As
filed with the Securities and Exchange Commission on October 3,
2008
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
GENSPERA,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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2834
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20-0438951
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(State
or jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer Identification No.)
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9901
IH 10 West, Suite 800
San
Antonio, TX, 78230
(210)
477-8537
FAX
(210) 477-8547
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s
Principal Executive Offices)
Agent
for Service:
National
Corporate Research
800
Brazos St., Suite 400
Austin,
TX 78701
800-345-4647
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent
For Service
)
Copy
to:
Raul
Silvestre
Law
Offices of Raul Silvestre & Associates, APLC
31200
Via Colinas, Suite 200
Westlake
Village, CA 91362
(818)
597-7552
Fax
(818) 597-7551
Approximate
date of commencement of proposed sale to the public:
From
time to time after this registration statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box.
x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do
not check if smaller reporting company)
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Smaller reporting company
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x
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CALCULATION
OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered
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Amount to be
Registered
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Proposed Maximum
Offering Price
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Proposed Maximum
Aggregate Offering
Price
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Amount of
Registration Fee
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Common
Stock, par value $0.001 per share
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4,865,000
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$
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1.00
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(1)
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$
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4,865,000
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$
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194.11
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Common
Stock, par value $0.001 per share (3)
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1,522,400
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$
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2.00
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(2)
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$
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3,044,800
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$
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121.50
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6,387,400
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$
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7,909,800
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$
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315.61
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(1)
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Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457 of the Securities Act based upon a per share amount
of
$1.00, based on the price on which the securities were previously
sold
pursuant to the Company's July to August private placements. There
is
currently no trading market for the Registrant's common stock. The
price
of $1.00 is a fixed price at which the selling stockholders identified
herein may sell their shares until the Registrant's common stock
is
quoted, if ever, at which time the shares may be sold at prevailing
market
prices or privately negotiated
prices.
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(2)
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Fee
based on exercise price applicable to shares issuable upon exercise
of
warrants in accordance with Rule
457(g).
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(3)
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Represents
shares of Common Stock issuable upon the exercise (at a price of
$2.00 per
share) of outstanding warrants.
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THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION
8(a), MAY DETERMINE.
SUBJECT
TO COMPLETION, DATED OCTOBER 3, 2008
The
information in this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with
the
Securities and Exchange Commission is effective. This preliminary prospectus
is
not an offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
PROSPECTUS
6,387,400
Shares
GENSPERA,
INC.
Common
Stock
This
prospectus relates to the resale of 6,387,400 shares of our common stock, by
the
selling stockholders identified on pages 32 of this prospectus. We will not
receive any proceeds from the sale of these shares by the selling
stockholders.
Our
common stock is not presently traded on any market or securities exchange,
and
we have not applied for listing or quotation on any public market. We anticipate
seeking sponsorship for the trading of our common stock on the National
Association of Securities Dealers OTC Bulletin Board upon the effectiveness
of
the registration statement of which this prospectus forms a part. However,
we
can provide no assurance that our shares will be traded on the OTC Bulletin
Board or, if traded, that a public market will materialize. The selling
shareholders will sell at a price of $1.00 per share until our shares are quoted
on the OTC Bulletin Board and thereafter at prevailing market prices or
privately negotiated prices.
Investing
in our common stock is highly speculative and involves a high degree of risk.
You should consider carefully the risks and uncertainties in the section
entitled “
Risk
Factors
”
beginning on page 5 of this prospectus.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date
of this Prospectus is October 3, 2008
TABLE
OF CONTENTS
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Page
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RISK
FACTORS
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5
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FORWARD
LOOKING STATEMENTS
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13
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USE
OF PROCEEDS
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14
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DIVIDEND
POLICY
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14
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OUR
BUSINESS
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14
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PROPERTIES
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22
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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22
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LEGAL
PROCEEDINGS
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27
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MANAGEMENT
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27
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EQUITY
COMPENSATION PLAN INFORMATION
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29
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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30
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PRINCIPAL
STOCKHOLDERS
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31
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SELLING
STOCKHOLDERS
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32
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DESCRIPTION
OF SECURITIES
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33
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MARKET
FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS
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34
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SHARES
ELIGIBLE FOR FUTURE SALE
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34
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PLAN
OF DISTRIBUTION
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35
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
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37
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LEGAL
MATTERS
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37
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EXPERTS
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37
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INTERESTS
OF NAMED EXPERTS AND COUNSEL
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37
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WHERE
YOU CAN FIND MORE INFORMATION
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37
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FINANCIAL
STATEMENTS
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39
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You
may
rely only on the information contained in this prospectus. We have not
authorized anyone to provide information or to make representations not
contained in this prospectus. This prospectus is neither an offer to sell nor
a
solicitation of an offer to buy any securities other than those registered
by
this prospectus, nor is it an offer to sell or a solicitation of an offer to
buy
securities where an offer or solicitation would be unlawful. Neither the
delivery of this prospectus, nor any sale made under this prospectus, means
that
the information contained in this prospectus is correct as of any time after
the
date of this prospectus.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully
consider the following risk factors and all other information contained in
this
prospectus before purchasing our common stock. If any of the following events
were to occur, our business, financial condition or results of operations could
be materially and adversely affected. In these circumstances, the market price
of our common stock could decline, and you could lose some or all of your
investment. Additional risks and uncertainties not currently known to us or
that
we currently believe to be immaterial could also materially and adversely affect
our business, financial condition, operating results and/or cash
flow.
Risks
Relating to the Company's Stage of Development
Since
the Company has a limited operating history you cannot rely upon the Company's
limited historical performance to make an investment
decision.
Since
inception in 2003 and through August 31, 2008 the Company has raised slightly
in
excess of $3,428,000 in capital and recorded accumulated losses totaling
$2,477,727 as of June 30, 2008 and the Company had working capital of $182,295
and stockholders’ equity of $242,626 at June 30, 2008. Our net losses for the
two most recent fiscal years have been $691,199 and $245,070 for 2007 and 2006
respectively. During this period, we have generated no revenue.
The
Company's ability to generate revenues and achieve profitability depends upon
its ability to complete the development of its technology and compounds, obtain
the required regulatory approvals and manufacture, market and sell its products.
In part because of the Company's past operating results, no assurances can
be
given that the Company will be able to accomplish all or any of these
goals.
