agreement, including, without
limitation, for all applicable representations and warranties of Parent and
Acquisition Corp.:
Section
3.01
Organization
and Standing
.
Parent
is a corporation duly organized and existing in good standing under the laws
of
the State of Delaware. Acquisition Corp. is a corporation duly organized and
existing in good standing under the laws of the State of Delaware. Parent and
Acquisition Corp. have heretofore delivered to the Company complete and correct
copies of their respective Certificates of Incorporation and By-laws as now
in
effect. Parent and Acquisition Corp. have full corporate power and authority
to
carry on their respective businesses as they are now being conducted and as
now
proposed to be conducted and to own or lease their respective properties and
assets. Neither Parent nor Acquisition Corp. has any subsidiaries (except
Parent’s ownership of Acquisition Corp.) or direct or indirect interest (by way
of stock ownership or otherwise) in any firm, corporation, limited liability
company, partnership, association or business. 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 Acquisition Corp., other than the capital
stock owned by Parent. Unless the context otherwise requires, all references
in
this Article III to “Parent” shall be treated as being a reference to Parent and
Acquisition Corp. taken together as one enterprise.
Section
3.02
Qualification
.
Parent
is duly qualified to conduct business as a foreign corporation and is in good
standing in each jurisdiction wherein the nature of its activities or its
properties owned or leased makes such qualification necessary, except where
the
failure to be so qualified would not have a material adverse effect on the
condition, properties, assets, liabilities or business operations of Parent
(the
“
Condition
of the Parent
”).
Section
3.03
Corporate
Authority
.
Each of
Parent and/or Acquisition Corp. (as the case may be) has full corporate power
and authority to enter into the Merger Documents and the other agreements to
be
made pursuant to the Merger Documents, and to carry out the transactions
contemplated hereby and thereby. All corporate acts and proceedings required
for
the authorization, execution, delivery and performance of the Merger Documents
and such other agreements and documents by Parent and/or Acquisition Corp.
(as
the case may be) have been duly and validly taken or will have been so taken
prior to the Closing. Each of the Merger Documents constitutes a legal, valid
and binding obligation of Parent and/or Acquisition Corp. (as the case may
be),
each is enforceable against it and/or them in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization
or
other similar laws affecting creditors’ rights generally and by general
principles of equity.
Section
3.04
Broker’s
and Finder’s Fees
.
No
Person 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 the Merger Documents, or with
respect to the consummation of the transactions contemplated thereby, except
as
set forth in the Disclosures.
Section
3.05
Capitalization
.
(a)
The
authorized capital stock of Parent consists of (i) fifty million (50,000,000)
shares of Parent Common Stock, of which seven million four hundred thousand
(7,400,000) shares are issued and outstanding, and (ii) five million (5,000,000)
shares of preferred stock, par value $0.001 per share, of which no shares have
been issued or designated as any series of preferred stock (the “
Parent
Preferred Stock
”).
Parent has no outstanding options, rights or commitments to issue shares of
Parent Common Stock or any other Equity Security 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 other Equity Security
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.
(b)
The
authorized capital stock of Acquisition Corp. consists of 3,000 shares of common
stock, par value $.001 per share (the “
Acquisition
Corp. Common Stock
”),
of
which 1,000 shares are issued and outstanding. All of the outstanding
Acquisition Corp. Common Stock is owned by Parent. All outstanding shares of
the
capital stock of Acquisition Corp. are validly issued and outstanding, fully
paid and non-assessable, and none of such shares have been issued in violation
of the preemptive rights of any Person. Acquisition Corp. has no outstanding
options, rights or commitments to issue shares of Acquisition Corp. Common
Stock
or any other Equity Security of Acquisition Corp., and there are no outstanding
securities convertible or exercisable into or exchangeable for shares of
Acquisition Corp. Common Stock or any other Equity Security of Acquisition
Corp.
Section
3.06
Acquisition
Corp
.
Acquisition Corp. is a wholly-owned Delaware subsidiary of Parent that was
formed specifically for the purpose of the Merger and that 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 the Merger Documents and
the
other agreements to be made pursuant to or in connection with the Merger
Documents.
Section
3.07
Validity
of Shares
.
The
shares of Parent Common Stock to be issued at the Closing pursuant to Section
1.06(a)(ii) hereof, when issued and delivered in accordance with the terms
of
the Merger Documents, shall be duly and validly issued, fully paid and
non-assessable. Based in part on the representations and warranties of the
Stockholders as contemplated by Article IV hereof and assuming the accuracy
thereof, the issuance of the Parent Common Stock upon consummation of the Merger
pursuant to Section 1.06(a)(ii) will be exempt from the registration and
prospectus delivery requirements of the Securities Act and from the
qualification or registration requirements of any applicable state “Blue Sky” or
securities laws.
Section
3.08
SEC
Reporting and Compliance
.
(a)
Parent
filed a registration statement on Form SB-2 under the Securities Act, which
became effective on or about August 9, 2006. Since that date, Parent has timely
filed with the U.S. Securities and Exchange Commission (the “
Commission
”)
all
registration statements, proxy statements, information statements and reports
required to be filed pursuant to the Securities Exchange Act of 1934, as amended
(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 made available to the Company true and complete copies of the registration
statements, information statements and other reports (collectively, the
“
Parent
SEC Documents
”)
filed
by 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)
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
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 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 of 1940, as amended.
(e)
The
shares of Parent Common Stock are quoted on the Over-the-Counter (OTC) Bulletin
Board under the symbol “BYWT.OB” and Parent is in compliance in all material
respects with all rules and regulations of the OTC Bulletin Board applicable
to
it and the Parent Common Stock.
(f)
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 and of the OTC Bulletin Board.
(g)
The
Parent SEC Documents include all certifications and statements required of
it,
if any, by (i) Rule 13a-14 or 15d-14 under the Exchange Act, and (ii) 18 U.S.C.
Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), and each of such
certifications and statements contain no qualifications or exceptions to the
matters certified therein other than a knowledge qualification, permitted under
such provision, and have not been modified or withdrawn and neither Parent
nor
any of its officers has received any notice from the Commission questioning
or
challenging the accuracy, completeness, form or manner of filing or submission
of such certifications or statements.
(h)
Parent
has otherwise complied with the Securities Act, Exchange Act and all other
applicable federal and state securities laws.
Section
3.09
Financial
Statements
.
The
balance sheets and statements of operations, stockholders’ equity and cash flows
contained in the Parent SEC Documents (the “
Parent
Financial Statements
”)
(a)
have been prepared in accordance with GAAP applied on a basis consistent with
prior periods (and, in the case of unaudited financial information, on a basis
consistent with year-end audits), (b) are in accordance with the books and
records of Parent and (c) present fairly in all material respects the financial
condition of Parent at the dates therein specified and the results of its
operations and changes in financial position for the periods therein specified.
The financial statements included in Parent’s Form 10-KSB for the year ended May
31, 2007 were audited by Webb & Company, P.A., Parent’s independent
registered public accounting firm.
Section
3.10
Governmental
Consents
.
All
material consents, approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with any federal or
state
governmental authority on the part of Parent or Acquisition Corp. required
in
connection with the consummation of the Merger shall have been obtained prior
to, and be effective as of, the Closing.
Section
3.11
Compliance
with Laws and Other Instruments
.
The
execution, delivery and performance by Parent and/or Acquisition Corp. of the
Merger Documents and the other agreements to be made by Parent or Acquisition
Corp. pursuant to or in connection with the Merger Documents and the
consummation by Parent and/or Acquisition Corp. of the transactions contemplated
by the Merger Documents will not cause Parent and/or Acquisition Corp. to
violate or contravene (a) any provision of law, (b) any rule or regulation
of
any agency or government, (c) any order, judgment or decree of any court or
(d)
any provision of their respective charters or By-laws as amended and in effect
on and as of the Closing Date and will not violate or be in conflict with,
result in a breach of or constitute (with or without notice or lapse of time,
or
both) a default under any material indenture, loan or credit agreement, deed
of
trust, mortgage, security agreement or other agreement or contract to which
Parent or Acquisition Corp. is a party or by which Parent and/or Acquisition
Corp. or any of their respective properties is bound.
Section
3.12
No
General Solicitation
.
In
issuing Parent Common Stock in the Merger hereunder, neither Parent nor anyone
acting on its behalf has offered to sell the Parent Common Stock by any form of
general solicitation or advertising.
Section
3.13
Binding
Obligations
.
The
Merger Documents constitute the legal, valid and binding obligations of Parent
and Acquisition Corp., and are enforceable against Parent and Acquisition Corp.,
in accordance with their respective 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
3.14
Absence
of Undisclosed Liabilities
.
Neither
Parent nor Acquisition Corp. has any material obligation or liability (whether
accrued, absolute, contingent, liquidated or otherwise, whether due or to become
due), 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 in the most recent Parent
SEC Document filed by Parent (the “
Parent
Balance Sheet
”)
or the
notes to the Parent Financial Statements, (c) current liabilities incurred
and
obligations under agreements entered into in the usual and ordinary course
of
business since the date of the Parent Balance Sheet (the “
Parent
Balance Sheet Date
”),
none
of which (individually or in the aggregate) materially and adversely affects
the
Condition of Parent and (d) by the specific terms of any written agreement,
document or arrangement attached as an exhibit to the Parent SEC
Documents.
Section
3.15
Changes
.
Since
the Parent Balance Sheet Date, except as disclosed in the Parent SEC Documents,
Parent has not (a) incurred any debts, obligations or liabilities, absolute,
accrued or, to 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 material adverse effect on the Condition of the Parent,
(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) 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 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
material adverse effect on the Condition of the Parent, (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 $5,000 in the aggregate or (r) entered into
any agreement, or otherwise obligated itself, to do any of the
foregoing.
Section
3.16
Tax
Returns and Audits
.
All
required federal, state and local Tax Returns of Parent have been accurately
prepared in all material respects and duly and timely 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 material adverse effect upon the Condition of the Parent.
Parent is not and has not been delinquent in the payment of any Tax. Parent
has
not had a Tax deficiency assessed against it. None of Parent’s federal income,
state and local income and franchise tax returns has been audited by any
governmental authority. The reserves for Taxes reflected on the Parent Balance
Sheet are sufficient for the payment of all unpaid Taxes payable by 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 Parent now pending, and Parent has not received any notice of
any
proposed audits, investigations, claims or administrative proceedings relating
to Taxes or any Tax Returns.
Section
3.17
Employee
Benefit Plans; ERISA
.
(a)
Except
as
disclosed in the Parent SEC Documents, there are 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 Parent. Any plans listed
in
the Parent SEC Documents are hereinafter referred to as the “
Parent
Employee Benefit Plans
.”
(b)
Any
current and prior material documents, including all amendments thereto, with
respect to each Parent Employee Benefit Plan have been given to the Company
or
its advisors.
(c)
All
Parent Employee Benefit Plans are in material compliance with the applicable
requirements of ERISA, the Code and any other applicable state, federal or
foreign law.
(d)
There
are
no pending, or to the knowledge of Parent, threatened, claims or lawsuits which
have been asserted or instituted against any Parent Employee Benefit Plan,
the
assets of any of the trusts or funds under the Parent Employee Benefit Plans,
the plan sponsor or the plan administrator of any of the Parent Employee Benefit
Plans or against any fiduciary of a Parent Employee Benefit Plan with respect
to
the operation of such plan.
(e)
There
is
no pending, or to the knowledge of Parent, threatened, 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 Parent Employee Benefit Plan.
(f)
No
actual
or, to the knowledge of Parent, contingent liability exists with respect to
the
funding of any Parent Employee Benefit Plan or for any other expense or
obligation of any Parent Employee Benefit Plan, except as disclosed on the
financial statements of Parent or the Parent SEC Documents, and to the knowledge
of Parent, 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.
Section
3.18
Litigation
.
There
is no legal action, suit, arbitration or other legal, administrative or other
governmental proceeding pending or, to the knowledge of Parent, threatened
against or affecting Parent or Acquisition Corp. or any of their respective
properties, assets or businesses. To the knowledge of Parent, neither Parent
nor
Acquisition Corp. is in default with respect to any order, writ, judgment,
injunction, decree, determination or award of any court or any governmental
agency or instrumentality or arbitration authority.
Section
3.19
Licenses
.
Parent
possesses from all appropriate governmental authorities all licenses, permits,
authorizations, approvals, franchises and rights necessary for the Company
to
engage in the business currently conducted by it, all of which are in full
force
and effect.
Section
3.20
Interested
Party Transactions
.
Except
as disclosed in the Parent SEC Documents, no officer, director or stockholder
of
Parent or any Affiliate or “associate” (as such term is defined in Rule 405
under the Securities Act) of any such Person or of Parent has or has had, either
directly or indirectly, (a) an interest in any Person that (i) furnishes or
sells services or products that are furnished or sold or are proposed to be
furnished or sold by Parent or (ii) purchases from or sells or furnishes to
Parent any goods or services, or (b) a beneficial interest in any contract
or
agreement to which Parent is a party or by which it or any of its assets may
be
bound or affected.
Section
3.21
Questionable
Payments
.
Neither
Parent, Acquisition Corp. nor, to the knowledge of Parent, any director,
officer, agent, employee or other Person associated with or acting on behalf
of
Parent or Acquisition Corp. has used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payments to government
officials or employees from corporate funds; established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; made any false
or fictitious entries on the books of record of any such corporations; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
Section
3.22
Obligations
to or by Stockholders
.
Except
as disclosed in the Parent SEC Documents, 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 Parent.
Section
3.23
Assets
and Contracts
.
Except
as expressly set forth in this Agreement, the Parent Balance Sheet or the notes
thereto, or the Parent SEC Documents, Parent is not a party to any written
or
oral agreement not made in the ordinary course of business that is material
to
Parent. Parent does not own any real property. Except as expressly set forth
in
this Agreement, the Parent Balance Sheet or the notes thereto, or the Parent
SEC
Documents, Parent is not a party to or otherwise barred by any written or oral
(a) agreement with any labor union, (b) agreement for the purchase of fixed
assets or for the purchase of materials, supplies or equipment in excess of
normal operating requirements, (c) agreement for the employment of any officer,
individual employee or other Person on a full-time basis or any agreement with
any Person for consulting services, (d) bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
hospitalization or life insurance or similar plan, contract or understanding
with respect to any or all of the employees of Parent or any other Person,
(e)
indenture, loan or credit agreement, note agreement, deed of trust, mortgage,
security agreement, promissory note or other agreement or instrument relating
to
or evidencing Indebtedness for Borrowed Money or subjecting any asset or
property of Parent to any Lien or evidencing any Indebtedness, (f) guaranty
of
any Indebtedness, (g) lease or agreement under which Parent is lessee of or
holds or operates any property, real or personal, owned by any other Person,
(h)
lease or agreement under which Parent is lessor or permits any Person to hold
or
operate any property, real or personal, owned or controlled by Parent, (i)
agreement granting any preemptive right, right of first refusal or similar
right
to any Person, (j) agreement or arrangement with any Affiliate or any
“associate” (as such term is defined in Rule 405 under the Securities Act) of
Parent or any present or former officer, director or stockholder of Parent,
(k)
agreement obligating Parent to pay any royalty or similar charge for the use
or
exploitation of any tangible or intangible property, (1) covenant not to compete
or other restriction on its ability to conduct a business or engage in any
other
activity, (m) distributor, dealer, manufacturer’s representative, sales agency,
franchise or advertising contract or commitment, (n) agreement to register
securities under the Securities Act, (o) collective bargaining agreement or
(p)
agreement or other commitment or arrangement 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 maintains no
insurance policies or insurance coverage of any kind with respect to Parent,
its
business, premises, properties, assets, employees and agents. No consent of
any
bank or other depository is required to maintain any bank account, other deposit
relationship or safety deposit box of Parent in effect following the
consummation of the Merger and the transactions contemplated hereby.
Section
3.24
Employees
.
Other
than pursuant to ordinary arrangements of employment compensation, Parent is
not
under any obligation or liability to any officer, director, employee or
Affiliate of Parent.
Section
3.25
Disclosure
.
There
is no fact relating to Parent that Parent has not disclosed to the Company
in
writing that materially and adversely affects nor, insofar as Parent can now
foresee, will materially and adversely affect, the condition (financial or
otherwise), properties, assets, liabilities, business operations, results of
operations or prospects of Parent. No representation or warranty by Parent
herein and no information disclosed in the schedules or exhibits hereto by
Parent 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
IV.
ADDITIONAL
REPRESENTATIONS, WARRANTIES AND
COVENANTS
OF THE STOCKHOLDERS
Promptly
after the Effective Time, Parent shall cause to be mailed to each holder of
record of Company Common Stock that was converted pursuant to Section 1.06
hereof into the right to receive Parent Common Stock a letter of transmittal
(“
Letter
of Transmittal
”)
that
shall contain additional representations, warranties and covenants of such
Stockholder, including without limitation, that (a) such Stockholder has full
right, power and authority to deliver such Company Common Stock and Letter
of
Transmittal, (b) the delivery of such Company Common Stock will not violate
or
be in conflict with, result in a breach of or constitute a default under, any
indenture, loan or credit agreement, deed of trust, mortgage, security agreement
or other agreement or instrument to which such Stockholder is bound or affected,
(c) such Stockholder has good, valid and marketable title to all shares of
Company Common Stock indicated in such Letter of Transmittal and that such
Stockholder is not affected by any voting trust, agreement or arrangement
affecting the voting rights of such Company Common Stock, (d) whether such
Stockholder is an “accredited investor,” as such term is defined in Regulation D
under the Securities Act and that such Stockholder is acquiring Parent Common
Stock for investment purposes, and not with a view to selling or otherwise
distributing such Parent Common Stock in violation of the Securities Act or
the
securities laws of any state and (e) such Stockholder has had an opportunity
to
ask and receive answers to any questions such Stockholder may have had
concerning the terms and conditions of the Merger and the Parent Common Stock
and has obtained any additional information that such Stockholder has requested.
Delivery shall be effected, and risk of loss and title to the Company Common
Stock shall pass, only upon delivery to Parent (or an agent of Parent) of (x)
certificates evidencing ownership thereof as contemplated by Section 1.07 hereof
(or affidavit of lost certificate), and (y) the Letter of Transmittal containing
the representations, warranties and covenants contemplated by this Article
IV.
ARTICLE
V.
CONDUCT
OF BUSINESSES PENDING THE MERGER.
Section
5.01
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:
(a)
the
business of the Company shall be conducted only in the ordinary
course;
(b)
the
Company shall not (i) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of its
capital stock; (ii) amend its Articles of Incorporation or By-laws except to
effectuate the transactions contemplated in the Disclosures or (iii) 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;
(c)
the
Company shall not (i) issue or agree to issue any additional shares of, or
options, warrants or rights of any kind to acquire any shares of, Company Common
Stock, except to issue shares of Company Common Stock in connection with any
matter relating to the Disclosures (ii) acquire or dispose of any fixed assets
or acquire or dispose of any other substantial assets other than in the ordinary
course of business; (iii) incur additional Indebtedness or any other liabilities
or enter into any other transaction other than in the ordinary course of
business; (iv) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing or (v) 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;
(d)
the
Company shall use its best efforts to preserve intact the business organization
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;
(e)
the
Company will not, nor will it authorize any director or authorize or permit
any
officer or employee or any attorney, accountant or other representative retained
by it to make, solicit, encourage any inquiries with respect to, or engage
in
any negotiations concerning, any Acquisition Proposal (as defined below for
purposes of this paragraph). The Company will promptly advise Parent orally
and
in writing of any such inquiries or proposals (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
Company or for the acquisition of a substantial equity interest in it or any
material assets of it other than as contemplated by this Agreement. The Company
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
(f)
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.
Section
5.02
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 by this Agreement:
(a)
the
business of Parent and Acquisition Corp. shall be conducted only in the ordinary
course;
provided
,
however
,
that
Parent shall take the steps necessary to have discontinued its existing business
without liability to Parent or Acquisition Corp. immediately following the
Effective Time;
(b)
neither
Parent nor Acquisition Corp. shall (i) directly or indirectly redeem, purchase
or otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of its capital stock; (ii) amend its charter or by-laws other than to
effectuate the transactions contemplated hereby; or (iii) 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;
(c)
neither
Parent nor Acquisition Corp. shall (i) issue or agree to issue any additional
shares of, or options, warrants or rights of any kind to acquire shares of,
its
capital stock; (ii) acquire or dispose of any assets other than in the ordinary
course of business (except for dispositions in connection with Section 5.02(a)
hereof); (iii) incur additional Indebtedness or any other liabilities or enter
into any other transaction except in the ordinary course of business; (iv)
enter
into any contract, agreement, commitment or arrangement with respect to any
of
the foregoing or (v) 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;
(d)
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 for purposes of this paragraph). Parent will promptly advise
the Company orally and in writing of any such inquiries or proposals (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 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
(e)
neither
Parent nor Acquisition Corp. will enter into any new employment agreements
with
any of their officers or employees or grant any increases in the compensation
or
benefits of their officers and employees.
ARTICLE
VI.
ADDITIONAL
AGREEMENTS
Section
6.01
Access
and Information
.
The
Company, on the one hand, and Parent and Acquisition Corp., on the other hand,
shall each afford to the other and to the other’s accountants, counsel and other
representatives full access during normal business hours throughout the period
prior to the Effective Time to 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 6.01 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 (a) is already in such party’s possession or
(b) 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 (c) 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
(i) 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), (ii) any disclosure of such information may be made as to
which the party hereto furnishing such information has consented in writing
and
(iii) any such information may be disclosed pursuant to a judicial,
administrative or governmental order or request;
provided
,
further
,
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 that 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
6.02
Additional
Agreements
.
Subject
to the terms and conditions herein provided, each of the parties hereto agrees
to use its commercially reasonable 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 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
6.03
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 or of the principal trading exchange or market
for
the Parent Common Stock, provided, that in such case Parent will use its best
efforts to allow the Company to review and reasonably approve any such press
release or public announcement prior to its release.
Section
6.04
Appointment
of Directors and Officers
.
Immediately at the Effective Time, Parent shall accept the resignations of
the
current officers and directors of Parent, and shall cause the persons listed
as
directors in
Exhibit
E
hereto
to be elected to the Board of Directors of Parent. At the first annual meeting
of Parent stockholders and thereafter, the election of members of Parent’s Board
of Directors shall be accomplished in accordance with the By-laws of Parent
and
the rules of the Commission.
Section
6.05
Exchange
Listing
.
Promptly following the Effective Time, Parent shall take all required actions,
upon satisfaction of the original listing requirements, to list the Parent
Common Stock for trading on the American Stock Exchange or the NASDAQ Stock
Market.
Section
6.06
Assumption
of Agreements
.
At the
Effective Time, Parent shall affirmatively assume any all liabilities and
obligations of the Company with respect to the Private Placement and the
Merger.
ARTICLE
VII.
CONDITIONS
TO PARTIES’ OBLIGATIONS
Section
7.01
Conditions
to Parent and Acquisition Corp. Obligations
.
The
obligations of Parent and Acquisition Corp. under the Merger Documents 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)
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)
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)
There
shall not exist on the Closing Date any Default (as defined below) or Event
of
Default (as defined below) or any event or condition that, with the giving
of
notice or lapse of time or both, would constitute a Default or Event of Default
and, since the Company Balance Sheet Date, there shall have been no material
adverse change in the Condition of the Company. For purposes of this Agreement,
“
Default
”
shall
mean a default or failure in the due observance or performance of any covenant,
condition or agreement on the part of a party to be observed or performed under
the terms of the Merger Documents, if such default or failure in performance
shall remain un-remedied for five (5) days. Furthermore, for purposes of this
Agreement, “
Event
of Default
”
shall
mean (i) the failure to pay any Indebtedness for Borrowed Money, or any interest
or premium thereon, within five (5) days after the same shall become due,
whether such Indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise, (ii) an event of default
under any agreement or instrument evidencing or securing or relating to any
such
Indebtedness or (iii) the failure to perform or observe any material term,
covenant, agreement or condition on its part to be performed or observed under
any agreement or instrument evidencing or securing or relating to any such
Indebtedness when such term, covenant or agreement is required to be performed
or observed.
(d)
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, the Merger Documents or the carrying out
of
the transactions contemplated by the Merger Documents.
(e)
Parent
and Acquisition Corp. shall have received the following:
(i)
copies
of
resolutions of the Board of Directors and the Stockholders, certified by the
Secretary of the Company, authorizing and approving the execution, delivery
and
performance of the Merger Documents and all other documents and instruments
to
be delivered pursuant thereto;
(ii)
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 Articles
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;
(iii)
a
certificate, dated the Closing Date, executed by the President and Chief
Executive Officer of the Company certifying that the undersigned officers have
no knowledge of any plan to issue any securities of the Company, and the Company
has not entered into any agreement, written or oral, to issue any securities
of
the Company except as described in the Disclosures or this
Agreement;
(iv)
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 Nevada and evidence that the
Company is qualified to transact business as a foreign corporation and is in
good standing in each state of the United States and in each other jurisdiction
where the character of the property owned or leased by it or the nature of
its
activities makes such qualification necessary; and
(v)
such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as Parent and Acquisition Corp. may reasonably
request.
(f)
All
corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments and documents mentioned herein or incident to any such transactions
shall be reasonably satisfactory in form and substance to Parent and Acquisition
Corp. The Company shall furnish to Parent and Acquisition Corp. such supporting
documentation and evidence of the satisfaction of any or all of the conditions
precedent specified in this Section 7.01 as Parent or its counsel may reasonably
request.
Section
7.02
Conditions
to the Company’s Obligations
.
The
obligations of the Company under the Merger Documents 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)
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)
Parent
and Acquisition Corp. shall have performed and complied in all material respects
with all agreements and conditions required by the Merger Documents to be
performed or complied with by them on or before the Closing Date.
(c)
There
shall not exist on the Closing Date any Default or Event of Default or any
event
or condition that, with the giving of notice or lapse of time or both, would
constitute a Default or Event of Default and, since the Parent Balance Sheet
Date, there shall have been no material adverse change in the Condition of
the
Parent.
(d)
The
Company shall have received the following:
(i)
copies
of
resolutions of Parent’s and Acquisition Corp.’s respective boards of directors
and the sole stockholder of Acquisition Corp., certified by their respective
Secretaries, authorizing and approving, to the extent applicable, the execution,
delivery and performance of the Merger Documents and all other documents and
instruments to be delivered by them pursuant thereto;
(ii)
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 this Agreement and further
certifying that the Certificates of Incorporation and By-laws of Parent and
Acquisition Corp. appended thereto have not been amended or
modified.
(iii)
a
certificate, dated the Closing Date, executed by the President and Chief
Financial Officer of each of the Parent and Acquisition Corp., certifying that
(A) except for the filing of the Certificate of Merger and the Articles of
Merger, all consents, authorizations, orders and approvals of, and filings
and
registrations with, any court, governmental body or instrumentality that are
required for the execution and delivery of the Merger Documents and the
consummation of the Merger shall have been duly made or obtained, and all
material consents by third parties required for the Merger have been obtained
and (B) no action or proceeding before any court, governmental body or agency
has been threatened, asserted or instituted to restrain or prohibit, or to
obtain substantial damages in respect of, the Merger Documents or the carrying
out of the transactions contemplated by any of the Merger
Documents;
(iv)
a
certificate of American Registrar & Transfer Co., Parent’s transfer agent
and registrar, certifying, as of the business day prior to the Closing Date,
a
true and complete list of the names and addresses of the record owners of all
of
the outstanding shares of Parent Common Stock, together with the number of
shares of Parent Common Stock held by each record owner and the total number
of
shares of Parent Common Stock then outstanding;
(v)
the
executed resignations of all directors and officers of Parent, with the director
resignations to take effect at the Closing Date;
(vi)
evidence
as of a recent date and within five (5) days of the Effective Date of the good
standing and corporate existence of each of Parent and Acquisition Corp. issued
by the Secretary of State of the State of Delaware and evidence that Parent
and
Acquisition Corp. are qualified to transact business as foreign corporations
and
are in good standing in each state of the United States and in each other
jurisdiction where the character of the property owned or leased by them or
the
nature of their activities makes such qualification necessary; and
(vii)
such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as the Company may reasonably
request.
(e)
All
corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments and documents mentioned herein or incident to any such transactions
shall be satisfactory in form and substance to the Company. Parent and
Acquisition Corp. shall furnish to the Company such supporting documentation
and
evidence of satisfaction of any or all of the conditions specified in this
Section 7.02 as the Company may reasonably request.
(f)
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, the Merger Documents or the carrying out
of
the transactions contemplated by the Merger Documents.
ARTICLE
VIII.
INDEMNIFICATION
AND RELATED MATTERS
Section
8.01
Indemnification
by Parent
.
Parent
shall indemnify and hold harmless the Company, the Stockholders and the
investors in the Private Placement (the “
Investors
”
and
together with the Company and the Stockholders, the “
Company
Indemnified Parties
”),
and
shall reimburse the Company Indemnified Parties for, any loss, liability, claim,
damage, expense (including, but not limited to, costs of investigation and
defense and reasonable attorneys’ fees) or diminution of value (collectively,
“
Damages
”)
arising from or in connection with (a) any inaccuracy, in any material respect,
in any of the representations and warranties of Parent and Acquisition Corp.
in
this Agreement or in any certificate delivered by Parent and Acquisition Corp.
to the Company pursuant to this Agreement, or any actions, omissions or
statements of fact inconsistent with any such representation or warranty, (b)
any failure by Parent or Acquisition Corp. to perform or comply in any material
respect with any covenant or agreement in this Agreement, (c) any claim for
brokerage or finder’s fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such party with
Parent or Acquisition Corp. in connection with any of the transactions
contemplated by this Agreement, (d) taxes attributable to any transaction or
event occurring on or prior to the Closing, (e) any claim relating to or arising
out of any liabilities reflected in the Parent Financial Statement or with
respect to accounting fees arising thereafter or (f) any litigation, action,
claim, proceeding or investigation by any third party relating to or arising
out
of the business or operations of Parent, or the actions of Parent or any holder
of Parent capital stock prior to the Effective Time.
Section
8.02
Survival
.
All
representations, warranties, covenants and agreements of Parent and Acquisition
Corp. contained in this Agreement or in any certificate delivered pursuant
to
this Agreement shall survive the Closing for the time period set forth in
Section 8.03 notwithstanding any investigation conducted with respect thereto.
The representations and warranties of the Company contained in this Agreement
or
in any certificate delivered pursuant to this Agreement shall not survive the
Closing.
Section
8.03
Time
Limitations
.
Neither
Parent nor Acquisition Corp. shall have any liability (for indemnification
or
otherwise) with respect to any representation or warranty, or agreement to
be
performed and complied with prior to the Effective Time, unless on or before
the
two-year anniversary of the Effective Time (the “
Claims
Deadline
”),
Parent is given notice of a claim with respect thereto, in accordance with
Section 8.05, specifying the factual basis therefor in reasonable detail to
the
extent then known by the Company Indemnified Parties.
Section
8.04
Limitation
on Liability
.
The
obligations of Parent and Acquisition Corp. to the Company Indemnified Parties
set forth in Section 8.01 shall be subject to the following
limitations:
(a)
The
aggregate liability of Parent and Acquisition Corp. to the Company Indemnified
Parties under this Agreement shall be payable by the issuance of additional
shares of Parent Common Stock pursuant to Section 8.06.
(b)
Other
than claims based on fraud or for specific performance, injunctive or other
equitable relief, the indemnity provided in this Article VIII shall be the
sole
and exclusive remedy of the Company Indemnified Parties against Parent and
Acquisition Corp. at law or equity for any matter covered by Section
8.01.
Section
8.05
Notice
of Claims
.
(a)
If,
at
any time on or prior to the Claims Deadline, any of the Company Indemnified
Parties shall assert a claim for indemnification pursuant to Section 8.01,
such
Company Indemnified Party shall submit to Parent a written claim in good faith
signed by an authorized officer of the Company or other Company Indemnified
Party, as applicable, stating (i) that a Company Indemnified Party incurred
or
reasonably believes it may incur Damages and the reasonable estimate of the
amount of any such Damages; (ii) in reasonable detail, the facts alleged as
the
basis for such claim and the section or sections of this Agreement alleged
as
the basis or bases for the claim; and (iii) if the Damages have actually been
incurred, the number of additional shares of Parent Common Stock to which the
Stockholders and Investors are entitled to with respect to such Damages, which
shall be determined as provided in Section 8.06 below. If the claim is for
Damages which the Company Indemnified Parties reasonably believe may be incurred
or are otherwise un-liquidated, the written claim of the applicable Company
Indemnified Party shall state the reasonable estimate of such Damages, in which
event a claim shall be deemed to have been asserted under this Article VIII
in
the amount of such estimated Damages, but no distribution of additional shares
of Parent Common Stock to the Stockholders and Investors pursuant to Section
8.06 below shall be made until such Damages have actually been
incurred.
(b)
In
the
event that any action, suit or proceeding is brought against any Company
Indemnified Party with respect to which Parent may have liability under this
Article VIII, Parent shall have the right, at its cost and expense, to defend
such action, suit or proceeding in the name and on behalf of the Company
Indemnified Party;
provided
,
however
,
that a
Company Indemnified Party shall have the right to retain its own counsel, with
fees and expenses paid by Parent, if representation of the Company Indemnified
Party by counsel retained by Parent would be inappropriate because of actual
or
potential differing interests between Parent and the Company Indemnified Party.
In connection with any action, suit or proceeding subject to Article VIII,
Parent and each Company Indemnified Party agree to render to each other such
assistance as may reasonably be required in order to ensure proper and adequate
defense of such action, suit or proceeding. Parent shall not, without the prior
written consent of the applicable Company Indemnified Party, which consent
shall
not be unreasonably withheld or delayed, settle or compromise any claim or
demand if such settlement or compromise does not include an irrevocable and
unconditional release of such Company Indemnified Party for any liability
arising out of such claim or demand.
Section
8.06
Payment
of Damages
.
In the
event that the Company Indemnified Parties shall be entitled to indemnification
pursuant to this Article VIII for actual Damages incurred by them, Parent shall,
within thirty (30) days after the final determination of the amount of such
Damages, issue to the Stockholders and the Investors that number of additional
shares of Parent Common Stock in an aggregate amount equal to the quotient
obtained by dividing (x) the amount of such Damages by (y) the Fair Market
Value
per share of the Parent Common Stock as of the date (the “
Determination
Date
”)
of the
submission of the notice of claim to Parent pursuant to Section 8.05. Such
shares of Parent Common Stock shall be issued to the Stockholders and the
Investors pro rata, in proportion to the number of shares of Parent Common
Stock
issued (or issuable) to the Stockholders and the Investors at the Effective
Time
and under the Private Placement. For purposes of this Section 8.06,
“
Fair
Market Value
”
shall
mean, with respect to a share of Parent Common Stock on any Determination Date,
the average of the daily closing prices for the 10 consecutive business days
prior to such date. The closing price for each day shall be the last sales
price
or in case no sale takes place on such day, the average of the closing high
bid
and low asked prices, in either case (a) as officially quoted on the OTC
Bulletin Board, the NASDAQ Stock Market or such other market on which the Parent
Common Stock is then listed for trading or quoted, or (b) if, in the reasonable
judgment of the Board of Directors of Parent, the OTC Bulletin Board or the
NASDAQ Stock Market is no longer the principal United States market for the
Parent Common Stock, then as quoted on the principal United States market for
the Parent Common Stock as determined by the Board of Directors of Parent,
or
(c) if, in the reasonable judgment of the Board of Directors of Parent, there
exists no principal United States market for the Parent Common Stock, then
as
reasonably determined in good faith by the Board of Directors of
Parent.
ARTICLE
IX.
TERMINATION
PRIOR TO CLOSING
Section
9.01
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, or (ii) materially breach any of their
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 or (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 that 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; or
(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 October 1, 2007 for any
reason other than delay or nonperformance of the party seeking such
termination.
Section
9.02
Termination
of Obligations
.
Termination of this Agreement pursuant to this Article IX shall terminate all
obligations of the parties hereunder, except for the obligations under Sections
6.1, 10.03 and 10.11;
provided
,
however
,
that
termination pursuant to paragraphs (b) or (c) of Section 9.01 shall not relieve
the defaulting or breaching party or parties from any liability to the other
parties hereto.
ARTICLE
X.
MISCELLANEOUS
Section
10.01
Notices
.
Any
notice, request or other communication hereunder shall be given in writing
and
shall be served either personally, by overnight delivery or delivered by mail,
certified return receipt and addressed to the following addresses:
(a)
If
to
Parent or Acquisition Corp.:
Transdel
Pharmaceuticals, Inc.
300
Park
Avenue
Suite
1700
New
York,
New York 10022
Attention:
Rolf Harms
With
a
copy to:
Anslow
& Jaclin, LLP
195
Route
9 South, Suite 204
Manalapan,
New Jersey 07726
Attention:
Gregg E. Jaclin, Esq.
(b)
If
to the
Company:
Trans-Pharma
Corporation
4225
Executive Square, Suite 460
La
Jolla,
California 92037
Attention:
Juliet Singh, Ph.D.
With
a
copy to:
Haynes
and Boone, LLP
153
East
53rd Street
Suite
4900
New
York,
New York 10022
Attention:
Harvey J. Kesner, Esq.
and
Foley
& Lardner LLP
402
W.
Broadway, Suite 2100
San
Diego, California 92101
Attention:
Adam Lenain
Notices
shall be deemed received at the earlier of actual receipt or three (3) business
days following mailing. Counsel for a party (or any authorized representative)
shall have authority to accept delivery of any notice on behalf of such
party.
Section
10.02
Entire
Agreement
.
This
Agreement, including the schedules and exhibits attached hereto and other
documents referred to herein, contains the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement supersedes
all
prior agreements and undertakings between the parties with respect to such
subject matter.
Section
10.03
Expenses
.
Each
party shall bear and pay all of the legal, accounting and other expenses
incurred by it in connection with the transactions contemplated by this
Agreement.
Section
10.04
Time
.
Time is
of the essence in the performance of the parties’ respective obligations herein
contained.
Section
10.05
Severability
.
Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any
other jurisdiction.
Section
10.06
Successors
and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns and heirs; provided, however, that
neither party shall directly or indirectly transfer or assign any of its rights
hereunder in whole or in part without the written consent of the others, which
may be withheld in its sole discretion, and any such transfer or assignment
without said consent shall be void.
Section
10.07
No
Third Parties Benefited
.
This
Agreement is made and entered into for the sole protection and benefit of the
parties hereto, their successors, assigns and heirs, and no other Person shall
have any right or action under this Agreement.
Section
10.08
Counterparts
.
This
Agreement may be executed in one or more counterparts, with the same effect
as
if all parties had signed the same document. Each such counterpart shall be
an
original, but all such counterparts together shall constitute a single
agreement.
Section
10.09
Recitals,
Schedules and Exhibits
.
The
Recitals, Schedules and Exhibits to this Agreement are incorporated herein
and,
by this reference, made a part hereof as if fully set forth herein.
Section
10.10
Section
Headings and Gender
.
The
Section headings used herein are inserted for reference purposes only and shall
not in any way affect the meaning or interpretation of this Agreement. All
personal pronouns used in this Agreement shall include the other genders,
whether used in the masculine, feminine or neuter gender, and the singular
shall
include the plural, and vice versa, whenever and as often as may be
appropriate.
Section
10.11
Governing
Law
.
This
Agreement shall be governed by and construed and enforced in accordance with
the
internal laws of the State of New York without regard to principles of conflicts
of laws, except that the applicable terms of Section 1 shall be governed by
the
DGCL and the NRS.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement to be binding
and effective as of the day and year first above written.
|
TRANSDEL
PHARMACEUTICALS, INC.
|
|
By:
|
/s/
Rolf Harms
|
|
Name:
Rolf Harms
|
|
Title:
President
|
|
ACQUISITION
CORP:
|
TRANS-PHARMA
ACQUISITION CORP.
|
|
By:
|
/s/
Rolf Harms
|
|
Name:
Rolf Harms
|
|
Title:
President
|
|
|
THE
COMPANY:
|
TRANS-PHARMA
CORPORATION
|
|
By:
|
/s/
Juliet Singh, Ph.D.
|
|
Name:
Juliet Singh, Ph.D
|
|
|
[SIGNATURE
PAGE TO AGREEMENT OF MERGER AND PLAN OF
REORGANIZATION]
Exhibit
2.2
CERTIFICATE
OF MERGER
OF
TRANS-PHARMA
ACQUISITION CORP.