This
limited and changing history may not be adequate to enable you to fully assess
the Company's current ability to develop and commercialize its technologies
and
proposed products, obtain approval from the U.S. Food and Drug Administration
(“FDA”), achieve market acceptance of its proposed products and respond to
competition. No assurances can be given as to exactly when, if at all, the
Company will be able to fully develop, commercialize, market, sell and derive
material revenues from its proposed products in development.
The
Company
will
need to raise additional capital to continue operations, and failure to do
so
would impair the Company's ability to fund operations, develop its technologies
or promote its products.
The
Company has relied almost entirely on external financing to fund operations.
Such financing has historically come primarily from the sale of common stock
to
third parties and convertible debt from a stockholder. The Company anticipates,
based on current proposed plans and assumptions relating to its operations
(including the timetable of, and costs associated with, new product development)
and financing the Company has undertaken prior to the date of this prospectus,
that its current working capital will be sufficient to satisfy contemplated
cash
requirements for approximately 6 months, assuming that the Company does not
engage in an extraordinary transaction or otherwise face unexpected events
or
contingencies, any of which could affect cash requirements. As of September
12,
2008, the Company has cash and cash equivalents on hand of $1,858,041.
Presently, the Company has a monthly cash burn rate of approximately $300,000.
Accordingly, the Company will need to raise additional capital to fund
anticipated operating expenses and future expansion after such 6 month period.
Among other things, external financing will be required to cover the further
development of the Company's technologies and products and other operating
costs. The Company cannot assure you that financing whether from external
sources or related parties will be available if needed or on favorable terms.
If
additional financing is not available when required or is not available on
acceptable terms, the Company may be unable to fund operations and planned
growth, develop or enhance its technologies, take advantage of business
opportunities or respond to competitive market pressures. Any negative impact
on
the Company's operations may make the raising of capital more difficult and
may
also result in a lower price for the Company's securities.
The
Company may have difficulty raising needed capital in the future as a result
of,
among other factors, the Company's limited operating history and business risks
associated with the Company.
The
Company's business currently generates no cash and will not be sufficient to
meet its future capital requirements. The Company's management does not know
when this will change. The Company has expended and will continue to expend
substantial funds in the research, development, and clinical testing of the
Company's products. The Company will require additional funds to conduct
research and development, establish and conduct clinical trials, support
commercial-scale manufacturing arrangements and provide for the marketing and
distribution of its products. Additional funds may not be available on
acceptable terms, if at all. If adequate funds are unavailable from any source,
the Company may have to delay, reduce the scope of or eliminate one or more
of
its research, development or commercialization programs or product launches
or
marketing efforts which may materially harm the Company's business, financial
condition and results of operations.
The
Company's long term capital requirements are expected to depend on many factors,
including:
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·
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continued
progress and cost of its research and development
programs;
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·
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progress
with pre-clinical studies and clinical
trials;
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·
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time
and costs involved in obtaining regulatory
clearance;
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·
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costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
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·
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costs
of developing sales, marketing and distribution channels and its
ability
to sell the Company's products;
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·
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costs
involved in establishing manufacturing capabilities for commercial
quantities of its products;
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·
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competing
technological and market
developments;
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market
acceptance of its products;
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·
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costs
for recruiting and retaining employees and consultants;
and
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·
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costs
for educating and training physicians about its
products.
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The
Company may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. The Company may seek to raise
any
necessary additional funds through the exercising of warrants, options, equity
or debt financings, collaborative arrangements with corporate partners or other
sources, which may be dilutive to existing stockholders or otherwise have a
material effect on the Company's current or future business prospects. If
adequate funds are not available, the Company may be required to significantly
reduce or refocus its development and commercialization efforts.
The
Company relies on technologies that it may not be able to commercially develop,
which will prevent the Company from generating revenues, operating profitably
or
providing investors any return on their investment.
The
Company has concentrated its research on its pro-drug technologies, and the
Company's ability to generate revenue and operate profitably will depend on
it
being able to develop these technologies for human applications. These are
emerging technologies with, as yet, limited human applications. The Company
cannot guarantee that it will be able to develop its technologies or that such
development will result in products or services with any significant commercial
utility. The Company anticipates that the commercial sale of such products
or
services, and royalty/licensing fees related to its technology, will be the
Company's primary sources of revenues. If the Company is unable to develop
its
technologies, investors will likely lose their entire investment.
Inability
to complete pre-clinical and clinical testing and trials will impair the
viability of the Company.
The
Company is in its development stage and has not yet applied for approval by
the
FDA to conduct clinical trials. Even if the Company successfully files an
Investigational New Drug (IND) application and receives clearance from the
FDA
to commence trials, the outcome of pre-clinical, clinical and product testing
of
the Company's products is uncertain, and if the Company is unable to
satisfactorily complete such testing, or if such testing yields unsatisfactory
results, the Company will be unable to commercially produce its proposed
products. Before obtaining regulatory approvals for the commercial sale of
any
potential human products, the Company's products will be subjected to extensive
pre-clinical and clinical testing to demonstrate their safety and efficacy
in
humans. No assurances can be given that the clinical trials of the Company's
products, or those of licensees or collaborators, will demonstrate the safety
and efficacy of such products at all, or to the extent necessary to obtain
appropriate regulatory approvals, or that the testing of such products will
be
completed in a timely manner, if at all, or without significant increases in
costs, program delays or both, all of which could harm the Company's ability
to
generate revenues. In addition, the Company's proposed products may not prove
to
be more effective for treating disease or injury than current therapies.
Accordingly, the Company may have to delay or abandon efforts to research,
develop or obtain regulatory approval to market its proposed products. Many
companies involved in biotechnology research and development have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. The failure to adequately demonstrate the safety and efficacy
of a therapeutic product under development could delay or prevent regulatory
approval of the product and could harm the Company's ability to generate
revenues, operate profitably or produce any return on an investment in the
Company.
The
Company's additional financing requirements could result in dilution to existing
stockholders.
The
additional financings which the Company will require may in the future be
obtained through one or more transactions which will effectively dilute the
ownership interests of stockholders. The Company has the authority to issue
additional shares of common stock and preferred stock, as well as additional
classes or series of ownership interests or debt obligations which may be
convertible into any one or more classes or series of ownership interests.
The
Company is authorized to issue 80 million shares of common stock and 10 million
shares of preferred stock. Such securities may be issued without the approval
or
other consent of the Company's stockholders.
Risks
Relating to Intellectual Property and Government
Regulation
The
Company may not be able to withstand challenges to its intellectual property
rights, such as patents, should contests be initiated in court or at the U.S
Patent and Trademark Office
.
The
Company relies on its intellectual property, including its issued and applied
for patents, as the foundation of its business. The intellectual property rights
of the Company may come under challenge, and no assurances can be given that,
even though issued, the Company's current and potential future patents will
survive claims commencing in the court system alleging invalidity or
infringement on other patents. The viability of the Company's business would
suffer if such patent protection were limited or eliminated. Moreover, the
costs
associated with defending or settling intellectual property claims would likely
have a material adverse effect on the Company.
The
Company may not be able to adequately protect against piracy of intellectual
property in foreign jurisdictions.
Considerable
research in the area of pro-drugs is being performed in countries outside of
the
United States, and a number of the Company's competitors are located in those
countries. The laws protecting intellectual property in some of those
countries may not provide protection for the Company's trade secrets and
intellectual property adequate to prevent its competitors from misappropriating
the Company's trade secrets or intellectual property. If the Company's
trade secrets or intellectual property are misappropriated in those countries,
the Company may be without adequate remedies to address the issue.
The
Company's products may not receive FDA approval, which would prevent the Company
from commercially marketing its products and producing
revenues.
The
FDA
and comparable government agencies in foreign countries impose substantial
regulations on the manufacture and marketing of pharmaceutical products through
lengthy and detailed laboratory, pre-clinical and clinical testing procedures,
sampling activities and other costly and time-consuming procedures. Satisfaction
of these regulations typically takes several years or more and varies
substantially based upon the type, complexity and novelty of the proposed
product. The Company cannot yet accurately predict when it might first submit
any Investigational New Drug, or IND, application to the FDA, or whether any
such IND application would be granted on a timely basis, if at all, nor can
the
Company assure you that it will successfully complete any clinical trials in
connection with any such IND application. Further, the Company cannot yet
accurately predict when it might first submit any product license application
for FDA approval or whether any such product license application would be
granted on a timely basis, if at all. As a result, the Company cannot
assure you that FDA approvals for any products developed by it will be granted
on a timely basis, if at all. Any such delay in obtaining, or failure to obtain,
such approvals could have a material adverse effect on the marketing of the
Company's products and its ability to generate product revenue.
Because
the Company or its collaborators must obtain regulatory approval to market
its
products in the United States and other countries, the Company cannot predict
whether or when it will be permitted to commercialize its
products.
Federal,
state and local governments and agencies in the United States (including the
FDA) and governments in other countries have significant regulations in place
that govern many of the Company's activities. The Company is or may become
subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances used in connection
with its research and development work. The preclinical testing and clinical
trials of the products that the Company or its collaborators develop are subject
to extensive government regulation that may prevent the Company from creating
commercially viable products from its discoveries. In addition, the sale by
the
Company or its collaborators of any commercially viable product will be subject
to government regulation from several standpoints, including manufacturing,
advertising and promoting, selling and marketing, labeling, and distributing.
If, and to the extent that, the Company is unable to comply with these
regulations, its ability to earn revenues will be materially and negatively
impacted.
Risks
Relating to Competition
The
Company's competition includes both public and private organizations and
collaborations among academic institutions and large pharmaceutical companies,
most of which have significantly greater experience and financial resources
than
the Company does.
The
biotechnology industry is characterized by intense competition. The Company
competes against numerous companies, many of which have substantially greater
financial and other resources than it has. Several such enterprises have
initiated pro-drug research programs and/or efforts to treat the same diseases
targeted by the Company. Companies such as Merck, Ipsen and Diatos, as well
as
others, have substantially greater resources and experience in the Company's
fields than it does, and are well situated to compete with us effectively.
Of
course, any of the world's largest pharmaceutical companies represent a
significant actual or potential competitor with vastly greater resources than
the Company's.
Risks
Relating to the Company's Reliance on Third Parties
The
Company depends on non-employee consultants and scientific contractors to help
it develop and test its proposed products. Our ability to develop such
relationships could impair or delay our ability to develop
products.
The
Company's strategy for the development, clinical testing and commercialization
of its proposed products is based on an outsource model. This model requires
that the Company enter into agreements with corporate partners, research
institutions, scientific contractors and licensors, licensees and others in
order to further develop its technology and develop products. In the event
the
Company is not able to enter into such relationships in the future, our: ability
to develop products may be seriously hindered; or we would be required to expend
considerable money and research to bring such research and development functions
in house. Either outcome could result in our inability to develop a commercially
feasible product or in the need for substantially more working capital to
complete the research in-house.
We
may not be able to establish and maintain strategic relationships with research
institutions and scientific contractors or our current relationships with these
individuals and entities may weaken.
Our
business will depend on our ability to establish and maintain strategic
relationships with research institutions and scientific contractors. Many of
our
strategic relationships currently consist of non-binding letters of
understanding that contemplate future agreements that would contain specific
obligations of the respective parties and would set forth the financial terms
of
the relationships. We may not be able to establish such future agreements on
terms that are satisfactory to us or at all, and any arrangements that we enter
into may not result in the type of collaborative relationship with the third
party that we are seeking. Further, these third parties may not regard their
relationship with us as important to their own business operations and may
not
perform their obligations as agreed. If we are unable to establish and maintain
satisfactory strategic relationships, our ability to implement a business plan
may be significantly impaired and our financial condition adversely
effected.
We
intend to rely upon the third-party FDA-approved manufacturers for our products.
Should these manufacturers fail to perform as expected, we will need to develop
or procure other manufacturing sources, which would cause delays or
interruptions in our product supply and result in the loss of significant sales
and customers.
We
currently have no internal manufacturing capability, and will rely extensively
on FDA-approved licensees, strategic partners or third party contract
manufacturers or suppliers. Should we be forced to manufacture our product,
we
cannot give you any assurance that we will be able to develop an internal
manufacturing capability or procure third party suppliers. In the event we
seek
third party suppliers, they may require us to purchase a minimum amount of
compound or could require other unfavorable terms. Any such event would
materially impact our prospects and could delay the development and sale of
our
products. Moreover, we cannot give you any assurance that any contract
manufacturers or suppliers we procure will be able to supply our products in
a
timely or cost effective manner or in accordance with applicable regulatory
requirements or our specifications.