(a
Delaware corporation)
WITH
AND INTO
TRANS-PHARMA
CORPORATION
(a
Nevada corporation)
(Pursuant
to Section 252(c) of the Delaware General Corporation Law)
The
undersigned corporations, organized and existing under and by virtue of the
General Corporation Law of the State of Delaware and the Nevada Revised
Statutes, respectively, do hereby certify:
FIRST:
Trans-Pharma Acquisition Corp., a Delaware corporation, is being merged into
Trans-Pharma Corporation, a Nevada corporation.
SECOND:
That an
Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), whereby
Trans-Pharma Acquisition Corp. is merged with and into Trans-Pharma Corporation,
has been approved, adopted, certified, executed and acknowledged by each of
the
constituent corporations in accordance with the requirements of Section 252(c)
of the General Corporation Law of the State of Delaware and Section 92A.120
of
the Nevada Revised Statutes.
THIRD:
That the
name of the surviving corporation is Trans-Pharma Corporation.
FOURTH:
That the
Articles of Incorporation of Trans-Pharma Corporation shall be the Articles
of
Incorporation of the surviving corporation.
FIFTH:
That the
merger is to become effective upon filing.
SIXTH:
That the
executed Merger Agreement is on file at the office of the surviving corporation
located at Trans-Pharma Corporation, 4225 Executive Square, Suite 460, La Jolla,
CA 92037.
SEVENTH:
That a
copy of the Merger Agreement will be furnished by the surviving corporation,
on
request and without cost, to any stockholder of any constituent
corporation.
EIGHTH:
That (i)
Trans-Pharma Corporation may be served with process in Delaware in any
proceeding for enforcement of any obligation of Trans-Pharma Acquisition Corp.,
as well as for enforcement of any obligation of the surviving corporation
arising from the merger, including any suit or other proceeding to enforce
the
right of any stockholders as determined in appraisal proceedings pursuant to
Section 262 of the Delaware General Corporation Law, and (ii) Trans-Pharma
Corporation hereby irrevocably appoints the Secretary of State of the State
of
Delaware as its agent to accept service of process in any such suit or other
proceeding and the Secretary of State shall mail a copy of any such process
to
Trans-Pharma Corporation, 4225 Executive Square, Suite 460, La Jolla, CA
92037.
NINTH:
That the
Merger Agreement has been approved by the holders of at least a majority of
the
outstanding shares of stock of Trans-Pharma Corporation, by written consent
in
lieu of a meeting of the stockholders.
TENTH:
That
the
Merger Agreement has been approved by the holders of at least a majority of
the
outstanding shares of stock of Trans-Pharma Acquisition Corp., by written
consent in lieu of a meeting of the stockholders.
[Signature
Page Follows]
[SIGNATURE
PAGE TO CERTIFICATE OF MERGER]
IN
WITNESS WHEREOF
,
the
undersigned has executed this Certificate as of the 17
th
day of
September, 2007.
|
|
|
By:
|
/s/
Rolf Harms
|
|
|
|
|
|
|
TRANS-PHARMA
CORPORATION
|
|
|
|
/s/
Juliet Singh, Ph.D.
|
|
Name:
Juliet Singh, Ph.D.
|
|
Title:
Chief Executive
Officer
|
EXHIBIT
10.1
SUBSCRIPTION
AGREEMENT
SUBSCRIPTION
AGREEMENT
made as
of this ___ day of ____________, 2007, between Transdel Pharmaceuticals, Inc.,
a
Delaware corporation (the “
Company
”),
and
the undersigned (the “
Subscriber
”).
WHEREAS,
pursuant
to a Confidential Offering Memorandum dated July 30, 2007 (the “
PPM
”),
the
Company is offering in a private placement (the “
Offering
”)
to
accredited investors up to 50 Units at a purchase price of $100,000 per Unit
for
a maximum aggregate purchase price of $5,000,000 (the “
Maximum
Offering
”).
Each
Unit consists of 50,000 shares of the Company’s common stock, par value $0.001
per share (the “
Common
Stock
”),
and a
five-year, redeemable warrant to purchase 12,500 shares of Common Stock at
a
cash exercise price of $4.00 per share and a cashless exercise price of $5.00
per share (the “
Warrants
”).
As
used herein, the term “Units” means such Units, and all Common Stock and
Warrants underlying the Units), and
WHEREAS
,
the
Subscriber desires to subscribe for the number of Units set forth on the
signature page hereof, on the terms and conditions hereinafter set
forth.
NOW,
THEREFORE
,
for and
in consideration of the premises and the mutual covenants hereinafter set forth,
the parties hereto do hereby agree as follows:
|
I.
|
SUBSCRIPTION
FOR AND REPRESENTATIONS AND COVENANTS OF
SUBSCRIBER
|
1.1
Subject
to the terms and conditions hereinafter set forth, the Subscriber hereby
subscribes for and agrees to purchase from the Company such number of Units
set
forth upon the signature page hereof, at a price equal to $100,000 per Unit,
and
the Company agrees to sell such to the Subscriber for said purchase price,
subject to the Company’s right to sell to the Subscriber such lesser number of
(or no) Units as the Company may, in its sole discretion, deem necessary or
desirable. The purchase price is payable by wire transfer of immediately
available funds, pursuant to the wire instructions attached as
Exhibit
D
to the
PPM or by check payable to Signature Bank, as Escrow Agent to Transdel
Pharmaceuticals, Inc.
1.2
The
Subscriber recognizes that the purchase of Units involves a high degree of
risk
in that (i) an investment in the Company is highly speculative and only
investors who can afford the loss of their entire investment should consider
investing in the Company and the Units; (ii) the Units are not registered under
the Securities Act of 1933, as amended (the “
Act
”),
or
any state securities law; (iii) there is no trading market for the Units, none
is likely ever to develop, and the Subscriber may not be able to liquidate
his,
her or its investment; (iv) transferability of the Units is extremely limited;
and (v) an investor could suffer the loss of his, her or its entire
investment.
1.3
The
Subscriber is an “accredited investor,” as such term in defined in Rule 501 of
Regulation D promulgated under the Act, and the Subscriber is able to bear
the
economic risk of an investment in the Units.
1.4
The
Subscriber has prior investment experience (including investment in non-listed
and non-registered securities), and has read and evaluated, or has employed
the
services of an investment advisor, attorney or accountant to read and evaluate,
all of the documents furnished or made available by the Company to the
Subscriber and to all other prospective investors in the Units, including the
PPM, as well as the merits and risks of such an investment by the Subscriber.
The Subscriber’s overall commitment to investments which are not readily
marketable is not disproportionate to the Subscriber’s net worth, and the
Subscriber’s investment in the Units will not cause such overall commitment to
become excessive. The Subscriber, if an individual, has adequate means of
providing for his or her current needs and personal and family contingencies
and
has no need for liquidity in his or her investment in the Units. The Subscriber
is financially able to bear the economic risk of this investment, including
the
ability to afford holding the Units for an indefinite period or a complete
loss
of this investment.
1.5
The
Subscriber acknowledges receipt and careful review of the PPM, all supplements
to the PPM, and all other documents furnished in connection with this
transaction by the Company (collectively, the “
Offering
Documents
”)
and
has been furnished by the Company during the course of this transaction with
all
information regarding the Company which the Subscriber has requested or desires
to know; and the Subscriber has been afforded the opportunity to ask questions
of and receive answers from duly authorized officers or other representatives
of
the Company concerning the terms and conditions of the Offering, and any
additional information which the Subscriber has requested.
1.6
The
Subscriber acknowledges that the purchase of the Units may involve tax
consequences to the Subscriber and that the contents of the Offering Documents
do not contain tax advice. The Subscriber acknowledges that the Subscriber
must
retain his, her or its own professional advisors to evaluate the tax and other
consequences to the Subscriber of an investment in the Units. The Subscriber
acknowledges that it is the responsibility of the Subscriber to determine the
appropriateness and the merits of a corporate entity to own the Subscriber’s
Units and the corporate structure of such entity.
1.7
The
Subscriber acknowledges that this Offering has not been reviewed by the
Securities and Exchange Commission (the “
SEC
”)
or any
state securities commission, and that no federal or state agency has made any
finding or determination regarding the fairness or merits of the Offering.
The
Subscriber represents that the Units are being purchased for his, her or its
own
account, for investment only, and not with a view toward distribution or resale
to others. The Subscriber agrees that he, she or it will not sell or otherwise
transfer the Units unless they are registered under the Act or unless an
exemption from such registration is available.
1.8
The
Subscriber understands that the provisions of Rule 144 under the Act are not
available for at least one (1) year to permit resales of the Units or the Common
Stock and Warrants comprising the Units and there can be no assurance that
the
conditions necessary to permit such sales under Rule 144 will ever be satisfied.
The Subscriber understands that the Company is under no obligation to comply
with the conditions of Rule 144 or take any other action necessary in order
to
make available any exemption from registration for the sale of the Units or
the
Common Stock and Warrants comprising the Units.
1.9
The
Subscriber understands that the Units have not been registered under the Act
by
reason of a claimed exemption under the provisions of the Act which depends,
in
part, upon his, her or its investment intention. In this connection, the
Subscriber understands that it is the position of the SEC that the statutory
basis for such exemption would not be present if his, her or its representation
merely meant that his, her or its present intention was to hold such securities
for a short period, such as the capital gains period of tax statutes, for a
deferred sale, for a market rise, assuming that a market develops, or for any
other fixed period. The Subscriber realizes that, in the view of the SEC, a
purchase now with an intent to resell would represent a purchase with an intent
inconsistent with his, her or its representation to the Company and the SEC
might regard such a sale or disposition as a deferred sale, for which such
exemption is not available.
1.10
The
Subscriber agrees to indemnify and hold the Company, its directors, officers
and
controlling persons and their respective heirs, representatives, successors
and
assigns harmless against all liabilities, costs and expenses incurred by them
as
a result of any misrepresentation made by the Subscriber contained herein or
any
sale or distribution by the Subscriber in violation of the Act (including,
without limitation, the rules promulgated thereunder), any state securities
laws, or the Company’s Certificate of Incorporation or By-laws, as amended from
time to time.
1.11
The
Subscriber consents to the placement of a legend on any certificate or other
document evidencing the Common Stock or the Warrants stating that such
securities have not been registered under the Act and setting forth or referring
to the restrictions on transferability and sale thereof.
1.12
The
Subscriber understands that the Company will review and rely on this
Subscription Agreement without making any independent investigation; and it
is
agreed that the Company reserves the unrestricted right to reject or limit
any
subscription and to withdraw the Offering at any time.
1.13
The
Subscriber hereby represents that the address of the Subscriber furnished at
the
end of this Subscription Agreement is the undersigned’s principal residence, if
the Subscriber is an individual, or its principal business address if it is
a
corporation or other entity.
1.14
The
Subscriber acknowledges that if the Subscriber is a Registered Representative
of
a National Association of Securities Dealers, Inc. (“
NASD
”)
member
firm, the Subscriber must give such firm the notice required by the NASD’s
Conduct Rules, receipt of which must be acknowledged by such firm on the
signature page hereof.
1.15
The
Subscriber hereby acknowledges that neither the Company nor any persons
associated with the Company who may provide assistance or advice in connection
with the Offering (other than the placement agent, if one is engaged by the
Company) are or are expected to be members or associated persons of members
of
the NASD or registered broker-dealers under any federal or state securities
laws.
1.16
The
Subscriber understands that, pursuant to the terms of the Offering as set forth
in the PPM, the Company must receive subscriptions for 30 Units for an aggregate
purchase price of $3,000,000 (the “
Minimum
Offering
”)
in
order to close on the sale of any Units and that persons affiliated with the
Company or its consultants, advisors, or placement agents may subscribe for
Common Stock, in which case the Company may accept subscriptions from such
affiliated parties in order to reach the Minimum Offering; and that,
accordingly, no investor should conclude that achieving the Minimum Offering
is
the result of any independent assessment of the merits or advantages of the
Offering or the Company made by Subscribers in the Minimum
Offering.
1.17
The
Subscriber hereby represents that, except as expressly set forth in the Offering
Documents, no representations or warranties have been made to the Subscriber
by
the Company or any agent, employee or affiliate of the Company and, in entering
into this transaction, the Subscriber is not relying on any information other
than that contained in the Offering Documents and the results of independent
investigation by the Subscriber.
1.18
All
information provided by the Subscriber in the Investor Questionnaire attached as
Exhibit
B
to the
PPM is true and accurate in all respects, and the Subscriber acknowledges that
the Company will be relying on such information to its possible detriment in
deciding whether the Company can sell these securities to the Subscriber without
giving rise to the loss of the exemption from registration under applicable
securities laws.
|
II.
|
REPRESENTATIONS
BY THE COMPANY
|
The
Company represents and warrants to the Subscriber that as of the date of the
closing of this Offering (the “
Closing
Date
”):
(a)
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power
to
conduct the business which it conducts and proposes to conduct.
(b)
The
execution, delivery and performance of this Subscription Agreement by the
Company have been duly authorized by the Company and all other corporate action
required to authorize and consummate the offer and sale of the Units has been
duly taken and approved.
(c)
The
Units
and the underlying Common Stock have been duly and validly authorized and
issued.
(d)
The
Company has obtained, or is in the process of obtaining, all licenses, permits
and other governmental authorizations necessary for the conduct of its business,
except where the failure to so obtain such licenses, permits and authorizations
would not have a material adverse effect on the Company. Such licenses, permits
and other governmental authorizations which have been obtained are in full
force
and effect, except where the failure to be so would not have a material adverse
effect on the Company, and the Company is in all material respects complying
therewith.
(e)
The
Company knows of no pending or threatened legal or governmental proceedings
to
which the Company is a party which would materially adversely affect the
business, financial condition or operations of the Company.
(f)
The
Company is not in violation of or default under, nor will the execution and
delivery of this Subscription Agreement or the issuance of the Common Stock,
or
the consummation of the transactions herein contemplated, result in a violation
of, or constitute a default under, the Company’s Certificate of Incorporation or
By-laws, any material obligations, agreements, covenants or conditions contained
in any bond, debenture, note or other evidence of indebtedness or in any
material contract, indenture, mortgage, loan agreement, lease, joint venture
or
other agreement or instrument to which the Company is a party or by which it
or
any of its properties may be bound or any material order, rule, regulation,
writ, injunction, or decree of any government, governmental instrumentality
or
court, domestic or foreign.
|
III.
|
COVENANTS
BY THE COMPANY
|
3.1
For
a
period of the earlier of (i) twelve (12) months following the Initial Closing
(as defined in the PPM) or (ii) the date that the “resale” registration
statement covering the shares of Common Stock and the shares of Common Stock
underlying the Warrants included within the Units sold in the Offering is
declared effective by the SEC (the “
Adjustment
Period
”),
in
the event that the Company sells or grants any option to purchase or sells
or
grants any right to reprice, or otherwise disposes of or issues (or announces
any sale, grant or any option to purchase or other disposition), any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock at an effective price per share that is lower than $2.00 per share
(such lower price, the “
Base
Price
”
and
such issuances, collectively, a “
Dilutive
Issuance
”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued shall
at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than $2.00 per share, such issuance shall be deemed
to
have occurred for less than the $2.00 per share on such date of the Dilutive
Issuance), then the Company shall issue additional shares of Common Stock to
the
Subscriber in an amount sufficient that the subscription price paid hereunder,
when divided by the total number of shares issued in the Dilutive Issuance
will
result in an actual price paid by the Subscriber per share of Common Stock
equal
to the Base Price. Such adjustment shall be made whenever any Dilutive Issuance
is made within the Adjustment Period. Notwithstanding the foregoing, no
adjustment will be made under this Section 3.1 in respect of an Exempt Issuance.
The Company shall notify the Subscriber in writing, no later than 1 business
day
following a Dilutive Issuance, indicating therein the applicable issuance price,
or applicable reset price, exchange price, conversion price and other pricing
terms (such notice, the “
Dilutive
Issuance Notice
”).
For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 3.1, upon the occurrence of any
Dilutive Issuance, the Subscriber is entitled to receive a number of shares
based upon the Base Price on or after the date of such Dilutive Issuance.
Notwithstanding anything herein or in any related document to the contrary,
the
foregoing does not convey to the Subscriber any right to participation in any
future financings or offerings now or in the future contemplated or undertaken
by the Company. The Company reserves the right to establish procedures in order
to effectuate the issuance of additional shares in the event of any dilutive
issuance requiring an adjustment to the Base Price, in its sole discretion,
including delivery of such shares to the Subscriber in full and complete
satisfaction of the Company’s obligation upon a Dilutive Issuance.
“
Common
Stock Equivalents
”
means
any securities of the Company or any of its subsidiaries which would entitle
the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common
Stock.
“
Exempt
Issuance
”
means
the issuance of (a) shares of Common Stock or options to employees, officers,
directors, or consultants of the Company pursuant to any stock or option plan
duly adopted for such purpose by a majority of the non-employee members of
the
Board of Directors of the Company or a majority of the members of a committee
of
non-employee directors established, (b) securities upon the exercise or exchange
of or conversion of any securities issued hereunder and/or other securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date of this Agreement
,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities; and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of
the
disinterested directors of the Company, provided that any such issuance shall
only be to a person which is either an
owner
of,
or an entity that is, itself or through its subsidiaries, an operating company
in a business synergistic with the business of the Company and in which the
Company receives benefits in addition to the investment of funds, but shall
not
include a transaction in which the Company is issuing securities primarily
for
the purpose of raising capital or to an entity whose primary business is
investing in securities.
3.2
For
a
period of 18 months following the Initial Closing, the Company shall not file
a
registration statement on any form, including, without limitation, a
Registration Statement on Form S-8, in order to register with the SEC the sale
of any securities issued or issuable under an employee benefit plan of the
Company or any of the Company’s subsidiaries.
|
IV.
|
TERMS
OF SUBSCRIPTION
|
4.1
Subject
to Section 4.2 hereof, the subscription period will begin as of the date of
the
PPM and will terminate at 11:59 PM Eastern Time, on the earlier of the date
on
which the Maximum Offering is sold or the Offering is terminated by the Company
(the “
Termination
Date
”).
The
minimum subscription amount is $100,000, although the Company may, in its
discretion, accept subscriptions for less than $100,000.
4.2
The
Subscriber has effected a wire transfer in the full amount of the purchase
price
for the Units to the Company’s escrow account in accordance with the wire
instructions attached as
Exhibit
D
to the
PPM or has delivered a check in payment of the purchase price for the
Units.
4.3
Pending
the sale of the Units, all funds paid hereunder shall be deposited by the
Company in escrow with the Company’s escrow agent. If the Company shall not have
obtained subscriptions (including this subscription) for the Minimum Offering
on
or before the Termination Date (as such date may be extended by the Company),
then this subscription shall be void and all funds paid hereunder by the
Subscriber shall be promptly returned without interest to the Subscriber, to
the
same account from which the funds were drawn. If subscriptions are received
and
accepted and payment tendered for the Minimum Offering on or prior to the
Termination Date, then all subscription proceeds (less fees and expenses) shall
be paid over to the Company within ten (10) days thereafter or such earlier
date
that is one business day after the amount of good funds in escrow equals or
exceeds $3,000,000. In such event, sales of the Units may continue thereafter
until the earlier of the date on which the Maximum Offering is sold and the
Termination Date, with subsequent releases of funds from time to time at the
discretion of the Company.
4.4
The
Subscriber hereby authorizes and directs the Company and its escrow agent to
deliver any certificates or other written instruments representing the Units
to
be issued to such Subscriber pursuant to this Subscription Agreement to the
address indicated on the signature page hereof.
4.5
The
Subscriber hereby authorizes and directs the Company and its escrow agent to
return any funds, without interest, for unaccepted subscriptions to the same
account from which the funds were drawn.
4.6
If
the
Subscriber is not a United States person, such Subscriber shall immediately
notify the Company and the Subscriber hereby represents that the Subscriber
is
satisfied as to the full observance of the laws of its jurisdiction in
connection with any invitation to subscribe for the Units or any use of this
Subscription Agreement, including (i) the legal requirements within its
jurisdiction for the purchase of the Units, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale or transfer of the Units. Such Subscriber’s subscription and payment for,
and continued beneficial ownership of, the Units will not violate any applicable
securities or other laws of the Subscriber’s jurisdiction.
5.1
Any
notice or other communication given hereunder shall be deemed sufficient if
in
writing and sent by reputable overnight courier, facsimile (with receipt of
confirmation) or registered or certified mail, return receipt requested,
addressed to the Company, at the address set forth in the first paragraph
hereof, Attention: Chief Executive Officer, facsimile: (858) 457-5308, and
to
the Subscriber at the address or facsimile number indicated on the signature
page hereof. Notices shall be deemed to have been given on the date when mailed
or sent by facsimile transmission or overnight courier, except notices of change
of address, which shall be deemed to have been given when received.
5.2
This
Subscription Agreement shall not be changed, modified or amended except by
a
writing signed by both (a) the Company and (b) subscribers in the Offering
holding a majority of the Units issued in the Offering.
5.3
This
Subscription Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. This Subscription Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and merges
and
supersedes all prior discussions, agreements and understandings of any and
every
nature among them.
5.4
Notwithstanding
the place where this Subscription Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions
hereof shall be construed in accordance with and governed by the laws of the
State of Delaware. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Subscription Agreement
shall be adjudicated only before a Federal court located in Kent County, State
of Delaware and they hereby submit to the exclusive jurisdiction of the federal
courts located in Kent County, State of Delaware with respect to any action
or
legal proceeding commenced by any party, and irrevocably waive any objection
they now or hereafter may have respecting the venue of any such action or
proceeding brought in such a court or respecting the fact that such court is
an
inconvenient forum, relating to or arising out of this Subscription Agreement
or
any acts or omissions relating to the sale of the securities hereunder, and
consent to the service of process in any such action or legal proceeding by
means of registered or certified mail, return receipt requested, in care of
the
address set forth below or such other address as the undersigned shall furnish
in writing to the other. The parties further agree that in the event of any
dispute, action, suit or other proceeding arising out of or in connection with
this Subscription Agreement, the PPM or other matters related to this
subscription brought by a Subscriber (or transferee), the Company (and each
other defendant) shall recover all of such party’s attorneys’ fees and costs
incurred in each and every action, suit or other proceeding, including any
and
all appeals or petitions therefrom. As used herein, attorney’s fees shall be
deemed to mean the full and actual costs of any investigation and of legal
services actually performed in connection with the matters involved, calculated
on the basis of the usual fee charged by the attorneys performing such
services.
5.5
This
Subscription Agreement may be executed in counterparts. Upon the execution
and
delivery of this Subscription Agreement by the Subscriber, this Subscription
Agreement shall become a binding obligation of the Subscriber with respect
to
the purchase of Units as herein provided; subject, however, to the right hereby
reserved by the Company to (i) enter into the same agreements with other
subscribers, (ii) add and/or delete other persons as subscribers and (iii)
reduce the amount of or reject any subscription.
5.6
The
holding of any provision of this Subscription Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Subscription Agreement, which shall remain in full force
and
effect.
5.7
It
is
agreed that a waiver by either party of a breach of any provision of this
Subscription Agreement shall not operate or be construed as a waiver of any
subsequent breach by that same party.
5.8
The
parties agree to execute and deliver all such further documents, agreements
and
instruments and take such other and further actions as may be necessary or
appropriate to carry out the purposes and intent of this Subscription
Agreement.
[Signature
Pages Follow]
IN
WITNESS WHEREOF
,
the
parties have executed this Subscription Agreement as of the day and year first
written above.
__________________________
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X
$100,000 for each Unit
|
=
$_____________________.
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Number
of Units subscribed for
|
|
Aggregate
Purchase Price
|
Manner
in which Title is to be held (Please Check
One
):
1.
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____
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Individual
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7.
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Trust/Estate/Pension
or Profit Sharing Plan
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Date
Opened:______________
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2.
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Joint
Tenants with Right of Survivorship
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8.
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As
a Custodian for
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_____________________________
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Under
the Uniform Gift to Minors Act of the State of
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_____________________________
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3.
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Community
Property
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9.
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Married
with Separate Property
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4.
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Tenants
in Common
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10.
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Keogh
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5.
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Corporation/Partnership/
Limited Liability Company
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11.
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Tenants
by the Entirety
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6.
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IRA
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12.
|
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Foundation
described in Section 501(c)(3) of the Internal Revenue Code of 1986,
as
amended.
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IF
MORE THAN ONE SUBSCR
IBER,
EACH SUBSCRIBER MUST SIGN:
·
INDIVIDUAL
SUBSCRIBERS MUST COMPLETE PAGE 11
·
SUBSCRIBERS
WHICH ARE ENTITIES MUST COMPLETE PAGE 12
EXECUTION
BY NATURAL PERSONS
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Exact
Name in Which Title is to be Held
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Name
(Please Print)
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Name
of Additional Subscriber
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Residence:
Number and Street
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Address
of Additional Subscriber
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City,
State and Zip Code
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City,
State and Zip Code
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Social
Security Number
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Social
Security Number
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Telephone
Number
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Telephone
Number
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Fax
Number (if available)
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Fax
Number (if available)
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E-Mail
(if available)
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E-Mail
(if available)
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(Signature)
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(Signature
of Additional Subscriber)
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ACCEPTED
this ___ day of _________ 2007, on behalf of Transdel Pharmaceuticals,
Inc.
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By:
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Name:
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Juliet Singh,
Ph.D.
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Title:
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Chief Executive
Officer
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EXECUTION
BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation,
Partnership, Trust, Etc.)
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Name
of Entity (Please Print)
|
Date
of Incorporation or Organization:
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State
of Principal Office:
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Federal
Taxpayer Identification Number:
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Office
Address
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City,
State and Zip Code
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Telephone
Number
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Fax
Number (if available)
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E-Mail
(if available)
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[seal]
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By:
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Name:
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Attest:
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Title:
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(If
Entity is a Corporation)
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*If
Subscriber is a Registered Representative with an NASD member
firm, have
the following acknowledgement signed by the appropriate
party:
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The
undersigned NASD member firm acknowledges receipt of the notice
required
by Rule 3050 of the NASD Conduct Rules
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ACCEPTED
this ____ day of __________ 2007, on behalf of Transdel
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Name
of NASD Firm
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Pharmaceuticals,
Inc.
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By:
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By:
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Name:
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Name:
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Juliet
Singh, Ph.D.
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Title:
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Title:
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Chief
Executive Officer
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EXHIBIT
10.2
|
WARRANT
|
|
NO.
TPHI - ___
|
TRANSDEL
PHARMACEUTICALS, INC.
|
________
Shares
|
|
|
|
WARRANT
TO PURCHASE COMMON STOCK
VOID
AFTER 5:30 P.M., EASTERN
TIME,
ON THE EXPIRATION DATE
THIS
WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT
BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM.
FOR
VALUE
RECEIVED, TRANSDEL PHARMACEUTICALS, INC., a Delaware corporation (the
“
Company
”),
hereby agrees to sell upon the terms and on the conditions hereinafter set
forth, but no later than 5:30 p.m., Eastern Time, on the Expiration Date
(as
hereinafter defined) to
________________
or
registered assigns (the “
Holder
”),
under
the terms as hereinafter set forth,
__________________
(_____________)
fully
paid and non-assessable shares of the Company’s Common Stock, par value $0.001
per share (the “
Warrant
Stock
”),
at a
cash purchase price of FOUR DOLLARS ($4.00) per share (the “
Cash
Warrant Price
”)
or a
cashless purchase price of FIVE DOLLARS ($5.00) per share (the “
Cashless
Warrant Price
”),
pursuant to this warrant (this “
Warrant
”).
The
number of shares of Warrant Stock to be so issued and each Warrant Price
are
subject to adjustment in certain events as hereinafter set forth. The term
“
Common
Stock
”
shall
mean, when used herein, unless the context otherwise requires, the stock
and
other securities and property at the time receivable upon the exercise of
this
Warrant.
a.
The
Holder may exercise this Warrant according to its terms by (i) surrendering
this
Warrant, properly endorsed, to the Company at the address set forth in Section
10, (ii) the subscription form attached hereto having then been duly executed
by
the Holder, and (iii) payment of the purchase price being made to the Company
for the number of shares of the Warrant Stock specified in the subscription
form, or as otherwise provided in this Warrant, prior to 5:30 p.m., Eastern
Time, on __________________, 2012
(the
“
Expiration
Date
”).
Such
exercise shall be effected by the surrender of the Warrant, together with
a duly
executed copy of the Form of Exercise attached hereto, to Company at its
principal office and (i) the payment to the Company of an amount equal to
the
aggregate Cash Warrant Price for the number of shares of Warrant Stock being
purchased in cash, certified check or bank draft or (ii) by surrendering
such
number of shares of Warrant Stock received upon exercise of this Warrant
with a
Fair Market Value (as defined below) equal to the aggregate Cashless Warrant
Price for the Warrant Stock being purchased (a “Cashless
Exercise”).
b.
If
the
Holder elects the Cashless Exercise method of payment, the Company shall
issue
to the Holder a number of shares of Warrant Stock determined in accordance
with
the following formula:
with:
|
X
=
|
the
number of shares of Warrant Stock to be issued to the
Holder;
|
|
|
|
|
Y
=
|
the
number of shares of Warrant Stock with respect to which the Warrant
is
being exercised;
|
|
|
|
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A
=
|
the
fair value per share of Common Stock on the date of exercise of
this
Warrant; and
|
|
|
|
|
B
=
|
the
then-current Cashless Warrant Price of the
Warrant
|
For
the
purposes of this Section 1b., “fair value” per share of Common Stock shall mean
(A) the average of the closing sales prices, as quoted on the primary national
or regional stock exchange on which the Common Stock is listed,
or
,
if not
listed,
the OTC
Bulletin Board if quoted thereon, on the
ten
(
10)
trading
days immediately preceding the date on which the Notice of Exercise is deemed
to
have been sent to the Company, or (B) if the Common Stock is not publicly
traded
as set forth above, as reasonably and in good faith determined by the Board
of
Directors of the Company as of the date which the notice of exercise is deemed
to have been sent to the Company.
c.
This
Warrant may be exercised in whole or in part so long as any exercise in part
hereof would not involve the issuance of fractional shares of Warrant Stock.
If
exercised in part, the Company shall deliver to the Holder a new Warrant,
identical in form, in the name of the Holder, evidencing the right to purchase
the number of shares of Warrant Stock as to which this Warrant has not been
exercised, which new Warrant shall be signed by the Chairman, Chief Executive
Officer or President and the Secretary or Assistant Secretary of the Company.
The term Warrant as used herein shall include any subsequent Warrant issued
as
provided herein.
d.
No
fractional shares or scrip representing fractional shares shall be issued
upon
the exercise of this Warrant. The Company shall pay cash in lieu of fractions
with respect to the Warrants based upon the fair market value of such fractional
shares of Common Stock (which shall be the closing price of such shares on
the
exchange or market on which the Common Stock is then traded) at the time
of
exercise of this Warrant.
e.
In
the
event of any exercise of the rights represented by this Warrant, a certificate
or certificates for the Warrant Stock so purchased, registered in the name
of
the Holder, shall be delivered to the Holder within a reasonable time after
such
rights shall have been so exercised. The person or entity in whose name any
certificate for the Warrant Stock is issued upon exercise of the rights
represented by this Warrant shall for all purposes be deemed to have become
the
holder of record of such shares immediately prior to the close of business
on
the date on which the Warrant was surrendered and payment of, the Cash Warrant
Price or the Cashless Warrant Price, as the case may be, and any applicable
taxes was made, irrespective of the date of delivery of such certificate,
except
that, if the date of such surrender and payment is a date when the stock
transfer books of the Company are closed, such person shall be deemed to
have
become the holder of such shares at the opening of business on the next
succeeding date on which the stock transfer books are open. The Company shall
pay any and all documentary stamp or similar issue or transfer taxes payable
in
respect of the issue or delivery of shares of Common Stock on exercise of
this
Warrant.
|
2.
|
Disposition
of Warrant Stock and Warrant
.
|
a.
The
Holder hereby acknowledges that this Warrant and any Warrant Stock purchased
pursuant hereto are, as of the date hereof, not registered: (i) under the
Securities Act of 1933, as amended (the “
Act
”),
on
the ground that the issuance of this Warrant is exempt from registration
under
Section 4(2) of the Act as not involving any public offering or (ii) under
any
applicable state securities law because the issuance of this Warrant does
not
involve any public offering; and that the Company’s reliance on the Section 4(2)
exemption of the Act and under applicable state securities laws is predicated
in
part on the representations hereby made to the Company by the Holder that
it is
acquiring this Warrant and will acquire the Warrant Stock for investment
for its
own account, with no present intention of dividing its participation with
others
or reselling or otherwise distributing the same, subject, nevertheless, to
any
requirement of law that the disposition of its property shall at all times
be
within its control.
The
Holder hereby agrees that it will not sell or transfer all or any part of
this
Warrant and/or Warrant Stock unless and until it shall first have given notice
to the Company describing such sale or transfer and furnished to the Company
either (i) an opinion, reasonably satisfactory to counsel for the Company,
of
counsel (skilled in securities matters, selected by the Holder and reasonably
satisfactory to the Company) to the effect that the proposed sale or transfer
may be made without registration under the Act and without registration or
qualification under any state law, or (ii) an interpretative letter from
the
Securities and Exchange Commission to the effect that no enforcement action
will
be recommended if the proposed sale or transfer is made without registration
under the Act.
b.
If,
at
the time of issuance of the shares issuable upon exercise of this Warrant,
no
registration statement is in effect with respect to such shares under applicable
provisions of the Act, the Company may at its election require that the Holder
provide the Company with written reconfirmation of the Holder’s investment
intent and that any stock certificate delivered to the Holder of a surrendered
Warrant shall bear legends reading substantially as follows:
In
addition, so long as the foregoing legend may remain on any stock certificate
delivered to the Holder, the Company may maintain appropriate “stop transfer”
orders with respect to such certificates and the shares represented thereby
on
its books and records and with those to whom it may delegate registrar and
transfer functions.
3.
Reservation
of Shares
.
The
Company hereby agrees that at all times there shall be reserved for issuance
upon the exercise of this Warrant such number of shares of its Common Stock
as
shall be required for issuance upon exercise of this Warrant. The Company
further agrees that all shares which may be issued upon the exercise of the
rights represented by this Warrant will be duly authorized and will, upon
issuance and against payment of the exercise price, be validly issued, fully
paid and non-assessable, free from all taxes, liens, charges and preemptive
rights with respect to the issuance thereof, other than taxes, if any, in
respect of any transfer occurring contemporaneously with such issuance and
other
than transfer restrictions imposed by federal and state securities
laws.
4.
Exchange,
Transfer or Assignment of Warrant
.
This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its
stock
transfer agent, if any, for other Warrants of different denominations, entitling
the Holder or Holders thereof to purchase in the aggregate the same number
of
shares of Common Stock purchasable hereunder. Upon surrender of this Warrant
to
the Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay
any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment
and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at
the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in
which
new Warrants are to be issued and signed by the Holder hereof.
5.
Capital
Adjustments
.
This
Warrant is subject to the following further provisions:
a.
Until
the
earlier of ((i) twelve (12) months following the Initial Closing (as defined
in
the PPM) or (ii) the date that the “resale” registration statement covering the
shares of Common Stock and the shares of Common Stock underlying the Warrants
included within the Units sold in the Offering is declared effective by the
Securities and Exchange Commission, in the event the Company issues or sells
any
shares of any class of the Company’s common stock or any Common Stock
Equivalents entitling any person to acquire shares of Common Stock at an
effective price per share that is lower than $2.00 per share (the “
Dilutive
Issuance
”)
at a
price less than $2.00 per share (the “
New
Issuance Price
”),
other
than Excluded Securities, then immediately after such Dilutive Issuance,
the
Cash Warrant Price then in effect shall be reduced to 200% of the New Issuance
Price and the Cashless Warrant Price then in effect shall be reduced to 250%
of
the New Issuance Price.
“
Common
Stock Equivalents
”
shall
mean any securities of the Company or any of its subsidiaries which would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, rights, options, warrants
or
other instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock
“
Excluded
Securities
”
shall
mean the issuance of: (a) shares of Common Stock or options to employees,
officers, directors, or consultants of the Company pursuant to any stock
or
option plan duly adopted for such purpose by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the members
of
a committee of non-employee directors established, (b) securities upon the
exercise or exchange of or conversion of any securities issued hereunder
and/or
other securities exercisable or exchangeable for or convertible into shares
of
Common Stock issued and outstanding on the date of this Warrant, provided
that
such securities have not been amended since the date of this Warrant to increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities; and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a person which is either an owner of, or an entity that is, itself
or
through its subsidiaries, an operating company in a business synergistic
with
the business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction
in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities.
b.
If
any
recapitalization of the Company or reclassification of its Common Stock or
any merger or consolidation of the Company into or with a corporation or
other
business entity, or the sale or transfer of all or substantially all of the
Company’s assets or of any successor corporation’s assets to any other
corporation or business entity (any such corporation or other business entity
being included within the meaning of the term “successor corporation”) shall be
effected, at any time while this Warrant remains outstanding and unexpired,
then, as a condition of such recapitalization, reclassification, merger,
consolidation, sale or transfer, lawful and adequate provision shall be made
whereby the Holder of this Warrant thereafter shall have the right to receive
upon the exercise hereof as provided in Section 1 and in lieu of the shares
of
Common Stock immediately theretofore issuable upon the exercise of this Warrant,
such shares of capital stock, securities or other property as may be issued
or
payable with respect to or in exchange for a number of outstanding shares
of
Common Stock equal to the number of shares of Common Stock immediately
theretofore issuable upon the exercise of this Warrant had such
recapitalization, reclassification, merger, consolidation, sale or transfer
not
taken place, and in each such case, the terms of this Warrant shall be
applicable to the shares of stock or other securities or property receivable
upon the exercise of this Warrant after such consummation.
c.
If
the
Company at any time while this Warrant remains outstanding and unexpired
shall
subdivide or combine its Common Stock, the number of shares of Warrant Stock
purchasable upon exercise of this Warrant and each Warrant Price shall be
proportionately adjusted.
d.
If
the
Company at any time while this Warrant is outstanding and unexpired shall
issue
or pay the holders of its Common Stock, or take a record of the holders of
its
Common Stock for the purpose of entitling them to receive, a dividend payable
in, or other distribution of, Common Stock, then (i) each Warrant Price shall
be
adjusted in accordance with Section 5(f) and (ii) the number of shares of
Warrant Stock purchasable upon exercise of this Warrant shall be adjusted
to the
number of shares of Common Stock that the Holder would have owned immediately
following such action had this Warrant been exercised immediately prior
thereto.
e.
If
the
Company shall at any time after the date of issuance of this Warrant distribute
to all holders of its Common Stock any shares of capital stock of the Company
(other than Common Stock) or evidences of its indebtedness or assets (excluding
cash dividends or distributions paid from retained earnings or current year’s or
prior year’s earnings of the Company) or rights or warrants to subscribe for or
purchase any of its securities (excluding those referred to in the immediately
preceding paragraph) (any of the foregoing being hereinafter in this paragraph
called the “Securities”), then in each such case, the Company shall reserve
shares or other units of such securities for distribution to the Holder upon
exercise of this Warrant so that, in addition to the shares of the Common
Stock
to which such Holder is entitled, such Holder will receive upon such exercise
the amount and kind of such Securities which such Holder would have received
if
the Holder had, immediately prior to the record date for the distribution
of the
Securities, exercised this Warrant.
f.
Except
as
otherwise provided herein, whenever the number of shares of Warrant Stock
purchasable upon exercise of this Warrant is adjusted, as herein provided,
each
Warrant Price payable upon the exercise of this Warrant shall be adjusted
to
that price determined by multiplying such Warrant Price immediately prior
to
such adjustment by a fraction (i) the numerator of which shall be the number
of
shares of Warrant Stock purchasable upon exercise of this Warrant immediately
prior to such adjustment, and (ii) the denominator of which shall be the
number
of shares of Warrant Stock purchasable upon exercise of this Warrant immediately
thereafter.
g.
The
number of shares of Common Stock outstanding at any given time for purposes
of
the adjustments set forth in this Section 5 shall exclude any shares then
directly or indirectly held in the treasury of the Company.
h.