General
Risks Relating to the Company's Business
The
Company may be subject to litigation that will be costly to defend or pursue
and
uncertain in its outcome.
The
Company's business may bring it into conflict with its licensees, licensors,
or
others with whom it has contractual or other business relationships or with
its
competitors or others whose interests differ from the Company's. If the Company
is unable to resolve those conflicts on terms that are satisfactory to all
parties, the Company may become involved in litigation brought by or against
it.
That litigation is likely to be expensive and may require a significant amount
of management's time and attention, at the expense of other aspects of the
Company's business. The outcome of litigation is always uncertain, and in some
cases could include judgments against us that require the Company to pay
damages, enjoin it from certain activities, or otherwise affect its legal or
contractual rights, which could have a significant adverse effect on its
business.
The
Company may not be able to obtain third-party patient reimbursement or favorable
product pricing, which would reduce its ability to operate
profitably.
The
Company's ability to successfully commercialize certain of its proposed products
in the human therapeutic field may depend to a significant degree on patient
reimbursement of the costs of such products and related treatments at acceptable
levels from government authorities, private health insurers and other
organizations, such as health maintenance organizations. The Company cannot
assure you that reimbursement in the United States or foreign countries will
be
available for any products it may develop or, if available, will not be
decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, its products with a consequent harm to the
Company's business. The Company cannot predict what additional regulation or
legislation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such regulation or
legislation may have on the Company's business. If additional regulations are
overly onerous or expensive or if health care related legislation makes its
business more expensive or burdensome than originally anticipated, the Company
may be forced to significantly downsize its business plans or completely abandon
its business model.
The
Company's products may be expensive to manufacture, and they may not be
profitable if the Company is unable to control the costs to manufacture
them.
The
Company's products may be significantly more expensive to manufacture than
most
other drugs currently on the market today due to a fewer number of potential
manufacturers, greater level of needed expertise, and other general market
conditions affecting the manufacturers of its products. The Company would
hope to substantially reduce manufacturing costs through process improvements,
development of new science, increases in manufacturing scale and outsourcing
to
experienced manufacturers. If the Company is not able to make these, or other
improvements, and depending on the pricing of the product, its profit margins
may be significantly less than that of most drugs on the market today. In
addition, the Company may not be able to charge a high enough price for any
products it develops, even if they are safe and effective, to make a profit.
If
the Company is unable to realize significant profits from its potential product
candidates, its business would be materially harmed.
In
order to secure market share and generate revenues, the Company's proposed
products must be accepted by the health care community, which can be very slow
to adopt or unreceptive to new technologies and
products.
The
Company's proposed products and those developed by its collaborative partners,
if approved for marketing, may not achieve market acceptance since hospitals,
physicians, patients or the medical community in general may decide not to
accept and utilize these products. The products that the Company is attempting
to develop represents substantial departures from established treatment methods
and will compete with a number of more conventional drugs and therapies
manufactured and marketed by major pharmaceutical companies. The degree of
market acceptance of any of the Company's developed products will depend on
a
number of factors, including:
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the
Company's establishment and demonstration to the medical community
of the
clinical efficacy and safety of its proposed
products;
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the
Company's ability to create products that are superior to alternatives
currently on the market;
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the
Company's ability to establish in the medical community the potential
advantage of its treatments over alternative treatment methods;
and
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reimbursement
policies of government and third-party
payors.
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If
the
health care community does not accept the Company's products for any of the
foregoing reasons, or for any other reason, the Company's business would be
materially harmed.
We
depend on Craig A. Dionne, PhD for our continued operations and future success.
A loss of Dr. Dionne will significantly hinder our ability to move forward
with
our business plan.
The
loss
of Craig A. Dionne, PhD would be significantly detrimental to us. We currently
maintain a one million dollar “key person” life insurance policy on the life of
Dr. Dionne. Nevertheless, the Company’s prospects and operations will be
significantly hindered upon the death or incapacity of this key
individual.
In
addition, the Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical testing, regulatory
compliance, manufacturing and marketing, will require the addition of new
management personnel and the development of additional expertise by existing
management personnel. There is intense competition for qualified personnel
in
the areas of the Company's present and planned activities, and there can be
no
assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. The failure
to attract and retain such personnel or to develop such expertise would
adversely affect the Company's business.
Our
business is dependent upon securing sufficient quantities of a natural
product that currently grows naturally in very specific locations located
outside of the United States.
The
therapeutic component of our products, including our lead compound G-202, is
referred to as 12ADT. 12ADT is derived from a material called Thapsigargin.
Thapsigargin is derived from the seeds of a plant referred to as
Thapsia
garganica
.
To our
knowledge,
Thapsia
garganica
only
grows along the coastal regions of certain Mediterranean countries. We currently
secure seeds from
Thapsia
garganica
plants
that grow along the coastal regions of Spain.
Thapsia
garganica
is
considered a “weed” and to our knowledge, the plant has no horticultural value
in and of itself. We believe that it will not be possible to grow
Thapsia
garganica
within
the United States under current United States laws and regulations because
the
plant is not native to this country and we do not have the resources to seek
and/or secure any required permits and licenses to import and grow the plant
in
this country. While we have secured the necessary import permits from the
appropriate state and federal authorities for the seeds of
Thapsia
garganica
that are
shipped to us, we are and will be highly dependent upon our ability to secure
sufficient quantities of the seeds of
Thapsia
garganica
from
countries outside of the United States. There can be no assurances that the
countries from which we can secure
Thapsia
garganica
will
continue to allow our third party supplier to collect such seeds and/or to
do so
and export the seeds derived from
Thapsia
garganica
to the
United States. In addition, we do not know if there is significant year-to-year
variability in the quantity of Thapsigargin in
Thapsia
garganica
due to
yearly weather variations or other causes such that our forecast for the amount
of seeds required for our needs may be underestimated. No assurances can be
given that such variability, if any, will not have an adverse impact on our
business.
To
our knowledge, there are no commercially viable means to synthesize the active
ingredient of our therapeutics from laboratory
chemicals.
Generally,
attempts are often made to develop a synthetic approach using laboratory
chemicals to make an active ingredient derived from a natural substance.
Although a group has recently published a scientific paper on the full chemical
synthesis of Thapsigargin, we believe that the number of individual chemical
steps required to make synthetic Thapsigargin (42 individual steps) is too
large
for economically feasible commercial synthesis of this compound. We cannot
provide any assurances, however, that another group at some time may be able
to
significantly reduce the number of individual chemical steps to make synthetic
Thapsigargin. To our current knowledge, there is no commercially viable means
to
conduct such synthesis for 12ADT, the active component of our therapeutic
agents. Therefore, we believe that our ability to produce the therapeutic
component 12ADT will always depend upon our ability to secure seeds from the
plant
Thapsia
garganica.
There
can
be no assurances that our ability to secure such seeds can be adequately secured
to satisfy our development and commercial needs.
Commercial
requirements, if any, for our therapeutic products may require us to secure
land
for cultivation and harvesting of the seeds derived from Thapsia
garganica.
While
we
believe that we can satisfy our needs for clinical development of G-202 through
completion of Phase III clinical studies from
Thapsia
garganica
that
grows naturally in the wild, with respect to commercial operations, if any,
that
involve development of an approved therapeutic that comprises G-202, we may
not
be able to rely upon securing the seeds from
Thapsia
garganica
that
grow
naturally. We have estimated that in order to secure sufficient quantities
of
the seeds from
Thapsia
garganica
for
commercialization of a product comprising G-202, we will need to secure
approximately 100 acres of land to cultivate and grow
Thapsia
garganica.
There
can
be no assurances that we can secure such acreage, or that even if we are able
to
do so, that we can adequately grow sufficient quantities of
Thapsia
garganica
to
satisfy any commercial objectives that involve G-202.
Thapsia
garganica and Thapsigargin, when brought into contact with the skin, can cause
severe irritation.
It
has
been known for centuries that the plant
Thapsia
garganica
can
cause severe skin irritation when contact is made between the plant and the
skin. Skin plasters made from the plant have been part of the
Medical
Pharmacopeia
in
Western Europe as recently as the 1930s. The therapeutic action of the plaster
is that of a severe counter-irritant. In 1978, Thapsigargin was determined
to be
the skin-irritating component of the plant
Thapsia
garganica
.
The
therapeutic component of our products, including our lead product G-202, is
derived from Thapsigargin. We obtain Thapsigargin from the above-ground seeds
of
Thapsia
garganica
.
These
seeds are currently harvested by hand and those conducting the harvesting must
wear protective clothing and gloves to avoid contact of the skin with the seeds.
Although we obtain the seeds from a third-party contractor located in Spain,
and
although the contractor has contractually waived any and all liability
associated with collecting the seeds for our supply needs, it is possible that
the contractor or those employed by the contractor may suffer medical issues
related to the harvesting and subsequently seek compensation from us via, for
example, litigation. No assurances can be given, despite our contractual
relationship with the third party contractor, that the Company may not be the
subject of litigation related to the harvesting of the seeds.
Thapsia
garganica is a plant that to our knowledge is not grown in the United States
but
might be able to grow in this country if the seeds of the plant are accidentally
scattered.
Non-native
plants and animals that are introduced to the United States can in time overtake
a natural plant or animal and cause destructive or deleterious problems for
the
eco-system of this country. While we do not know if
Thapsia
garganica
can
grow
within the United States or what effect such growth might have on the eco-system
of the United States, if such growth were to occur due to the accidental
dispersion of seeds from
Thapsia
garganica
that we
have imported into the United States, we may be liable for any damages or
corrective measures that might be required to be taken to counteract such
growth. No assurances can be given that seeds that we import into this country
might not accidentally be scattered, resulting in the accidental growth of
Thapsia
garganica
within
this country. Furthermore, no assurances can be given that if such accidental
growth were to occur, we will not be held financially liable for any measures
that might be required to be taken to eradicate such growth or to mitigate
any
damages caused by such growth.
Development
and commercialization, if any, of our therapeutic compounds may incur scrutiny
under the Convention on Biological Diversity Treaty.
The
Convention on Biological Diversity is an international
treaty
that was
adopted at the
Earth
Summit
in
Rio
de
Janeiro
in 1992
(the “Convention”). The Convention has three main goals: (1) the conservation of
biodiversity; (2) sustainable use of the components of biodiversity; and (3)
sharing the benefits arising from the commercial and other utilization of
genetic resources in a fair and equitable way. Although the United States was
a
signatory at the initial summit, the United States Senate has never ratified
the
treaty such that the United States is not a participating country in the
Convention. However, most countries, including Spain and others where we
currently obtain or can obtain seeds from
Thapsia
garganica
,
have
ratified the Convention and are currently participants in the Convention. Our
current supplier of
Thapsia
garganica
seeds
harvests the seeds from plants growing in uncultivated fields and does not
replant the materials. Although this method of harvesting does not to our
knowledge destroy or damage the parent plant, the long-term consequences of
this
practice on the natural biodiversity of the local ecosystem is unknown. Our
supplier is currently undergoing research on the optimal methods of cultivation,
but until such optimization is in full production, if ever, harvesting of the
seeds may be viewed by the Government of Spain as in violation of the Convention
and such harvesting may be susceptible to government intervention. If the
Government of Spain were to take any action against our supplier with regard
to
the Convention, we may be at risk of losing our current source of seeds. There
can be no assurances that the Government of Spain, or any other government
of
any country where we might be able to harvest seeds from
Thapsia
garganica
,
may not
use the Convention as a means to prevent such harvesting. We may also fall
under
scrutiny of the Convention if any of our products derived from the seeds of
Thapsia
garganica
are
approved for commercialization by the United States Food and Drug Administration
or other similar regulatory agencies in other countries. There can be no
assurances that under the Convention, because the seeds originated in Spain,
the
Government of Spain will not assert that it is entitled to some form of
equitable compensation from GenSpera. There can also be no assurances that
such
compensation, if demanded, may not be onerous or make commercialization of
our
products, if any, not feasible.
Because
Thapsia garganica is a toxic plant, synthesis of 12ADT, the active ingredient
of
our therapeutic compounds which we obtain from the seeds of Thapsia garganica,
must be conducted in a facility qualified for making compounds that have a
toxic effect on human cells.
There
are
a limited number of facilities that are qualified to handle toxic agents for
the
manufacture of therapeutic agents. This limits the potential number of possible
manufacturing sites for our therapeutic compounds that are derived from
Thapsia
garganica.
No
assurances can be provided that these facilities will be available for the
manufacture of our therapeutic compounds under our time schedules or within
the
parameters of our manufacturing budget.