The
Company shall not be required to make any adjustment pursuant to this Section
5
if the amount of such adjustment would be less than one percent (1%) of both
Warrant Prices in effect immediately before the event that would otherwise
have
given rise to such adjustment. In such case, however, any adjustment that
would
otherwise have been required to be made shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to not less than one percent
(1%) of both Warrant Prices in effect immediately before the event giving
rise
to such next subsequent adjustment.
i.
Following
each computation or readjustment as provided in this Section 5, each new
adjusted Warrant Price and number of shares of Warrant Stock purchasable
upon
exercise of this Warrant shall remain in effect until a further computation
or
readjustment thereof is required.
6.
Redemption
.
This
Warrant may be redeemed prior to the Expiration Date, at the option of the
Company, at a price of $0.001 per share of Warrant Stock (“Redemption Price”),
upon not less than 10 days prior written notice (“Redemption Period”) to Holder
notifying Holder of the Company’s intent to exercise such right and setting
forth a time and date for such redemption;
provided
,
however
,
that no
redemption under this Section 6 may occur unless (i) the Company’s Common Stock
has had a closing sales price greater than $7.50 per share for twenty (20)
consecutive trading days and (ii) at the date of redemption notice and during
the entire Redemption Period there is an effective registration statement
covering the resale of the Warrant Stock. This Warrant may be exercised by
Holder, for cash, at any time after notice of redemption has been given by
the
Company and prior to the time and date fixed for redemption. On and after
the
redemption date, the Holder shall have no further rights except to receive,
upon
surrender of this Warrant, the Redemption Price.
(i)
the
Company shall take a record of the holders of its Common Stock (or other
stock
or securities at the time receivable upon the exercise of this Warrant) for
the
purpose of entitling them to receive any dividend (other than a cash dividend
payable out of earned surplus of the Company) or other distribution, or any
right to subscribe for or purchase any shares of stock of any class or any
other
securities, or to receive any other right;
(ii)
of
any
capital reorganization of the Company, any reclassification of the capital
stock
of the Company, any consolidation with or merger of the Company into another
corporation, or any conveyance of all or substantially all of the assets
of the
Company to another corporation; or
(iii)
of
any
voluntary dissolution, liquidation or winding-up of the Company;
then,
and
in each such case, the Company will mail or cause to be mailed to the Holder
hereof at the time outstanding a notice specifying, as the case may be, (i)
the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or
winding-up is to take place, and the time, if any, is to be fixed, as of
which
the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution or winding-up. Such notice
shall
be mailed at least thirty (30) days prior to the record date therein specified,
or if no record date shall have been specified therein, at least thirty (30)
days prior to such specified date, provided, however, failure to provide
any
such notice shall not affect the validity of such transaction.
b.
Whenever
any adjustment shall be made pursuant to Section 5 hereof, the Company shall
promptly make a certificate signed by its Chairman, Chief Executive Officer,
President, Vice President, Chief Financial Officer or Treasurer, setting
forth
in reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and each Warrant
Price and number of shares of Warrant Stock purchasable upon exercise of
this Warrant after giving effect to such adjustment, and shall promptly cause
copies of such certificates to be mailed (by first class mail, postage prepaid)
to the Holder of this Warrant.
8.
Loss,
Theft, Destruction or Mutilation
.
Upon
receipt by the Company of evidence satisfactory to it, in the exercise of
its
reasonable discretion, of the ownership and the loss, theft, destruction
or
mutilation of this Warrant and, in the case of loss, theft or destruction,
of
indemnity reasonably satisfactory to the Company and, in the case of mutilation,
upon surrender and cancellation thereof, the Company will execute and deliver
in
lieu thereof, without expense to the Holder, a new Warrant of like tenor
dated
the date hereof.
9.
Warrant
Holder Not a Stockholder
.
The
Holder of this Warrant, as such, shall not be entitled by reason of this
Warrant
to any rights whatsoever as a stockholder of the Company.
10.
Notices
.
Any
notice required or contemplated by this Warrant shall be deemed to have been
duly given if transmitted by registered or certified mail, return receipt
requested, or nationally recognized overnight delivery service
,
to
the
Company at its principal executive offices located at 4225 Executive Square,
Suite 460, La Jolla, California 92037, Attention: Juliet Singh, Ph. D., Chief
Executive Officer, or to the Holder at the name and address set forth in
the
Warrant Register maintained by the Company.
11.
Choice
of Law
.
THIS
WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
12.
Jurisdiction
and Venue
.
The
Company and Holder hereby agree that any dispute which may arise between
them
arising out of or in connection with this Warrant shall be adjudicated before
a
court located in Kent County, Delaware and they hereby submit to the exclusive
jurisdiction of the federal and state courts of the State of Delaware located
in
Kent County with respect to any action or legal proceeding commenced by any
party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court
or
respecting the fact that such court is an inconvenient forum, relating to
or
arising out of this Warrant or any acts or omissions relating to the sale
of the
securities hereunder, and consent to the service of process in any such action
or legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth herein or such other address
as
either party shall furnish in writing to the other.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Company has duly caused this Warrant to be signed on
its
behalf, in its corporate name and by its duly authorized officers, as of
this __
day of _____________________, 2007.
|
|
By:
|
|
|
|
|
Title:
Chief Executive Officer
|
FORM
OF
EXERCISE
(to
be
executed by the registered holder hereof)
The
undersigned hereby exercises the right to purchase _________ shares of common
stock, par value $0.001 per share (“Common Stock”), of
Transdel
Pharmaceuticals
,
Inc.
evidenced by the within Warrant Certificate for a Cash Warrant Price of $4.00
per share or a Cashless Warrant Price of $5.00 per share and herewith makes
payment of the purchase price in full of (i) $__________ in cash or (ii)
shares
of Common Stock (pursuant to a Cashless Exercise in accordance with Section
1b.). Kindly issue certificates for shares of Common Stock (and for the
unexercised balance of the Warrants evidenced by the within Warrant Certificate,
if any) in accordance with the instructions given below.
Dated:____________________
, 20___ .
______________________________
Instructions
for registration of stock
_____________________________
Name
(Please Print)
Social
Security or other identifying Number:
Address:__________________________________
City/State
and Zip Code
Instructions
for registration of certificate representing
the
unexercised balance of Warrants (if any)
_____________________________
Name
(Please Print)
Social
Security or other identifying Number: ___________
Address:____________________________________
City, State and Zip Code
EXHIBIT
10.3
TRANSDEL
PHARMACEUTICALS, INC.
REGISTRATION
RIGHTS AGREEMENT
______________,
2007
1.
|
Registration
Rights.
|
C-2
|
|
1.1
Definitions
|
C-2
|
|
1.2
Company Registration.
|
C-3
|
|
1.3
Obligations of the Company
|
C-4
|
|
1.4
Furnish Information
|
C-5
|
|
1.5
Delay of Registration
|
C-5
|
|
1.6
Indemnification.
|
C-5
|
|
1.7
Reports Under Securities Exchange Act
|
C-7
|
|
1.8
Transfer or Assignment of Registration Rights
|
C-8
|
2.
|
Covenants
of the Company to the Investors.
|
C-8
|
|
2.1
Information Rights
|
C-8
|
|
2.2
Confidentiality
|
C-9
|
3.
|
Legend.
|
C-9
|
4.
|
Miscellaneous.
|
C-9
|
|
4.1
Governing Law
|
C-9
|
|
4.2
Waivers and Amendments
|
C-9
|
|
4.3
Successors and Assigns
|
C-10
|
|
4.4
Entire Agreement
|
C-10
|
|
4.5
Notices
|
C-10
|
|
4.6
Interpretation
|
C-11
|
|
4.7
Severability
|
C-11
|
|
4.8
Counterparts
|
C-11
|
|
4.9
Telecopy Execution and Delivery
|
C-11
|
REGISTRATION
RIGHTS AGREEMENT
THIS
REGISTRATION RIGHTS AGREEMENT (this “
Agreement
”)
is
made as of ________, 2007, among Transdel Pharmaceuticals, Inc., a Delaware
corporation (the “
Company
”),
and
the individuals and entities listed on
Schedule
A
hereto
(each, an “
Investor
”
and
collectively, the “
Investors
”).
R
E C I T A L S
WHEREAS,
the Company and the Investors are parties to Subscription Agreements (the
“
Subscription
Agreements
”)
pursuant to a Private Placement Memorandum dated July 30, 2007 (the
“
PPM
”);
WHEREAS,
the Investors’ obligations under the Subscription Agreements are conditioned
upon certain registration rights under the Securities Act of 1933, as amended
(the “
Securities
Act
”),
as
described in the Subscription Agreements; and
WHEREAS,
the Investors and the Company desire to provide for the rights of registration
under the Securities Act as are provided herein upon the execution and delivery
of this Agreement by such Investors and the Company.
NOW,
THEREFORE, in consideration of the promises, covenants and conditions set forth
herein, the parties hereto hereby agree as follows:
1.
Registration
Rights
.
1.1
Definitions
.
As used
in this Agreement, the following terms shall have the meanings set forth
below:
(a)
“
Commission
”
means
the United States Securities and Exchange Commission.
(b)
“
Common
Stock
”
means
the Company’s common stock, par value $0.001 per share.
(c)
“
Effectiveness
Date
”
means
the 90
th
day
following the initial filing date of the registration statement
hereunder.
(d)
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
(e)
“
Fair
Market Value
”
means
the average of the high and low prices of publicly traded shares of Common
Stock, rounded to the nearest cent, on the principal national securities
exchange on which shares of Common Stock are listed (if the shares of Common
Stock are so listed), or on The NASDAQ Capital Market (if the shares of Common
Stock are regularly quoted on the Nasdaq Stock Market), or, if not so listed
or
regularly quoted, the mean between the closing bid and asked prices of publicly
traded shares of Common Stock in the over-the-counter market, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company, or as determined by the
Board of Directors of the Company in a manner consistent with the provisions
of
the Internal Revenue Code, as amended.
(f)
“
Filing
Date
”
means,
with respect to the registration statement required to be filed hereunder,
a
date no later than 90
th
days
following the final Closing Date as defined in the PPM.
(g)
“
Investor
”
means
any person owning Registrable Securities.
(h)
The
terms
“
register
,”
“registered
”
and
“
registration
”
refer
to a registration effected by preparing and filing a registration statement
or
similar document in compliance with the Securities Act, and the declaration
or
ordering of effectiveness of such registration statement or
document.
(i)
“
Registrable
Securities
”
means
any of the Shares or any securities issued or issuable as (or any securities
issued or issuable upon the conversion or exercise of any warrant, right or
other security that is issued as) a dividend or other distribution with respect
to, or in exchange for, or in replacement of, the Shares;
provided
,
however
,
that
Registrable Securities shall not include any securities of the Company that
have
previously been registered or which have been sold to the public either pursuant
to a registration statement or Rule 144, or which have been sold in a private
transaction in which the transferor’s rights under this Section 1 are not
assigned, or which may be sold immediately without registration under the
Securities Act and without volume restrictions pursuant to Rule
144(k).
(j)
“
Rule
144
”
means
Rule 144 as promulgated by the Commission under the Securities Act, as such
Rule
may be amended from time to time, or any similar successor rule that may be
promulgated by the Commission.
(k)
“
Shares
”
means
the shares of the Common Stock issued pursuant to the Subscription Agreements
and issuable upon exercise of the Warrants.
(l)
“
Warrants
”
means
the warrants to purchase Common Stock issued pursuant to the Subscription
Agreements.
1.2
Company
Registration
.
(a)
On
or
prior to the Filing Date the Company shall prepare and file with the Commission
a registration statement covering the Registrable Securities for an offering
to
be made on a continuous basis pursuant to Rule 415. The registration statement
shall be on Form SB-2 or Form S-3 (except if the Company is not then eligible
to
register for resale the Registrable Securities on Form SB-2 or Form S-3, in
which case such registration shall be on another appropriate form in accordance
herewith). The Company shall cause the registration statement to become
effective and remain effective as provided herein. The Company shall use its
best efforts to cause the registration statement to be declared effective under
the Securities Act as promptly as possible after the filing thereof, but in
any
event no later than the Effectiveness Date. The Company shall use its best
efforts to keep the registration statement continuously effective under the
Securities Act until the date which is the earliest to occur of: (i) the date
that is 18 months after the date hereof or (ii) the date of which all
Registrable Securities have been sold (the “
Effectiveness
Period
”).
(b)
If:
(i)
the registration statement is not filed on or prior to the Filing Date; or
(ii)
the Company fails to use its best efforts to cause the registration statement
to
be declared effective by the Effectiveness Date (any such failure or breach
being referred to as an “
Event
,”
and
the date on which such Event occurs being referred to as the “
Event
Date
”),
then,
until the applicable Event is cured, the Company shall pay to each Investor,
in
cash or in Common Stock at Fair Market Value at the Company’s option, as
liquidated damages and not as a penalty, an amount equal to 1.0% of the
aggregate purchase price paid by such Investor pursuant to the Subscription
Agreement executed by such Investor for each thirty (30) day period (prorated
for partial periods), up to a maximum of 6.0%, during which such Event continues
uncured. While such Event continues, such liquidated damages shall be paid
not
less often than every thirty (30) days. Any unpaid liquidated damages as of
the
date when an Event has been cured by the Company shall be paid within three
(3)
business days following the date on which such Event has been cured by the
Company. Notwithstanding anything herein to the contrary, to the extent that
the
registration of any or all of the Registrable Securities by the Company on
a
registration statement is prohibited (the “
Non-Registered
Shares
”)
as a
result of rules, regulations, positions or releases issued or actions taken
by
the SEC pursuant to its authority with respect to Rule 415 and the Company
has
registered at such time the maximum number of Registrable Securities permissible
upon consultation with the SEC, then the liquidated damages described in this
Section 1.2(b) shall not be applicable to such Non-Registered
Shares.
(c)
The
Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect
to
the registrations pursuant to this Section 1.2 for each Investor, including
(without limitation) all registration, filing and qualification fees, printer’s
fees, accounting fees and fees and disbursements of counsel for the Company,
but
excluding underwriting discounts and commissions relating to Registrable
Securities and fees and disbursements of counsel for the Investors.
1.3
Obligations
of the Company
.
Whenever required under this Section 1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a)
Prepare
and file with the Commission a registration statement with respect to such
Registrable Securities and use its reasonable best efforts to cause such
registration statement to become effective and, upon the request of the
Investors of at least a majority of the Registrable Securities registered
thereunder, keep such registration statement effective during the Effectiveness
Period;
(b)
Prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the
Securities Act with respect to the disposition of all securities covered by
such
registration statement;
(c)
Furnish
to the Investors such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them (provided that the Company
would not be required to print such prospectuses if readily available to
Investors from any electronic service, such as on the EDGAR filing database
maintained at www.sec.gov);
(d)
Use
its
reasonable best efforts to register and qualify the securities covered by such
registration statement under such other securities’ or blue sky laws of such
jurisdictions as shall be reasonably requested by the Investors; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e)
In
the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering (each Investor participating in
such underwriting shall also enter into and perform its obligations under such
an agreement);
(f)
Notify
each Investor of Registrable Securities covered by such registration statement,
at any time when a prospectus relating thereto is required to be delivered
under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(g)
Cause
all
such Registrable Securities registered pursuant hereto to be listed on each
securities exchange or nationally recognized quotation system on which similar
securities issued by the Company are then listed; and
(h)
Provide
a
transfer agent and registrar for all Registrable Securities registered pursuant
hereunder and a CUSIP number for all such Registrable Securities, in each case
not later than the effective date of such registration.
1.4
Furnish
Information
.
It
shall be a condition precedent to the Company’s obligations to take any action
pursuant to this Section 1 with respect to the Registrable Securities of any
selling Investor that such Investor shall furnish to the Company such
information regarding such Investor, the Registrable Securities held by such
Investor, and the intended method of disposition of such securities as shall
be
required by the Company or the managing underwriters, if any, to effect the
registration of such Investor’s Registrable Securities.
1.5
Delay
of Registration
.
No
Investor shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this Section
1.
1.6
Indemnification
.
(a)
To
the
extent permitted by law, the Company will indemnify and hold harmless each
Investor, any underwriter (as defined in the Securities Act) for such Investor
and each person, if any, who controls such Investor or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject under the Securities Act, the Exchange Act or other federal
or state securities law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a “
Violation
”):
(i)
any untrue statement or alleged untrue statement of a material fact contained
in
a registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto
(collectively, the “
Filings
”),
(ii)
the omission or alleged omission to state in the Filings a material fact
required to be stated therein, or necessary to make the statements therein
not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Company will pay any legal or other expenses reasonably
incurred by any person to be indemnified pursuant to this Section 1.6(a) in
connection with investigating or defending any such loss, claim, damage,
liability or action;
provided
,
however
,
that
the indemnity agreement contained in this Section 1.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such
case for any such loss, claim, damage, liability or action to the extent that
it
arises out of or is based upon a Violation that occurs in reliance upon and
in
conformity with written information furnished expressly for use in connection
with such registration by any such Investor, underwriter or controlling
person.
(b)
To
the
extent permitted by law, each Investor will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within
the
meaning of the Securities Act or the Exchange Act, any underwriter, any other
Investor selling securities in such registration statement and any controlling
person of any such underwriter or other Investor, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject under the Securities Act, the Exchange Act or other federal
or state securities law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in
each case to the extent (and only to the extent) that such Violation occurs
in
reliance upon and in conformity with written information furnished by such
Investor expressly for use in connection with such registration; and each such
Investor will pay any legal or other expenses reasonably incurred by any person
to be indemnified pursuant to this Section 1.6(b) in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided
,
however
,
that
the indemnity agreement contained in this Section 1.6(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor (which
consent shall not be unreasonably withheld);
provided
,
however
,
in no
event shall any indemnity under this subsection 1.6(b) exceed the gross proceeds
from the offering received by such Investor.
(c)
Promptly
after receipt by an indemnified party under this Section 1.6 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 1.6, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right
to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties;
provided
,
however
,
that an
indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain
one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 1.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any
indemnified party otherwise than under this Section 1.6.
(d)
If
the
indemnification provided for in Sections 1.6(a) and (b) is held by a court
of
competent jurisdiction to be unavailable to an indemnified party with respect
to
any loss, claim, damage or expense referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or expense in such proportion as is appropriate
to
reflect the relative fault of the indemnifying party on the one hand and of
the
indemnified party on the other in connection with the statements or omissions
or
alleged statements or omissions that resulted in such loss, liability, claim
or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or
omission. In no event shall any Investor be required to contribute an amount
in
excess of the gross proceeds from the offering received by such
Investor.
(e)
The
obligations of the Company and Investors under this Section 1.6 shall survive
the completion of any offering of Registrable Securities in a registration
statement under this Section 1, and otherwise.
1.7
Reports
Under Securities Exchange Act
.
With a
view to making available the benefits of certain rules and regulations of the
Commission, including Rule 144, that may at any time permit an Investor to
sell
securities of the Company to the public without registration or pursuant to
a
registration on Form SB-2, the Company agrees to:
(a)
make
and
keep public information available, as those terms are understood and defined
in
Rule 144, at all times after ninety (90) days after the effective date of the
registration statement;
(b)
take
such
action, including the voluntary registration of its Common Stock under Section
12 of the Exchange Act, as is necessary to enable the Investors to utilize
Form
SB-2 for the sale of their Registrable Securities, such action to be taken
as
soon as practicable after the end of the fiscal year in which the registration
statement is declared effective;
(c)
file
with
the Commission in a timely manner all reports and other documents required
of
the Company under the Securities Act and the Exchange Act; and
(d)
furnish
to any Investor, so long as the Investor owns any Registrable Securities,
forthwith upon request (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144 (at any time after ninety
(90) calendar days after the effective date of the registration statement),
the
Securities Act and the Exchange Act (at any time after it has become subject
to
such reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form SB-2 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Investor
of any rule or regulation of the Commission that permits the selling of any
such
securities without registration or pursuant to such form.
1.8
Transfer
or Assignment of Registration Rights
.
The
rights to cause the Company to register Registrable Securities pursuant to
this
Section 1 may be transferred or assigned, but only with all related obligations,
by an Investor to a transferee or assignee who (a) acquires both at least 25,000
Shares and Warrants to acquire at least 6,250 Shares (all subject to appropriate
adjustment for stock splits, stock dividends and combinations) from such
transferring Investor or (b) holds Registrable Securities immediately prior
to
such transfer or assignment;
provided
,
that in
the case of (a), (i) prior to such transfer or assignment, the Company is
furnished with written notice stating the name and address of such transferee
or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, (ii) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of
this
Agreement including, without limitation, the provisions of Section 1.9 hereof
and (iii) such transfer or assignment shall be effective only if immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the Securities
Act.
2.
Covenants
of the Company to the Investors
.
2.1
Information
Rights
.
The
Company shall deliver to each Investor who holds (and continues to hold) at
least 250,000 Shares (subject to appropriate adjustment for stock splits, stock
dividends and combinations), upon the request of such Investor (which may be
satisfied by filing of Company quarterly and annual reports under the Exchange
Act):
(a)
as
soon
as practicable, but in any event within one hundred twenty (120) calendar days
after the end of each fiscal year of the Company, consolidated balance sheets
of
the Company and its subsidiaries, if any, as of the end of such fiscal year,
and
consolidated statements of income and consolidated statements of cash flows
of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles (“
GAAP
”),
all
in reasonable detail; and
(b)
as
soon
as practicable, but in any event within forty-five (45) calendar days after
the
end of each of the first three (3) quarters of each fiscal year of the Company,
consolidated balance sheets of the Company and its subsidiaries, if any, as
of
the end of such quarter, and consolidated statements of income and consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
quarter prepared in accordance with GAAP, all in reasonable detail.
2.2
Confidentiality
.
Each
Investor receiving any non-public information of the Company hereby agrees
to
hold in confidence and trust and to act in a fiduciary manner with respect
to
all information so provided;
provided
,
however
,
that
notwithstanding the foregoing, an Investor may include summary financial
information concerning the Company and general statements concerning the nature
and progress of the Company’s business in an Investor’s reports to its
affiliates.
3.
Legend
.
(a)
Each
certificate representing Shares of Common Stock held by the Investors shall
be
endorsed with the following legend:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT, (B) AN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR
(C) REASONABLE ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY THAT SUCH OFFER,
SALE, ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT.
(b)
The
legend set forth above shall be removed, and the Company shall issue a
certificate without such legend to the transferee of the Shares represented
thereby, if, unless otherwise required by state securities laws, (i) such Shares
have been sold under an effective registration statement under the Securities
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, reasonably acceptable to the
Company, to the effect that such sale, assignment or transfer is being made
pursuant to an exemption from the registration requirements of the Securities
Act, or (iii) such holder provides the Company with reasonable assurance that
the Shares are being sold, assigned or transferred pursuant to Rule 144 or
Rule
144A under the Securities Act.
4.
Miscellaneous
.
4.1
Governing
Law
.
The
parties hereby agree that any dispute which may arise between them arising
out
of or in connection with this Agreement shall be adjudicated only before a
Federal court located in the State of Delaware and they hereby submit to the
exclusive jurisdiction of the federal and state courts of the State of Delaware
with respect to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of any such action or proceeding brought in such a court or respecting
the
fact that such court is an inconvenient forum, relating to or arising out of
this Agreement or any acts or omissions relating to the registration of the
securities hereunder, and consent to the service of process in any such action
or legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth below or such other address as
the
undersigned shall furnish in writing to the other. The parties further agree
that in the event of any dispute, action, suit or other proceeding arising
out
of or in connection with this Agreement brought by a Subscriber (or transferee),
the Company (and each other defendant) shall recover all of such party’s
attorneys’ fees and costs incurred in each and every action, suit or other
proceeding, including any and all appeals or petitions therefrom. As used
herein, attorney’s fees shall be deemed to mean the full and actual costs of any
investigation and of legal services actually performed in connection with the
matters involved, calculated on the basis of the usual fee charged by the
attorneys performing such services.
4.2
Waivers
and Amendments
.
This
Agreement may be terminated and any term of this Agreement may be amended or
waived (either generally or in a particular instance and either retroactively
or
prospectively) with the written consent of the Company and Investors holding
at
least a majority of the Registrable Securities then outstanding (the
“
Majority
Investors
”).
Notwithstanding the foregoing, additional parties may be added as Investors
under this Agreement with the written consent of the Company and the Majority
Investors. No such amendment or waiver shall reduce the aforesaid percentage
of
the Registrable Securities, the holders of which are required to consent to
any
termination, amendment or waiver without the consent of the record holders
of
all of the Registrable Securities. Any termination, amendment or waiver effected
in accordance with this Section 4.2 shall be binding upon each holder of
Registrable Securities then outstanding, each future holder of all such
Registrable Securities and the Company.
4.3
Successors
and Assigns
.
Except
as otherwise expressly provided herein, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
4.4
Entire
Agreement
.
This
Agreement constitutes the full and entire understanding and agreement among
the
parties with regard to the subject matter hereof, and no party shall be liable
or bound to any other party in any manner by any warranties, representations
or
covenants except as specifically set forth herein.
4.5
Notices
.
All
notices and other communications required or permitted under this Agreement
shall be in writing and shall be delivered personally by hand or by overnight
courier, mailed by United States first-class mail, postage prepaid, sent by
facsimile or sent by electronic mail directed (a) if to an Investor, at such
Investor’s address, facsimile number or electronic mail address set forth in the
Company’s records, or at such other address, facsimile number or electronic mail
address as such Investor may designate by ten (10) days’ advance written notice
to the other parties hereto or (b) if to the Company, to its address, facsimile
number or electronic mail address set forth on its signature page to this
Agreement and directed to the attention of the Chief Executive Officer, or
at
such other address, facsimile number or electronic mail address as the Company
may designate by ten (10) days’ advance written notice to the other parties
hereto. All such notices and other communications shall be effective or deemed
given upon delivery, on the date of mailing, upon confirmation of facsimile
transfer or upon confirmation of electronic mail delivery.
4.6
Interpretation
.
The
words “include,” “includes” and “including” when used herein shall be deemed in
each case to be followed by the words “without limitation.” The titles and
subtitles used in this Agreement are used for convenience only and are not
considered in construing or interpreting this Agreement.
4.7
Severability
.
If one
or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement, and the
balance of the Agreement shall be interpreted as if such provision were so
excluded, and shall be enforceable in accordance with its terms.
4.8
Counterparts
.
This
Agreement may be executed in any number of counterparts, each of which shall
be
an original, but all of which together shall constitute one
instrument.
4.9
Telecopy
Execution and Delivery
.
A
facsimile, telecopy or other reproduction of this Agreement may be executed
by
one or more parties hereto, and an executed copy of this Agreement may be
delivered by one or more parties hereto by facsimile or similar electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any party hereto,
all
parties hereto agree to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties have executed this Agreement on the day, month
and
year first set forth above.
“Company”
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TRANSDEL
PHARMACEUTICALS, INC.
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By:
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Name:
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Title:
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Address
for notice
:
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4225
Executive Square
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Suite
460
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La
Jolla, California 92037
|
Fax:
(858) 457-5308
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[COMPANY
SIGNATURE PAGE TO REGISTATION RIGHTS AGREEMENT]
IN
WITNESS WHEREOF, the parties have executed this Agreement on the day, month
and
year first set forth above.
“Investor”
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By:
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Name
|
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Title:
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Address:
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Telephone:
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Facsimile:
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Email:
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[INVESTOR
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
Schedule
A
Investors
EXHIBIT
10.4
LOCK-UP
AGREEMENT
______________,
2007
Ladies
and Gentlemen:
The
undersigned is a director, executive officer or beneficial owner of shares
of
capital stock, or securities convertible into or exercisable or exchangeable
for
the capital stock (each, a “
Company
Security
”)
of
Trans-Pharma Corporation, a Nevada corporation (the “
Company
”).
The
undersigned understands that the Company will merge with a wholly-owned
subsidiary of Transdel Pharmaceuticals, Inc., a publicly traded Delaware company
(“
Paren
t”),
concurrently with a private placement by Parent of up to $5,000,000 of units
(the “
Units
”)
of the
Parent, with each Unit consisting of 50,000 shares of common stock of Parent
and
a detachable transferable warrant to purchase 12,500 shares of common stock
of
Parent at a cash exercise price of $4.00 per share and cashless exercise price
of $5.00 per share (the “
Funding
Transaction
”).
The
undersigned understands that the Company, Parent and the investors in the
Funding Transaction will proceed with the Funding Transaction in reliance on
this Letter Agreement.
1.
In
recognition of the benefit that the Funding Transaction will confer upon the
undersigned, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees, for the
benefit of the Company, Parent, and each investor in the Funding Transaction,
that, during the period beginning on the closing of the Funding Transaction
(the
“
Closing
Date
”)
and
ending eighteen (18) months after such date (the “
Lockup
Period
”),
the
undersigned will not, without the prior written consent of persons holding
a
majority of the Units at such time (the “
Majority
Investors
”),
directly or indirectly, (i) offer, sell, offer to sell, contract to sell, hedge,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or sell (or announce
any
offer, sale, offer of sale, contract of sale, hedge, pledge, sale of any option
or contract to purchase, purchase of any option or contract of sale, grant
of
any option, right or warrant to purchase or other sale or disposition), or
otherwise transfer or dispose of (or enter into any transaction or device that
is designed to, or could be expected to, result in the disposition by any person
at any time in the future), any securities of the Parent into or for which
a
Company Security may be converted, exercised or exchanged, whether by operation
of law, merger or otherwise (each, a “
Parent
Security
”),
beneficially owned, within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the “
Exchange
Act
”),
by
the undersigned on the date hereof or hereafter acquired or (ii) enter into
any
swap or other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of any Parent
Security, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of any Parent Security (each of the
foregoing, a “
Prohibited
Sale
”).
2.
Notwithstanding
the foregoing, the undersigned shall be permitted from time to time during
the
Lockup Period, without the prior written consent of any investor in the Funding
Transaction, (i) to engage in transactions in connection with the undersigned’s
participation in Parent’s stock option plans, (ii) to transfer all or any part
of any Parent Security to any family member, for estate planning
purposes
,
or to an
affiliate thereof (as such term is defined in Rule 405 under the Securities
Exchange Act of 1934, as amended), provided that such transferee agrees
in
writing
with
Parent
to be
bound hereby
or
(iii)
to participate
in any
transaction in which holders of the common stock of Parent participate or have
the opportunity to participate pro rata, including, without limitation, an
underwritten offering of common stock, a merger, consolidation or binding share
exchange involving Parent, a disposition of Parent’s common stock in connection
with the exercise of any rights, warrants or other securities distributed to
Parent’s stockholders, or a tender or exchange offer for the common stock, and
no transaction contemplated by the foregoing clauses (i)
,
(ii) or
(iii)
shall be
deemed a Prohibited Sale for purposes of this Letter Agreement.
3.
This
Letter Agreement shall be governed by and construed in accordance with the
laws
of the
Delaware.
4.
This
Letter Agreement will become a binding agreement among the undersigned as of
the
Closing Date. In the event that no closing of the Funding Transaction occurs,
this Letter Agreement shall be null and void. This Letter Agreement (and the
agreements reflected herein) may be terminated by the mutual agreement of
Parent, the Majority Investors, and the undersigned, and if not sooner
terminated, will terminate upon the expiration date of the Lockup Period. This
Letter Agreement may be duly executed by facsimile and in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to constitute one and the same instrument. Signature
pages from separate identical counterparts may be combined with the same effect
as if the parties signing such signature page had signed the same counterpart.
This Letter Agreement may be modified or waived only by a separate writing
signed by each of the parties hereto expressly so modifying or waiving such
agreement.
Very
truly yours,
|
|
Print
Name:
|
Address:
______________________________________
Number
of
shares of Common Stock owned: ____________
Certificate
Numbers: ______________________________
Accepted
and Agreed to:
EXHIBIT
10.5
Trans-Pharma
Corporation
4225
Executive Square, Suite 460
La
Jolla,
CA 92037
September
17, 2007
Mr.
Dan
Schreiber
Granite
Financial Group, LLC
12220
El
Camino Real, Suite 400
San
Diego, CA 92130
RE:
Selling
Agreement
Dear
Mr.
Schreiber:
The
undersigned, Trans-Pharma Corporation, a Nevada corporation ("Corporation"),
by
this letter confirms its agreement (the "Agreement") with Granite Financial
Group, LLC, a Delaware limited liability company (the "Broker-Dealer"),
regarding
the
Broker-Dealer acting as a placement agent in connection with an offering of
up
to $5.0 million of units consisting of shares of common stock and warrants
to
purchase common stock
(the
"Units")
under
the
terms set forth in those certain Subscription Agreements, in the form attached
hereto as
Exhibit
A
,
and all
exhibits and supplements thereto (the "Offering Materials") prepared by
Corporation and delivered to you for distribution to the offerees. The Units
are
to be offered on a "Best Efforts, Minimum- Maximum" basis with respect to all
Units. The Units will be offered and sold in accordance with 17 CFR 203.506
("Rule 506"), promulgated under Regulation D of the Securities Act 1933, as
amended.
Upon
execution and delivery of subscription documents (the "Subscription Documents"),
which shall be in the form of the Subscription Documents included in the
Offering Materials, the subscribers for Units shall, upon acceptance thereof
by
Corporation (which acceptance shall be in Corporation’s sole discretion), become
Unit Holders pursuant to the terms set forth in the Offering Materials. The
offering of the Units shall begin when the Offering Materials are first made
available to you by Corporation and shall continue until the termination date,
and through the end of any extension, unless the offering has been terminated
as
of any earlier time (the "Subscription Period").
Section
1.
Appointment
of Agent.
On
the
basis of the representations, warranties and covenants contained in this
Agreement, but subject to the terms and conditions herein set forth, you are
hereby appointed as non-exclusive selling agent of Corporation for the Units
offered under the Offering Materials. The appointment shall continue until
the
earliest of (i) 120 days from the date of this Agreement, or (ii) the
termination of the Subscription Period, or (iii) the sale of all of the Units,
or (iv) the termination of the offering of Units by Corporation for any reason,
whichever occurs first. Subject to the performance by Corporation of all of
its
obligations under this Agreement, and to the completeness and accuracy of all
of
its representations and warranties contained in this Agreement, you agree to
use
your best efforts during the Subscription Period to find subscribers for the
Units.
Section
2.
Definitions.
Certain
terms used herein are defined in the Offering Materials and shall have the
same
meanings given therein.
Section
3.
Representations,
Warranties and Covenants of Corporation.
Corporation represents, warrants and covenants, to the best of its knowledge,
that:
a.
Corporation
is a corporation duly and validly organized and in good standing under the
laws
of the State of Nevada and has full power and authority to conduct the business
described in the Offering Materials.
b.
Corporation
will deliver to you a reasonable number of copies of the Offering Materials,
and
the information made available to each offeree pursuant to subsection 3(i)
hereof shall be sufficient to comply with, and conform to, the requirements
of
Rule 506.
c.
All
action required to be taken by Corporation to offer and sell the Units to
qualified subscribers has been or will be taken.
d.
Upon
payment of the subscription amount specified in the Subscription Documents,
acceptance by Corporation of the subscriptions from qualified subscribers (which
acceptance shall be at the sole discretion of Corporation), and delivery by
the
subscribers for Units of such additional documents as may reasonably be required
by Corporation, such subscribers will become Unit Holders.
e.
During
the Subscription Period, the Offering Materials will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order
to make the statements made therein, in the light of the circumstances under
which they were made, not materially misleading.
f.
This
Agreement has been duly and validly authorized, executed, and delivered by
or on
behalf of Corporation and constitutes a valid and binding agreement of
Corporation.
g.
Execution
by Corporation of a subscriber’s Subscription Documents will be duly and validly
authorized by or on behalf of Corporation and will constitute a valid and
binding agreement of Corporation.
h.
The
execution and delivery of this Agreement and the incurrence of the obligations
set forth herein and the consummation of the transactions contemplated in this
Agreement and the Offering Materials will not constitute a breach or default
under:
(i)
any
instruments by which Corporation is bound; or
(ii)
any
order, rule or regulation (applicable to Corporation) issued by any court,
governmental body or administrative agency having jurisdiction over
Corporation.
i.
Corporation
shall make available, during the Subscription Period and prior to the sale
of
any Units, to each purchaser or his purchaser representative(s) or both:
(i)
such
information (in addition to that contained in the Offering Materials) concerning
the offering of Units, Corporation, and any other relevant matters, as
Corporation possesses or can acquire without unreasonable effort or expense;
and
(ii)
the
opportunity to ask questions of, and receive answers from, Corporation
concerning the terms and conditions of the offering of the Units, and to obtain
any additional information, to the extent Corporation possesses the same or
can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information furnished to the purchaser or his purchaser
representative(s).
j.
With
respect to those activities undertaken by it, Corporation has endeavored to
ensure that the offering and sale of Units complies, in all respects, with
the
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the securities or "blue sky" laws of
any
state or jurisdiction in which an offer and/or sale takes place.
k.
There
is
no litigation or proceeding at law or in equity before any federal or state
authority against Corporation wherein an unfavorable decision, ruling, or
finding would materially and adversely affect the business, operations or
financial condition or income of Corporation or any proposed Corporation
investment, and neither the execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, nor the fulfillment of
or
compliance with the terms hereof will conflict with, or result in a breach
of,
any of the terms, provisions, or conditions of any agreement or instrument
to
which Corporation is a party.
l.
Corporation
will endeavor in good faith to qualify, or assist you in qualifying, the Units
for offer and sale, or to establish, or assist you in establishing, the
exemption of the offer and sale of the Units from qualification or registration
under the applicable securities or "blue sky" laws of such jurisdictions as
you
may reasonably designate, and will promptly notify you, orally or in writing
(but if orally then prompt written confirmation shall be delivered to you),
as
each jurisdiction is so qualified or as an exemption from registration or
qualification is established therein; provided, however, that Corporation shall
not be obligated to do business or to qualify as a dealer in any jurisdiction
in
which it is not so qualified.
m.
Corporation
will pay all expenses in connection with the printing and delivery to you in
reasonable quantities of copies of the Offering Materials and the qualification
of the Units under the securities or "blue sky" laws.
n.
As
compensation for your services, Corporation will pay you a sales commission
equal in cash to (i) seven percent (7%) of the gross proceeds received by
Corporation from the Units placed by you (the “
Cash
Fee
”)
and
(ii) three-year warrants to purchase a number of shares of common stock equal
to
three percent (3%) of the number of shares included within the Units placed
by
you; provided, however, that immediately prior to each closing of the offering
of the Units you shall subscribe for that number of Units equal in value to
the
Cash Fee payable to you with respect to such closing and acknowledge that you
will not be entitled to any sales commissions with respect to Units purchase
by
you using the Cash Fee pursuant to this Section 3(n).
o.
If
any
event relating to or affecting Corporation shall occur during the Subscription
Period, as a result of which it is necessary, in the opinion of your counsel
and
counsel to Corporation, to amend or supplement the Offering Materials so that
it
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the
circumstances under which they are made, not misleading, Corporation shall
forthwith prepare and furnish to you a reasonable number of copies of an
amendment or amendments of, or supplement or supplements to, the Offering
Materials, which you shall promptly deliver to all offerees then being
solicited. For purposes of this subsection o., Corporation will furnish such
information with respect to Corporation as you may from time to time reasonably
request.
p.
Corporation
will deliver to you such reports and documents as Corporation is required,
under
the terms of the Offering Materials or any document referred to therein, to
furnish to its prospective investors.
Section
4.
Representations,
Warranties and Covenants of the Broker-Dealer.
The
Broker-Dealer represents, warrants and covenants, to the best of its knowledge,
that:
a.
It,
or
any person acting on its behalf, will not offer any of the Units for sale,
or
solicit any offers to subscribe for or buy any Units, or otherwise negotiate
with any person with respect to the Units, on the basis of any communications
or
documents, except the Offering Materials, the information provided by
Corporation pursuant to Section 3(i), or any other documents and any transmittal
letter reasonably satisfactory in form and substance to Corporation and counsel
to Corporation.
b.
It,
or
any person acting on its behalf, shall not use any form of general solicitation
or general advertising in the course of any offer or sale of the Units
including, but not limited to:
(i)
any
advertisement, article, notice or other communication published in any
newspaper, magazine, website, or similar media or broadcast over television
or
radio; and
(ii)
any
seminar or meeting whose attendees have been invited by any general solicitation
or general advertising.
c.