Our
lead therapeutic compound, G-202, has not been subjected to large scale
manufacturing procedures
Although
G-202 has been manufactured in an academic setting and while we believe that
the
process used in such a setting can be transferred to large scale manufacturing
procedures, we have not yet performed such large scale manufacturing of G-202.
There can be no assurances that the current procedure for manufacturing G-202
can be manufactured under larger scale manufacturing procedures such that we
can
not provide assurances that we can manufacture G-202 to satisfy our development
and commercial needs, if any.
The
Company has no product liability insurance, which may leave it vulnerable to
future claims that the Company will be unable to
satisfy.
The
testing, manufacturing, marketing and sale of human therapeutic products entails
an inherent risk of product liability claims, and the Company cannot assure
that
substantial product liability claims will not be asserted against it. The
Company has no product liability insurance. In the event the Company is forced
to expend significant funds on defending product liability actions, and in
the
event those funds come from operating capital, the Company will be required
to
reduce its business activities, which could lead to significant
losses.
The
Company cannot assure you that adequate insurance coverage will be available
in
the future on acceptable terms, if at all, or that, if available, the Company
will be able to maintain any such insurance at sufficient levels of coverage
or
that any such insurance will provide adequate protection against potential
liabilities.
The
Company has secured limited director and officer insurance and will have
commercial insurance policies. Any significant insurance claims would have
a
material adverse effect on its business, financial condition and results of
operations. Insurance availability, coverage terms and pricing continue to
vary
with market conditions. The Company endeavors to obtain appropriate insurance
coverage for insurable risks that it identifies, however, the Company may fail
to correctly anticipate or quantify insurable risks, may not be able to obtain
appropriate insurance coverage, and insurers may not respond as the Company
intends to cover insurable events that may occur. The Company has observed
rapidly changing conditions in the insurance markets relating to nearly all
areas of traditional corporate insurance. Such conditions have resulted in
higher premium costs, higher policy deductibles, and lower coverage limits.
For
some risks, the Company may not have or maintain insurance coverage because
of
cost or availability.
Risks
Relating to the Company's Common Stock
There
is no public market for the Company's securities and no assurances can be given
that one will ever develop.
The
Company is a private company. Without registration, there is only a limited
ability of a security holder to sell their securities, as those transfers or
sales would be made privately. Therefore, an investment in our common stock
should be considered as totally illiquid, and investors are cautioned that
they
may not be able to liquidate their investment readily or at all when the need
or
desire to sell arises. Moreover, no assurances can be given that a public market
for our securities will ever materialize. Additionally, even if a public market
for our securities develops and our securities become listed, the trading volume
may be limited, making it difficult for an investor to sell shares.
When
and if the Company becomes a public company, the Company faces risks related
to
compliance with corporate governance laws and financial reporting
standards.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations
implemented by the Securities and Exchange Commission and the Public Company
Accounting Oversight Board, require changes in the corporate governance
practices and financial reporting standards for public companies. These new
laws, rules and regulations, including compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting
(“Section 404”), will materially increase the Company's legal and financial
compliance costs and made some activities more time-consuming and more
burdensome. Starting in 2007, Section 404 of the Sarbanes-Oxley Act of 2002
requires that the Company's management assess the Company's internal control
over financial reporting annually and include a report on its assessment in
its
annual report filed with the SEC. Effective December 15, 2009 for a smaller
reporting company, the Company's independent registered public accounting firm
is required to audit both the design and operating effectiveness of its internal
controls and management's assessment of the design and the operating
effectiveness of its internal controls. There exist material weaknesses and
deficiencies at this time in the Company's internal controls. These weaknesses
and deficiencies could have a material adverse effect on the Company's business
and operations.
The
Company does not intend to pay cash dividends on its common stock in the
foreseeable future
.
Any
payment of cash dividends will depend upon the Company's financial condition,
results of operations, capital requirements and other factors and will be at
the
discretion of the Board of Directors. The Company does not anticipate paying
cash dividends on its common stock in the foreseeable future. Furthermore,
the
Company may incur additional indebtedness that may severely restrict or prohibit
the payment of dividends.
Our
issuance of additional common shares or preferred shares, or options or warrants
to purchase those shares, could dilute your proportionate ownership and voting
rights and negatively impact the value of your investment in our common
shares as the result of preferential voting rights or veto powers, dividend
rights, disproportionate rights to appoint directors to our board, conversion
rights, redemption rights and liquidation provisions granted to the preferred
shareholders, including the grant of rights that could discourage or prevent
the
distribution of dividends to you, or prevent the sale of our assets or a
potential takeover of our company.
We
are
entitled under our certificate of incorporation to issue up to 80,000,000
common and 10,000,000 “blank check” preferred shares. As of September 27,
2008, we have issued and outstanding 12,486,718 common shares, and 3,637,800
common shares reserved for issuance upon the exercise of current outstanding
options,
warrants and convertible securities
. Accordingly, we will be entitled to
issue up to 63,875,482 additional common shares and 10,000,000
additional preferred shares. Our board may generally issue those common and
preferred shares, or options or warrants to purchase those shares, without
further approval by our shareholders based upon such factors as our board of
directors may deem relevant at that time. Any preferred shares we may issue
shall have such rights, preferences, privileges and restrictions as may be
designated from time-to-time by our board, including preferential dividend
rights, voting rights, conversion rights, redemption rights and liquidation
provisions. It is likely that we will be required to issue a large amount of
additional securities to raise capital to further our development and marketing
plans. It is also likely that we will be required to issue a large amount of
additional securities to directors, officers, employees and consultants as
compensatory grants in connection with their services, both in the form of
stand-alone grants or under our various stock plans. We cannot give any
assurance that we will not issue additional common or preferred shares, or
options or warrants to purchase those shares, under circumstances we may deem
appropriate at the time.
Our
Officers and Scientific Advisors beneficially own approximately 52% of our
outstanding common shares. These shareholders' interest may be different than
yours. Furthermore, these shareholders will retain the ability to substantially
control our management and the outcome of corporate actions requiring
shareholder approval notwithstanding the overall opposition of our other
shareholders. This concentration of ownership could discourage or prevent a
potential takeover of our company that might otherwise result in you receiving
a
premium over the market price for your common shares.