It,
or
any person acting on its behalf, shall solely make offers to sell Units to,
solicit offers to subscribe for or purchase any Units from, or otherwise
negotiate with respect to the Units with, persons whom it has reasonable grounds
to believe and does believe are "accredited investors" within the meaning of
17
CFR 230.501(a).
In
making
or soliciting such offers, or so negotiating, Broker-Dealer will comply with
the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the securities or "blue sky" laws of the
jurisdiction in which it makes or solicits such offers, or so
negotiates.
d.
It
will
exercise reasonable care to assure that the purchasers are not underwriters
within the meaning of Section 2(11) of the Securities Act of 1933, as amended.
In that connection, it will:
(i)
Make
reasonable inquiry to determine that each purchaser is acquiring the Units
for
his own account; and
(ii)
Obtain
from the purchaser a signed written agreement (contained in the Subscription
Documents) that the Units will not be sold without registration under the
Securities Act of 1933, as amended, unless an opinion of counsel that an
exemption therefrom is available, satisfactory in form and substance to
Corporation or counsel, is delivered in accordance with such
agreement.
e.
It
shall
furnish Corporation with information in sufficient detail (in the form of the
Investor Questionnaire, a copy of which is included in the Offering Materials),
with respect to each purchaser of Units, in order to demonstrate to Corporation
that such purchaser satisfies the requirements of Rule 506, as outlined in
Section 4(c) above.
f.
If
a
prospective purchaser uses or consults a purchaser representative (as that
term
is defined in 17 CFR 230.501(h)) in connection with the offering of the Units,
it will obtain and deliver to Corporation, prior to the closing of the offering
of the Units, the prospective purchaser's written acknowledgment that he has
used such person(s) in connection with evaluating the merits and risks of the
prospective investment and such representative's written consent so to act,
as
well as a description of the education and experience of such
representative(s).
g.
It
will
offer and sell the Units only in those jurisdictions in which it, or any other
person or entity acting in its behalf, is properly registered, and it will
comply with all laws, rules and regulations related to its activities on behalf
of Corporation pursuant to this Agreement.
h.
It
is a
securities broker-dealer registered and in good standing with the Securities
and
Exchange Commission and is a member of the NASD.
i.
This
Agreement has been duly and validly authorized, executed, and delivered by
or on
behalf of
the
Broker-Dealer
and
constitutes a valid and binding agreement of the Broker-Dealer.
Section
5.
Conditions
of the Obligations of Corporation.
The
obligations of Corporation under this Agreement are subject to the accuracy
of
and compliance with your representations, warranties and covenants set forth
in
Section 4, and to the performance by you of your obligations
hereunder.
Section
6.
Representations,
Warranties and Agreements to Survive Delivery.
All
representations, warranties and agreements by either Corporation or
Broker-Dealer contained in this Agreement shall remain operative and in full
force and effect, and shall survive the closing of the offering of the Units.
Upon termination of this Agreement, Corporation shall have no further
obligations to Broker-Dealer other than with respect to fees payable to
Broker-Dealer as provided herein.
Section
7.
Indemnification.
(a)
Corporation
agrees to indemnify, defend and hold Broker-Dealer harmless against any and
all
loss, liability, damage and expense whatsoever, whether or not resulting in
any
liability, that may be incurred under applicable securities laws, at common
law,
or otherwise and which is based upon or arises out of:
(1)
any
untrue statement or alleged untrue statement of a material fact contained in
the
Offering Materials or the omission or alleged omission from the Offering
Materials of a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading;
(2)
the
offer
and/or sale by Corporation, or anyone acting on its behalf, of Units (unless
due
to the bad faith or gross negligence of the Broker-Dealer); or
(3)
any
breach of any representation, warranty or covenant made by Corporation in this
Agreement.
(b)
The
Broker-Dealer agrees to indemnify, defend and hold Corporation and its officers,
directors, shareholders and agents harmless against any and all loss, liability,
damage and expense whatsoever, whether or not resulting in any liability, that
may be incurred under applicable securities laws, at common law, or otherwise
and which is based upon or arises out of:
(1)
any
violation by Broker-Dealer or its agents of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, or any state
securities statutes, unless such violation is attributable to actions,
misrepresentations or omissions of Corporation; or
(2)
any
breach of any representation, warranty or covenant made by Broker-Dealer in
this
Agreement.
(c)
In
any
legal or regulatory action or claim brought against Corporation or Broker-Dealer
or their agents, Corporation and the Broker-Dealer shall have the rights and
duties set forth in this Section 7. The indemnification provisions included
in
this Section 7 shall include, but not be limited to, recovery of and payment
of
reasonable legal or other expenses incurred by Broker-Dealer or Corporation
in
connection with defending such actions and claims.
(d)
Within
fourteen (14) calendar days after a claim or action is brought or asserted
against Corporation or the Broker-Dealer or both, which in the opinion of either
is subject to the indemnification provisions contained in this Section 7, the
party seeking indemnification (the "Indemnitee") shall notify, in writing,
the
party from whom indemnification is sought (the "Indemnitor") of the existence
of
the claim or action. Indemnitor shall assume the defense of the claim or action
by employing counsel for the Indemnitee, and shall thereafter be responsible
for
the payment of all legal fees and expenses incurred in connection with such
defense. In the event that a claim or action is brought or asserted against
Corporation and the Broker-Dealer, jointly, Corporation and the Broker-Dealer
shall make a good faith effort determine whether the claim or action can be
defended jointly or if potential conflicts exist which require that separate
legal counsel be employed for Broker-Dealer and Corporation. In such case,
if
Corporation and the Broker-Dealer seek indemnification from the other, each
shall employ separate counsel to represent them and shall be responsible for
the
payment of all expenses associated with employment of such counsel, subject
to
the right of recovery of such expenses as set forth below in this subparagraph
(d).
If
either Corporation or Broker-Dealer seek indemnification from the other under
the provisions of this Section 7, and the party from whom indemnification is
sought declines to assume defense of the action or claim, the party seeking
indemnification shall have a right of recovery against the party from whom
indemnification is sought for all losses, liabilities, damages and expenses
incurred in the defense of the action or claim, including all actual attorneys’
fees and costs incurred, in the event that the defense of the action or claim
is
successful and there are no findings of wrongdoing on the part of the party
seeking indemnification.
Section
8.
Relief
.
The
Broker-Dealer agrees that a breach or threatened breach on its part of any
agreement contained in this Agreement will cause such damage to Corporation
as
will be irreparable, and, for that reason, the Broker-Dealer further agrees
that
Corporation shall be entitled as a matter of right to an injunction, by any
court of competent jurisdiction, restraining any further violation of such
covenants by the Broker-Dealer or its employees, partners, officers or agents.
The right of injunction shall be cumulative and in addition to whatever other
remedies Corporation may have, including, specifically, recovery of damages.
The
Broker-Dealer also agrees to pay reasonable attorney's fees incurred by
Corporation in successfully proving that the Broker-Dealer breached any of
the
terms of this Agreement.
Section
9.
Notices.
All
communications under this Agreement shall be in writing, and, if sent to you,
shall be mailed, delivered or telegraphed and confirmed to you at the address
initially set forth above or as changed by you in a written notice to
Corporation, or if sent to Corporation, shall be mailed, delivered or
telegraphed and confirmed to it at the address set out in the letterhead
above.
Section
10.
Parties.
This
Agreement shall inure to the benefit of, and be binding upon, you, any person
which controls you, and your successors, and upon Corporation and its
representatives and successors. This Agreement and its conditions and provisions
are for the sole and exclusive benefit of the parties and their representatives
and successors, and for the benefit of no other person, firm or
corporation.
Section
11.
Relationship
of Parties.
It is
not the intention of the parties to create, nor shall this Agreement be
construed as creating, a partnership, joint venture, agency relationship or
association other than as specifically set forth herein, or to render the
parties liable as partners, co-venturers, or principals. In their relations
with
each other under this Agreement, the parties shall not be considered fiduciaries
or to have established a confidential relationship other than as specifically
set forth herein but rather shall be free to act on an arm's length basis in
accordance with their own respective self-interest, subject, however, to the
obligation of the parties to act in good faith in their dealings with each
other
with respect to activities hereunder.
Section
12.
Entire
Agreement.
This
Agreement evidences the entire agreement between Corporation and the
Broker-Dealer, and represents a merger of all preceding agreements between
the
parties hereto pertaining to the subject matter hereof.
Section
13.
Severability
of Provisions.
If one
or more of the provisions of this Agreement or any application thereof shall
be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof and any application thereof
shall in no way be affected or impaired.
Section
14.
Governing
Law; Jurisdiction.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Nevada, without regard to conflicts of laws or principles
thereof. Each of the parties hereto agrees irrevocably consents to the
jurisdiction and venue of the federal and state courts located in Las Vegas,
Nevada.
Section
15.
Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
[SIGNATURE
PAGE FOLLOWS]
Selling
Agreement
Page
10
If
the
foregoing is in accordance with your understanding of our agreement, kindly
sign
and return to us one copy of this Agreement, whereupon this instrument will
become a binding agreement upon you and Corporation in accordance with its
terms.
Very
truly yours,
|
|
TRANS-PHARMA
CORPORATION,
|
a
Nevada Corporation
|
|
By:
|
/s/
Juliet Singh, Ph.D.
|
Name:
|
Juliet
Singh, Ph.D.
|
Title:
|
Chief
Executive Officer
|
The
foregoing Agreement is hereby confirmed and accepted as of the date first set
out above.
|
|
By:
|
/s/
Dan Schreiber
|
Name:
|
Dan
Schreiber
|
Title:
|
|
|
12220 El Camino Real, Suite 400
|
|
San
Diego, CA 92130
|
EXHIBIT
10.6
Trans-Pharma
Corporation
4225
Executive Square, Suite 460
La
Jolla,
CA 92037
September
17, 2007
Mr.
Wilson Williams
WFG
Investments, Inc.
12221
Merit Drive, Suite 300
Dallas,
Texas 75251
RE:
Selling
Agreement
Dear
Mr.
Williams:
The
undersigned, Trans-Pharma Corporation, a Nevada corporation ("Corporation"),
by
this letter confirms its agreement (the "Agreement") with WFG Investments,
Inc.,
a Texas Corporation (the "Broker-Dealer"), regarding
the
Broker-Dealer acting as a placement agent in connection with an offering of
up
to $5.0 million of units consisting of shares of common stock and warrants
to
purchase common stock
(the
"Units")
under
the
terms set forth in those certain Subscription Agreements, in the form attached
hereto as
Exhibit
A
,
and all
exhibits and supplements thereto (the "Offering Materials") prepared by
Corporation and delivered to you for distribution to the offerees. The Units
are
to be offered on a "Best Efforts, Minimum- Maximum" basis with respect to all
Units. The Units will be offered and sold in accordance with 17 CFR 203.506
("Rule 506"), promulgated under Regulation D of the Securities Act 1933, as
amended.
Upon
execution and delivery of subscription documents (the "Subscription Documents"),
which shall be in the form of the Subscription Documents included in the
Offering Materials, the subscribers for Units shall, upon acceptance thereof
by
Corporation (which acceptance shall be in Corporation’s sole discretion), become
Unit Holders pursuant to the terms set forth in the Offering Materials. The
offering of the Units shall begin when the Offering Materials are first made
available to you by Corporation and shall continue until the termination date,
and through the end of any extension, unless the offering has been terminated
as
of any earlier time (the "Subscription Period").
Section
1.
Appointment
of Agent.
On
the
basis of the representations, warranties and covenants contained in this
Agreement, but subject to the terms and conditions herein set forth, you are
hereby appointed as non-exclusive selling agent of Corporation for the Units
offered under the Offering Materials. The appointment shall continue until
the
earliest of (i) 120 days from the date of this Agreement, or (ii) the
termination of the Subscription Period, or (iii) the sale of all of the Units,
or (iv) the termination of the offering of Units by Corporation for any reason,
whichever occurs first. Subject to the performance by Corporation of all of
its
obligations under this Agreement, and to the completeness and accuracy of all
of
its representations and warranties contained in this Agreement, you agree to
use
your best efforts during the Subscription Period to find subscribers for the
Units.
Section
2.
Definitions.
Certain
terms used herein are defined in the Offering Materials and shall have the
same
meanings given therein.
Section
3.
Representations,
Warranties and Covenants of Corporation.
Corporation represents, warrants and covenants, to the best of its knowledge,
that:
a.
Corporation
is a corporation duly and validly organized and in good standing under the
laws
of the State of Nevada and has full power and authority to conduct the business
described in the Offering Materials.
b.
Corporation
will deliver to you a reasonable number of copies of the Offering Materials,
and
the information made available to each offeree pursuant to subsection 3(i)
hereof shall be sufficient to comply with, and conform to, the requirements
of
Rule 506.
c.
All
action required to be taken by Corporation to offer and sell the Units to
qualified subscribers has been or will be taken.
d.
Upon
payment of the subscription amount specified in the Subscription Documents,
acceptance by Corporation of the subscriptions from qualified subscribers (which
acceptance shall be at the sole discretion of Corporation), and delivery by
the
subscribers for Units of such additional documents as may reasonably be required
by Corporation, such subscribers will become Unit Holders.
e.
During
the Subscription Period, the Offering Materials will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order
to make the statements made therein, in the light of the circumstances under
which they were made, not materially misleading.
f.
This
Agreement has been duly and validly authorized, executed, and delivered by
or on
behalf of Corporation and constitutes a valid and binding agreement of
Corporation.
g.
Execution
by Corporation of a subscriber’s Subscription Documents will be duly and validly
authorized by or on behalf of Corporation and will constitute a valid and
binding agreement of Corporation.
h.
The
execution and delivery of this Agreement and the incurrence of the obligations
set forth herein and the consummation of the transactions contemplated in this
Agreement and the Offering Materials will not constitute a breach or default
under:
|
(i)
|
any
instruments by which Corporation is bound;
or
|
|
(ii)
|
any
order, rule or regulation (applicable to Corporation) issued by any
court,
governmental body or administrative agency having jurisdiction over
Corporation.
|
i.
Corporation
shall make available, during the Subscription Period and prior to the sale
of
any Units, to each purchaser or his purchaser representative(s) or both:
(i)
such
information (in addition to that contained in the Offering Materials) concerning
the offering of Units, Corporation, and any other relevant matters, as
Corporation possesses or can acquire without unreasonable effort or expense;
and
(ii)
the
opportunity to ask questions of, and receive answers from, Corporation
concerning the terms and conditions of the offering of the Units, and to obtain
any additional information, to the extent Corporation possesses the same or
can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information furnished to the purchaser or his purchaser
representative(s).
j.
With
respect to those activities undertaken by it, Corporation has endeavored to
ensure that the offering and sale of Units complies, in all respects, with
the
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the securities or "blue sky" laws of
any
state or jurisdiction in which an offer and/or sale takes place.
k.
There
is
no litigation or proceeding at law or in equity before any federal or state
authority against Corporation wherein an unfavorable decision, ruling, or
finding would materially and adversely affect the business, operations or
financial condition or income of Corporation or any proposed Corporation
investment, and neither the execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, nor the fulfillment of
or
compliance with the terms hereof will conflict with, or result in a breach
of,
any of the terms, provisions, or conditions of any agreement or instrument
to
which Corporation is a party.
l.
Corporation
will endeavor in good faith to qualify, or assist you in qualifying, the Units
for offer and sale, or to establish, or assist you in establishing, the
exemption of the offer and sale of the Units from qualification or registration
under the applicable securities or "blue sky" laws of such jurisdictions as
you
may reasonably designate, and will promptly notify you, orally or in writing
(but if orally then prompt written confirmation shall be delivered to you),
as
each jurisdiction is so qualified or as an exemption from registration or
qualification is established therein; provided, however, that Corporation shall
not be obligated to do business or to qualify as a dealer in any jurisdiction
in
which it is not so qualified.
m.
Corporation
will pay all expenses in connection with the printing and delivery to you in
reasonable quantities of copies of the Offering Materials and the qualification
of the Units under the securities or "blue sky" laws.
n.
As
compensation for your services, Corporation will pay you a sales commission
equal to (i) seven percent (7%) of the gross proceeds received by Corporation
from the Units placed by you and (ii) three-year warrants to purchase a number
of shares of common stock equal to three percent (3%) of the number of shares
included within the Units placed by you.
o.
If
any
event relating to or affecting Corporation shall occur during the Subscription
Period, as a result of which it is necessary, in the opinion of your counsel
and
counsel to Corporation, to amend or supplement the Offering Materials so that
it
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the
circumstances under which they are made, not misleading, Corporation shall
forthwith prepare and furnish to you a reasonable number of copies of an
amendment or amendments of, or supplement or supplements to, the Offering
Materials, which you shall promptly deliver to all offerees then being
solicited. For purposes of this subsection o., Corporation will furnish such
information with respect to Corporation as you may from time to time reasonably
request.
p.
Corporation
will deliver to you such reports and documents as Corporation is required,
under
the terms of the Offering Materials or any document referred to therein, to
furnish to its prospective investors.
Section
4.
Representations,
Warranties and Covenants of the Broker-Dealer.
The
Broker-Dealer represents, warrants and covenants, to the best of its knowledge,
that:
a.
It,
or
any person acting on its behalf, will not offer any of the Units for sale,
or
solicit any offers to subscribe for or buy any Units, or otherwise negotiate
with any person with respect to the Units, on the basis of any communications
or
documents, except the Offering Materials, the information provided by
Corporation pursuant to Section 3(i), or any other documents and any transmittal
letter reasonably satisfactory in form and substance to Corporation and counsel
to Corporation.
b.
It,
or
any person acting on its behalf, shall not use any form of general solicitation
or general advertising in the course of any offer or sale of the Units
including, but not limited to:
(i)
any
advertisement, article, notice or other communication published in any
newspaper, magazine, website, or similar media or broadcast over television
or
radio; and
(ii)
any
seminar or meeting whose attendees have been invited by any general solicitation
or general advertising.
c.
It,
or
any person acting on its behalf, shall solely make offers to sell Units to,
solicit offers to subscribe for or purchase any Units from, or otherwise
negotiate with respect to the Units with, persons whom it has reasonable grounds
to believe and does believe are "accredited investors" within the meaning of
17
CFR 230.501(a).
In
making
or soliciting such offers, or so negotiating, Broker-Dealer will comply with
the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the securities or "blue sky" laws of the
jurisdiction in which it makes or solicits such offers, or so
negotiates.
d.
It
will
exercise reasonable care to assure that the purchasers are not underwriters
within the meaning of Section 2(11) of the Securities Act of 1933, as amended.
In that connection, it will:
(i)
Make
reasonable inquiry to determine that each purchaser is acquiring the Units
for
his own account; and
(ii)
Obtain
from the purchaser a signed written agreement (contained in the Subscription
Documents) that the Units will not be sold without registration under the
Securities Act of 1933, as amended, unless an opinion of counsel that an
exemption therefrom is available, satisfactory in form and substance to
Corporation or counsel, is delivered in accordance with such
agreement.
e.
It
shall
furnish Corporation with information in sufficient detail (in the form of the
Investor Questionnaire, a copy of which is included in the Offering Materials),
with respect to each purchaser of Units, in order to demonstrate to Corporation
that such purchaser satisfies the requirements of Rule 506, as outlined in
Section 4(c) above.
f.
If
a
prospective purchaser uses or consults a purchaser representative (as that
term
is defined in 17 CFR 230.501(h)) in connection with the offering of the Units,
it will obtain and deliver to Corporation, prior to the closing of the offering
of the Units, the prospective purchaser's written acknowledgment that he has
used such person(s) in connection with evaluating the merits and risks of the
prospective investment and such representative's written consent so to act,
as
well as a description of the education and experience of such
representative(s).
g.
It
will
offer and sell the Units only in those jurisdictions in which it, or any other
person or entity acting in its behalf, is properly registered, and it will
comply with all laws, rules and regulations related to its activities on behalf
of Corporation pursuant to this Agreement.
h.
It
is a
securities broker-dealer registered and in good standing with the Securities
and
Exchange Commission and is a member of the NASD.
i.
This
Agreement has been duly and validly authorized, executed, and delivered by
or on
behalf of
the
Broker-Dealer
and
constitutes a valid and binding agreement of the Broker-Dealer.
Section
5.
Conditions
of the Obligations of Corporation.
The
obligations of Corporation under this Agreement are subject to the accuracy
of
and compliance with your representations, warranties and covenants set forth
in
Section 4, and to the performance by you of your obligations
hereunder.
Section
6.
Representations,
Warranties and Agreements to Survive Delivery.
All
representations, warranties and agreements by either Corporation or
Broker-Dealer contained in this Agreement shall remain operative and in full
force and effect, and shall survive the closing of the offering of the Units.
Upon termination of this Agreement, Corporation shall have no further
obligations to Broker-Dealer other than with respect to fees payable to
Broker-Dealer as provided herein.
Section
7.
Indemnification.
(a)
Corporation
agrees to indemnify, defend and hold Broker-Dealer harmless against any and
all
loss, liability, damage and expense whatsoever, whether or not resulting in
any
liability, that may be incurred under applicable securities laws, at common
law,
or otherwise and which is based upon or arises out of:
(1)
any
untrue statement or alleged untrue statement of a material fact contained in
the
Offering Materials or the omission or alleged omission from the Offering
Materials of a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading;
(2)
the
offer
and/or sale by Corporation, or anyone acting on its behalf, of Units (unless
due
to the bad faith or gross negligence of the Broker-Dealer); or
(3)
any
breach of any representation, warranty or covenant made by Corporation in this
Agreement.
(b)
The
Broker-Dealer agrees to indemnify, defend and hold Corporation and its officers,
directors, shareholders and agents harmless against any and all loss, liability,
damage and expense whatsoever, whether or not resulting in any liability, that
may be incurred under applicable securities laws, at common law, or otherwise
and which is based upon or arises out of:
(1)
any
violation by Broker-Dealer or its agents of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, or any state
securities statutes, unless such violation is attributable to actions,
misrepresentations or omissions of Corporation; or
(2)
any
breach of any representation, warranty or covenant made by Broker-Dealer in
this
Agreement.
(c)
In
any
legal or regulatory action or claim brought against Corporation or Broker-Dealer
or their agents, Corporation and the Broker-Dealer shall have the rights and
duties set forth in this Section 7. The indemnification provisions included
in
this Section 7 shall include, but not be limited to, recovery of and payment
of
reasonable legal or other expenses incurred by Broker-Dealer or Corporation
in
connection with defending such actions and claims.
(d)
Within
fourteen (14) calendar days after a claim or action is brought or asserted
against Corporation or the Broker-Dealer or both, which in the opinion of either
is subject to the indemnification provisions contained in this Section 7, the
party seeking indemnification (the "Indemnitee") shall notify, in writing,
the
party from whom indemnification is sought (the "Indemnitor") of the existence
of
the claim or action. Indemnitor shall assume the defense of the claim or action
by employing counsel for the Indemnitee, and shall thereafter be responsible
for
the payment of all legal fees and expenses incurred in connection with such
defense. In the event that a claim or action is brought or asserted against
Corporation and the Broker-Dealer, jointly, Corporation and the Broker-Dealer
shall make a good faith effort determine whether the claim or action can be
defended jointly or if potential conflicts exist which require that separate
legal counsel be employed for Broker-Dealer and Corporation. In such case,
if
Corporation and the Broker-Dealer seek indemnification from the other, each
shall employ separate counsel to represent them and shall be responsible for
the
payment of all expenses associated with employment of such counsel, subject
to
the right of recovery of such expenses as set forth below in this subparagraph
(d).
If
either Corporation or Broker-Dealer seek indemnification from the other under
the provisions of this Section 7, and the party from whom indemnification is
sought declines to assume defense of the action or claim, the party seeking
indemnification shall have a right of recovery against the party from whom
indemnification is sought for all losses, liabilities, damages and expenses
incurred in the defense of the action or claim, including all actual attorneys’
fees and costs incurred, in the event that the defense of the action or claim
is
successful and there are no findings of wrongdoing on the part of the party
seeking indemnification.
Section
8.
Relief
.
The
Broker-Dealer agrees that a breach or threatened breach on its part of any
agreement contained in this Agreement will cause such damage to Corporation
as
will be irreparable, and, for that reason, the Broker-Dealer further agrees
that
Corporation shall be entitled as a matter of right to an injunction, by any
court of competent jurisdiction, restraining any further violation of such
covenants by the Broker-Dealer or its employees, partners, officers or agents.
The right of injunction shall be cumulative and in addition to whatever other
remedies Corporation may have, including, specifically, recovery of damages.
The
Broker-Dealer also agrees to pay reasonable attorney's fees incurred by
Corporation in successfully proving that the Broker-Dealer breached any of
the
terms of this Agreement.
Section
9.
Notices.
All
communications under this Agreement shall be in writing, and, if sent to you,
shall be mailed, delivered or telegraphed and confirmed to you at the address
initially set forth above or as changed by you in a written notice to
Corporation, or if sent to Corporation, shall be mailed, delivered or
telegraphed and confirmed to it at the address set out in the letterhead
above.
Section
10.
Parties.
This
Agreement shall inure to the benefit of, and be binding upon, you, any person
which controls you, and your successors, and upon Corporation and its
representatives and successors. This Agreement and its conditions and provisions
are for the sole and exclusive benefit of the parties and their representatives
and successors, and for the benefit of no other person, firm or
corporation.
Section
11.
Relationship
of Parties.
It is
not the intention of the parties to create, nor shall this Agreement be
construed as creating, a partnership, joint venture, agency relationship or
association other than as specifically set forth herein, or to render the
parties liable as partners, co-venturers, or principals. In their relations
with
each other under this Agreement, the parties shall not be considered fiduciaries
or to have established a confidential relationship other than as specifically
set forth herein but rather shall be free to act on an arm's length basis in
accordance with their own respective self-interest, subject, however, to the
obligation of the parties to act in good faith in their dealings with each
other
with respect to activities hereunder.
Section
12.
Entire
Agreement.
This
Agreement evidences the entire agreement between Corporation and the
Broker-Dealer, and represents a merger of all preceding agreements between
the
parties hereto pertaining to the subject matter hereof.
Section
13.
Severability
of Provisions.
If one
or more of the provisions of this Agreement or any application thereof shall
be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof and any application thereof
shall in no way be affected or impaired.
Section
14.
Governing
Law; Jurisdiction.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Nevada, without regard to conflicts of laws or principles
thereof. Each of the parties hereto agrees irrevocably consents to the
jurisdiction and venue of the federal and state courts located in Las Vegas,
Nevada.
Section
15.
Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
[SIGNATURE
PAGE FOLLOWS]
Selling
Agreement
Page
10
If
the
foregoing is in accordance with your understanding of our agreement, kindly
sign
and return to us one copy of this Agreement, whereupon this instrument will
become a binding agreement upon you and Corporation in accordance with its
terms.
Very
truly yours,
|
|
TRANS-PHARMA
CORPORATION,
|
a
Nevada Corporation
|
|
|
By:
|
/s/
Juliet Singh, Ph.D.
|
Name:
|
Juliet
Singh, Ph.D.
|
Title:
|
Chief
Executive Officer
|
The
foregoing Agreement is hereby confirmed and accepted as of the date first set
out above.
|
|
|
By:
|
/s/
Wilson Williams
|
|
Wilson
Williams, President
|
|
|
|
12221
Merit Drive, Suite 300
|
|
Dallas,
Texas 75251
|
Selling
Agreement
Page
1
EXHIBIT
10.7
Trans-Pharma
Corporation
4225
Executive Square, Suite 460
La
Jolla,
CA 92037
September
17, 2007
Mr.
Joel
Padowitz, Chief Executive Officer
Palladium
Capital Advisors, LLC
230
Park
Avenue
Suite
539
New
York,
NY 10169
RE:
Selling
Agreement
Dear
Mr.
Padowitz:
The
undersigned, Trans-Pharma Corporation, a Nevada corporation ("Corporation"),
by
this letter confirms its agreement (the "Agreement") with Palladium Capital
Advisors, LLC (the "Broker-Dealer" or “you”), regarding
the
Broker-Dealer acting as a placement agent in connection with an offering of
up
to $5.0 million of units consisting of shares of common stock and warrants
to
purchase common stock
(the
"Units")
under
the
terms set forth in those certain Subscription Agreements, in the form attached
hereto as
Exhibit
A
,
and all
exhibits and supplements thereto (the "Offering Materials") prepared by
Corporation and delivered to you for distribution to the offerees. The Units
are
to be offered on a "Best Efforts, Minimum- Maximum" basis with respect to all
Units. The Units will be offered and sold in accordance with 17 CFR 203.506
("Rule 506"), promulgated under Regulation D of the Securities Act 1933, as
amended.
Upon
execution and delivery of subscription documents (the "Subscription Documents"),
which shall be in the form of the Subscription Documents included in the
Offering Materials, the subscribers for Units shall, upon acceptance thereof
by
Corporation (which acceptance shall be in Corporation’s sole discretion), become
Unit Holders pursuant to the terms set forth in the Offering Materials. The
offering of the Units shall begin when the Offering Materials are first made
available to you by Corporation and shall continue until the termination date,
and through the end of any extension, unless the offering has been terminated
as
of any earlier time (the "Subscription Period").
Section
1.
Appointment
of Agent.
On
the
basis of the representations, warranties and covenants contained in this
Agreement, but subject to the terms and conditions herein set forth, you are
hereby appointed as non-exclusive selling agent of Corporation for the Units
offered under the Offering Materials. The appointment shall continue until
the
earliest of (i) 120 days from the date of this Agreement, or (ii) the
termination of the Subscription Period, or (iii) the sale of all of the Units,
or (iv) the termination of the offering of Units by Corporation for any reason,
whichever occurs first. Subject to the performance by Corporation of all of
its
obligations under this Agreement, and to the completeness and accuracy of all
of
its representations and warranties contained in this Agreement, you agree to
use
your best efforts during the Subscription Period to find subscribers for the
Units.
Section
2.
Definitions.
Certain
terms used herein are defined in the Offering Materials and shall have the
same
meanings given therein.
Section
3.
Representations,
Warranties and Covenants of Corporation.
Corporation represents, warrants and covenants, to the best of its knowledge,
that:
a.
Corporation
is a corporation duly and validly organized and in good standing under the
laws
of the State of Nevada and has full power and authority to conduct the business
described in the Offering Materials.
b.
Corporation
will deliver to you a reasonable number of copies of the Offering Materials,
and
the information made available to each offeree pursuant to subsection 3(i)
hereof shall be sufficient to comply with, and conform to, the requirements
of
Rule 506.
c.
All
action required to be taken by Corporation to offer and sell the Units to
qualified subscribers has been or will be taken.
d.
Upon
payment of the subscription amount specified in the Subscription Documents,
acceptance by Corporation of the subscriptions from qualified subscribers (which
acceptance shall be at the sole discretion of Corporation), and delivery by
the
subscribers for Units of such additional documents as may reasonably be required
by Corporation, such subscribers will become Unit Holders.
e.
All
information and financial statements provided to potential purchasers describing
Corporation, the transaction contemplated hereunder and/or Corporation’s
business, operations, assets, liabilities and receivables, including but not
limited to the Offering Materials (collectively, the “Materials”), will not
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not materially misleading. Corporation
acknowledges and agrees that you will be using, and relying upon, Corporation
to
furnish you with the Materials, and you will be using, and relying upon, such
Materials supplied by Corporation, its officers, agents, and others and any
other publicly available information without any independent investigation
or
verification thereof or independent appraisal by you of Corporation or its
business or assets. You do not assume responsibility for the accuracy or
completeness of the Materials, including but not limited to any disclosure
materials related to the transaction contemplated hereunder. Corporation shall
keep
you
fully
informed of any events that might have a material effect on the financial
condition of Corporation.
f.
This
Agreement has been duly and validly authorized, executed, and delivered by
or on
behalf of Corporation and constitutes a valid and binding agreement of
Corporation.
g.
Execution
by Corporation of a subscriber’s Subscription Documents will be duly and validly
authorized by or on behalf of Corporation and will constitute a valid and
binding agreement of Corporation.
h.
The
execution and delivery of this Agreement and the incurrence of the obligations
set forth herein and the consummation of the transactions contemplated in this
Agreement and the Offering Materials will not constitute a breach or default
under:
|
(i)
|
any
instruments by which Corporation is bound;
or
|
|
(ii)
|
any
order, rule or regulation (applicable to Corporation) issued by any
court,
governmental body or administrative agency having jurisdiction over
Corporation.
|
i.
Corporation
shall make available, during the Subscription Period and prior to the sale
of
any Units, to each purchaser or his purchaser representative(s) or both:
(i)
such
information (in addition to that contained in the Offering Materials) concerning
the offering of Units, Corporation, and any other relevant matters, as
Corporation possesses or can acquire without unreasonable effort or expense;
and
(ii)
the
opportunity to ask questions of, and receive answers from, Corporation
concerning the terms and conditions of the offering of the Units, and to obtain
any additional information, to the extent Corporation possesses the same or
can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information furnished to the purchaser or his purchaser
representative(s).
j.
With
respect to those activities undertaken by it, Corporation has endeavored to
ensure that the offering and sale of Units complies, in all respects, with
the
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the securities or "blue sky" laws of
any
state or jurisdiction in which an offer and/or sale takes
place.
k.
There
is
no litigation or proceeding at law or in equity before any federal or state
authority against Corporation wherein an unfavorable decision, ruling, or
finding would materially and adversely affect the business, operations or
financial condition or income of Corporation or any proposed Corporation
investment, and neither the execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, nor the fulfillment of
or
compliance with the terms hereof will conflict with, or result in a breach
of,
any of the terms, provisions, or conditions of any agreement or instrument
to
which Corporation is a party.
l.
Corporation
will endeavor in good faith to qualify, or assist you in qualifying, the Units
for offer and sale, or to establish, or assist you in establishing, the
exemption of the offer and sale of the Units from qualification or registration
under the applicable securities or "blue sky" laws of such jurisdictions as
you
may reasonably designate, and will promptly notify you, orally or in writing
(but if orally then prompt written confirmation shall be delivered to you),
as
each jurisdiction is so qualified or as an exemption from registration or
qualification is established therein; provided, however, that Corporation shall
not be obligated to do business or to qualify as a dealer in any jurisdiction
in
which it is not so qualified.
m.
Corporation
will pay all expenses in connection with the printing and delivery to you in
reasonable quantities of copies of the Offering Materials and the qualification
of the Units under the securities or "blue sky" laws.
n.
As
compensation for your services, Corporation will pay you a sales commission
equal to (i) seven percent (7%) of the gross proceeds received by Corporation
from the Units placed by you (the “Cash Fee”) and (ii) three-year warrants to
purchase a number of shares of common stock equal to three percent (3%) of
the
number of shares included within the Units placed by you; provided, however,
that immediately prior to each closing of the offering of the Units you shall
subscribe for that number of Units equal in value to the Cash Fee payable to
you
with respect to such closing and acknowledge that you will not be entitled
to
any sales commissions with respect to Units purchased by you using any portion
of the Cash Fee pursuant to this Section 3(n).
o.
If
at any
time prior to the completion of a transaction an event occurs which
would
cause
the
Materials (as supplemented or amended) to contain an untrue statement of a
material fact or to omit to state a material fact necessary in order to make
the
statements therein, in light of the circumstances under which they were made,
not misleading, Corporation will notify you immediately of such event. If any
event relating to or affecting Corporation shall occur during the Subscription
Period, as a result of which it is necessary, in the opinion of your counsel
and
counsel to Corporation, to amend or supplement the Offering Materials so that
it
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the
circumstances under which they are made, not misleading, Corporation shall
forthwith prepare and furnish to you a reasonable number of copies of an
amendment or amendments of, or supplement or supplements to, the Offering
Materials, which you shall promptly deliver to all offerees then being
solicited. For purposes of this subsection o., Corporation will furnish such
information with respect to Corporation as you may from time to time reasonably
request.
p.
Corporation
will deliver to you such reports and documents as Corporation is required,
under
the terms of the Offering Materials or any document referred to therein, to
furnish to its prospective investors.
Section
4.
Representations,
Warranties and Covenants of the Broker-Dealer.
The
Broker-Dealer represents, warrants and covenants, to the best of its knowledge,
that:
a.
It,
or
any person acting on its behalf, will not offer any of the Units for sale,
or
solicit any offers to subscribe for or buy any Units, or otherwise negotiate
with any person with respect to the Units, on the basis of any communications
or
documents, except the Offering Materials, the information provided by
Corporation pursuant to Section 3(i), or any other documents and any transmittal
letter reasonably satisfactory in form and substance to Corporation and counsel
to Corporation.
b.
It,
or
any person acting on its behalf, shall not use any form of general solicitation
or general advertising in the course of any offer or sale of the Units
including, but not limited to:
(i)
any
advertisement, article, notice or other communication published in any
newspaper, magazine, website, or similar media or broadcast over television
or
radio; and
(ii)
any
seminar or meeting whose attendees have been invited by any general solicitation
or general advertising.
c.
It,
or
any person acting on its behalf, shall solely make offers to sell Units to,
solicit offers to subscribe for or purchase any Units from, or otherwise
negotiate with respect to the Units with, persons whom it has reasonable grounds
to believe and does believe are "accredited investors" within the meaning of
17
CFR 230.501(a).
In
making
or soliciting such offers, or so negotiating, Broker-Dealer will comply with
the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the securities or "blue sky" laws of the
jurisdiction in which it makes or solicits such offers, or so
negotiates.
d.
It
will
exercise reasonable care to assure that the purchasers are not underwriters
within the meaning of Section 2(11) of the Securities Act of 1933, as amended.
In that connection, it will:
(i)
Make
reasonable inquiry to determine that each purchaser is acquiring the Units
for
his own account; and
(ii)
Assist
Corporation to obtain from the purchaser a signed written agreement (contained
in the Subscription Documents) that the Units will not be sold without
registration under the Securities Act of 1933, as amended, unless an opinion
of
counsel that an exemption therefrom is available, satisfactory in form and
substance to Corporation or counsel, is delivered in accordance with such
agreement.
e.
It
will
assist Corporation to have the purchaser(s) furnish Corporation with information
in sufficient detail (in the form of the Investor Questionnaire, a copy of
which
is included in the Offering Materials), with respect to each purchaser of Units,
in order to demonstrate to Corporation that such purchaser satisfies the
requirements of Rule 506, as outlined in Section 4(c) above.
f.
If
a
prospective purchaser uses or consults a purchaser representative (as that
term
is defined in 17 CFR 230.501(h)) in connection with the offering of the Units,
it will assist Corporation to obtain from the prospective purchaser, prior
to
the closing of the offering of the Units, the prospective purchaser's written
acknowledgment that he has used such person(s) in connection with evaluating
the
merits and risks of the prospective investment and such representative's written
consent so to act, as well as a description of the education and experience
of
such representative(s).
g.
It
will
offer and sell the Units only in those jurisdictions in which it, or any other
person or entity acting in its behalf, is properly registered, and it will
comply with all laws, rules and regulations related to its activities on behalf
of Corporation pursuant to this Agreement.
h.
It
is a
securities broker-dealer registered and in good standing with the Securities
and
Exchange Commission and is a member of the NASD.
i.
This
Agreement has been duly and validly authorized, executed, and delivered by
or on
behalf of
the
Broker-Dealer
and
constitutes a valid and binding agreement of the Broker-Dealer.
Section
5.
Conditions
of the Obligations of Corporation.
The
obligations of Corporation to pay fees or issue warrants under this Agreement
are subject to the accuracy of and compliance with your representations,
warranties and covenants set forth in Section 4, and to the performance by
you
of your obligations hereunder.
Section
6.
Representations,
Warranties and Agreements to Survive Delivery.
All
representations, warranties and agreements by either Corporation or
Broker-Dealer contained in this Agreement shall remain operative and in full
force and effect, and shall survive the closing of the offering of the Units.
Upon termination of this Agreement, Corporation shall have no further
obligations to Broker-Dealer other than with respect to fees payable to
Broker-Dealer as provided herein and the provisions of indemnification set
forth
in Annex A, which shall survive the termination or expiration of this
Agreement.
Section
7.
Indemnification.
(a)
Corporation
agrees to provide indemnification as set forth in Annex A attached hereto and
made a part hereof.
(b)
The
Broker-Dealer agrees to indemnify, defend and hold Corporation and its officers,
directors, shareholders and agents harmless against any and all loss, liability,
damage and expense whatsoever, in an amount up to but in no event exceeding
the
Cash Fee actually received by to the Broker-Dealer hereunder, whether or not
resulting in any liability, that may be incurred under applicable securities
laws, at common law, or otherwise and which is based upon or arises out
of:
(1)
any
violation by Broker-Dealer or its agents of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, or any state
securities statutes, unless such violation is attributable to actions,
misrepresentations or omissions of Corporation; or
(2)
any
breach of any representation, warranty or covenant made by Broker-Dealer in
this
Agreement.
Section
8.
Relief
.
The
Broker-Dealer agrees that a breach or threatened breach on its part of any
agreement contained in this Agreement will cause such damage to Corporation
as
will be irreparable, and, for that reason, the Broker-Dealer further agrees
that
Corporation shall be entitled as a matter of right to an injunction, by any
court of competent jurisdiction, restraining any further violation of such
covenants by the Broker-Dealer or its employees, partners, officers or agents.
The right of injunction shall be cumulative and in addition to whatever other
remedies Corporation may have, including, specifically, recovery of damages.
The
Broker-Dealer also agrees to pay reasonable attorney's fees incurred by
Corporation in successfully proving that the Broker-Dealer breached any of
the
terms of this Agreement.
Section
9.
Notices.
All
communications under this Agreement shall be in writing, and, if sent to you,
shall be mailed, delivered or telegraphed and confirmed to you at the address
initially set forth above or as changed by you in a written notice to
Corporation, or if sent to Corporation, shall be mailed, delivered or
telegraphed and confirmed to it at the address set out in the letterhead
above.
Section
10.
Parties.
This
Agreement shall inure to the benefit of, and be binding upon, you, any person
which controls you, and your successors, and upon Corporation and its
representatives and successors. This Agreement and its conditions and provisions
are for the sole and exclusive benefit of the parties and their representatives
and successors, and for the benefit of no other person, firm or
corporation.
Section
11.
Relationship
of Parties.
It is
not the intention of the parties to create, nor shall this Agreement be
construed as creating, a partnership, joint venture, agency relationship or
association other than as specifically set forth herein, or to render the
parties liable as partners, co-venturers, or principals. In their relations
with
each other under this Agreement, the parties shall not be considered fiduciaries
or to have established a confidential relationship other than as specifically
set forth herein but rather shall be free to act on an arm's length basis in
accordance with their own respective self-interest, subject, however, to the
obligation of the parties to act in good faith in their dealings with each
other
with respect to activities hereunder.
Section
12.
Entire
Agreement.
This
Agreement evidences the entire agreement between Corporation and the
Broker-Dealer, and represents a merger of all preceding agreements between
the
parties hereto pertaining to the subject matter hereof.
Section
13.
Severability
of Provisions.
If one
or more of the provisions of this Agreement or any application thereof shall
be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof and any application thereof
shall in no way be affected or impaired.
Section
14.
Governing
Law; Jurisdiction.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Nevada, without regard to conflicts of laws or principles
thereof. Each of the parties hereto agrees irrevocably consents to the
jurisdiction and venue of the federal and state courts located in Las Vegas,
Nevada.
Section
15.
Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
Section
16.
Publication.
Upon
a
closing of a transaction contemplated hereunder, you may place advertisements
in
financial and other newspapers and journals (whether in print or on the
internet), and publicize on your own website and/or marketing materials, at
your
own expense, describing your services to Corporation hereunder with the
Corporation’s prior written consent .
[SIGNATURE
PAGE AND ANNEX A FOLLOW]
Selling
Agreement
Page
10
If
the
foregoing is in accordance with your understanding of our agreement, kindly
sign
and return to us one copy of this Agreement, whereupon this instrument will
become a binding agreement upon you and Corporation in accordance with its
terms.
Very
truly yours,
|
|
TRANS-PHARMA
CORPORATION,
|
a
Nevada Corporation
|
|
By:
|
/s/
Juliet Singh, Ph.D.
|
Name:
|
Juliet
Singh, Ph.D.
|
Title:
|
Chief
Executive Officer
|
The
foregoing Agreement is hereby confirmed and accepted as of the date first set
out above.
PALLADIUM
CAPITAL ADVISORS, LLC
|
|
By:
|
/s/
Joel Padowitz
|
Name:
|
Joel
Padowitz
|
Title:
|
Chief
Executive Officer
|
|
|
Address:
|
230
Park Avenue, Suite 539
|
|
New
York, NY 10169
|
Selling
Agreement
Page
11
Annex
A
Indemnification
Provisions
Corporation
agrees that it will indemnify and hold harmless the Broker-Dealer, its
affiliates, and their respective directors, members, officers, employees,
agents, representatives and controlling persons (collectively the
“Broker-Dealer” and each such entity or person being an “
Indemnified
Party
”)
from
and against any and all losses, claims, damages and liabilities, joint or
several, as incurred, to which such Indemnified Party may become subject, and
related to or arising out of the engagement of the Broker-Dealer hereunder,
the
activities performed or omitted by or on behalf of an Indemnified Party pursuant
to this Agreement, the transactions contemplated thereby or the Broker-Dealer’s
role in connection therewith;
provided
that
Corporation will not be liable to the extent that any loss, claim, damage or
liability is found in a final judgment (not subject to further appeal) by a
court to have resulted primarily from actions taken or omitted to be taken
by
the Broker-Dealer in bad faith or from the Broker-Dealer's gross negligence
or
willful misconduct in performing the services described above. Corporation
also
agrees to reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and disbursements) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatened claim,
or any action, investigation, suit or proceeding arising therefrom, whether
or
not such Indemnified Party is a party, whether or not liability resulted and
whether or not such claim, action or proceeding is initiated or brought by
or on
behalf of Corporation. Corporation also agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to Corporation or its security holders or creditors related to or
arising out of the engagement of the Broker-Dealer pursuant to, or the
performance by the Broker-Dealer of the services contemplated by, this Agreement
except to the extent that any loss, claim, damage or liability is found in
a
final judgment (not subject to further appeal) by a court to have resulted
primarily from actions taken or omitted to be taken by the Broker-Dealer in
bad
faith or from the Broker-Dealer’s gross negligence or willful
misconduct.
If
the
indemnification provided for in this Agreement is for any reason held
unenforceable, Corporation agrees to contribute to the losses, claims, damages
and liabilities, as incurred by any Indemnified Person, for which such
indemnification is held unenforceable in such proportion as is appropriate
to
reflect the relative benefits to Corporation, on the one hand, and the
Broker-Dealer, on the other hand, of the transaction contemplated hereby
(whether or not the transaction is consummated). Corporation agrees that for
the
purposes of this paragraph the relative benefits to Corporation and the
Broker-Dealer of the transaction shall be deemed to be in the same proportion
that the total value of the transaction or contemplated transaction by
Corporation as a result of or in connection with the proposed transaction bears
to the fee paid or to be paid to the Broker-Dealer under this Agreement;
provided
that, to
the extent permitted by applicable law, in no event shall the Indemnified
Parties be required to contribute an aggregate amount in excess of the aggregate
fees actually paid to the Broker-Dealer under this Agreement.
Selling
Agreement
Page
12
Promptly
after receipt by an Indemnified Party of notice of any claim or the commencement
of any action, suit or proceeding with respect to which an Indemnified Party
may
be entitled to indemnity hereunder, such Indemnified Party will notify
Corporation in writing of such claim or of the commencement of such action
or
proceeding, and Corporation
will
assume the defense of such action, suit or proceeding and will employ counsel
satisfactory to the Indemnified Parties and will pay the fees and disbursements
of such counsel, as incurred. Notwithstanding the preceding sentence, any
Indemnified Party will be entitled to employ counsel separate from counsel
for
Corporation and from any other party in such action, which counsel shall be
approved by the Corporation, which approval shall not be unreasonably withheld
or delayed, if such Indemnified Party reasonably determines that a conflict
of
interest exists which makes representation by counsel chosen by Corporation
not
advisable or if such Indemnified Party reasonably determines that Corporation’s
assumption of the defense does not adequately represent its interest. In such
event, the fees and disbursements of such separate counsel will be paid by
Corporation. Notwithstanding anything herein to the contrary, in no event shall
Corporation be liable for the fees and disbursements of more than one counsel
(in addition to local counsel) for all Indemnified Parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Corporation
agrees that, without the Broker-Dealer’s prior written consent, it will not
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding in respect of which indemnification
could
be sought under the indemnification provision of this Agreement (whether or
not
the Broker-Dealer or any other Indemnified Party is an actual or potential
party
to such claim, action or proceeding), unless such settlement, compromise or
consent includes an unconditional release of each Indemnified Party from all
liability arising out of such claim, action or proceeding. The Broker-Dealer
agrees that, without Corporation’s prior written consent, it will not settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification could be sought
under the indemnification provision of this Agreement (whether or not
Corporation is an actual or potential party to such claim, action or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising
out
of such claim, action or proceeding.
Selling
Agreement
Page
13
In
the
event any Indemnified Party is requested or required to appear as a witness
in
any action, suit or proceeding brought by or on behalf of or against Corporation
or any affiliate or any participant in a transaction covered hereby in which
such Indemnified Party is not named as a defendant, Corporation agrees to
reimburse the Broker-Dealer and such Indemnified Party for all reasonable
disbursements incurred by them in connection with such Indemnified Party’s
appearing and preparing to appear as a witness, including, without limitation,
the reasonable fees and disbursements of their legal counsel, and to compensate
the Broker-Dealer and such Indemnified Party in an amount to be mutually agreed
upon.
In
the
event that any amounts due under these indemnification provisions contained
in
this Annex A are not paid within thirty days after written notice of such event
giving rise to the indemnification obligations, such amounts shall bear interest
at a rate of 1.5% per month or at the highest rate permitted under the laws
of
the State of Nevada, whichever rate is lower.
The
provisions of Annex A shall be in addition to any liability which Corporation
may otherwise have. These provisions shall be governed by the law of the State
of Nevada and shall be operative, in full force and in full effect, regardless
of any termination or expiration of this agreement.
|
TRANS-PHARMA
CORPORATION
|
ADVISORS,
LLC
|
|
|
|
|
|
By:
|
/s/
Joel Padowitz
|
By:
|
/s/
Juliet Singh, Ph.D.
|
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Juliet
Singh, Ph.D.
|
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Chief
Executive Officer
|
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Chief
Executive Officer
|
EXHIBIT
10.8
INDEMNITY
AGREEMENT
This
Indemnity Agreement, dated as of September __, 2007, is made by and between
Transdel Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”),
and
_________________ (the “
Indemnitee
”).
RECITALS
A.
The
Company is aware that competent and experienced persons are increasingly
reluctant to serve as directors, officers or agents of corporations unless
they
are protected by comprehensive liability insurance or indemnification, due
to
increased exposure to litigation costs and risks resulting from their service
to
such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors, officers and
other agents.
B.
The
statutes and judicial decisions regarding the duties of directors and officers
are often difficult to apply, ambiguous, or conflicting, and therefore fail
to
provide such directors, officers and agents with adequate, reliable knowledge
of
legal risks to which they are exposed or information regarding the proper course
of action to take.
C.
Plaintiffs
often seek damages in such large amounts and the costs of litigation may be
so
enormous (whether or not the case is meritorious), that the defense and/or
settlement of such litigation is often beyond the personal resources of
directors, officers and other agents.
D.
The
Company believes that it is unfair for its directors, officers and agents and
the directors, officers and agents of its subsidiaries to assume the risk of
huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.
E.
The
Company recognizes that the issues in controversy in litigation against a
director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters,
and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond
the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F.
Based
upon their experience as business managers, the Board of Directors of the
Company (the “
Board
”)
has
concluded that, to retain and attract talented and experienced individuals
to
serve as directors, officers and agents of the Company and its subsidiaries
and
to encourage such individuals to take the business risks necessary for the
success of the Company and its subsidiaries, it is necessary for the Company
to
contractually indemnify its directors, officers and agents and the directors,
officers and agents of its subsidiaries, and to assume
for
itself
maximum liability for expenses and damages in connection with claims against
such directors, officers and agents in connection with their service to the
Company and its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and its subsidiaries and the Company’s stockholders.
G.
Section
145 of the General Corporation Law of Delaware, under which the Company is
organized (“
Section
145
”),
empowers the Company to indemnify its directors, officers, employees and agents
by agreement and to indemnify persons who serve, at the request of the Company,
as the directors, officers, employees or agents of other corporations or
enterprises, and expressly provides that the indemnification provided by Section
145 is not exclusive.
H.
The
Company desires and has requested the Indemnitee to serve or continue to serve
as a director, officer or agent of the Company and/or one or more subsidiaries
of the Company free from undue concern for claims for damages arising out of
or
related to such services to the Company and/or one or more subsidiaries of
the
Company.
I.
Indemnitee
is willing to serve, or to continue to serve, the Company and/or one or more
subsidiaries of the Company, provided that he is furnished the indemnity
provided for herein.
AGREEMENT
NOW,
THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as
follows:
1.
Definitions
.
(a)
Agent
.
For the
purposes of this Agreement, “agent” of the Company means any person who is or
was a director, officer, employee or other agent of the Company or a subsidiary
of the Company; or is or was serving at the request of, for the convenience
of,
or to represent the interests of the Company or a subsidiary of the Company
as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise; or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Company or a subsidiary of the Company, or was
a
director, officer, employee or agent of another enterprise at the request of,
for the convenience of, or to represent the interests of such predecessor
corporation.
(b)
Expenses
.
For
purposes of this Agreement, “expenses” include all out-of-pocket costs of any
type or nature whatsoever (including, without limitation, all attorneys’ fees
and related disbursements), actually and reasonably incurred by the Indemnitee
in connection with either the investigation, defense or appeal of a proceeding
or establishing or enforcing a right to indemnification under this Agreement
or
Section 145 or otherwise; provided, however, that “expenses” shall not include
any judgments.
(c)
Proceeding
.
For the
purposes of this Agreement, “proceeding” means any threatened, pending, or
completed action, suit or other proceeding, whether civil, criminal,
administrative, or investigative.
(d)
Subsidiary
.
For
purposes of this Agreement, “subsidiary” means any corporation of which more
than 50% of the outstanding voting securities is owned directly or indirectly
by
the Company, by the Company and one or more other subsidiaries, or by one or
more other subsidiaries.
2.
Agreement
to Serve
.
The
Indemnitee agrees to serve and/or continue to serve as agent of the Company,
at
its will (or under separate agreement, if such agreement exists), in the
capacity Indemnitee currently serves as an agent of the Company, so long as
he
is duly appointed or elected and qualified in accordance with the applicable
provisions of the Bylaws of the Company or any subsidiary of the Company or
until such time as he tenders his resignation in writing; provided, however,
that nothing contained in this Agreement is intended to create any right to
continued employment by Indemnitee.
3.
Liability
Insurance
.
(a)
Maintenance
of D&O Insurance
.
The
Company hereby covenants and agrees that, so long as the Indemnitee shall
continue to serve as an agent of the Company and thereafter so long as the
Indemnitee shall be subject to any possible proceeding by reason of the fact
that the Indemnitee was an agent of the Company, the Company, subject to Section
3(c), shall promptly obtain and maintain in full force and effect directors’ and
officers’ liability insurance (“
D&O
Insurance
”)
in
reasonable amounts from established and reputable insurers.
(b)
Rights
and Benefits
.
In all
policies of D&O Insurance, the Indemnitee shall be named as an insured in
such a manner as to provide the Indemnitee the same rights and benefits as
are
accorded to the most favorably insured of the Company’s directors, if the
Indemnitee is a director; or of the Company’s officers, if the Indemnitee is not
a director of the Company but is an officer; or of the Company’s key employees,
if the Indemnitee is not a director or officer but is a key
employee.
(c)
Limitation
on Required Maintenance of D&O Insurance
.
Notwithstanding the foregoing, the Company shall have no obligation to obtain
or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance
are
disproportionate to the amount of coverage provided, the coverage provided
by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4.
Mandatory
Indemnification
.
Subject
to Section 8 below, the Company shall indemnify the Indemnitee as
follows:
(a)
Successful
Defense
.
To the
extent the Indemnitee has been successful on the merits or otherwise in defense
of any proceeding (including, without limitation, an action by or in the right
of the Company) to which the Indemnitee was a party by reason of the fact that
he is or was an agent of the Company at any time, against all expenses of any
type whatsoever actually and reasonably incurred by him in connection with
the
investigation, defense or appeal of such proceeding.
(b)
Third
Party Actions
.
If the
Indemnitee is a person who was or is a party or is threatened to be made a
party
to any proceeding (other than an action by or in the right of the Company)
by
reason of the fact that he is or was an agent of the Company, or by reason
of
anything done or not done by him in any such capacity, the Company shall
indemnify the Indemnitee against any and all expenses and liabilities of any
type whatsoever (including, but not limited to, judgments, fines, ERISA excise
taxes and penalties, and amounts paid in settlement) actually and reasonably
incurred by him in connection with the investigation, defense, settlement or
appeal of such proceeding, provided the Indemnitee acted in good faith and
in a
manner he reasonably believed to be in or not opposed to the best interests
of
the Company and its stockholders, and, with respect to any criminal action
or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
(c)
Derivative
Actions
.
If the
Indemnitee is a person who was or is a party or is threatened to be made a
party
to any proceeding by or in the right of the Company by reason of the fact that
he is or was an agent of the Company, or by reason of anything done or not
done
by him in any such capacity, the Company shall indemnify the Indemnitee against
all expenses actually and reasonably incurred by him in connection with the
investigation, defense, settlement, or appeal of such proceeding, provided
the
Indemnitee acted in good faith and in a manner he reasonably believed to be
in
or not opposed to the best interests of the Company and its stockholders; except
that no indemnification under this subsection 4(c) shall be made in respect to
any claim, issue or matter as to which such person shall have been finally
adjudged to be liable to the Company by a court of competent jurisdiction unless
and only to the extent that the court in which such proceeding was brought
shall
determine upon application that, despite the adjudication of liability but
in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such amounts which the court shall deem
proper.
(d)
Actions
where Indemnitee is Deceased
.
If the
Indemnitee is a person who was or is a party or is threatened to be made a
party
to any proceeding by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
and if prior to, during the pendency or after completion of such proceeding
Indemnitee becomes deceased, the Company shall indemnify the Indemnitee’s heirs,
executors and administrators against any and all expenses and liabilities of
any
type whatsoever (including, but not limited to, judgments, fines, ERISA excise
taxes and penalties, and amounts paid in settlement) actually and reasonably
incurred to the extent Indemnitee would have been entitled to indemnification
pursuant to Sections 4(a), 4(b), or 4(c) above were Indemnitee still
alive.
(e)
Notwithstanding
the foregoing, the Company shall not be obligated to indemnify the Indemnitee
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) for which payment is actually made to or on behalf of Indemnitee
under a valid and collectible insurance policy of D&O Insurance, or under a
valid and enforceable indemnity clause, by-law or agreement.
5.
Partial
Indemnification
.
If the
Indemnitee is entitled under any provision of this Agreement to indemnification
by the Company for some or a portion of any expenses or liabilities of any
type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) incurred by him in the
investigation, defense, settlement or appeal of a proceeding, but not entitled,
however, to indemnification for all of the total amount hereof, the Company
shall nevertheless indemnify the Indemnitee for such total amount except as
to
the portion hereof to which the Indemnitee is not entitled.
6.
Mandatory
Advancement of Expenses
.
Subject
to Section 8(a) below, the Company shall advance all expenses incurred by the
Indemnitee in connection with the investigation, defense, settlement or appeal
of any proceeding to which the Indemnitee is a party or is threatened to be
made
a party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall be determined ultimately that the Indemnitee
is
not entitled to be indemnified by the Company as authorized hereby. The advances
to be made hereunder shall be paid by the Company to the Indemnitee within
twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company. In the event that the Company fails to pay expenses
as incurred by the Indemnitee as required by this paragraph, Indemnitee may
seek
mandatory injunctive relief from any court having jurisdiction to require the
Company to pay expenses as set forth in this paragraph. If Indemnitee seeks
mandatory injunctive relief pursuant to this paragraph, it shall not be a
defense to enforcement of the Company’s obligations set forth in this paragraph
that Indemnitee has an adequate remedy at law for damages.
7.
Notice
and Other Indemnification Procedures
.
(a)
Promptly
after receipt by the Indemnitee of notice of the commencement of or the threat
of commencement of any proceeding, the Indemnitee shall, if the Indemnitee
believes that indemnification with respect thereto may be sought from the
Company under this Agreement, notify the Company of the commencement or threat
of commencement thereof.
(b)
If,
at
the time of the receipt of a notice of the commencement of a proceeding pursuant
to Section 7(a) hereof, the Company has D&O Insurance in effect, the Company
shall give prompt notice of the commencement of such proceeding to the insurers
in accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of
such proceeding in accordance with the terms of such policies.
(c)
In
the
event the Company shall be obligated to pay the expenses of any proceeding
against the Indemnitee, the Company, if appropriate, shall be entitled to assume
the defense of such proceeding, with counsel approved by the Indemnitee, upon
the delivery to the Indemnitee of written notice of its election so to do.
After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
the
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by
the Indemnitee with respect to the same proceeding, provided that (i) the
Indemnitee shall have the right to employ his counsel in any such proceeding
at
the Indemnitee’s expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (B) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense, or (C) the
Company shall not, in fact, have employed counsel to assume the defense of
such
proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the
expense of the Company.
8.
Exceptions
.
Any
other provision herein to the contrary notwithstanding, the Company shall not
be
obligated pursuant to the terms of this Agreement:
(a)
Claims
Initiated by Indemnitee
.
To
indemnify or advance expenses to the Indemnitee with respect to proceedings
or
claims initiated or brought voluntarily by the Indemnitee and not by way of
defense, unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board, (iii) such indemnification
is provided by the Company, in its sole discretion, pursuant to the powers
vested in the Company under the General Corporation Law of Delaware or (iv)
the
proceeding is brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145;
(b)
Lack
of Good Faith
.
To
indemnify the Indemnitee for any expenses incurred by the Indemnitee with
respect to any proceeding instituted by the Indemnitee to enforce or interpret
this Agreement, if a court of competent jurisdiction determines that each of
the
material assertions made by the Indemnitee in such proceeding was not made
in
good faith or was frivolous; or
(c)
Unauthorized
Settlements
.
To
indemnify the Indemnitee under this Agreement for any amounts paid in settlement
of a proceeding unless the Company consents to such settlement, which consent
shall not be unreasonably withheld.
9.
Non-exclusivity
.
The
provisions for indemnification and advancement of expenses set forth in this
Agreement shall not be deemed exclusive of any other rights which the Indemnitee
may have under any provision of law, the Company’s Certificate of Incorporation
or Bylaws, the vote of the Company’s stockholders or disinterested directors,
other agreements, or otherwise, both as to action in his official capacity
and
to action in another capacity while occupying his position as an agent of the
Company, and the Indemnitee’s rights hereunder shall continue after the
Indemnitee has ceased acting as an agent of the Company and shall inure to
the
benefit of the heirs, executors and administrators of the
Indemnitee.
10.
Enforcement
.
Any
right to indemnification or advances granted by this Agreement to Indemnitee
shall be enforceable by or on behalf of Indemnitee in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. Indemnitee, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense
of
prosecuting his claim. It shall be a defense to any action for which a claim
for
indemnification is made under this Agreement (other than an action brought
to
enforce a claim for expenses pursuant to Section 6 hereof, provided that the
required undertaking has been tendered to the Company) that Indemnitee is not
entitled to indemnification because of the limitations set forth in Sections
4
and 8 hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Indemnitee
is
proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders) that such indemnification
is improper, shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or
otherwise.
11.
Subrogation
.
In the
event of payment under this Agreement, the Company shall be subrogated to the
extent of such payment to all of the rights of recovery of Indemnitee, who
shall
execute all documents required and shall do all acts that may be necessary
to
secure such rights and to enable the Company effectively to bring suit to
enforce such rights.
12.
Survival
of Rights
.
(a)
All
agreements and obligations of the Company contained herein shall continue during
the period Indemnitee is an agent of the Company and shall continue thereafter
so long as Indemnitee shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
(b)
The
Company shall require any successor to the Company (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of
the business or assets of the Company, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place.
13.
Interpretation
of Agreement
.
It is
understood that the parties hereto intend this Agreement to be interpreted
and
enforced so as to provide indemnification to the Indemnitee to the fullest
extent permitted by law including those circumstances in which indemnification
would otherwise be discretionary.
14.
Severability
.
If any
provision or provisions of this Agreement shall be held to be invalid, illegal
or unenforceable for any reason whatsoever, (i) the validity, legality and
enforceability of the remaining provisions of the Agreement (including without
limitation, all portions of any paragraphs of this Agreement containing any
such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, and (ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, all portions of any paragraph of
this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision
held
invalid, illegal or unenforceable and to give effect to Section 13
hereof.
15.
Modification
and Waiver
.
No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any
other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
16.
Notice
.
All
notices, requests, demands and other communications under this Agreement shall
be in writing and shall be deemed duly given (i) if delivered by hand and
receipted for by the party addressee or (ii) if mailed by certified or
registered mail with postage prepaid, on the third business day after the
mailing date. Addresses for notice to either party are as shown on the signature
page of this Agreement, or as subsequently modified by written
notice.
17.
Governing
Law
.
This
Agreement shall be governed exclusively by and construed according to the laws
of the State of Delaware as applied to contracts between Delaware residents
entered into and to be performed entirely within Delaware.
The
parties hereto have entered into this Indemnity Agreement effective as of the
date first above written.
|
Transdel
Pharmaceuticals,
Inc.
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By:
|
|
Name:
|
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Title:
|
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EXHIBIT
10.9
ASSIGNMENT
OF EMPLOYMENT AGREEMENT
ASSIGNMENT
OF EMPLOYMENT AGREEMENT
(this
“
Agreement
”),
dated
as of September 17, 2007, by and among Trans-Pharma Corporation, a Nevada
corporation (“
Trans-Pharma
”),
Transdel Pharmaceuticals, Inc., a Delaware corporation (“
Transdel
”),
and
Juliet Singh, PhD (“
Executive
”).
WHEREAS,
Trans-Pharma and Executive have entered into that certain Employment Agreement,
dated as of June 27, 2007 (the “
Employment
Agreement
”);
WHEREAS,
Trans-Pharma and Executive wish to assign Trans-Pharma’s obligations, right,
title, interest in, to and under the Employment Agreement to Transdel and
Transdel agrees to assume and accept such assignments and Executive consents
to
such assignment.
NOW
THEREFORE, Trans-Pharma, Transdel and Executive agree as follows:
1.
Assignment
and Assumption
.
Trans-Pharma does hereby assign (the “
Assignment
”)
unto
Transdel all of its obligations, right, title, interest in, to and under the
Employment Agreement. Each of the undersigned consents to the
Assignment.
2.
Ratification
.
Except
as assigned hereby, nothing herein contained shall otherwise modify, reduce,
amend or otherwise supplement the terms and provisions of the Employment
Agreement, which shall remain in full force and effect in accordance with its
terms.
3.
Governing
Law
.
This
Agreement shall be governed by, and be construed in accordance with, the laws
of
the State of California.
4.
Counterparts
.
This
Agreement may be executed in one or more counterparts and by the parties hereto
in separate counterparts, each of which when executed shall be deemed to be
an
original but both of which together shall constitute one and the same
Amendment.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Trans-Pharma, Transdel, and Executive have executed this
Agreement as of the date first written above.
|
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By:
|
/s/
Juliet Singh, Ph.D.
|
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Name:
Juliet Singh, PhD
|
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Title:
Chief Executive Officer
|
|
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Transdel
Pharmaceuticals, Inc.
|
|
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By:
|
/s/
John T. Lomoro
|
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Name:
John T. Lomoro
|
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Title:
Chief Financial Officer
|
|
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Executive:
|
|
|
Juliet
Singh, PhD
|
EXHIBIT
10.10
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (“Agreement”) is made effective as of June 27, 2007
(“Effective Date”), by and between Trans-Pharma Corporation (“Company”) and Dr.
Juliet Singh (“Executive”).
PRELIMINARY
STATEMENT
A.
WHEREAS, The Company and the Executive desire to enter into this Agreement
to
provide for Executive’s employment by the Company, upon the terms and conditions
set forth herein.
The
parties hereby agree as follows:
1.
Duties
.
1.1.
Position
.
Executive shall serve as Chief Executive Officer and President, and serve on
the
Company Board of Directors, and shall have the duties and responsibilities
incident to such position and such other duties as may be determined in
consultation with the Company’s Board of Directors (“Board of Directors”).
Executive shall perform faithfully, cooperatively and diligently all of her
job
duties and responsibilities and agrees to and shall devote her full time,
attention and effort to the business of the Company and other assignments as
directed by the Company’s Board of Directors. The Executive will report directly
to the Board of Directors
1.2.
Best
Efforts
.
Executive will expend her best efforts on behalf of the Company in connection
with her employment and will abide by all policies and decisions made by
Company, as well as all applicable federal, state and local laws, regulations
or
ordinances.
2.
Employment
Term
.
The term of Executive’s employment under this Agreement shall commence as of the
Effective Date and shall continue until terminated by either the Executive
or
the Company (“Term”).
3.
Compensation
.
3.1.
Base
Salary
.
As compensation for Executive’s performance of her duties hereunder, Company
shall pay to Executive an initial base salary of One Hundred and Ninety-Five
Thousand Dollars ($195,000), starting on the Effective Date hereof, (“Annual
Base Salary”), payable in accordance with the normal payroll practices of
Company, less required deductions for state and federal withholding tax, social
security and all other employment taxes and payroll deductions.
Executive’s Annual Base Salary shall be eligible for an increase based upon the
recommendation of the Board of Directors.
3.2.
Annual
Bonus and Equity Plan
.
The Executive shall be eligible to receive an annual bonus and participate
in
the Company’s Equity Plan, which basis will be determined by mutual agreement
between the Executive and the Board of Directors.
4.
Health
and Welfare Benefit Plans
.
The Executive and/or the Executive’s family, as the case may be, shall be
eligible for participation in and shall receive all benefits under health and
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical prescription, dental disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent generally applicable to employees
of
the Company.
5.
Customary
Benefits
.
Executive shall be entitled to all customary and usual fringe benefits and
shall
be entitled to participate in all savings and retirement plans, practices,
policies and programs generally applicable to employees of the Company that
are
in effect during the Employment Term, subject to the terms and conditions of
Company’s benefit plan documents, as applicable.
6.
Business
Expenses
.
Executive shall be entitled to receive prompt reimbursement for all reasonable,
out-of-pocket business expenses incurred in the performance of her duties on
behalf of Company.
7.
Vacation
.
Executive shall be entitled to paid vacation, personal and sick days each
calendar year, in accordance with the Company’s plans, policies and programs
then in effect.
8.
Indemnification.
In
connection with the execution of the Agreement, the Company will also enter
into
a customary indemnification agreement with Executive.
9.
Termination
.
The
Executive’s employment hereunder may be terminated under the following
circumstances (without impairing the Executive’s rights under benefit plans,
arrangements and Company policies and procedures).
9.1
Termination
upon Death or Permanent Disability
.
The
Executive’s Term of employment shall automatically terminate in the event of the
death or permanent disability of Executive. For purposes of this Agreement,
“permanent disability” shall mean the inability to perform services hereunder
for a period of six consecutive months.
9.2.
Termination
by Company for Cause
.
The
Company shall have the option to terminate the Term (a) for cause in the event
the Executive engages in grossly negligent conduct or willful misconduct in
connection with the execution of her duties hereunder which materially and
adversely affect the Company, after written notice by the Company to the
Executive of the specific nonperformance of her duties hereunder, provided
the
nonperformance continues uncorrected for a period of thirty days after written
notice thereof by the Company to the Executive specifically identifying the
manner in which the Company believes the Executive has not performed her duties.
For purposes of this Section 9.2, no act, or failure to act, on the Executive’s
part shall be considered “willful” unless done, or omitted to be done, by her
not in good faith and without reasonable belief that her act or omission was
in
the best interests of the Company.
9.3.
Severance
.
If the
Company terminates Executive’s employment other than for cause pursuant to
Section 9.2, Executive shall be entitled to receive a continuation of her then
Annual Base Salary plus health care insurance coverage for a period of one
(1)
year from said date of termination, with such base salary continuation to be
at
the rate set forth in Section 3.1, or, if greater, the rate of the Executive’s
current Annual Base Salary at the date of Termination.
Nothing
herein shall derogate from the Executive’s rights under employee benefit plans,
programs and arrangements under applicable law.
9.4.
Constructive
Discharge
.
Any
significant reduction or adverse change in the nature or scope of the
Executive’s authority, duties, status or position contemplated by Section 1.1
hereof, including an involuntary relocation, or a reduction in the base salary
and/or benefits of the Executive from those provided for in Sections 4 and
5
hereof as they may from time to time be in effect, will be the basis for the
Executive’s termination of this Agreement by giving at least thirty days prior
notice to the Company, and in such event the termination will be treated as
a
termination by the Company without cause under Section 9.3.
9.5.
Benefits
upon Termination for Cause or Voluntary Termination by Executive
.
In the
event the Company properly terminates Executive’s employment under this
Agreement for cause pursuant to Section 9.2 or Executive voluntarily resigns
from her employment during the Term:
(a)
base
salary shall be prorated as of the date of termination and said prorated amount
shall be paid to Executive,
(b)
all
stock options or stock appreciation rights granted to Executive shall be
governed by the instruments granting such rights; and
(c)
the
Company shall (i) make such other and further payment to Executive, her
designated beneficiaries and her dependents as may be provided pursuant to
the
terms of any employee benefit plans, fringe benefit plans, and all other
compensation and/bonus plans, programs and structures, in which the Executive
is
a participant at the time of termination of her employment with the Company,
and
(ii) promptly reimburse the Executive for any then un-reimbursed out-of-pocket
expenses pursuant to Section 6.
9.6.
Confidentiality
and Proprietary Rights
.
Executive agrees to continue to abide by the Company’s Information and
Inventions Agreement.
10.
Section
409A of the U.S. Internal Revenue Code
.
10.1.
G
ood
Faith Intention
.
The Company and Executive intend in good faith that this Agreement comply with
the applicable requirements of Section 409A of the Code and that this Agreement
be construed, interpreted and administered in accordance with such intent.
11.
Attorney’s
Fees.
If
litigation shall be instituted to enforce or interpret any provision of this
Agreement hereof, the prevailing party will reimburse the other party for
his/her reasonable attorney’s fees and disbursements incurred in such
proceeding.
12.
General
Provisions
.
12.1.
Successors
and Assigns
.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, personal representatives and successors, including
any
successor of the company by reason of any dissolution, merger, consolidation,
sale of assets or other reorganization of the Company.
12.2.
Waiver.
The
rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising
any right, power or privilege under this Agreement or the documents referred
to
in this Agreement will operate as a waiver of such right, power or privilege;
and no single or partial exercise of any such right, power or privilege will
preclude any other or further exercise of such right, power or privilege or
the
exercise of any other right, power or privilege. To the maximum extent
permitted by applicable law, (i) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged
by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (ii) no waiver that may
be given by a party will be applicable except in the specific instance for
which
it is given; and (iii) no notice to or demand on one party will be deemed
to be a waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice or demand
as
provided in this Agreement or the documents referred to in this
Agreement.
12.3.
Validity
.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
124.
Headings
.
The headings set forth in this Agreement are for convenience only and shall
not
be used in interpreting this Agreement.
12.5.
Governing
Law
.
This Agreement will be governed by and construed in accordance with the laws
of
the United States and the State of
California
,
without
reference to its conflicts of laws principles.
12.6.
Counterparts
.
This Agreement may be executed in one or more counterparts, all of which when
fully executed and delivered by all parties hereto and taken together shall
constitute a single agreement, binding against each of the parties.
12.7.
Survival
.
Sections 8, 9, 10, 11 and, 12 of this Agreement shall survive Executive’s
employment by Company.
12.8.
Notices
.
All notices, consents, waivers and other communications under this Agreement
shall be in writing and will be deemed to have been duly given when (i)
delivered by hand (with written confirmation of receipt); (ii) sent by facsimile
(with written confirmation of receipt); or (iii) when received by the addressee,
if sent by a nationally recognized overnight delivery service, return
If
to
Executive:
Dr.
Juliet Singh
P.O.
Box
2191
Rancho
Santa Fe, CA 92067
If
to the
Company:
Dr.
Jeffrey Abrams
Member
of
the Board of Directors
Trans-Pharma
Corporation
4225
Executive Square, Suite 460
La
Jolla,
CA 92037
or
to
such other address as either party shall have furnished to the other in writing
in accordance herewith.
[Remainder
of Page Intentionally Left Blank]
IN
WITNESS WHEREOF, THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT
AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE,
THE
PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
Dated:
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June
27, 2007
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EXECUTIVE
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/s/
Juliet Singh, Ph.D.
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Dr.
Juliet Singh
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Dated:
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June
27, 2007
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TRANS-PHARMA
CORPORATION.
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By:
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/s/
Jeffrey Abrams
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Name:
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Dr.
Jeffrey Abrams
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Title:
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Director
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[Signature
Page to Employment Agreement]
EXHIBIT
10.11
TRANSDEL
PHARMACEUTICALS, INC.
2007
INCENTIVE STOCK AND AWARDS PLAN
This
2007
Incentive Stock and Awards Plan (the “
Plan
”)
is
intended as an incentive, to retain in the employ of and as directors, officers,
consultants, advisors and employees to Transdel Pharmaceuticals, Inc., a
Delaware corporation (the “
Company
”),
and
any Subsidiary of the Company, within the meaning of Section 424(f) of the
United States Internal Revenue Code of 1986, as amended (the “
Code
”),
persons of training, experience and ability, to attract new directors, officers,
consultants, advisors and employees whose services are considered valuable,
to
encourage the sense of proprietorship and to stimulate the active interest
of
such persons in the development and financial success of the Company and its
Subsidiaries.
It
is
further intended that certain options granted pursuant to the Plan shall
constitute incentive stock options within the meaning of Section 422 of the
Code
(the “
Incentive
Options
”)
while
certain other options granted pursuant to the Plan shall be nonqualified stock
options (the “
Nonqualified
Options
”).
Incentive Options and Nonqualified Options are hereinafter referred to
collectively as “
Options
.”
The
Company intends that the Plan meet the requirements of Rule 16b-3 (“
Rule
16b-3
”)
promulgated under the Securities Exchange Act of 1934, as amended (the
“
Exchange
Act
”),
and
that transactions of the type specified in subparagraphs (c) to (f) inclusive
of
Rule 16b-3 by officers and directors of the Company pursuant to the Plan will
be
exempt from the operation of Section 16(b) of the Exchange Act. Further, the
Plan is intended to satisfy the performance-based compensation exception to
the
limitation on the Company’s tax deductions imposed by Section 162(m) of the Code
with respect to those Options for which qualification for such exception is
intended. In all cases, the terms, provisions, conditions and limitations of
the
Plan shall be construed and interpreted consistent with the Company’s intent as
stated in this Section 1.
|
2.
|
Administration
of the Plan.
|
The
Board
of Directors of the Company (the “
Board
”)
shall
appoint and maintain as administrator of the Plan a Committee (the “
Committee
”)
consisting of two or more directors who are (i) “Independent Directors” (as such
term is defined under the rules of the NASDAQ Stock Market), (ii) “Non-Employee
Directors” (as such term is defined in Rule 16b-3) and (iii) “Outside Directors”
(as such term is defined in Section 162(m) of the Code), which shall serve
at
the pleasure of the Board. The Committee, subject to Sections 3, 5 and 6 hereof,
shall have full power and authority to designate recipients of Options and
restricted stock (“
Restricted
Stock
”)
and to
determine the terms and conditions of the respective Option and Restricted
Stock
agreements (which need not be identical) and to interpret the provisions and
supervise the administration of the Plan. The Committee shall have the
authority, without limitation, to designate which Options granted under the
Plan
shall be Incentive Options and which shall be Nonqualified Options. To the
extent any Option does not qualify as an Incentive Option, it shall constitute
a
separate Nonqualified Option.