Our
Officers and Scientific Advisors own approximately 52% of our outstanding
common shares. As a consequence of their level of stock ownership, the group
will substantially retain the ability to elect or remove members of our board
of
directors, and thereby control our management. This group of shareholders has
the ability to significantly control the outcome of corporate actions requiring
shareholder approval, including mergers and other changes of corporate control,
going private transactions, and other extraordinary transactions any of which
may be in opposition to the best interest of the other shareholders.
FORWARD
LOOKING STATEMENTS
This
prospectus, and the documents incorporated into it by reference, contains
forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"), which are intended to convey our expectations or predictions
regarding the occurrence of possible future events or the existence of trends
and factors that may impact our future plans and operating results. These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to use and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe are appropriate in the circumstances.
You can generally identify forward looking statements through words and phrases
such as
“believe”,
“expect”, “seek”, “estimate”, “anticipate”, “intend”, “plan”, “budget”,
“project”, “may likely result”, “may be”, “may continue”
and
other similar expressions.
When
reading any forward-looking statement you should remain mindful that actual
results or developments may vary substantially from those expected as expressed
in or implied by such statement for a number of reasons or factors, including
but not limited to:
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the
success of our research and development activities, the development
of a
viable commercial product, and the speed with which regulatory
authorizations and product launches may be achieved;
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whether
or not a market for our product develops and, if a market develops,
the
rate at which it develops;
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our
ability to successfully sell our products if a market
develops;
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our
ability to attract and retain qualified personnel to implement our
growth
strategies;
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our
ability to develop sales, marketing, and distribution
capabilities;
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our
ability to obtain reimbursement from third party payers for the products
that we sell;
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the
accuracy of our estimates and projections;
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our
ability to fund our short-term and long-term financing
needs;
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changes
in our business plan and corporate strategies; and
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other
risks and uncertainties discussed in greater detail in the section
captioned “Risk Factors”
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Each
forward-looking statement should be read in context with and in understanding
of
the various other disclosures concerning our company and our business made
elsewhere in this Prospectus as well as our public filings with the Securities
and Exchange Commission. You should not place undue reliance on any
forward-looking statement as a prediction of actual results or developments.
We
are not obligated to update or revise any forward-looking statements contained
in this Prospectus or any other filing to reflect new events or circumstances
unless and to the extent required by applicable law.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sale of the shares by any of the
selling stockholders, but we will receive the exercise prices payable upon
the
exercise of the warrants, if exercised for cash. We will use the proceeds
received from the exercise of warrants, if any, for working capital and general
corporate purposes.
DIVIDEND
POLICY
We
have
never paid or declared cash dividends on our common stock, and we do not intend
to pay or declare cash dividends on our common stock in the foreseeable
future.
OUR
BUSINESS
Our
History
GenSpera,
Inc. (“GenSpera”) was incorporated as a Delaware corporation in 2003. We are a
biotechnology company focused on the discovery and development of pro-drug
cancer therapeutics, an emerging medical science. A pro-drug is an inactive
precursor of a drug that is converted into its active form only at the site
of
the tumor.
The
Potential of Our Pro-Drug Therapies
Cancer
chemotherapy involves treating patients with cytotoxic drugs (compounds or
agents that are toxic to cells). Chemotherapy is often combined with surgery
or
radiation in the treatment of early stage disease and it is the preferred,
or
only, treatment option for many forms of cancer in later stages of the disease.
However, major drawbacks of chemotherapy include;
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Side
effects
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Non-cancer cells in the body are also affected, often leading to
serious
side effects.
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Incomplete
tumor kill
-
Many of the leading chemotherapeutic agents act by stopping cells
from
dividing - they might be effective with tumors comprised of
rapidly-dividing cells, but are much less effective for tumors that
contain cells that are slow
dividing.
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Resistance
-
Cancers will often develop resistance to current drugs after repeated
exposure, limiting the number of times that a treatment can be effectively
applied.
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Pro-drug
chemotherapy is a relatively new approach to cancer treatment that is being
investigated as a means to get higher concentrations of cytotoxic agents at
the
tumor location while avoiding the toxicity of these high doses in the rest
of
the body. An inactive form of a cytotoxin (referred to as the “pro-drug”) is
administered to the patient. The pro-drug is converted into the active cytotoxin
only
at
the tumor site.
We
believe that, if successfully developed, pro-drug therapies have the potential
to provide an effective therapeutic approach to a broad range of solid tumors.
We have developed proprietary technologies that we believe appear, in animal
models, to meet the requirements for an effective pro-drug. In addition, we
believe that our cytotoxin addresses two other issues prevalent with current
cancer drugs - it kills slowly- and non-dividing cancer cells as well as rapidly
dividing cancer cells, and does not appear to trigger the development of
resistance to its effects.
Our
Technology
Our
technology supports the creation of pro-drugs by attaching masking/targeting
agents to the cytotoxin “12ADT”, and does so in a way that allows conversion of
the pro-drug to its active form selectively at the site of tumors. We own
patents that contain claims that cover 12ADT as a composition of
matter.
Cytotoxin
12ADT
is
a chemically modified form of thapsigargin, a cytotoxin that kills fast-, slow-
and non-dividing cells. Our two issued core patents, both entitled “
Tissue
Specific Prodrug
”,
contain claims which cover the composition of 12ADT.
Masking/Targeting
Agent
We
use
peptides as our masking/targeting agents. Peptides are short strings of
amino-acids, the building blocks of many components found in cells. When
attached to 12ADT, they can make the cytotoxin inactive - once removed, the
cytotoxin is active again. Our technology takes advantage of the fact that
the
masking peptides can be removed by chemical reactors in the body called enzymes,
and that the recognition of particular peptides by particular enzymes can be
very specific.
How
we
make our pro-drugs
Our
Approach
Our
approach is to identify specific enzymes that are found at high levels in tumors
relative to other tissues in the body. Upon identifying these enzymes, we create
peptides that are recognized predominantly by those enzymes in the tumor and
not
by enzymes in normal tissues. This double layer of recognition adds to the
tumor-targeting found in our pro-drugs. Because the exact nature of our
masking/targeting peptides is so refined and specific, they form the basis
for
another set of our patents and patent applications on the combination of the
peptides and 12ADT.