Subject
to the provisions of the Plan, the Committee shall interpret the Plan and all
Options and Restricted Stock granted under the Plan, shall make such rules
as it
deems necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options or Restricted Stock granted under the Plan in
the
manner and to the extent that the Committee deems desirable to carry into effect
the Plan or any Options or Restricted Stock. The act or determination of a
majority of the Committee shall be the act or determination of the Committee
and
any decision reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority of
the
Committee at a meeting duly held for such purpose. Subject to the provisions
of
the Plan, any action taken or determination made by the Committee pursuant
to
this and the other Sections of the Plan shall be conclusive on all
parties.
In
the
event that for any reason the Committee is unable to act or if the Committee
at
the time of any grant, award or other acquisition under the Plan does not
consist of two or more Non-Employee Directors, or if there shall be no such
Committee, or if the Board otherwise determines to administer the Plan, then
the
Plan shall be administered by the Board, and references herein to the Committee
(except in the proviso to this sentence) shall be deemed to be references to
the
Board, and any such grant, award or other acquisition may be approved or
ratified in any other manner contemplated by subparagraph (d) of Rule 16b-3;
provided
,
however
,
that
grants to the Company’s Chief Executive Officer or to any of the Company’s other
four most highly compensated officers that are intended to qualify as
performance-based compensation under Section 162(m) of the Code may only be
granted by the Committee.
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3.
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Designation
of Optionees and Grantees.
|
The
persons eligible for participation in the Plan as recipients of Options (the
“
Optionees
”)
or
Restricted Stock (the “
Grantees
”
and
together with Optionees, the “
Participants
”)
shall
include directors, officers and employees of, and consultants and advisors
to,
the Company or any Subsidiary; provided that Incentive Options may only be
granted to employees of the Company and any Subsidiary. In selecting
Participants, and in determining the number of shares to be covered by each
Option or award of Restricted Stock granted to Participants, the Committee
may
consider any factors it deems relevant, including, without limitation, the
office or position held by the Participant or the Participant’s relationship to
the Company, the Participant’s degree of responsibility for and contribution to
the growth and success of the Company or any Subsidiary, the Participant’s
length of service, promotions and potential. A Participant who has been granted
an Option or Restricted Stock hereunder may be granted an additional Option
or
Options, or Restricted Stock if the Committee shall so determine.
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4.
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Stock
Reserved for the Plan.
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Subject
to adjustment as provided in Section 8 hereof, a total of 1,500,000 shares
of
the Company’s common stock, par value $0.001 per share (the “
Stock
”),
shall
be subject to the Plan. The maximum number of shares of Stock that may be
subject to Options granted under the Plan to any individual in any calendar
year
shall conform to any requirements applicable to performance-based compensation
under Section 162(m) of the Code, if qualification as performance-based
compensation under Section 162(m) of the Code is intended. The shares of Stock
subject to the Plan shall consist of unissued shares, treasury shares or
previously issued shares held by any Subsidiary of the Company, and such number
of shares of Stock shall be and is hereby reserved for such purpose. Any of
such
shares of Stock that may remain unissued and that are not subject to outstanding
Options at the termination of the Plan shall cease to be reserved for the
purposes of the Plan, but until termination of the Plan the Company shall at
all
times reserve a sufficient number of shares of Stock to meet the requirements
of
the Plan. Should any Option or award of Restricted Stock expire or be canceled
prior to its exercise or vesting in full or should the number of shares of
Stock
to be delivered upon the exercise or vesting in full of an Option or award
of
Restricted Stock be reduced for any reason, the shares of Stock theretofore
subject to such Option or Restricted Stock may be subject to future Options
or
Restricted Stock under the Plan, except where such reissuance is inconsistent
with the provisions of Section 162(m) of the Code where qualification as
performance-based compensation under Section 162(m) of the Code is
intended.
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5.
|
Terms
and Conditions of Options.
|
Options
granted under the Plan shall be subject to the following conditions and shall
contain such additional terms and conditions, not inconsistent with the terms
of
the Plan, as the Committee shall deem desirable:
(a)
Option
Price
.
The
purchase price of each share of Stock purchasable under an Incentive Option
shall be determined by the Committee at the time of grant, but shall not be
less
than 100% of the Fair Market Value (as defined below) of such share of Stock
on
the date the Option is granted;
provided
,
however
,
that
with respect to an Optionee who, at the time such Incentive Option is granted,
owns (within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Company or of any
Subsidiary, the purchase price per share of Stock shall be at least 110% of
the
Fair Market Value per share of Stock on the date of grant. The purchase price
of
each share of Stock purchasable under a Nonqualified Option shall not be less
than 100% of the Fair Market Value of such share of Stock on the date the Option
is granted. The exercise price for each Option shall be subject to adjustment
as
provided in Section 8 below. “
Fair
Market Value
”
means
the closing price on the final trading day immediately prior to the grant of
the
Stock on the principal securities exchange on which shares of Stock are listed
(if the shares of Stock are so listed), or on the NASDAQ Stock Market or OTC
Bulletin Board (if the shares of Stock are regularly quoted on the NASDAQ Stock
Market or OTC Bulletin Board, as the case may be), or, if not so listed, the
mean between the closing bid and asked prices of publicly traded shares of
Stock
in the over the counter market, or, if such bid and asked prices shall not
be
available, as reported by any nationally recognized quotation service selected
by the Company, or as determined by the Committee in a manner consistent with
the provisions of the Code. Anything in this Section 5(a) to the contrary
notwithstanding, in no event shall the purchase price of a share of Stock be
less than the minimum price permitted under the rules and policies of any
national securities exchange on which the shares of Stock are listed
.
(b)
Option
Term
.
The
term of each Option shall be fixed by the Committee, but no Option shall be
exercisable more than ten years after the date such Option is granted and in
the
case of an Incentive Option granted to an Optionee who, at the time such
Incentive Option is granted, owns (within the meaning of Section 424(d) of
the
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or of any Subsidiary, no such Incentive Option shall be
exercisable more than five years after the date such Incentive Option is
granted.
(c)
Exercisability
.
Subject
to Section 5(j) hereof, Options shall be exercisable at such time or times
and
subject to such terms and conditions as shall be determined by the Committee
at
the time of grant;
provided
,
however
,
that in
the absence of any Option vesting periods designated by the Committee at the
time of grant, Options shall vest and become exercisable as to one-third of
the
total number of shares subject to the Option on each of the first, second and
third anniversaries of the date of grant; and provided further that no Options
shall be exercisable until such time as any vesting limitation required by
Section 16 of the Exchange Act, and related rules, shall be satisfied if such
limitation shall be required for continued validity of the exemption provided
under Rule 16b-3(d)(3).
Upon
the
occurrence of a “Change in Control” (as hereinafter defined), the Committee may
accelerate the vesting and exercisability of outstanding Options, in whole
or in
part, as determined by the Committee in its sole discretion. In its sole
discretion, the Committee may also determine that, upon the occurrence of a
Change in Control, each outstanding Option shall terminate within a specified
number of days after notice to the Optionee thereunder, and each such Optionee
shall receive, with respect to each share of Company Stock subject to such
Option, an amount equal to the excess of the Fair Market Value of such shares
immediately prior to such Change in Control over the exercise price per share
of
such Option; such amount shall be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or a
combination thereof, as the Committee shall determine in its sole
discretion.
For
purposes of the Plan, unless otherwise defined in an employment agreement
between the Company and the relevant Optionee, a Change in Control shall be
deemed to have occurred if:
(i)
a
tender
offer (or series of related offers) shall be made and consummated for the
ownership of 50% or more of the outstanding voting securities of the Company,
unless as a result of such tender offer more than 50% of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the stockholders of the Company (as of the time immediately prior
to the commencement of such offer), any employee benefit plan of the Company
or
its Subsidiaries, and their affiliates;
(ii)
the
Company shall be merged or consolidated with another corporation, unless as
a
result of such merger or consolidation more than 50% of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the stockholders of the Company (as of the time immediately prior
to such transaction), any employee benefit plan of the Company or its
Subsidiaries, and their affiliates;
(iii)
the
Company shall sell substantially all of its assets to another corporation that
is not wholly owned by the Company, unless as a result of such sale more than
50% of such assets shall be owned in the aggregate by the stockholders of the
Company (as of the time immediately prior to such transaction), any employee
benefit plan of the Company or its Subsidiaries and their affiliates;
or
(iv)
a
Person
(as defined below) shall acquire 50% or more of the outstanding voting
securities of the Company (whether directly, indirectly, beneficially or of
record), unless as a result of such acquisition more than 50% of the outstanding
voting securities of the surviving or resulting corporation shall be owned
in
the aggregate by the stockholders of the Company (as of the time immediately
prior to the first acquisition of such securities by such Person), any employee
benefit plan of the Company or its Subsidiaries, and their
affiliates.
Notwithstanding
the foregoing, if Change of Control is defined in an employment agreement
between the Company and the relevant Optionee, then, with respect to such
Optionee, Change of Control shall have the meaning ascribed to it in such
employment agreement.
For
purposes of this Section 5(c), ownership of voting securities shall take into
account and shall include ownership as determined by applying the provisions
of
Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under the Exchange Act.
In
addition, for such purposes, “Person” shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof;
provided
,
however
,
that a
Person shall not include (A) the Company or any of its Subsidiaries; (B) a
trustee or other fiduciary holding securities under an employee benefit plan
of
the Company or any of its Subsidiaries; (C) an underwriter temporarily holding
securities pursuant to an offering of such securities; or (D) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the
Company.
(d)
Method
of Exercise
.
Options
to the extent then exercisable may be exercised in whole or in part at any
time
during the option period, by giving written notice to the Company specifying
the
number of shares of Stock to be purchased, accompanied by payment in full of
the
purchase price, in cash, or by check or such other instrument as may be
acceptable to the Committee. As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may be made at the
election of the Optionee (i) in the form of Stock owned by the Optionee (based
on the Fair Market Value of the Stock which is not the subject of any pledge
or
security interest, (ii) in the form of shares of Stock withheld by the Company
from the shares of Stock otherwise to be received with such withheld shares
of
Stock having a Fair Market Value equal to the exercise price of the Option,
or
(iii) by a combination of the foregoing, such Fair Market Value determined
by
applying the principles set forth in Section 5(a), provided that the combined
value of all cash and cash equivalents and the Fair Market Value of any shares
surrendered to the Company is at least equal to such exercise price and except
with respect to (ii) above, such method of payment will not cause a
disqualifying disposition of all or a portion of the Stock received upon
exercise of an Incentive Option. An Optionee shall have the right to dividends
and other rights of a stockholder with respect to shares of Stock purchased
upon
exercise of an Option at such time as the Optionee (i) has given written notice
of exercise and has paid in full for such shares, and (ii) has satisfied such
conditions that may be imposed by the Company with respect to the withholding
of
taxes.
(e)
Non-transferability
of Options
.
Options
are not transferable and may be exercised solely by the Optionee during his
lifetime or after his death by the person or persons entitled thereto under
his
will or the laws of descent and distribution. The Committee, in its sole
discretion, may permit a transfer of a Nonqualified Option to (i) a trust for
the benefit of the Optionee, (ii) a member of the Optionee’s immediate family
(or a trust for his or her benefit) or (iii) pursuant to a domestic relations
order. Any attempt to transfer, assign, pledge or otherwise dispose of, or
to
subject to execution, attachment or similar process, any Option contrary to
the
provisions hereof shall be void and ineffective and shall give no right to
the
purported transferee.
(f)
Termination
by Death
.
Unless
otherwise determined by the Committee, if any Optionee’s employment with or
service to the Company or any Subsidiary terminates by reason of death, the
Option may thereafter be exercised, to the extent then exercisable (or on such
accelerated basis as the Committee shall determine at or after grant), by the
legal representative of the estate or by the legatee of the Optionee under
the
will of the Optionee, for a period of one (1) year after the date of such death
(or, if later, such time as the Option may be exercised pursuant to Section
14(d) hereof) or until the expiration of the stated term of such Option as
provided under the Plan, whichever period is shorter.
(g)
Termination
by Reason of Disability
.
Unless
otherwise determined by the Committee, if any Optionee’s employment with or
service to the Company or any Subsidiary terminates by reason of Disability
(as
defined below), then any Option held by such Optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due
to
Disability (or on such accelerated basis as the Committee shall determine at
or
after grant), but may not be exercised after ninety (90) days after the date
of
such termination of employment or service (or, if later, such time as the Option
may be exercised pursuant to Section 14(d) hereof) or the expiration of the
stated term of such Option, whichever period is shorter;
provided
,
however
,
that,
if the Optionee dies within such ninety (90) day period, any unexercised Option
held by such Optionee shall thereafter be exercisable to the extent to which
it
was exercisable at the time of death for a period of one (1) year after the
date
of such death (or, if later, such time as the Option may be exercised pursuant
to Section 14(d) hereof) or for the stated term of such Option, whichever period
is shorter. “Disability” shall mean an Optionee’s total and permanent
disability;
provided
,
that if
Disability is defined in an employment agreement between the Company and the
relevant Optionee, then, with respect to such Optionee, Disability shall have
the meaning ascribed to it in such employment agreement
(h)
Termination
by Reason of Retirement
.
Unless
otherwise determined by the Committee, if any Optionee’s employment with or
service to the Company or any Subsidiary terminates by reason of Normal or
Early
Retirement (as such terms are defined below), any Option held by such Optionee
may thereafter be exercised to the extent it was exercisable at the time of
such
Retirement (or on such accelerated basis as the Committee shall determine at
or
after grant), but may not be exercised after ninety (90) days after the date
of
such termination of employment or service (or, if later, such time as the Option
may be exercised pursuant to Section 14(d) hereof) or the expiration of the
stated term of such Option, whichever date is earlier;
provided
,
however
,
that,
if the Optionee dies within such ninety (90) day period, any unexercised Option
held by such Optionee shall thereafter be exercisable, to the extent to which
it
was exercisable at the time of death, for a period of one (1) year after the
date of such death (or, if later, such time as the Option may be exercised
pursuant to Section 14(d) hereof) or for the stated term of such Option,
whichever period is shorter.
For
purposes of this paragraph (h), “
Normal
Retirement
”
shall
mean retirement from active employment with the Company or any Subsidiary on
or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65, and “
Early
Retirement
”
shall
mean retirement from active employment with the Company or any Subsidiary
pursuant to the early retirement provisions of the applicable Company or
Subsidiary pension plan or if no such pension plan, age 55.
(i)
Other
Terminations
.
Unless
otherwise determined by the Committee upon grant, if any Optionee’s employment
with or service to the Company or any Subsidiary is terminated by such Optionee
for any reason other than death, Disability, Normal or Early Retirement or
Good
Reason (as defined below), the Option shall thereupon terminate, except that
the
portion of any Option that was exercisable on the date of such termination
of
employment or service may be exercised for the lesser of ninety (90) days after
the date of termination (or, if later, such time as the Option may be exercised
pursuant to Section 14(d) hereof) or the balance of such Option’s term, which
ever period is shorter. The transfer of an Optionee from the employ of or
service to the Company to the employ of or service to a Subsidiary, or vice
versa, or from one Subsidiary to another, shall not be deemed to constitute
a
termination of employment or service for purposes of the Plan.
(i)
In
the
event that the Optionee’s employment or service with the Company or any
Subsidiary is terminated by the Company or such Subsidiary for “cause” any
unexercised portion of any Option shall immediately terminate in its entirety.
For purposes hereof, unless otherwise defined in an employment agreement between
the Company and the relevant Optionee, “Cause” shall exist upon a good-faith
determination by the Board, following a hearing before the Board at which an
Optionee was represented by counsel and given an opportunity to be heard, that
such Optionee has been accused of fraud, dishonesty or act detrimental to the
interests of the Company or any Subsidiary of Company or that such Optionee
has
been accused of or convicted of an act of willful and material embezzlement
or
fraud against the Company or of a felony under any state or federal statute;
provided
,
however
,
that it
is specifically understood that “Cause” shall not include any act of commission
or omission in the good-faith exercise of such Optionee’s business judgment as a
director, officer or employee of the Company, as the case may be, or upon the
advice of counsel to the Company. Notwithstanding the foregoing, if Cause is
defined in an employment agreement between the Company and the relevant
Optionee, then, with respect to such Optionee, Cause shall have the meaning
ascribed to it in such employment agreement.
(ii)
In
the
event that an Optionee is removed as a director, officer or employee by the
Company at any time other than for “Cause” or resigns as a director, officer or
employee for “Good Reason” the Option granted to such Optionee may be exercised
by the Optionee, to the extent the Option was exercisable on the date such
Optionee ceases to be a director, officer or employee. Such Option may be
exercised at any time within one (1) year after the date the Optionee ceases
to
be a director, officer or employee (or, if later, such time as the Option may
be
exercised pursuant to Section 14(d) hereof), or the date on which the Option
otherwise expires by its terms; which ever period is shorter, at which time
the
Option shall terminate;
provided
,
however
,
if the
Optionee dies before the Options terminate and are no longer exercisable, the
terms and provisions of Section 5(f) shall control. For purposes of this Section
5(i), and unless otherwise defined in an employment agreement between the
Company and the relevant Optionee, Good Reason shall exist upon the occurrence
of the following:
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(A)
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the
assignment to Optionee of any duties inconsistent with the position
in the
Company that Optionee held immediately prior to the
assignment;
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(B)
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a
Change of Control resulting in a significant adverse alteration in
the
status or conditions of Optionee’s participation with the Company or other
nature of Optionee’s responsibilities from those in effect prior to such
Change of Control, including any significant alteration in Optionee’s
responsibilities immediately prior to such Change in Control;
and
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(C)
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the
failure by the Company to continue to provide Optionee with benefits
substantially similar to those enjoyed by Optionee prior to such
failure.
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Notwithstanding
the foregoing, if Good Reason is defined in an employment agreement between
the
Company and the relevant Optionee, then, with respect to such Optionee, Good
Reason shall have the meaning ascribed to it in such employment
agreement.
(j)
Limit
on Value of Incentive Option
.
The
aggregate Fair Market Value, determined as of the date the Incentive Option
is
granted, of Stock for which Incentive Options are exercisable for the first
time
by any Optionee during any calendar year under the Plan (and/or any other stock
option plans of the Company or any Subsidiary) shall not exceed
$100,000.
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6.
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Terms
and Conditions of Restricted
Stock.
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Restricted
Stock may be granted under this Plan aside from, or in association with, any
other award and shall be subject to the following conditions and shall contain
such additional terms and conditions (including provisions relating to the
acceleration of vesting of Restricted Stock upon a Change of Control), not
inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
(a)
Grantee
rights
.
A
Grantee shall have no rights to an award of Restricted Stock unless and until
Grantee accepts the award within the period prescribed by the Committee and,
if
the Committee shall deem desirable, makes payment to the Company in cash, or
by
check or such other instrument as may be acceptable to the Committee. After
acceptance and issuance of a certificate or certificates, as provided for below,
the Grantee shall have the rights of a stockholder with respect to Restricted
Stock subject to the non-transferability and forfeiture restrictions described
in Section 6(d) below.
(b)
Issuance
of Certificates
.
The
Company shall issue in the Grantee’s name a certificate or certificates for the
shares of Common Stock associated with the award promptly after the Grantee
accepts such award.
(c)
Delivery
of Certificates
.
Unless
otherwise provided, any certificate or certificates issued evidencing shares
of
Restricted Stock shall not be delivered to the Grantee until such shares are
free of any restrictions specified by the Committee at the time of
grant.
(d)
Forfeitability,
Non-transferability of Restricted Stock
.
Shares
of Restricted Stock are forfeitable until the terms of the Restricted Stock
grant have been satisfied. Shares of Restricted Stock are not transferable
until
the date on which the Committee has specified such restrictions have lapsed.
Unless otherwise provided by the Committee at or after grant, distributions
in
the form of dividends or otherwise of additional shares or property in respect
of shares of Restricted Stock shall be subject to the same restrictions as
such
shares of Restricted Stock.
(e)
Change
of Control
.
Upon
the occurrence of a Change in Control as defined in Section 5(c), the Committee
may accelerate the vesting of outstanding Restricted Stock, in whole or in
part,
as determined by the Committee, in its sole discretion.
(f)
Termination
of Employment
.
Unless
otherwise determined by the Committee at or after grant, in the event the
Grantee ceases to be an employee or otherwise associated with the Company for
any other reason, all shares of Restricted Stock theretofore awarded to him
which are still subject to restrictions shall be forfeited and the Company
shall
have the right to complete the blank stock power. The Committee may provide
(on
or after grant) that restrictions or forfeiture conditions relating to shares
of
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes, and the Committee may in other cases waive
in
whole or in part restrictions or forfeiture conditions relating to Restricted
Stock.
No
Option
or award of Restricted Stock shall be granted pursuant to the Plan on or after
the date which is ten years from the effective date of the Plan, but Options
and
awards of Restricted Stock theretofore granted may extend beyond that
date.
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8.
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Capital
Change of the Company.
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In
the
event of any merger, reorganization, consolidation, recapitalization, stock
dividend, or other change in corporate structure affecting the Stock, the
Committee shall make an appropriate and equitable adjustment in the number
and
kind of shares reserved for issuance under the Plan and in the number and option
price of shares subject to outstanding Options granted under the Plan, to the
end that after such event each Optionee’s proportionate interest shall be
maintained (to the extent possible) as immediately before the occurrence of
such
event. The Committee shall, to the extent feasible, make such other adjustments
as may be required under the tax laws so that any Incentive Options previously
granted shall not be deemed modified within the meaning of Section 424(h) of
the
Code. Appropriate adjustments shall also be made in the case of outstanding
Restricted Stock granted under the Plan.
The
adjustments described above will be made only to the extent consistent with
continued qualification of the Option under Section 422 of the Code (in the
case
of an Incentive Option) and Section 409A of the Code.
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9.
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Purchase
for Investment/Conditions.
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Unless
the Options and shares covered by the Plan have been registered under the
Securities Act of 1933, as amended (the “
Securities
Act
”),
or
the Company has determined that such registration is unnecessary, each person
exercising or receiving Options or Restricted Stock under the Plan may be
required by the Company to give a representation in writing that he is acquiring
the securities for his own account for investment and not with a view to, or
for
sale in connection with, the distribution of any part thereof. The Committee
may
impose any additional or further restrictions on awards of Options or Restricted
Stock as shall be determined by the Committee at the time of award.
(a)
The
Company may make such provisions as it may deem appropriate, consistent with
applicable law, in connection with any Options or Restricted Stock granted
under
the Plan with respect to the withholding of any taxes (including income or
employment taxes) or any other tax matters.
(b)
If
any
Grantee, in connection with the acquisition of Restricted Stock, makes the
election permitted under Section 83(b) of the Code (that is, an election to
include in gross income in the year of transfer the amounts specified in Section
83(b)), such Grantee shall notify the Company of the election with the Internal
Revenue Service pursuant to regulations issued under the authority of Code
Section 83(b).
(c)
If
any
Grantee shall make any disposition of shares of Stock issued pursuant to the
exercise of an Incentive Option under the circumstances described in Section
421(b) of the Code (relating to certain disqualifying dispositions), such
Grantee shall notify the Company of such disposition within ten (10) days
hereof.
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11.
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Effective
Date of Plan.
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The
Plan
shall be effective on September ___, 2007; provided, however, that if, and
only
if, certain options are intended to qualify as Incentive Stock Options, the
Plan
must subsequently be approved by majority vote of the Company’s stockholders no
later than September ___, 2008, and further, that in the event certain Option
grants hereunder are intended to qualify as performance-based compensation
within the meaning of Section 162(m) of the Code, the requirements as to
stockholder approval set forth in Section 162(m) of the Code are
satisfied.
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12.
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Amendment
and Termination.
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The
Board
may amend, suspend, or terminate the Plan, except that no amendment shall be
made that would impair the rights of any Participant under any Option or
Restricted Stock theretofore granted without the Participant’s consent, and
except that no amendment shall be made which, without the approval of the
stockholders of the Company would:
(a)
materially
increase the number of shares that may be issued under the Plan, except as
is
provided in Section 8;
(b)
materially
increase the benefits accruing to the Participants under the Plan;
(c)
materially
modify the requirements as to eligibility for participation in the
Plan;
(d)
decrease
the exercise price of an Incentive Option to less than 100% of the Fair Market
Value per share of Stock on the date of grant thereof or the exercise price
of a
Nonqualified Option to less than 100% of the Fair Market Value per share of
Stock on the date of grant thereof; or
(e)
extend
the term of any Option beyond that provided for in Section 5(b).
(f)
except
as
otherwise provided in Sections 5(d) and 8 hereof, reduce the exercise price
of
outstanding Options or effect repricing through cancellations and re-grants
of
new Options.
Subject
to the forgoing, the Committee may amend the terms of any Option theretofore
granted, prospectively or retrospectively, but no such amendment shall impair
the rights of any Optionee without the Optionee’s consent.
It
is the
intention of the Board that the Plan comply strictly with the provisions of
Section 409A of the Code and Treasury Regulations and other Internal Revenue
Service guidance promulgated thereunder (the “
Section
409A Rules
”)
and
the Committee shall exercise its discretion in granting awards hereunder (and
the terms of such awards), accordingly. The Plan and any grant of an award
hereunder may be amended from time to time (without, in the case of an award,
the consent of the Participant) as may be necessary or appropriate to comply
with the Section 409A Rules.
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13.
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Government
Regulations.
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The
Plan,
and the grant and exercise of Options or Restricted Stock hereunder, and the
obligation of the Company to sell and deliver shares under such Options and
Restricted Stock shall be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies, national securities
exchanges and interdealer quotation systems as may be required.
(a)
Certificates
.
All
certificates for shares of Stock delivered under the Plan shall be subject
to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, or other securities commission having jurisdiction,
any
applicable Federal or state securities law, any stock exchange or interdealer
quotation system upon which the Stock is then listed or traded and the Committee
may cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions.
(b)
Employment
Matters
.
Neither
the adoption of the Plan nor any grant or award under the Plan shall confer
upon
any Participant who is an employee of the Company or any Subsidiary any right
to
continued employment or, in the case of a Participant who is a director,
continued service as a director, with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or
any
Subsidiary to terminate the employment of any of its employees, the service
of
any of its directors or the retention of any of its consultants or advisors
at
any time.
(c)
Limitation
of Liability
.
No
member of the Committee, or any officer or employee of the Company acting on
behalf of the Committee, shall be personally liable for any action,
determination or interpretation taken or made in good faith with respect to
the
Plan, and all members of the Committee and each and any officer or employee
of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(d)
Registration
of Stock
.
Notwithstanding any other provision in the Plan, no Option may be exercised
unless and until the Stock to be issued upon the exercise thereof has been
registered under the Securities Act and applicable state securities laws, or
are, in the opinion of counsel to the Company, exempt from such registration
in
the United States. The Company shall not be under any obligation to register
under applicable federal or state securities laws any Stock to be issued upon
the exercise of an Option granted hereunder in order to permit the exercise
of
an Option and the issuance and sale of the Stock subject to such Option,
although the Company may in its sole discretion register such Stock at such
time
as the Company shall determine. If the Company chooses to comply with such
an
exemption from registration, the Stock issued under the Plan may, at the
direction of the Committee, bear an appropriate restrictive legend restricting
the transfer or pledge of the Stock represented thereby, and the Committee
may
also give appropriate stop transfer instructions with respect to such Stock
to
the Company’s transfer agent.
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15.
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Non-Uniform
Determinations.
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The
Committee’s determinations under the Plan, including, without limitation, (i)
the determination of the Participants to receive awards, (ii) the form, amount
and timing of such awards, (iii) the terms and provisions of such awards and
(ii) the agreements evidencing the same, need not be uniform and may be made
by
it selectively among Participants who receive, or who are eligible to receive,
awards under the Plan, whether or not such Participants are similarly
situated.
The
validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with the internal laws
of
the State of Delaware, without giving effect to principles of conflicts of
laws,
and applicable federal law.
EXHIBIT
10.12
TRANSDEL
PHARMACEUTICALS, INC.
2007
INCENTIVE STOCK AND AWARDS PLAN
FORM
OF
INCENTIVE
STOCK OPTION AGREEMENT
This
INCENTIVE STOCK OPTION AGREEMENT (the “Option Agreement”), dated as of the
day of
____________, 20__ (the “Grant Date”), is between Transdel Pharmaceuticals,
Inc., a Delaware corporation (the “Company”), and
(the
“Optionee”), a key employee of the Company or of a Subsidiary of the Company (a
“Related Corporation”), pursuant to the Transdel Pharmaceuticals, Inc. 2007
Incentive Stock and Awards Plan (the “Plan”).
WHEREAS,
the Company desires to give the Optionee the opportunity to purchase shares
of
common stock of the Company, par value $0.001 (“Common Shares”) in accordance
with the provisions of the Plan, a copy of which is attached
hereto;
NOW
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto, intending to
be
legally bound hereby, agree as follows:
1.
Grant
of Option
.
The
Company hereby grants to the Optionee the right and option (the “Option”) to
purchase all or any part of an aggregate of
Common
Shares. The Option is in all respects limited and conditioned as hereinafter
provided, and is subject in all respects to the terms and conditions of the
Plan
now in effect and as it may be amended from time to time (but only to the extent
that such amendments apply to outstanding options). Such terms and conditions
are incorporated herein by reference, made a part hereof, and shall control
in
the event of any conflict with any other terms of this Option Agreement. The
Option granted hereunder is intended to be an incentive stock option (“ISO”)
meeting the requirements of the Plan and section 422 of the Internal Revenue
Code of 1986, as amended (the “Code”), and
not
a
nonqualified stock option (“NQSO”).
2.
Exercise
Price
.
The
exercise price of the Common Shares covered by this Option shall be
$
per
share. It is the determination of the committee administering the Plan (the
“Committee”) that on the Grant Date the exercise price was not less than the
greater of (i) 100% (110% for an Optionee who owns more than 10% of the total
combined voting power of all shares of stock of the Company or of a Related
Corporation - a “More-Than-10% Owner”) of the “Fair Market Value” (as defined in
the Plan) of a Common Share, or (ii) the par value of a Common
Share.
3.
Term
.
Unless
earlier terminated pursuant to any provision of the Plan or of this Option
Agreement, this Option shall expire on _____________ __, 20__ (the “Expiration
Date”). This Option shall not be exercisable on or after the Expiration
Date.
4.
Exercise
of Option
.
The
Optionee shall have the right to purchase from the Company, on and after the
following dates, the following number of Common Shares, provided the Optionee
has not terminated his or her service as of the applicable vesting
date:
Date
Installment Becomes
Exercisable
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Number
of Common Shares
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Shares
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an
additional
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Shares
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an
additional
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Shares
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an
additional
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Shares
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The
Committee may accelerate any exercise date of the Option, in its discretion,
if
it deems such acceleration to be desirable. Once the Option becomes exercisable,
it will remain exercisable until it is exercised or until it
terminates.
5.
Method
of Exercising Option
.
Subject
to the terms and conditions of this Option Agreement and the Plan, the Option
may be exercised by written notice to the Company at its principal office.
The
form of such notice is attached hereto and shall state the election to exercise
the Option and the number of whole shares with respect to which it is being
exercised; shall be signed by the person or persons so exercising the Option;
and shall be accompanied by payment of the full exercise price of such shares.
Only full shares will be issued.
[The
Committee should select which of the following methods of payment
will
be
permitted:]
The
exercise price shall be paid to the Company -
(a)
in
cash,
or by certified check, bank draft, or postal or express money
order;
(b)
through
the delivery of Common Shares previously acquired by the Optionee;
(c)
by
delivering a properly executed notice of exercise of the Option to the Company
and a broker, with irrevocable instructions to the broker promptly to deliver
to
the Company the amount necessary to pay the exercise price of the
Option;
(d)
in
Common
Shares newly acquired by the Optionee upon exercise of the Option (which shall
constitute a disqualifying disposition with respect to this ISO);
(e)
in
any
combination of (a), (b), (c), or (d) above.
[In
the
event the exercise price is paid, in whole or in part, with Common Shares,
the
portion of the exercise price so paid shall be equal to the Fair Market Value
of
the Common Shares surrendered on the date of exercise.]
Upon
receipt of notice of exercise and payment, the Company shall deliver a
certificate or certificates representing the Common Shares with respect to
which
the Option is so exercised. The Optionee shall obtain the rights of a
shareholder upon receipt of a certificate(s) representing such Common
Shares.
Such
certificate(s) shall be registered in the name of the person so exercising
the
Option (or, if the Option is exercised by the Optionee and if the Optionee
so
requests in the notice exercising the Option, shall be registered in the name
of
the Optionee and the Optionee’s spouse, jointly, with right of survivorship),
and shall be delivered as provided above to, or upon the written order of,
the
person exercising the Option. In the event the Option is exercised by any person
after the death or disability (as determined in accordance with Section 22(e)(3)
of the Code) of the Optionee, the notice shall be accompanied by appropriate
proof of the right of such person to exercise the Option. All Common Shares
that
are purchased upon exercise of the Option as provided herein shall be fully
paid
and non-assessable.
Upon
exercise of the Option, Optionee shall be responsible for all employment and
income taxes then or thereafter due (whether Federal, State or local), and
if
the Optionee does not remit to the Company sufficient cash (or, with the consent
of the Committee, Common Shares) to satisfy all applicable withholding
requirements, the Company shall be entitled to satisfy any withholding
requirements for any such tax by disposing of Common Shares at exercise,
withholding cash from Optionee’s salary or other compensation or such other
means as the Committee considers appropriate to the fullest extent permitted
by
applicable law. Nothing in the preceding sentence shall impair or limit the
Company’s rights with respect to satisfying withholding obligations under
Section 10 of the Plan.
6.
Non-Transferability
of Option
.
This
Option is not assignable or transferable, in whole or in part, by the Optionee
other than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, the Option shall be exercisable only by the Optionee
or, in the event of his or her disability, by his or her guardian or legal
representative.
7.
Termination
of Employment by Optionee
.
If the
Optionee’s employment with the Company and all Related Corporations is
terminated by the Optionee for any reason (other than death or disability or
with Good Reason) prior to the Expiration Date, this Option may be exercised,
to
the extent of the number of Common Shares with respect to which the Optionee
could have exercised it on the date of such termination of employment by the
Optionee at any time prior to the earlier of (i) the Expiration Date, or (ii)
ninety (90) days after such termination of employment. Any part of the Option
that was not exercisable immediately before the Optionee’s termination of
employment shall terminate at that time.
8.
Disability
.
If the
Optionee becomes disabled (as determined in accordance with section 22(e)(3)
of
the Code) during his or her employment and, prior to the Expiration Date, the
Optionee’s employment is terminated as a consequence of such disability, this
Option may be exercised, to the extent of the number of Common Shares with
respect to which the Optionee could have exercised it on the date of such
termination of employment by the Optionee or by the Optionee’s legal
representative at any time prior to the earlier of (i) the Expiration Date
or
(ii) ninety (90) days after such termination of employment. Any part of the
Option that was not exercisable immediately before the Optionee’s termination of
employment shall terminate at that time.
9.
Termination
of Employment by Company without Cause or by Optionee with Good
Reason
.
If the
Optionee’s employment with the Company and all Related Corporations is
terminated by the Company for any reason other than Cause (or is terminated
by
the Optionee for Good Reason) prior to the Expiration Date, this Option may
be
exercised, to the extent of the number of Common Shares with respect to which
the Optionee could have exercised it on the date of such termination of
employment by the Optionee at any time prior to the earlier of (i) the
Expiration Date, or (ii) one year after such termination of employment. Any
part
of the Option that was not exercisable immediately before the Optionee’s
termination of employment shall terminate at that time.
10.
Death
.
If the
Optionee dies during his or her employment and prior to the Expiration Date,
or
if the Optionee’s employment is terminated for any reason (as described in
Paragraphs 7, 8 and 9) and the Optionee dies following his or her
termination of employment but prior to the earliest of (i) the Expiration Date,
or (ii) the expiration of the period determined under Paragraph 7, 8 or 9
(as applicable to the Optionee) this Option may be exercised, to the extent
of
the number of Common Shares with respect to which the Optionee could have
exercised it on the date of his or her death by the Optionee’s estate, personal
representative or beneficiary who acquired the right to exercise this Option
by
bequest or inheritance or by reason of the Optionee’s death, at any time prior
to the earlier of (i) the Expiration Date or (ii) one year after the date of
the
Optionee’s death. Any part of the Option that was not exercisable immediately
before the Optionee’s death shall terminate at that time.
11.
Termination
for Cause
.
If the
Optionee’s employment with the Company and all Related Corporations is
terminated by the Company for Cause prior to the Expiration Date, any
unexercised portion of this Option shall immediately terminate at that
time.
12.
Disqualifying
Disposition of Option Shares
.
The
Optionee agrees to give written notice to the Company, at its principal office,
if a “disposition” of the Common Shares acquired through exercise of the Option
granted hereunder occurs at any time within two years after the Grant Date
or
within one year after the transfer to the Optionee of such shares. Optionee
acknowledges that if such disposition occurs, the Optionee generally will
recognize ordinary income as of the date the Option was exercised in an amount
equal to the lesser of (i) the Fair Market Value of the Common Shares on the
date of exercise minus the exercise price, or (ii) the amount realized on
disposition of such shares minus the exercise price. If requested by the Company
at the time of and in the case of any such disposition, Optionee shall pay
to
the Company an amount sufficient to satisfy the Company’s federal, state and
local withholding tax obligations with respect to such disposition. The
provisions of this Section 12 shall apply, whether or not the Optionee is in
the
employ of the Company at the time of the relevant disposition. For purposes
of
this Paragraph, the term “disposition” shall have the meaning assigned to such
term by section 424(c) of the Code.
13.
Securities
Matters
.
(a) If,
at any time, counsel to the Company shall determine that the listing,
registration or qualification of the Common Shares subject to the Option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of Common
Shares hereunder, such Option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval, or satisfaction
of such condition shall have been effected or obtained on conditions acceptable
to the Board of Directors. The Company shall be under no obligation to apply
for
or to obtain such listing, registration or qualification, or to satisfy such
condition. The Committee shall inform the Optionee in writing of any decision
to
defer or prohibit the exercise of an Option. During the period that the
effectiveness of the exercise of an Option has been deferred or prohibited,
the
Optionee may, by written notice, withdraw the Optionee’s decision to exercise
and obtain a refund of any amount paid with respect thereto.
(b)
The
Company may require: (i) the Optionee (or any other person exercising the Option
in the case of the Optionee’s death or Disability) as a condition of exercising
the Option, to give written assurances, in substance and form satisfactory
to
the Company, to the effect that such person is acquiring the Common Shares
subject to the Option for his or her own account for investment and not with
any
present intention of selling or otherwise distributing the same, and to make
such other representations or covenants; and (ii) that any certificates for
Common Shares delivered in connection with the exercise of the Option bear
such
legends, in each case as the Company deems necessary or appropriate, in order
to
comply with federal and applicable state securities laws, to comply with
covenants or representations made by the Company in connection with any public
offering of its Common Shares or otherwise. The Optionee specifically
understands and agrees that the Common Shares, if and when issued upon exercise
of the Option, may be “restricted securities,” as that term is defined in Rule
144 under the Securities Act of 1933 and, accordingly, the Optionee may be
required to hold the shares indefinitely unless they are registered under such
Securities Act of 1933, as amended, or an exemption from such registration
is
available.
(c)
The
Optionee shall have no rights as a shareholder with respect to any Common Shares
covered by the Option (including, without limitation, any rights to receive
dividends or non-cash distributions with respect to such shares) until the
date
of issue of a stock certificate to the Optionee for such Common Shares. No
adjustment shall be made for dividends or other rights for which the record
date
is prior to the date such stock certificate is issued.
14.
Governing
Law
.
This
Option Agreement shall be governed by the applicable Code provisions to the
maximum extent possible. Otherwise, the laws of the State of Delaware (without
reference to the principles of conflict of laws) shall govern the operation
of,
and the rights of the Optionee under, the Plan and Options granted thereunder.
IN
WITNESS WHEREOF, the Company has caused this Incentive Stock Option Agreement
to
be duly executed by its duly authorized officer, and the Optionee has hereunto
set his or her hand and seal, all as of the ______ day of August,
2007.
TRANSDEL
PHARMACEUTICALS, INC.
|
|
By:
|
|
Name:
|
|
Title:
|
|
|
|
Optionee
|
TRANSDEL
PHARMACEUTICALS, INC.
2007
Incentive Stock and Awards Plan
Notice
of
Exercise of Incentive Stock Option
I
hereby
exercise the incentive stock option granted to me pursuant to the Incentive
Stock Option Agreement dated as of August __, 2007, by Transdel Pharmaceuticals,
Inc. (the “Company”), with respect to the following number of shares of the
Company’s common stock (“Shares”), par value $0.001 per Share, covered by said
option:
|
|
Number
of Shares to be purchased:
|
_____________
|
|
|
|
|
|
|
Purchase
price per Share:
|
$_____________
|
|
|
|
|
|
|
Total
purchase price:
|
$_____________
|
|
|
|
|
___
|
A.
|
Enclosed
is cash or my certified check, bank draft, or postal or express money
order in the amount of $________ in full/partial
[circle
one]
payment for such Shares;
|
|
|
|
|
and/or
|
|
|
|
|
___
|
B.
|
Enclosed
is/are _____ Share(s) with a total fair market value of $________
on the
date hereof in full/partial
[circle one]
payment for such
Shares;
|
|
|
|
|
and/or
|
|
|
|
|
___
|
C.
|
I
have provided notice to _________________
[insert name of
broker]
, a broker, who will render full/partial
[circle
one]
payment for such Shares.
[Optionee should attach to
the notice of exercise provided to such broker a copy of this Notice
of
Exercise and irrevocable instructions to pay to the Company the
full/partial (as elected above) exercise
price.]
|
|
|
|
|
and/or
|
|
|
|
|
___
|
D.
|
I
elect to satisfy the payment for Shares purchased hereunder by having
the
Company withhold newly acquired Shares pursuant to the exercise of
the
Option. I understand that this will result in a “disqualifying
disposition,” as described in Section 12 of my Incentive Stock Option
Agreement.
|
Please
have the certificate or certificates representing the purchased Shares
registered in the following name or names
*
:
;
and sent
to
.
*
|
Certificates
may be registered in the name of the Optionee alone or in the
joint names
(with right of survivorship) of the Optionee and his or her spouse.
|
EXHIBIT
10.13
TRANSDEL
PHARMACEUTICALS, INC.
2007
INCENTIVE STOCK AND AWARD PLAN
FORM
OF
NONQUALIFIED
STOCK OPTION AGREEMENT
This
NONQUALIFIED STOCK OPTION AGREEMENT (the “Option Agreement”), dated as of the
_
day of
______, 20__ (the “Grant Date”), is between Transdel Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), and
(the
“Optionee”), a
[choose
one]
[key
employee, director, advisor and/or consultant] of the Company or of a Subsidiary
of the Company (a “Related Corporation”), pursuant to the Transdel
Pharmaceuticals, Inc. 2007 Incentive Stock and Awards Plan (the
“Plan”).
WHEREAS,
the Company desires to give the Optionee the opportunity to purchase shares
of
common stock of the Company, par value $0.001 (“Common Shares”) in accordance
with the provisions of the Plan, a copy of which is attached
hereto;
NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto, intending to
be
legally bound hereby, agree as follows:
1.
Grant
of Option
.
The
Company hereby grants to the Optionee the right and option (the “Option”) to
purchase all or any part of an aggregate of ________ Common Shares. The Option
is in all respects limited and conditioned as hereinafter provided, and is
subject in all respects to the terms and conditions of the Plan now in effect
and as it may be amended from time to time (but only to the extent that such
amendments apply to outstanding options). Such terms and conditions are
incorporated herein by reference, made a part hereof, and shall control in
the
event of any conflict with any other terms of this Option Agreement. The Option
granted hereunder is intended to be a nonqualified stock option (“NQSO”) and
not
an
incentive stock option (“ISO”) as such term is defined in section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”).
2.
Exercise
Price
.
The
exercise price of the Common Shares covered by this Option shall be $1.00 per
share. It is the determination of the committee administering the Plan (the
“Committee”) that on the Grant Date the exercise price was not less than the
greater of (i) 100% of the “Fair Market Value” (as defined in the Plan) of a
Common Share, or (ii) the par value of a Common Share.
3.
Term
.
Unless
earlier terminated pursuant to any provision of the Plan or of this Option
Agreement, this Option shall expire on __________ __, 20__ (the “Expiration
Date”). This Option shall not be exercisable on or after the Expiration
Date.
4.
Exercise
of Option
.
The
Optionee shall have the right to purchase from the Company, on and after the
following dates, the following number of Common Shares, provided the Optionee
has not terminated his or her service as of the applicable vesting
date:
Date
Installment Becomes
|
|
|
Exercisable
|
|
Number
of Option Shares
|
|
|
|
|
|
________ Shares
|
|
|
an
additional ________ Shares
|
|
|
an
additional ________ Shares
|
|
|
an
additional ________ Shares
|
The
Committee may accelerate any exercise date of the Option, in its discretion,
if
it deems such acceleration to be desirable. Once the Option becomes exercisable,
it will remain exercisable until it is exercised or until it
terminates.
5.
Method
of Exercising Option
.
Subject
to the terms and conditions of this Option Agreement and the Plan, the Option
may be exercised by written notice to the Company at its principal office.
The
form of such notice is attached hereto and shall state the election to exercise
the Option and the number of whole shares with respect to which it is being
exercised; shall be signed by the person or persons so exercising the Option;
and shall be accompanied by payment of the full exercise price of such shares.
Only full shares will be issued.
[The
Committee should select which of the following methods of payment will be
permitted:]
The
exercise price shall be paid to the Company -
(a)
in
cash,
or by certified check, bank draft, or postal or express money
order;
(b)
through
the delivery of Common Shares;
(c)
by
delivering a properly executed notice of exercise of the Option to the Company
and a broker, with irrevocable instructions to the broker promptly to deliver
to
the Company the amount necessary to pay the exercise price of the
Option;
(d)
in
Common
Shares newly acquired by the Optionee upon the exercise of the Option;
or
(e)
in
any
combination of (a), (b), (c), or (d) above.
[In
the
event the exercise price is paid, in whole or in part, with Common Shares,
the
portion of the exercise price so paid shall be equal to the Fair Market Value
of
the Common Shares surrendered on the date of exercise.]
Upon
receipt of notice of exercise and payment, the Company shall deliver a
certificate or certificates representing the Common Shares with respect to
which
the Option is so exercised. The Optionee shall obtain the rights of a
shareholder upon receipt of a certificate(s) representing such Common
Shares.
Such
certificate(s) shall be registered in the name of the person so exercising
the
Option (or, if the Option is exercised by the Optionee and if the Optionee
so
requests in the notice exercising the Option, shall be registered in the name
of
the Optionee and the Optionee’s spouse, jointly, with right of survivorship) and
shall be delivered as provided above to, or upon the written order of, the
person exercising the Option. In the event the Option is exercised by any person
or persons after the death or disability (as determined in accordance with
section 22(e)(3) of the Code) of the Optionee, the notice shall be accompanied
by appropriate proof of the right of such person or persons to exercise the
Option. All Common Shares that are purchased upon exercise of the Option as
provided herein shall be fully paid and non-assessable.
Upon
exercise of the Option, Optionee shall be responsible for all employment and
income taxes then or thereafter due (whether Federal, State or local), and
if
the Optionee does not remit to the Company sufficient cash (or, with the consent
of the Committee, Common Shares to satisfy all applicable withholding
requirements, the Company shall be entitled to satisfy any withholding
requirements for any such tax by disposing of Common Shares at exercise,
withholding cash from Optionee’s salary or other compensation or such other
means as the Committee considers appropriate to the fullest extent permitted
by
applicable law. Nothing in the preceding sentence shall impair or limit the
Company’s rights with respect to satisfying withholding obligations under
Section 10 of the Plan.
6.
Transferability
of Option
.
This
Option is not assignable or transferable, in whole or in part, by the Optionee
other than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, the Option shall be exercisable only by the Optionee
or, in the event of his or her disability, by his or her guardian or legal
representative.
7.
Termination
of Service by Optionee
.
If the
Optionee’s service with the Company and all Related Corporations is terminated
by the Optionee for any reason other than death or disability prior to the
Expiration Date, this Option may be exercised, to the extent of the number
of
Common Shares with respect to which the Optionee could have exercised it on
the
date of such termination of service by the Optionee at any time prior to the
earlier of (i) the Expiration Date or (ii) ninety (90) days after the date
of
such termination of service.
[The
Plan provides for this period as a default. The Committee may provide for
different exercise periods in any particular NQSO.]
Any part
of the Option that was not exercisable immediately before the Optionee’s
termination of service shall terminate at that time.
8.
Disability
.
If the
Optionee becomes disabled (as determined in accordance with section 22(e)(3)
of
the Code) during his or her service and, prior to the Expiration Date, the
Optionee’s service is terminated as a consequence of such disability, this
Option may be exercised, to the extent of the number of Common Shares with
respect to which the Optionee could have exercised it on the date of such
termination of service by the Optionee or by the optionee’s legal
representative, at any time prior to the earlier of (i) the Expiration Date
or
(ii) ninety (90) days after such termination of service. Any part of the Option
that was not exercisable immediately before the Optionee’s termination of
service shall terminate at that time.
9.
Termination
of Service by Company without Cause or by Optionee with Good
Reason
.
If the
Optionee’s service with the Company and all Related Corporations is terminated
by the Company for any reason other than Cause (or is terminated by the Optionee
for Good Reason) prior to the Expiration Date, this Option may be exercised,
to
the extent of the number of Common Shares with respect to which the Optionee
could have exercised it on the date of such termination of employment by the
Optionee at any time prior to the earlier of (i) the Expiration Date, or (ii)
one year after such termination of service. Any part of the Option that was
not
exercisable immediately before the Optionee’s termination of employment shall
terminate at that time.
10.
Death
.
If the
Optionee dies during his or her service and prior to the Expiration Date, or
if
the Optionee’s service is terminated for any reason (as described in Paragraphs
7, 8 and 9) and the Optionee dies following his or her termination of service
but prior to the earlier of the Expiration Date or the expiration of the period
determined under Paragraph 7, 8 or 9 (as applicable to the Optionee), this
Option may be exercised, to the extent of the number of Common Shares with
respect to which the Optionee could have exercised it on the date of his or
her
death by the Optionee’s estate, personal representative or beneficiary who
acquired the right to exercise this Option by bequest or inheritance or by
reason of the Optionee’s death, at any time prior to the earlier of (i) the
Expiration Date or (ii) one year after the date of the Optionee’s death. Any
part of the Option that was not exercisable immediately before the Optionee’s
death shall terminate at that time.
11.
Termination
for Cause
.
If the
Optionee’s service with the Company and all Related Corporations is terminated
by the Company for Cause prior to the Expiration Date, any unexercised portion
of this Option shall immediately terminate at that time.
12.
Securities
Matters
.
(a) If,
at any time, counsel to the Company shall determine that the listing,
registration or qualification of the Common Shares subject to the Option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of Common
Shares hereunder, such Option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval, or satisfaction
of such condition shall have been effected or obtained on conditions acceptable
to the Board of Directors. The Company shall be under no obligation to apply
for
or to obtain such listing, registration or qualification, or to satisfy such
condition. The Committee shall inform the Optionee in writing of any decision
to
defer or prohibit the exercise of an Option. During the period that the
effectiveness of the exercise of an Option has been deferred or prohibited,
the
Optionee may, by written notice, withdraw the Optionee’s decision to exercise
and obtain a refund of any amount paid with respect thereto.
(b)
The
Company may require: (i) the Optionee (or any other person exercising the Option
in the case of the Optionee’s death or Disability) as a condition of exercising
the Option, to give written assurances, in substance and form satisfactory
to
the Company, to the effect that such person is acquiring the Common Shares
subject to the Option for his or her own account for investment and not with
any
present intention of selling or otherwise distributing the same, and to make
such other representations or covenants; and (ii) that any certificates for
Common Shares delivered in connection with the exercise of the Option bear
such
legends, in each case as the Company deems necessary or appropriate, in order
to
comply with federal and applicable state securities laws, to comply with
covenants or representations made by the Company in connection with any public
offering of its Common Shares or otherwise. The Optionee specifically
understands and agrees that the Common Shares, if and when issued upon exercise
of the Option, may be “restricted securities,” as that term is defined in Rule
144 under the Securities Act of 1933 and, accordingly, the Optionee may be
required to hold the shares indefinitely unless they are registered under such
Securities Act of 1933, as amended, or an exemption from such registration
is
available.
(c)
The
Optionee shall have no rights as a shareholder with respect to any Common Shares
covered by the Option (including, without limitation, any rights to receive
dividends or non-cash distributions with respect to such shares) until the
date
of issue of a stock certificate to the Optionee for such Common Shares. No
adjustment shall be made for dividends or other rights for which the record
date
is prior to the date such stock certificate is issued.
13.
Governing
Law
.
This
Option Agreement shall be governed by the applicable Code provisions to the
maximum extent possible. Otherwise, the laws of the State of Delaware (without
reference to the principles of conflict of laws) shall govern the operation
of,
and the rights of the Optionee under, the Plan and Options granted
thereunder.
IN
WITNESS WHEREOF, the Company has caused this Nonqualified Stock Option Agreement
to be duly executed by its duly authorized officer, and the Optionee has
hereunto set his or her hand and seal, all as of the ____ day of __________,
2007.
|
Transdel
Pharmaceuticals, Inc.
|
|
|
|
|
|
By:
|
|
|
Name:
|
|
Title:
|
|
|
|
|
|
|
|
|
|
Optionee
|
|
|
|
|
TRANSDEL
PHARMACEUTICALS, INC.
2007
INCENTIVE STOCK AND AWARDS PLAN
Notice
of
Exercise of Nonqualified Stock Option
I
hereby
exercise the nonqualified stock option granted to me pursuant to the
Nonqualified Stock Option Agreement dated as of _________ __, 2007, by Transdel
Pharmaceuticals, Inc. (the “Company”), with respect to the following number of
shares of the Company’s common stock (“Shares”), par value $0.001 per Share,
covered by said option:
Number
of Shares to be purchased:
|
|
|
|
|
|
|
|
Purchase
price per Share:
|
|
$
|
|
|
|
|
|
|
|
Total
purchase price:
|
|
$
|
|
|
___
|
A.
|
Enclosed
is cash or my certified check, bank draft, or postal or express money
order in the amount of $__________ in full/partial
[circle
one]
payment for such Shares;
|
and/or
___
|
B.
|
Enclosed
is/are
Share(s) with a total fair market value of $
on
the date hereof in full/partial
[circle
one]
payment for such Shares;
|
and/or
___
|
C.
|
I
have provided notice to
[
insert
name of broker]
,
a
broker, who will render full/partial
[circle
one]
payment for such Shares.
[Optionee should attach to the notice of exercise provided to such
broker
a copy of this Notice of Exercise and irrevocable instructions to
pay to
the Company the full exercise
price.]
|
and/or
___
|
D.
|
I
elect to satisfy the payment for Shares purchased hereunder by having
the
Company withhold newly acquired Shares pursuant to the exercise of
the
Option.
|
Please
have the certificate or certificates representing the purchased Shares
registered in the following name or names
*
:
;
and
sent to
.
DATED:_________
,
20__
|
|
|
|
|
Optionee’s
Signature
|
*
Certificates
may be registered in the name of the Optionee alone or in the joint names
(with
right of survivorship) of the Optionee and his or her spouse.
EXIHIBIT
21.1
Subsidiaries
of Transdel Pharmaceuticals, Inc.
The
subsidiaries of Transdel Pharmaceuticals, Inc. (the “Registrant”) as of
September 19, 2007, are listed below:
Subsidiary
|
|
Ownership
|
|
Jurisdiction
|
1.
Trans-Pharma Corporation.
|
|
100%
owned by Registrant
|
|
Nevada
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
with
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THEREON
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
TABLE
OF CONTENTS
Report
of Independent Registered Public Accounting Firm
|
|
|
1
|
|
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
Balance
Sheet
|
|
|
2
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
3
|
|
|
|
|
|
|
Statements
of Stockholders’ Deficit
|
|
|
4-6
|
|
|
|
|
|
|
Statements
of Cash Flows
|
|
|
7
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
|
8
|
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
Trans-Pharma
Corporation
We
have
audited the accompanying balance sheet of Trans-Pharma Corporation (a
development stage company) (the “Company”) as of December 31, 2006 and the
related statements of operations, stockholders’ deficit and cash flows for each
of the years in the two-year period then ended, and the period from July 24,
1998 (inception) to December 31, 2006. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on the 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform,
an
audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. 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 Trans-Pharma Corporation (a
development stage company) as of December 31, 2006 and the results of its
operations and its cash flows for each of the years in the two-year period
then
ended, and the period from July 24, 1998 (inception) to December 31, 2006 in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has incurred recurring operating losses, has a deficit accumulated
during the development stage and has not recognized any revenue as of December
31, 2006. These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 2. The financial statements do
not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amount and classification
of
liabilities that may result form the outcome of this uncertainty.
|
|
KMJ
Corbin & Company LLP
|
|
Irvine,
California
July
27,
2007, except for Note 7, as to which the date is September 11, 2007
p
949 296 9700
f
949 296 9701
2603
Main
Street, Suite 600 Irvine CA 92614 kmjpartnerscpa.com
p
760 431 5465
f
760 431 5466
2768
Loker Avenue West Suite 101 Carlsbad CA 92010
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEET
|
|
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
|
|
$
|
542
|
|
Prepaid
expenses
|
|
|
5,696
|
|
|
|
|
|
|
|
|
$
|
6,238
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
173,692
|
|
Accrued
interest
|
|
|
12,251
|
|
Notes
payable to stockholders
|
|
|
226,300
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
412,243
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 100,000,000 shares
authorized,
24,200,000 shares outstanding
|
|
|
24,200
|
|
Additional
paid-in capital
|
|
|
2,362,800
|
|
Deficit
accumulated during the development stage
|
|
|
(2,793,005
|
)
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(406,005
|
)
|
|
|
|
|
|
|
|
$
|
6,238
|
|
See
report of independent registered public accounting firm and
accompanying
notes to financial statements
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
|
|
For The Years Ended
December 31,
|
|
For The
Period From
July 24, 1998
(Inception)
Through
December 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Payroll
and related
|
|
$
|
400,000
|
|
$
|
400,000
|
|
$
|
2,300,000
|
|
Selling,
general and administrative
|
|
|
175,180
|
|
|
136,423
|
|
|
481,937
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(575,180
|
)
|
|
(536,423
|
)
|
|
(2,781,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(9,052
|
)
|
|
(3,199
|
)
|
|
(12,251
|
)
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net
|
|
|
(9,052
|
)
|
|
(3,199
|
)
|
|
(11,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(584,232
|
)
|
$
|
(539,622
|
)
|
$
|
(2,793,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
$
|
(2,793,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
22,967,123
|
|
|
10,549,597
|
|
|
|
|
See
report of independent registered public accounting firm and
accompanying
notes to financial statements
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS’ DEFICIT
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
|
|
|
|
|
|
Additional
|
|
Deficit Accumulated
|
|
Total
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
During the
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Development Stage
|
|
Deficit
|
|
Balance,
July 24, 1998 (Inception)
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(100,000
|
)
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 1998
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
(100,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(204,000
|
)
|
|
(204,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 1999
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
|
(304,000
|
)
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
|
|
6,000,000
|
|
|
6,000
|
|
|
-
|
|
|
-
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(213,092
|
)
|
|
(213,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2000
|
|
|
6,000,000
|
|
|
6,000
|
|
|
500,000
|
|
|
(517,092
|
)
|
|
(11,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(208,420
|
)
|
|
(208,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2001
|
|
|
6,000,000
|
|
|
6,000
|
|
|
700,000
|
|
|
(725,512
|
)
|
|
(19,512
|
)
|
Continued…
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS’ DEFICIT - CONTINUED
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
|
|
|
|
|
|
Additional
|
|
Deficit Accumulated
|
|
Total
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
During
the
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Development Stage
|
|
Deficit
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(228,217
|
)
|
|
(228,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2002
|
|
|
6,000,000
|
|
|
6,000
|
|
|
900,000
|
|
|
(953,729
|
)
|
|
(47,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(207,196
|
)
|
|
(207,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
6,000,000
|
|
|
6,000
|
|
|
1,100,000
|
|
|
(1,160,925
|
)
|
|
(54,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
-
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(508,226
|
)
|
|
(508,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
6,000,000
|
|
|
6,000
|
|
|
1,500,000
|
|
|
(1,669,151
|
)
|
|
(163,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contributions
|
|
|
-
|
|
|
-
|
|
|
14,200
|
|
|
-
|
|
|
14,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
|
|
15,700,000
|
|
|
15,700
|
|
|
-
|
|
|
-
|
|
|
15,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
100,000
|
|
|
100
|
|
|
-
|
|
|
-
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
-
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(539,622
|
)
|
|
(539,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
21,800,000
|
|
|
21,800
|
|
|
1,914,200
|
|
|
(2,208,773
|
)
|
|
(272,773
|
)
|
Continued…
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS’ DEFICIT - CONTINUED
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
|
|
|
|
|
|
Additional
|
|
Deficit Accumulated
|
|
Total
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
During the
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Development Stage
|
|
Deficit
|
|
Capital
contributions
|
|
|
-
|
|
|
-
|
|
|
48,600
|
|
|
-
|
|
|
48,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
2,400,000
|
|
|
2,400
|
|
|
-
|
|
|
-
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of services contributed by stockholders
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
-
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(584,232
|
)
|
|
(584,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
24,200,000
|
|
$
|
24,200
|
|
$
|
2,362,800
|
|
$
|
(2,793,005
|
)
|
$
|
(406,005
|
)
|
See
report of independent registered public accounting firm and
accompanying
notes to financial statements
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
|
|
For The Years Ended
December
31,
|
|
For The Period
From July 24,
1998 (Inception)
Through
December 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(584,232
|
)
|
$
|
(539,622
|
)
|
$
|
(2,793,005
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of contributed services
|
|
|
400,000
|
|
|
400,000
|
|
|
2,300,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(1,998
|
)
|
|
981
|
|
|
(5,696
|
)
|
Accounts
payable
|
|
|
121,516
|
|
|
46,650
|
|
|
173,692
|
|
Accrued
interest
|
|
|
9,052
|
|
|
3,199
|
|
|
12,251
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(55,662
|
)
|
|
(88,792
|
)
|
|
(312,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable to stockholders
|
|
|
-
|
|
|
30,000
|
|
|
226,300
|
|
Capital
contributions
|
|
|
48,600
|
|
|
14,200
|
|
|
62,800
|
|
Proceeds
from purchase of common stock
|
|
|
-
|
|
|
15,700
|
|
|
21,700
|
|
Proceeds
from exercise of stock options
|
|
|
2,400
|
|
|
100
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
51,000
|
|
|
60,000
|
|
|
313,300
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
(4,662
|
)
|
|
(28,792
|
)
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
5,204
|
|
|
33,996
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
542
|
|
$
|
5,204
|
|
$
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
Cash
paid during the year for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activity:
|
|
|
|
|
|
|
|
|
|
|
Conversion
of advances to notes payable to stockholders
|
|
$
|
-
|
|
$
|
196,300
|
|
|
|
|
See
report of independent registered public accounting firm and
accompanying
notes to financial statements
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
1 — ORGANIZATION AND NATURE OF OPERATIONS
Organization
and Nature of Operations
Trans-Pharma
Corporation (the “Company”) was formed as a C Corporation under the laws of the
State of Nevada on July 24, 1998 (“Inception”). The Company is based in San
Diego, California.
The
Company is in the pharmaceutical industry and holds a U.S. patent that covers
the Transdel™ technology for transdermal drug delivery. The patent was
contributed by the founders upon formation of the Company. The Company’s lead
topical drug candidate, Ketotransdel™, utilizes the proprietary Transdel™ cream
formulation to facilitate the passage of ketoprofen, a non-steroidal
anti-inflammatory drug (“NSAID”), through the epidermis and into underlying
tissues. Ketotransdel™ provides an alternative to oral administration of
cyclooxygenase-2 selective NSAIDs (“COX-2 inhibitors”) and non-selective NSAIDs,
which when administered orally are associated with increased risk of adverse
cardiovascular events, gastrointestinal and other adverse complications. The
Company has successfully completed a clinical trial for acute soft-tissue pain
and soreness with Ketotransdel™. The Company presently intends to conduct
additional clinical studies and pharmacological and toxicological studies of
Ketotransdel™. The Company plans to obtain approval from the Food and Drug
Administration (“FDA”) in order to market and distribute this
product.
At
present, all of the clinical, manufacturing and pharmacological and
toxicological work will be managed by third party contractors and consultants.
The Company will be exploring marketing or distribution arrangements or
corporate partner arrangements to market and distribute its products. The
Company is evaluating whether it is feasible to continue outsourcing significant
business functions such as clinical trials, manufacturing and sales and
marketing or if building its own infrastructure to carry out these functions
is
necessary or desirable. The Company has not generated any revenues and the
Company does not anticipate that it will generate any revenues until one or
more
of its drug candidates are approved by the FDA and effective sales and marketing
support is in place. The FDA approval process is highly uncertain and the
Company cannot estimate when it will generate revenues, if at all.
NOTE
2
–
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern
The
accompanying financial statements have been prepared on a going-concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the financial statements, the
Company has incurred recurring operating losses, had negative operating cash
flows of $55,662 and $88,792 in 2006 and 2005, respectively, and has not
recognized any revenue since Inception. In addition, the Company had a deficit
accumulated during the development stage of $2,793,005 and negative working
capital of $406,005 at December 31, 2006. These factors, among others, raise
substantial doubt about the Company’s ability to continue as a going concern.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
Company's continuation as a going concern is dependent on its ability to obtain
additional financing to fund operations, implement its business model, and
ultimately, to attain profitable operations. The Company intends to raise
additional financing to fund its operations. However, there is no assurance
that
sufficient financing will be available or, if available, on terms that would
be
acceptable to the Company.
Subsequent
to December 31, 2006, the Company sold 25,700,000 shares of common stock for
proceeds of $25,700 and issued convertible notes to various lenders for an
aggregate of $1,500,000 (see Note 7).
The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Basis
of Presentation
The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America.
Development
Stage Enterprise
The
Company is a development stage company as defined in Statement of Financial
Accounting Standards (“SFAS”) No. 7,
Accounting
and Reporting by Development Stage Enterprises
.
The
Company is devoting substantially all of its present efforts to establish a
new
business, and its planned principal operations have not yet commenced. All
losses accumulated since inception have been considered as part of the Company’s
development stage activities.
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 judgments that affect the reported amounts of assets, liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
periods. Significant estimates made by management are, among others, the
valuation of contributed services, stock options, warrants and deferred taxes.
Actual results could differ from those estimates.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentration
of
credit risk consist primarily of cash. The Company maintains its cash balances
at high-quality institutions that are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $100,000. At times, the Company’s cash balances may
exceed the amount insured by the FDIC. At December 31, 2006, the Company
had no cash balances which exceeded the insured limit.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Fair
Value of Financial Instruments
The
fair
values of the Company’s cash, accounts payable and accrued expenses approximate
carrying values due to their short maturities. The Company cannot determine
the
estimated fair value of notes payable to stockholders as the transactions
originated with related parties and instruments similar to the notes payable
could not be located.
Revenue
Recognition
The
Company will recognize revenues in accordance to the Securities and Exchange
Commission Staff Accounting Bulletin (“SAB”) No. 101,
Revenue
Recognition
,
as
amended by SAB No. 104. SAB No. 104 requires that four basic criteria must
be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectability is reasonably assured. Determination of
criteria (3) and (4) will be based on management's judgments regarding the
fixed
nature of the selling prices of the products delivered and the collectibility
of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments will be provided for in the same
period the related sales are recorded. The Company will defer any revenue for
which the product has not been delivered or for which services have not been
rendered or are subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or services
have
been rendered or no refund will be required.
As
of
December 31, 2006, the Company had not generated any revenues and the Company
does not anticipate that it will generate any revenues until one or more of
its
drug candidates are approved by the FDA and effective sales and marketing
support are in place. The FDA approval process is highly uncertain and the
Company cannot estimate when it will generate revenues at this time.
Income
Taxes
The
Company determines its income taxes under the asset and liability method in
accordance with SFAS No. 109,
Accounting
for Income Taxes
.
Under
the asset and liability method, deferred income tax assets and liabilities
are
calculated and recorded based upon the future tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future periods
for differences between the financial statements carrying amounts and the tax
basis of existing assets and liabilities. Generally, deferred income taxes
are
classified as current or non-current in accordance with the classification
of
the related asset or liability. Those not related to an asset or liability,
are
classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse. Valuation allowances are provided
for significant deferred income tax assets when it is more likely than not
that
some or all of the deferred tax assets will not be realized.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Basic
and Diluted Loss per Common Share
Basic
loss per share is calculated by dividing net loss by the weighted average common
shares outstanding during the period. Diluted net loss per share reflects the
potential dilution to basic loss per share that could occur upon conversion
or
exercise of securities, options or other such items to common shares using
the
treasury stock method, based upon the weighted average fair value of the
Company’s common shares during the period. During the years ended
December 31, 2006 and 2005, the Company did not have any potentially dilutive
securities and no common stock equivalents were considered in the calculation
of
the weighted average number of shares outstanding because they would be
anti-dilutive.
Stock-Based
Compensation
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123 (revised 2004) (“SFAS No. 123(R)”),
Share-Based
Payment
,
to
provide investors and other users of financial statements with more complete
and
neutral financial information by requiring that the compensation cost relating
to share-based payment transactions be recognized in financial statements.
That
cost will be measured based on the fair value of the equity or liability
instruments issued. SFAS No. 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. SFAS No. 123(R) replaces SFAS No. 123,
Accounting
for Stock-Based Compensation
(“SFAS
No. 123”), and supersedes Accounting Principles Board Opinion (“APB”)
No. 25. SFAS No. 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in APB No. 25, as long as the
footnotes to financial statements disclosed what net income (loss) would have
been had the preferable fair-value-based method been used. There would have
been
no effect to the Company’s net loss had it been accounting for its stock based
compensation under SFAS No. 123 during 2005.
SFAS
No. 123(R) requires companies to estimate the fair value of share-based
payment awards on the date of grant using an option-pricing model. The value
of
the portion of the award that is ultimately expected to vest is recognized
as
expense over the requisite service periods in the Company's statement of
operations, reduced for estimated forfeitures. SFAS No. 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary,
in
subsequent periods if actual forfeitures differ from those estimates. The
Company adopted SFAS No. 123(R) in 2006. As a result of the adoption, the
Company did not record any fair value-based compensation expense for options
granted or vested during 2006.
Prior
to
the adoption of SFAS No. 123(R), the Company accounted for stock-based
awards to employees and directors using the intrinsic value method in accordance
with APB No. 25 as allowed under SFAS No. 123. Under the intrinsic
value method, stock-based compensation expense would be recognized in the
Company's statements of operations for option grants to employees below the
fair
market value of the underlying stock at the date of grant.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
SFAS
No. 123(R) requires the cash flows resulting from the tax benefits
resulting from tax deductions in excess of the compensation cost recognized
for
those options to be classified as financing cash flows. Due to the Company's
loss position, there were no such tax benefits during the year ended December
31, 2006.
Prior
to
the adoption of SFAS No. 123(R), those benefits would have been reported as
operating cash flows had the Company received any tax benefits related to stock
option exercises.
Description
of 2005 Stock Plan
The
Company's stock option plan provides for grant of options to employees and
directors of the Company to purchase the Company's shares, as determined by
management and the board of directors, at the fair value of such shares on
the
grant date. The options generally vest upon grant date and have a ten-year
term.
As of December 31, 2006, the Company is authorized to issue up to 5,000,000
shares under this plan and has approximately 2,400,000 shares available for
future issuances.
Summary
of Assumptions and Activity
The
fair
value of stock-based awards to employees and directors is calculated using
the
Black-Scholes option pricing model even though the model was developed to
estimate the fair value of freely tradeable, fully transferable options without
vesting restrictions, which differ significantly from the Company's stock
options. The Black-Scholes model also requires subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived
from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate selected to value any particular grant
is based on the U.S. Treasury rate that corresponds to the pricing term of
the
grant effective as of the date of the grant. The expected volatility is based
on
the historical volatility of publicly filing companies who are comparable to
the
Company and in a similar line of business. These factors could change in the
future, affecting the determination of stock-based compensation expense in
future periods. The fair value of options granted during 2006 and 2005 was
estimated using the following weighted-average assumptions:
|
|
|
2006
|
|
|
2005
|
|
Stock
options:
|
|
|
|
|
|
|
|
Expected
term (in years)
|
|
|
10.0
|
|
|
10.0
|
|
Expected
volatility
|
|
|
85
|
%
|
|
85
|
%
|
Risk-free
interest rate
|
|
|
5.23
|
%
|
|
4.50
|
%
|
Dividend
yield
|
|
|
-
|
|
|
-
|
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
A
summary
of option activity as of December 31, 2006 and changes during each of the two
years then ended, is presented below:
|
|
December
31, 2006
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Contractual
Term
(Years
)
|
|
|
Aggregate
Intrinsic
Value
|
|
Options
outstanding and exercisable at January 1, 2005
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
Options
granted
|
|
|
350,000
|
|
|
0.001
|
|
|
|
|
|
|
|
Options
forfeited
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(100,000
|
)
|
|
0.001
|
|
|
|
|
|
|
|
Options
outstanding and exercisable at December 31, 2005
|
|
|
250,000
|
|
|
0.001
|
|
|
|
|
|
|
|
Options
granted
|
|
|
2,250,000
|
|
|
0.001
|
|
|
|
|
|
|
|
Options
forfeited
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(2,400,000
|
)
|
|
0.001
|
|
|
|
|
|
|
|
Options
outstanding and exercisable at December 31, 2006
|
|
|
100,000
|
|
$
|
0.001
|
|
|
8.6
|
|
$
|
-
|
|
The
weighted-average grant date fair value of options granted during 2006 and 2005
was $0. Upon the exercise of options, the Company issues new shares from
its authorized shares.
As
of
December 31, 2006, there was $0 of total unrecognized compensation cost related
to employee and director stock option compensation arrangements.
Recent
Accounting Pronouncements
In
July 2006, the FASB issued FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109
(“FIN
48”), which clarifies the accounting and disclosure for uncertainty in tax
positions, as defined. FIN 48 seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement related
to
accounting for income taxes. The Company is subject to the provisions of FIN
48
as of January 1, 2007. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate
any
adjustments that will result in a material change to its financial position.
Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FIN 48. The cumulative effect, if any, of applying FIN 48
is to be reported as an adjustment to the opening balance of retained earnings
in the year of adoption. The Company did not record a cumulative effect
adjustment related to the adoption of FIN 48. Tax years since 1998 remain
subject to examination by the major tax jurisdictions in which the Company
is
subject to tax. The Company’s policy for recording interest and penalties
associated with income-based tax audits is to record such items as a component
of income taxes.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
In
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements
.
SFAS
No. 157 defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new
fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
December 15, 2007. The Company plans to adopt SFAS No. 157 beginning in the
first quarter of 2008. The Company is currently evaluating the impact, if any,
that adoption of SFAS No. 157 will have on its operating income (loss) or net
income (loss).
On
February 15, 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115.
SFAS No.
159 permits an entity to choose to measure many financial instruments and
certain other items at fair value. Most of the provisions in SFAS No. 159 are
elective; however, the amendment to FASB Statement No. 115,
Accounting
for Certain Investments in Debt and Equity Securities
,
applies
to all entities with available-for-sale and trading securities. Some
requirements apply differently to entities that do not report net income. The
fair value option established by SFAS No. 159 permits all entities to choose
to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair
value
option has been elected in earnings at each subsequent reporting date. SFAS
No.
159 is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS No. 157,
Fair
Value Measurements
.
The
adoption of this pronouncement is not expected to have material effect on the
Company’s financial statements
.
Other
recent accounting pronouncements issued by the FASB (including the Emerging
Issues Task Force) and the American Institute of Certified Public Accountants
did not or are not believed by management to have a material impact on the
Company’s present or future financial statements.
NOTE
3 —NOTES PAYABLE TO STOCKHOLDERS
In
August
2005, the Company issued seven convertible promissory notes in the aggregate
amount of $226,300 to various stockholders. The convertible notes bore interest
at 4% per annum and were to mature on August 25, 2010 (the “Maturity Date”). If
prior to the Maturity Date, the Company sells shares of its common stock for
aggregate gross proceeds of not less than $1,000,000 ("Financing"), the Company
shall cause the entire outstanding principal amount and accrued interest to
convert into common stock at a conversion price equal to the per share
offering price of the common stock sold in the Financing.
In
connection with the issuance of the notes payable to stockholders, the Company
granted warrants that are exercisable into an aggregate of 226,300 shares of
the
Company’s common stock. The warrants were determined to have an insignificant
fair value (see Note 5).
Interest
expense on these notes was $9,052, $3,199, and $12,251 for the years ended
December 31, 2006 and 2005 and the period from Inception to December 31, 2006,
respectively.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
3 —NOTES PAYABLE TO STOCKHOLDERS, continued
Subsequent
to December 31, 2006, the notes payable with interest were forgiven and the
related warrants to stockholders were forfeited (see Note 7).
NOTE
4 — INCOME TAXES
At
December 31, 2006, the Company has available for federal and state income tax
purposes a net operating loss carryforwards of approximately $495,000, expiring
through the year 2025, that may be used to offset future taxable income. The
Company has provided a valuation reserve against the full amount of the net
operating loss benefit, since in the opinion of management based upon the
earnings history of the Company, it is more likely than not that the benefits
will not be realized.
Pursuant
to Internal Revenue Code Sections 382 and 383, the use of the Company’s net
operating loss and credit carryforwards may be limited if a cumulative change
in
ownership of more than 50% occurs within a three-year period. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
Deferred
tax assets consist primarily of the tax effect of net operating loss
carryforwards. The Company has provided a full valuation allowance on the
deferred tax assets because of the uncertainty regarding
realizability. The valuation allowance increased approximately
$20,000 and $15,000 during the years ended December 31, 2006 and 2005
respectively.
Components
of deferred tax assets as of December 31, 2006 are as follows:
Non-current:
|
|
|
|
|
Net
operating loss carry forward
|
|
$
|
195,000
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(195,000
|
)
|
Net
deferred asset
|
|
$
|
-
|
|
NOTE
5 — STOCKHOLDER
S’
DEFICIT
Common
Stock and Capital Contributions
During
the year ended December 31, 2006, the Company completed the following
transactions:
|
-
|
Issued
2,400,000 shares of common stock under stock options at a strike
price of
$0.001 per share for proceeds of
$2,400.
|
|
-
|
Received
additional capital contributions of $48,600 made by the Company’s
stockholders.
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
5 — STOCKHOLDER
S’ DEFICIT,
continued
|
-
|
Recorded
capital contributions of $400,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders, which is recorded as payroll and related in the accompanying
statements of operations.
|
During
the year ended December 31, 2005, the Company completed the following
transactions:
|
-
|
Sold
15,700,000 shares of common stock at a price of $0.001 per share
for
proceeds of $15,700.
|
|
-
|
Issued
100,000 shares of common stock under stock options at a strike
price of
$0.001 per share for proceeds of
$100.
|
|
-
|
Received
additional capital contributions of $14,200 from the Company’s
stockholders.
|
|
-
|
Recorded
capital contributions of $400,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders, which is recorded as payroll and related in the accompanying
statements of operations.
|
During
the year ended December 31, 2004, the Company completed the following
transactions:
|
-
|
Recorded
capital contributions of $400,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
During
the year ended December 31, 2003, the Company completed the following
transactions:
|
-
|
Recorded
capital contributions of $200,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
During
the year ended December 31, 2002, the Company completed the following
transactions:
|
-
|
Recorded
capital contributions of $200,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
During
the year ended December 31, 2001, the Company completed the following
transactions:
|
-
|
Recorded
capital contributions of $200,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
5 — STOCKHOLDER
S’ DEFICIT,
continued
During
the year ended December 31, 2000, the Company completed the following
transactions:
|
-
|
Sold
6,000,000 shares of common stock at a price of $0.001 per share for
proceeds of $6,000.
|
|
-
|
Recorded
capital contributions of $200,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
During
the year ended December 31, 1999, the Company completed the following
transactions:
|
-
|
Recorded
capital contributions of $200,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
During
the period ended December 31, 1998, the Company completed the following
transactions:
|
-
|
Recorded
capital contributions of $100,000 (the estimated fair value of the
services contributed) in connection with services contributed by
stockholders.
|
Warrants
In
connection with the convertible notes payable issued in August 2005 (see Note
3), the Company granted warrants to purchase 226,300 shares of common stock.
The
warrants vested upon grant, have a weighted-average exercise price of $0.001
per
share, and expire in August 2010. The weighted-average grant date fair value
of
warrants granted during 2005 was $0.
The
following summarizes the warrant activity during 2006 and 2005:
|
|
|
Total Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding—December 31,
2004
|
|
|
—
|
|
|
—
|
|
Granted
|
|
|
226,300
|
|
$
|
0.001
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
|
|
|
—
|
|
|
—
|
|
Outstanding—December
31, 2005
|
|
|
226,300
|
|
$
|
0.001
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
|
|
|
—
|
|
|
—
|
|
Outstanding—December 31,
2006
|
|
|
226,300
|
|
$
|
0.001
|
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
5 — STOCKHOLDER
S’
DEFICIT, continued
The
fair
value of warrants granted was estimated using the following weighted-average
assumptions:
|
|
|
2005
|
|
Expected
term (in years)
|
|
|
5.0
|
|
Expected
volatility
|
|
|
85
|
%
|
Risk-free
interest rate
|
|
|
4.50
|
%
|
Dividend
yield
|
|
|
-
|
|
Subsequent
to December 31, 2006, all warrants were cancelled (see Note 7).
NOTE
6 — COMMITMENTS AND CONTINGENCIES
Indemnities
and Guarantees
The
Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation
to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Nevada. The duration of the guarantees and indemnities varies, and is generally
tied to the life of the agreement. These guarantees and indemnities do not
provide for any limitation of the maximum potential future payments the Company
could be obligated to make. Historically, the Company has not been obligated
nor
incurred any payments for these obligations and, therefore, no liabilities
have
been recorded for these indemnities and guarantees in the accompanying balance
sheet.
Litigation
The
Company is, from time to time, involved in various legal and other proceedings
which arise in the ordinary course of operating its business. In the opinion
of
management, the amount of ultimate liability, if any, with respect to these
actions will not materially affect the financial position or results of
operations of the Company.
NOTE
7 - SUBSEQUENT EVENTS
In
May
2007, the holders of the convertible notes payables and warrant agreements
entered into on August 25, 2005 forgave the amounts due and forfeited the
related warrants (see Note 3). In connection with the forgiveness, the Company
will record additional paid in capital of approximately $241,000.
On
May
24, 2007, the Company entered into a mutual release agreement with a vendor,
settling a balance of $170,914. In accordance with the mutual release agreement,
the Company paid $81,000 and recognized a gain of $89,914
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
7 - SUBSEQUENT EVENTS, continued
The
Company issued 25,700,000 shares of common stock for cash at a price of $0.001
per share for proceeds of $25,700, which includes the issuance of 200,000 shares
upon the exercise of warrants for $200 of proceeds (see below), and received
capital contributions in the aggregate amount of approximately $106,000
subsequent to December 31, 2006.
Recorded
capital contributions of $175,000 (the estimated fair value of the services
contributed) in connection with services contributed by stockholders, which
is
recorded as payroll and related in the accompanying statements of
operations.
On
February 27, 2007, the Company granted a warrant to purchase 200,000 shares
of
common stock in connection with services rendered. The warrant vested upon
grant, had an exercise price of $0.001 per share, and expired in February 2012.
In April 2007, the warrant was exercised.
In
May
and June 2007, the Company issued convertible notes payable to various lenders
for an aggregate amount of $1,500,000 (collectively, the “2007 Notes”). Each of
the 2007 Notes bears interest at 7% per annum and matures on December 16, 2007
("Maturity Date"). If prior to the Maturity Date, the Company merges with
another company ("Pubco") that has a security approved for quotation on the
OTC Bulletin Board ("Pubco Merger") or other trading market and Pubco
simultaneously sells shares of its common stock for aggregate gross proceeds
of
not less than $2,500,000 ("Pubco Financing"), the Company shall cause the entire
outstanding principal amount and accrued interest to convert into Pubco common
stock at a conversion price equal to one-half of the per share
offering price of the Pubco common stock sold in Pubco Financing. In
the event of a Pubco Merger and Pubco Financing, the Company would record a
debt
discount of $1,500,000, which would be amortized immediately to interest expense
upon the conversion of the 2007 Notes. If a Pubco Merger has not occurred by
the
Maturity Date, then at the option of the lender, each of the 2007 Notes shall
convert into a pro rata portion of such number of shares of the Company's common
stock that represents 15% of the Company's outstanding common stock on the
Maturity Date. The 2007 Notes are not convertible until the earlier of the
Pubco
Merger and Pubco Financing or the Maturity Date.
The
Company entered into a lab agreement with DPT Laboratories (“DPT”) during May
2007 to produce the product Ketopfofen Cream. The agreement required the Company
to pay DPT $50,000 upon signature, $150,000 after two weeks of the project
start
date, and $100,000 after fourteen weeks of the project start date. In May and
July 2007, the Company paid and expensed, in the aggregate, $200,000 related
to
this agreement.
In
July
2007, the Company commenced a private offering (the “Offering”) for a minimum of
30 units and a maximum of 50 units of a to be identified publicly-traded company
(“Pubco”) that would acquire all of the capital stock and business of the
Company. Each unit is comprised of 50,000 shares of Pubco’s common stock and a
detachable redeemable warrant to purchase 12,500 shares of Pubco’s common stock
with a cash exercise price of $4.00 per share and a cashless exercise price
of
$5.00 per share, for a per unit purchase of $100,000.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
For
The Years Ended December 31, 2006 and 2005 and
For
The Period From July 24, 1998 (Inception) Through December 31,
2006
NOTE
7 - SUBSEQUENT EVENTS, continued
Immediately
prior to the initial closing of the Offering by Pubco, a wholly-owned subsidiary
of Pubco will be merged with the Company in a transaction, intended to be
tax-free, commonly referred to as a reverse merger. As a result, the Company
will become a wholly-owned subsidiary of Pubco and all of the outstanding common
stock of the Company will be converted into stock of Pubco. Immediately after
the merger, the officers and directors of Pubco will resign and the management
of the Company will control such positions; therefore, effecting a change of
control. As a result, the transaction will be recorded as a reverse merger
whereby the Company will be considered to be the accounting acquirer as it
will
retain control of Pubco after the merger.
Effective
August 21, 2007, the Company issued 50,000 shares of common stock in connection
with the exercise of stock options at a price of $0.001 per share for proceeds
of $50. Also, 50,000 stock options previously held were forfeited.
On
August
22, 2007, the Company awarded and the Board of Directors approved issuing
1,250,000 shares of restricted stock to an officer of the Company. The
restricted stock will 100% vest eighteen months following the consummation
of a
merger of the Company with a publicly traded company or a subsidiary of a
publicly traded company.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
For
The Six Months Ended June 30, 2007 and 2006 (Unaudited)
and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
(Unaudited)
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
TABLE
OF CONTENTS
Financial
Statements:
|
|
|
|
|
|
|
|
Balance
Sheet
|
|
|
1
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
2
|
|
|
|
|
|
|
Statements
of Cash Flows
|
|
|
3
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
|
4
|
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEET
|
|
June 30,
|
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
|
|
|
1,398,870
|
|
Prepaid
expenses
|
|
|
37,022
|
|
|
|
|
|
|
|
|
|
1,435,892
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
146,969
|
|
Accrued
interest
|
|
|
7,738
|
|
Accrued
payroll
|
|
|
28,571
|
|
Notes
payable
|
|
|
1,500,000
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,683,278
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
Common
stock, $0.001 par value; 100,000,000 shares
authorized,
49,900,000 shares outstanding
|
|
|
49,900
|
|
Additional
paid-in capital
|
|
|
2,885,408
|
|
Deficit
accumulated during the development stage
|
|
|
(3,182,694
|
)
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(247,386
|
)
|
|
|
|
|
|
|
|
$
|
1,435,892
|
|
See
accompanying notes to financial statements
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
|
|
Six Months Ended
June
30,
|
|
For The Period
From
July 24,
1998 (Inception)
Through
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Payroll
and related
|
|
$
|
203,571
|
|
$
|
200,000
|
|
$
|
2,503,571
|
|
Selling,
general and administrative
|
|
|
265,144
|
|
|
79,432
|
|
|
747,081
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(468,715
|
)
|
|
(279,462
|
)
|
|
(3,250,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(10,888
|
)
|
|
(4,526
|
)
|
|
(23,139
|
)
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
1,183
|
|
Gain
on forgiveness of liabilities
|
|
|
89,914
|
|
|
-
|
|
|
89,914
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense), net
|
|
|
79,026
|
|
|
(4,526
|
)
|
|
67,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(389,689
|
)
|
$
|
(283,958
|
)
|
$
|
(3,182,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
41,097,883
|
|
|
21,802,210
|
|
|
|
|
See
accompanying notes to financial statements
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
|
|
Six Months Ended
June
30,
|
|
For The Period
From July 24,
1998 (Inception)
Through
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(389,689
|
)
|
$
|
(283,958
|
)
|
$
|
(3,182,694
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value of contributed services
|
|
|
175,000
|
|
|
200,000
|
|
|
2,475,000
|
|
Gain
on forgiveness of liabilities
|
|
|
(89,914
|
)
|
|
-
|
|
|
(89,914
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(31,326
|
)
|
|
2,060
|
|
|
(37,022
|
)
|
Accounts
payable
|
|
|
63,191
|
|
|
38,303
|
|
|
236,883
|
|
Accrued
interest
|
|
|
10,888
|
|
|
4,526
|
|
|
23,139
|
|
Accrued
payroll
|
|
|
28,571
|
|
|
-
|
|
|
28,571
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(233,279
|
)
|
|
(39,069
|
)
|
|
(546,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable to stockholders
|
|
|
-
|
|
|
-
|
|
|
226,300
|
|
Proceeds
from notes payable
|
|
|
1,500,000
|
|
|
-
|
|
|
1,500,000
|
|
Capital
contributions
|
|
|
105,907
|
|
|
44,600
|
|
|
168,707
|
|
Proceeds
from purchase of common stock and exercise of warrant
|
|
|
25,700
|
|
|
-
|
|
|
47,400
|
|
Proceeds
from exercise of stock options
|
|
|
-
|
|
|
400
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,631,607
|
|
|
45,000
|
|
|
1,944,907
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
1,398,328
|
|
|
5,931
|
|
|
1,398,870
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
542
|
|
|
5,204
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
1,398,870
|
|
$
|
11,135
|
|
$
|
1,398,870
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of notes payable and accrued interest
to
shareholders
|
|
$
|
241,701
|
|
$
|
-
|
|
|
|
|
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30,
2007
NOTE
1 — ORGANIZATION AND NATURE OF OPERATIONS
Management’s
Representation
The
accompanying unaudited financial statements have been prepared by Trans-Pharma
Corporation (the “Company”) in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial
information. These principles are consistent in all material respects with
those
applied in the Company’s audited financial statements and pursuant to the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B promulgated by
the
United States Securities and Exchange Commission (“SEC”). Interim financial
statements do not include all of the information and footnotes required by
GAAP
for complete financial statements. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (all of
which are of a normal recurring nature) necessary to present fairly the
financial position, results of operations and cash flows of the Company for
the
periods indicated. Interim results of operations are not necessarily indicative
of the results to be expected for the full year or any other interim periods.
These unaudited financial statements should be read in conjunction with the
audited financial statements and footnotes thereto for the year ended December
31, 2006.
Organization
and Nature of Operations
The
Company was formed as a C Corporation under the laws of the State of Nevada
on
July 24, 1998 (“Inception”). The Company is based in San Diego,
California.
The
Company is in the pharmaceutical industry and holds a U.S. patent that covers
the Transdel™ technology for transdermal drug delivery. The patent was
contributed by the founders upon formation of the Company. The Company’s lead
topical drug candidate, Ketotransdel™, utilizes the proprietary Transdel™ cream
formulation to facilitate the passage of ketoprofen, a non-steroidal
anti-inflammatory drug (“NSAID”), through the epidermis and into underlying
tissues. Ketotransdel™ provides an alternative to oral administration of
cyclooxygenase-2 selective NSAIDs (“COX-2 inhibitors”) and non-selective NSAIDs,
which when administered orally are associated with increased risk of adverse
cardiovascular events, gastrointestinal and other adverse complications. The
Company has successfully completed a clinical trial for acute soft-tissue pain
and soreness with Ketotransdel™. The Company presently intends to conduct
additional clinical studies and pharmacological and toxicological studies of
Ketotransdel™. The Company plans to obtain approval from the Food and Drug
Administration (“FDA”) in order to market and distribute this
product.
At
present, all of the clinical, manufacturing and pharmacological and
toxicological work will be managed by third party contractors and consultants.
The Company will be exploring marketing or distribution arrangements or
corporate partner arrangements to market and distribute its products. The
Company is evaluating whether it is feasible to continue outsourcing significant
business functions such as clinical trials, manufacturing and sales and
marketing or if building its own infrastructure to carry out these functions
is
necessary or desirable. The Company has not generated any revenues and the
Company does not anticipate that it will generate any revenues until one or
more
of its drug candidates are approved by the FDA and effective sales and marketing
support is in place. The FDA approval process is highly uncertain and the
Company cannot estimate when it will generate revenues, if at all.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern
The
accompanying financial statements have been prepared on a going-concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred recurring operating
losses, had negative operating cash flows and has not recognized any revenues
since Inception. In addition, the Company had a deficit accumulated during
the
development stage of $3,182,694 and negative working capital of $247,386 at
June
30, 2007. These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern.
The
Company's continuation as a going concern is dependent on its ability to obtain
additional financing to fund operations, implement its business model, and
ultimately, to attain profitable operations. The Company intends to raise
additional financing to fund its operations. However, there is no assurance
that
sufficient financing will be available or, if available, on terms that would
be
acceptable to the Company.
The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Development
Stage Enterprise
The
Company is a development stage company as defined in Statement of Financial
Accounting Standards (“SFAS”) No. 7,
Accounting
and Reporting by Development Stage Enterprises
.
The
Company is devoting substantially all of its present efforts to establish a
new
business, and its planned principal operations have not yet commenced. All
losses accumulated since inception have been considered as part of the Company’s
development stage activities.
Use
of
Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and reported amounts of revenues and expenses during
the reporting periods. Significant estimates made by management are, among
others, the valuation of contributed services, stock options, warrants and
deferred taxes. Actual results could differ from those estimates.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentration
of
credit risk consist primarily of cash. The Company maintains its cash balances
at high-quality institutions that are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $100,000. At times, the Company’s cash balances may
exceed the amount insured by the FDIC. At June 30, 2007, the Company had
$1,298,870 in excess of the insured limit.
Revenue
Recognition
The
Company will recognize revenues in accordance to the Securities and Exchange
Commission Staff Accounting Bulletin (“SAB”) No. 101,
Revenue
Recognition
,
as
amended by SAB No. 104. SAB No. 104 requires that four basic criteria must
be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) will be based on management's judgments regarding the
fixed
nature of the selling prices of the products delivered and the collectibility
of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments will be provided for in the same
period the related sales are recorded. The Company will defer any revenue for
which the product has not been delivered or for which services have not been
rendered or are subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or services
have
been rendered or no refund will be required.
As
of
June 30, 2007, the Company had not generated any revenues and the Company does
not anticipate that it will generate any revenues until one or more of its
drug
candidates are approved by the FDA and effective sales and marketing support
are
in place. The FDA approval process is highly uncertain and the Company cannot
estimate when it will generate revenues at this time.
Basic
and Diluted Loss per Common Share
Basic
loss per share is calculated by dividing net loss by the weighted average common
shares outstanding during the period. Diluted net loss per share reflects the
potential dilution to basic loss per share that could occur upon conversion
or
exercise of securities, options or other such items to common shares using
the
treasury stock method, based upon the weighted average fair value of the
Company’s common shares during the period. There are no potentially
dilutive shares as of June 30, 2007. All potentially dilutive shares,
approximately 226,000,000 as of June 30, 2006, have been excluded from diluted
loss per share as their effect would be anti-dilutive for the period then
ended.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30,
2007
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Stock-Based
Compensation
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123 (revised 2004) (“SFAS No. 123(R)”),
Share-Based
Payment
,
to
provide investors and other users of financial statements with more complete
and
neutral financial information by requiring that the compensation cost relating
to share-based payment transactions be recognized in financial statements.
That
cost will be measured based on the fair value of the equity or liability
instruments issued. SFAS No. 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. SFAS No. 123(R) replaces SFAS No. 123,
Accounting
for Stock-Based Compensation
(“SFAS
No. 123”), and supersedes Accounting Principles Board Opinion (“APB”)
No. 25. SFAS No. 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in APB No. 25, as long as the
footnotes to financial statements disclosed what net income (loss) would have
been had the preferable fair-value-based method been used.
SFAS
No.
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company's statement of
operations. The Company adopted SFAS No. 123(R) in 2006. As a result of the
adoption, the Company did not record any fair value-based compensation expense
for the options granted or vested during 2006.
Prior
to
the adoption of SFAS No. 123(R), the Company accounted for stock-based awards
to
employees and directors using the intrinsic value method in accordance with
APB
No. 25 as allowed under SFAS No. 123. Under the intrinsic value method,
stock-based compensation expense would be recognized in the Company's statements
of operations, other than for option grants to employees below the fair market
value of the underlying stock at the date of grant.
SFAS
No.
123(R) requires the cash flows resulting from the tax benefits resulting from
tax deductions in excess of the compensation cost recognized for those options
to be classified as financing cash flows. Due to the Company's loss position,
there were no such tax benefits during the quarters ended June 30, 2007 and
2006.
Prior
to
the adoption of SFAS No. 123(R) those benefits would have been reported as
operating cash flows had the Company received any tax benefits related to stock
option exercises.
Description
of 2005 Stock Plan
The
Company's stock option plan provides for grant of options to employees and
directors of the Company to purchase the Company's shares, as determined by
management and the board of directors, at the fair value of such shares on
the
grant date. The options generally vest upon grant date and have a ten-year
term.
As of June 30, 2007, the Company is authorized to issue up to 5,000,000 shares
under this plan and has approximately 2,400,000 shares available for future
issuances.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Summary
of Assumptions and Activity
The
fair
value of stock-based awards to employees and directors is calculated using
the
Black-Scholes option pricing model even though the model was developed to
estimate the fair value of freely tradeable, fully transferable options without
vesting restrictions, which differ significantly from the Company's stock
options. The Black-Scholes model also requires subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived
from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate selected to value any particular grant
is based on the U.S. Treasury rate that corresponds to the pricing term of
the
grant effective as of the date of the grant. The expected volatility is based
on
the historical volatility of publicly filing companies who are comparable to
the
Company and in a similar line of business. These factors could change in the
future, affecting the determination of stock-based compensation expense in
future periods.
A
summary
of option activity as of June 30, 2007 and changes during the six months then
ended, is presented below:
|
|
June
30, 2007
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term (Years)
|
|
Value
|
|
Options
outstanding at January 1, 2007
|
|
|
100,000
|
|
$
|
0.001
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
Options
forfeited
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
Options
outstanding and exercisable at June 30, 2007
|
|
|
100,000
|
|
$
|
0.001
|
|
|
8.1
|
|
$
|
-
|
|
As
of
June 30, 2007, there was no unrecognized compensation cost related to employee
and director stock option compensation expense.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Recent
Accounting Pronouncements
In
July 2006, the FASB issued FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109
(“FIN
No. 48”), which clarifies the accounting and disclosure for uncertainty in tax
positions, as defined. FIN No. 48 seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement related
to
accounting for income taxes. The Company is subject to the provisions of FIN
No.
48 as of January 1, 2007. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate
any
adjustments that will result in a material change to its financial position.
Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FIN No. 48. The cumulative effect, if any, of applying
FIN No. 48 is to be reported as an adjustment to the opening balance of
retained earnings in the year of adoption. The Company did not record a
cumulative effect adjustment related to the adoption of FIN No. 48. Tax
years since 1992 remain subject to examination by the major tax jurisdictions
in
which the Company is subject to tax. The Company’s policy for recording interest
and penalties associated with income-based tax audits is to record such items
as
a component of income taxes.
In
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements
.
SFAS
No. 157 defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new
fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
December 15, 2007. The Company plans to adopt SFAS No. 157 beginning in the
first quarter of 2008. The Company is currently evaluating the impact, if any,
that adoption of SFAS No. 157 will have on its operating income (loss) or net
earnings (loss).
On
February 15, 2007, the FASB issued FASB Statement No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115.
SFAS No.
159 permits an entity to choose to measure many financial instruments and
certain other items at fair value. Most of the provisions in SFAS No. 159 are
elective; however, the amendment to FASB Statement No. 115,
Accounting
for Certain Investments in Debt and Equity Securities
,
applies
to all entities with available-for-sale and trading securities. Some
requirements apply differently to entities that do not report net income. The
fair value option established by SFAS No. 159 permits all entities to choose
to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair
value
option has been elected in earnings at each subsequent reporting date. SFAS
No.
159 is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of FASB Statement No. 157,
Fair
Value Measurements
.
The
adoption of this pronouncement is not expected to have material effect on the
Company’s financial statements
.
Other
recent accounting pronouncements issued by the FASB (including the Emerging
Issues Task Force) and the American Institute of Certified Public Accountants
did not or are not believed by management to have a material impact on the
Company’s present or future financial statements.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30,
2007
NOTE
3 —NOTES PAYABLE
In
August
2005, the Company issued seven convertible promissory notes in the aggregate
amount of $226,300 to various stockholders (collectively the “Stockholders’
Notes”). The Stockholders’ Notes bore interest at 4% per annum and were to
mature on August 25, 2010.
In
connection with the issuance of the Stockholders’ Notes, the Company granted
warrants that were exercisable into an aggregate 226,300 shares of the Company’s
common stock. The warrants were determined to have an insignificant fair value
(see Note 4).
In
May
2007, the holders of the Stockholders’ Notes and related warrants forgave the
amounts due and forfeited the related warrants. In connection with the
forgiveness, the Company recorded additional paid-in capital of $241,701 equal
to the value of the Stockholders’ Notes and related accrued
interest.
Interest
expense on the Stockholders’ Notes was $3,150, $4,526 and $15,401 for the six
months ended June 30, 2007 and 2006 and the period from Inception to June 30,
2007, respectively.
In
May
and June 2007, the Company issued convertible notes payable to various lenders
for an aggregate amount of $1,500,000 (collectively, the “2007 Notes”). Each of
the 2007 Notes bears interest at 7% per annum and matures on December 16, 2007
("Maturity Date"). If prior to the Maturity Date, the Company merges with
another company ("Pubco") that has a security approved for quotation on the
OTC Bulletin Board ("Pubco Merger") or other trading market and Pubco
simultaneously sells shares of its common stock for aggregate gross proceeds
of
not less than $2,500,000 ("Pubco Financing"), the Company shall cause the entire
outstanding principal amount and accrued interest to convert into Pubco common
stock at a conversion price equal to one-half of the per share
offering price of the Pubco common stock sold in Pubco Financing. In
the event of a Pubco Merger and Pubco Financing, the Company would record a
debt
discount of $1,500,000, which would be amortized immediately to interest expense
upon the conversion of the 2007 Notes. If a Pubco Merger has not occurred by
the
Maturity Date, then at the option of the lender, each of the 2007 Notes shall
convert into a pro rata portion of such number of shares of the Company's common
stock that represents 15% of the Company's outstanding common stock on the
Maturity Date. The 2007 Notes are not convertible until the earlier of the
Pubco
Merger and Pubco Financing or the Maturity Date.
Interest
expense on the 2007 Notes was $7,738 for the six months ended June 30, 2007
and
the period from Inception to June 30, 2007.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
4 — STOCKHOLDER
S’
DEFICIT
Common
Stock and Capital Contributions
For
the
period ended June 30, 2007, the Company completed the following
transactions:
|
-
|
Issued
25,700,000 shares of common stock at a price of $0.001 per share
for
proceeds of $25,700, which includes the issuance of 200,000 shares
upon
the exercise of warrants (see below).
|
|
|
|
|
-
|
Received
additional capital contributions of $105,907 from the Company’s
stockholders.
|
|
|
|
|
-
|
Recorded
capital contributions of $175,000 (the estimated fair value of
the
services contributed) in connection with services contributed by
stockholders, which is recorded as payroll and related in the accompanying
statements of operations.
|
|
|
|
|
-
|
Recorded
additional paid-in capital of $241,701 in connection with the forgiveness
of notes payable and interest to shareholders (see Note
3).
|
For
the
period ended June 30, 2006, the Company completed the following
transactions:
|
-
|
Issued
400,000 shares of common stock in connection with the exercise
of stock
options at a price of $0.001 per share for proceeds of
$400.
|
|
|
|
|
-
|
Received
additional capital contributions of $44,600 made by the Company’s
stockholders.
|
|
|
|
|
-
|
Recorded
capital contributions of $200,000 (the estimated fair value of
the
services contributed) in connection with services contributed by
stockholders, which is recorded as payroll and related in the accompanying
statements of operations.
|
Warrants
On
February 27, 2007, the Company granted a warrant to purchase 200,000 shares
of
common stock in connection with services rendered. Based on the Black-Scholes
option pricing model, the warrant had an insignificant value. The warrant vested
upon grant, had an exercise price of $0.001 per share and expired in February
2012. In April 2007, the Company issued 200,000 shares of common stock for
proceeds of $200 upon exercise of the warrant.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
4 — STOCKHOLDER
S’
DEFICIT, continued
The
following summarizes the warrant activity during the six months ended June
30,
2007:
|
|
Total
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding—January
1, 2007
|
|
|
226,300
|
|
$
|
0.001
|
|
Granted
|
|
|
200,000
|
|
$
|
0.001
|
|
Exercised
|
|
|
(200,000
|
)
|
$
|
0.001
|
|
Canceled
|
|
|
(226,300
|
)
|
|
—
|
|
Outstanding—June
30, 2007
|
|
|
—
|
|
|
—
|
|
The
fair
value of warrants granted was estimated using the following weighted-average
assumptions:
|
|
2007
|
|
Expected
term (in years)
|
|
|
5.0
|
|
Expected
volatility
|
|
|
85
|
%
|
Risk-free
interest rate
|
|
|
4.46
|
%
|
Dividend
yield
|
|
|
-
|
|
NOTE
5 — COMMITMENTS AND CONTINGENCIES
Indemnities
and Guarantees
The
Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party, in relation
to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Nevada. The duration of the guarantees and indemnities varies, and is generally
tied to the life of the agreement. These guarantees and indemnities do not
provide for any limitation of the maximum potential future payments the Company
could be obligated to make. Historically, the Company has not been obligated
nor
incurred any payments for these obligations and, therefore, no liabilities
have
been recorded for these indemnities and guarantees in the accompanying balance
sheet.
Litigation
The
Company is, from time to time, involved in various legal and other proceedings
which arise in the ordinary course of operating its business. In the opinion
of
management, the amount of ultimate liability, if any, with respect to these
actions will not materially affect the financial position or results of
operations of the Company.
TRANS-PHARMA
CORPORATION
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2007 and 2006 and
For
The Period From July 24, 1998 (Inception) Through June 30, 2007
NOTE
5 — COMMITMENTS AND CONTINGENCIES, continued
DPT
Laboratories
The
Company entered into a lab agreement with DPT Laboratories (“DPT”) during May
2007 to produce the product Ketopfofen Cream. The agreement required the Company
to pay DPT $50,000 upon signature, $150,000 after two weeks of the project
start
date, and $100,000 after fourteen weeks of the project start date. In June
and
July 2007, the Company remitted $50,000 and $150,000 due under the DPT
agreement.
NOTE
6 — SUBSEQUENT EVENTS
In
July
2007, the Company commenced a private offering (the “Offering”) for a minimum of
30 units and a maximum of 50 units of a to be identified publicly-traded company
(“Pubco”) that would acquire all of the capital stock and business of the
Company. Each unit is comprised of 50,000 shares of Pubco’s common stock and a
detachable redeemable warrant to purchase 12,500 shares of Pubco’s common stock
with a cash exercise price of $4.00 per share and a cashless exercise price
of
$5.00 per share, for a per unit purchase of $100,000.
Immediately
prior to the initial closing of the Offering by Pubco, a wholly-owned subsidiary
of Pubco will be merged with the Company in a transaction, intended to be
tax-free, commonly referred to as a reverse merger. As a result, the Company
will become a wholly-owned subsidiary of Pubco and all of the outstanding common
stock of the Company will be converted into stock of Pubco. Immediately after
the merger, the officers and directors of Pubco will resign and the management
of the Company will control such positions; therefore, effecting a change of
control. As a result, the transaction will be recorded as a reverse merger
whereby the Company will be considered to be the accounting acquirer as it
will
retain control of Pubco after the merger.
Effective
August 21, 2007, the Company issued 50,000 shares of common stock in connection
with the exercise of stock options at a price of $0.001 per share for proceeds
of $50. Also, 50,000 stock options previously held were forfeited.
On
August
22, 2007, the Company awarded and the Board of Directors approved issuing
1,250,000 shares of restricted stock to an officer of the Company. The
restricted stock will 100% vest eighteen months following the consummation
of a
merger of the Company with a publicly traded company or a subsidiary of a
publicly traded company.
EXHIBIT
99.3
Transdel
Pharmaceuticals, Inc.
Unaudited
Pro Forma Combined Financial Statements
Contents
|
Page
|
Introduction
to Unaudited Pro Forma Combined Financial Statements
|
1
|
|
|
Unaudited
Pro Forma Combined Balance Sheet as of June 30, 2007
|
2
|
|
|
Notes
to Unaudited Pro Forma Combined Balance Sheet
|
3
|
Transdel
Pharmaceuticals, Inc.
Introduction
to Unaudited Pro Forma Combined Financial Statements
The
following unaudited pro forma combined balance sheet is presented to illustrate
the estimated effects of the merger of Trans-Pharma Corporation (“Trans-Pharma”)
into a newly formed subsidiary of Transdel Pharmaceuticals, Inc (the “Merger”),
where Trans-Pharma would become a wholly-owned subsidiary of Transdel
Pharmaceuticals, Inc. (“Transdel”).
We
have
derived our unaudited combined balance sheet as of June 30, 2007 from
Trans-Pharma’s and Transdel’s financial statements at June 30, 2007 (unaudited)
and May 31, 2007, respectively. A pro forma combined statement of operations
is
not presented as during the year ended May 31, 2007, Transdel incurred an
insignificant amount of expenses and providing effect of the Merger as of
January 1, 2007 would not materially change Trans-Pharma’s results of the
unaudited six months ended June 30, 2007 (except for the $1.5 million
recognition of interest expense related to debt discount on the convertible
notes payable) or the year-ended December 31, 2006.
The
unaudited pro forma combined balance sheet as of June 30, 2007 assumes the
Merger was consummated on June 30, 2007. The information presented in the
unaudited pro forma combined balance sheet does not purport to represent what
our financial position or results of operations would have been had the Merger
occurred as of the date indicated, nor is it indicative of our future financial
position or results of operations for any period. You should not rely on this
information as being indicative of the historical results that would have been
achieved had the companies always been combined.
The
pro
forma adjustments are based upon available information and certain assumptions
that we believe are reasonable under the circumstances. The unaudited pro forma
combined balance sheet should be read in conjunction with the accompanying
notes
and assumptions and the historical financial statements and related notes of
Trans-Pharma and Transdel.
Transdel
Pharmaceuticals, Inc.
Proforma
Combined Balance Sheet
As
of June 30, 2007 (unaudited)
|
|
Trans-Pharma
Corporation
|
|
Transdel
Pharmaceuticals,
Inc.
|
|
Pro Forma
|
|
Pro Forma
Balances
|
|
|
|
June 30, 2007
|
|
May 31, 2007
|
|
Adjustments
|
|
June 30, 2007
|
|
|
|
(unaudited)
|
|
(audited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,398,870
|
|
$
|
16,982
|
|
$
|
3,819,185
|
|
$
|
5,235,037
|
|
Prepaid expenses
|
|
|
37,022
|
|
|
8,250
|
|
|
(8,250)
|
|
|
37,022
|
|
Total Assets
|
|
$
|
1,435,892
|
|
$
|
25,232
|
|
$
|
3,810,935
|
|
$
|
5,272,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
146,969
|
|
$
|
-
|
|
$
|
-
|
|
$
|
146,969
|
|
Accrued expenses
|
|
|
-
|
|
|
3,880
|
|
|
(3,880)
|
|
|
-
|
|
Accrued interest
|
|
|
7,738
|
|
|
-
|
|
|
(7,738)
|
|
|
-
|
|
Accrued payroll
|
|
|
28,571
|
|
|
-
|
|
|
-
|
|
|
28,571
|
|
Notes payable
|
|
|
1,500,000
|
|
|
-
|
|
|
(1,500,000)
|
|
|
-
|
|
Total current liabilities
|
|
|
1,683,278
|
|
|
3,880
|
|
|
(1,511,618
|
)
|
|
175,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
49,900
|
|
|
1,600
|
|
|
(38,298)
|
|
|
13,202
|
|
Additional
paid in capital
|
|
|
2,885,408
|
|
|
79,600
|
|
|
6,801,003
|
|
|
9,766,011
|
|
Deficit accumulated during the development stage
|
|
|
(3,182,694
|
)
|
|
(59,848
|
)
|
|
(1,440,152)
|
|
|
(4,682,694
|
)
|
Total Stockholders' Deficit
|
|
|
(247,386
|
)
|
|
21,352
|
|
|
5,322,553
|
|
|
5,096,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
1,435,892
|
|
$
|
25,232
|
|
$
|
3,810,935
|
|
$
|
5,272,059
|
|
Transdel
Pharmaceuticals, Inc.
Notes
to Unaudited Pro Forma Combined Balance Sheet
As
of June 30, 2007 (unaudited)
Note
1. Merger Transaction
On
September 17, 2007, Transdel Pharmaceuticals, Inc., a Delaware corporation
(“Transdel”), entered into an Agreement of Merger and Plan of Reorganization
(the “Merger Agreement”) by and among Transdel, Trans-Pharma Corporation, a
privately held Nevada corporation (“Trans-Pharma”), and Trans-Pharma Acquisition
Corp., a newly formed, wholly-owned Delaware subsidiary of Transdel
(“Acquisition Sub”). Upon closing of the Merger transaction contemplated under
the Merger Agreement (the “Merger”), Acquisition Sub merged with and into
Trans-Pharma, and Trans-Pharma, as the surviving corporation, became a
wholly-owned subsidiary of Transdel.
Pursuant
to the terms and conditions of the Merger Agreement:
|
·
|
At
the closing of the Merger, each share of Trans-Pharma’s common stock
issued and outstanding immediately prior to the closing of the Merger
was
exchanged for the right to receive 0.15625 of one share of Transdel’s
common stock. As of June 30, 2007, 7,797,000 shares of Transdel’s common
stock, would have been issued to the holders of Trans-Pharma’s common
stock.
|
|
·
|
Immediately
following the closing of the Merger, $1.5 million of convertible
notes of
Trans-Pharma (the “Notes”), plus all unpaid accrued interest, were assumed
by Transdel and subsequently converted into 1,507,738 shares (as
of June 30, 2007) of Transdel’s common
stock.
|
|
·
|
Immediately
following the closing of the Merger, under the terms of an Agreement
of
Conveyance, Transfer and Assignment of Assets and Assumption of
Obligations (“Split-Off Agreement”), Transdel transferred all of its
pre-Merger assets and liabilities to its wholly-owned subsidiary,
Bywater
Resources Holdings, Inc. (“SplitCo”). Thereafter pursuant to a Split-Off
Agreement, Transdel transferred all of its outstanding capital stock
of
SplitCo to a major stockholder of Transdel in exchange for cancellation
of
5,550,007 shares of Transdel’s common stock held by such stockholder (the
“Split-Off”), which left 1,849,993 shares of Transdel’s common stock held
by existing stockholders of Transdel. (Prior to the Merger, Transdel
completed a 0.4625 for 1 reverse common stock split that reduced
the
outstanding shares from 16.0 million to 7.4 million). These shares
constituted the part of Transdel’s “public float” prior to the Merger that
will continue to represent the shares of Transdel’s common stock eligible
for resale without further registration by the holders thereof.
|
|
·
|
In
connection with the closing of the Merger, Transdel issued 40.94
units in
a private placement (the “Private Placement”), consisting of an aggregate
of 2,046,834 shares of Transdel’s common stock and five-year warrants to
purchase an aggregate of an additional 511,708 shares of common stock
at
an initial cash exercise price of $4.00 per share and an initial
cashless
exercise price of $5.00 per share, at $100,000 per unit.
Also,
additional warrants to purchase 33,750 shares of common stock were
issued
to placement agents in connection with the Private
Placement.
|
Transdel
Pharmaceutical, Inc.
Notes
to Unaudited Pro Forma Combined Balance Sheets (continued)
As
of June 30, 2007 (unaudited)
Note
2. Pro Forma Adjustments
(1)
Issuance
of common stock, less commissions and expenses of $257,500
|
|
$
|
3,836,167
|
|
To
reflect the distribution of certain assets and liabilities upon closing
of
the Merger
|
|
|
(16,982
|
)
|
|
|
$
|
3,819,185
|
|
(2)
–
To
reflect
the distribution of certain assets and liabilities upon closing of the
Merger.
(3)
–
To
reflect the conversion of notes payable and accrued interest into common
stock.
(4)
To
reflect change in par value of Transdel common stock to $0.001 from
$0.0001 for 16,000,000 shares
|
|
$
|
14,400
|
|
To
reflect the Transdel reverse stock split (1 for .4625 shares) which
occurred prior to closing of the Merger resulting in the reduction
of
8,600,000 shares
|
|
|
(8,600
|
)
|
To
reflect the cancellation of 5,550,007 shares upon the closing of
the
Merger.
|
|
|
(5,550
|
)
|
To
reflect the issuance of common stock related to the conversion of
notes
payable and accrued interest
|
|
|
1,508
|
|
Issuance
of common stock, 2,046,834 shares
|
|
|
2,047
|
|
Conversion
of Trans-Pharma common stock to Transdel common stock (49,900,000
-
7,796,875 (49,900,000 shares x 0.15625) = 42,103,125
shares)
|
|
|
(42,103
|
)
|
|
|
$
|
(38,298
|
)
|
Transdel
Pharmaceutical, Inc.
Notes
to Unaudited Pro Forma Combined Balance Sheets (continued)
As
of June 30, 2007 (unaudited)
Note
2. Pro Forma Adjustments (continued)
(5)
To
reflect change in par value of Transdel common stock to $0.001 from
$0.0001 for 16,000,000 shares
|
|
$
|
(14,400
|
)
|
To
reflect the Transdel reverse stock split (1 for .4625 shares) which
occurred prior to closing of Merger resulting in the reduction of
8,600,000 shares
|
|
|
8,600
|
|
To
reflect the cancellation of 5,550,007 shares upon the closing of
the
Merger.
|
|
|
5,550
|
|
To
reflect the distribution of certain assets and liabilities of Transdel
upon closing of the Merger.
|
|
|
(21,352
|
)
|
Issuance
of common stock, 2,046,834 shares with gross proceeds of $4,093,667
less
commissions and expenses of $257,500
|
|
|
3,834,120
|
|
To
recapitalize Transdel’s retained earnings for the Merger
|
|
|
(59,848
|
)
|
To
reflect the issuance of common stock related to the conversion of
notes
payable and accrued interest (Notes and accrued interest of $1,507,738
less par value of $1,508)
|
|
|
1,506,230
|
|
Recognition
of interest expense related to debt discount on the convertible notes
payable
|
|
|
1,500,000
|
|
Conversion
of Trans-Pharma common stock to Transdel common stock (49,900,000
-
7,796,875 (49,900,000 shares x 0.15625) = 42,103,125
shares)
|
|
|
42,103
|
|
|
|
$
|
6,801,003
|
|
(6)
Recapitalize
Transdel’s retained earnings for the Merger
|
|
$
|
59,848
|
|
Recognition
of interest expense related to debt discount on the convertible notes
payable
|
|
|
(1,500,000
|
)
|
|
|
$
|
(1,440,152
|
)
|