Our
Pro-Drug Development Candidates
We
currently have four pro-drug candidates under development based on this
technology, as summarized in the table below:
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Pro-Drug Candidate
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Activating enzyme
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Target location of activation
enzyme
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Status
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G-202
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Prostate
Specific Membrane Antigen (PSMA)
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The
blood vessels of all solid tumors
1
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Validated
efficacy in pre-clinical models
·
Investigational
New Drug Application planned to be filed with the US Food and Drug
Administration in Q4 2008
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G-114
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Prostate
Specific Antigen (PSA)
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Prostate
cancers
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·
Grant
supported laboratory research underway
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G-115
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Prostate
Specific Antigen (PSA)
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Prostate
cancers
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·
Grant
supported laboratory research underway
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Ac-GKAFRR-L12ADT
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Human
glandular kallikrein 2 (hK2)
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Prostate
cancers
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·
Grant
supported laboratory research
underway
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Strategy
Business
Strategy
We
plan
to develop a series of therapies based on our pro-drug technology platform
and
bring them through Phase I/II clinical trials.
Manufacturing
and Development Strategy
Under
the
planning and direction of key personnel, we expect to outsource all of our
Good
Laboratory Practices (“GLP”) preclinical development activities (e.g.,
toxicology) and Good Manufacturing Practices (“GMP”) manufacturing and clinical
development activities to contract research organizations (“CRO”) and contract
manufacturing organizations (“CMO”). CROs and CMOs are third-parties that
specialize in executing processes relating to project-oriented research
activities on behalf of their clients’ company and are commonly engaged in the
industry. Manufacturing will also be outsourced to organizations with approved
facilities and manufacturing practices.
Commercialization
Strategy
After
Phase I/II clinical trials, our experimental drugs will then be licensed to
third parties who would then continue development, market, sell, and distribute
the products.
Market
and Competitive Considerations
G-202
Our
primary focus is the opportunity offered by our lead pro-drug candidate, G-202.
We believe that we have validated G-202 as a drug candidate to treat various
forms of solid tumors; including breast, urinary bladder, kidney and prostate
cancer. Manufacturing scale up is now in process, and we plan to begin the
clinical evaluation of G-202 in early 2009. We hope to eventually demonstrate
that G-202 is more efficacious than current (and prospective) commercial
products that treat solid tumors by disrupting their blood supply.
1
but
not
by
blood
vessels in normal tissue – meaning that we believe that we should be able
to selectively attack the blood supply to a large number of different
tumors
Potential
Markets
for
G-202
We
believe that, if successfully developed, G-202 has the potential to treat a
range of solid tumors by disrupting their blood supply. The table below
summarizes a number of the potential United States patient populations which
we
believe may be amenable to this therapy and represent potential target
markets.
Potential
United States Patient Populations
For
Pro-Drug Chemotherapies
|
Cancer
|
|
Estimated Number of
New Cases (2006)
|
|
Probability of
Developing
(birth to death)
|
|
|
|
|
|
|
Male
|
|
Female
|
|
|
Prostate
|
|
|
234,460
|
|
|
1
in 6
|
|
|
-
|
|
|
Breast
|
|
|
214,640
|
|
|
n/a
|
|
|
1
in 8
|
|
|
Urinary
Bladder
|
|
|
61,420
|
|
|
1
in 28
|
|
|
1
in 88
|
|
|
Kidney
Cancer
|
|
|
38,890
|
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source:
CA Cancer J. Clin 2006; 56;106-130
.
|
The
clinical opportunity
for
G-202
We
believe that current anti-angiogenesis drugs (drugs that disrupt the blood
supply to tumors) validate the clinical approach and market potential of
G-202.
Angiogenesis
is the physiological process involving the growth of new blood vessels from
pre-existing vessels and is a normal process in growth and development, as
well
as in wound healing. However, angiogenesis is also a fundamental step in the
transition of tumors from a clinically insignificant size to a malignant state
because no tumor can grow beyond a few millimeters in size without the nutrition
and oxygenation that comes from an intimately associated blood supply.
Interrupting this process has been targeted as a point of intervention for
slowing or reversing tumor growth. A well known example of a successful
anti-angiogenic approach is the recently approved drug, Avastin
TM
,
a
monoclonal antibody that inhibits the activity of Vascular Endothelial Growth
Factor (“VEGF”), which is important for the growth and survival of endothelial
cells (a thin layer of specialized cells that line the interior surface of
blood
vessels). Other recently approved drugs may also work in part via
anti-angiogenesis.
Nonetheless,
these anti-angiogenic drugs have only a limited therapeutic effect with
increased median patient survival times of only a few months. Our approach
is
designed to destroy both the existing
and
newly
growing tumor vasculature, rather than just block new blood vessel formation.
We
anticipate that this approach will lead to a more immediate collapse of nutrient
supply to the tumors and consequently an enhanced rate of tumor
destruction.
G-202
destroys new and existing blood vessels in tumors
Competition
The
pharmaceutical, biopharmaceutical and biotechnology industries are very
competitive, fast moving and intense, and expected to be increasingly so in
the
future. Other larger and well funded companies have developed and are
developing drug candidates that, if not similar in type to our drug candidates,
are designed to address the same patient or subject population. Therefore,
our lead product, other products in development, or any other products we may
acquire or in-license may not be the best, the safest, the first to market,
or
the most economical to make or use. If a competitor’s product or product
in development is better than ours, for whatever reason, then our ability to
license our technology could be diminished and/or our sales could be lower
than
that of competing products, if we are able to generate sales at all.
Patents
and Proprietary Rights
Our
success will likely depend upon our ability to preserve our proprietary
technologies and operate without infringing the proprietary rights of other
parties. However, we may rely on certain proprietary technologies and know-how
that are not patentable or that we determine to keep as trade secrets. We
protect our proprietary information, in part, by the use of confidentiality
agreements with our employees, consultants, significant scientific collaborators
and sponsored researchers that generally provide that all inventions conceived
by the individual in the course of rendering services to us shall be our
exclusive property.
The
intellectual property underlying our technology is covered by certain patents
and patent applications previously owned by the Johns Hopkins University
("JHU"). This intellectual property was assigned by JHU back to the inventors
in
2004. In April 2008, the inventors assigned to Genspera all right, title, and
interest in and to the intellectual property, and Genspera subsequently
recorded these assignments in the United States Patent &
Trademark Office. By virtue of the April 2008 assignments, GenSpera has no
further financial obligations to the inventors or to JHU with regard to the
assigned intellectual property. JHU retains a paid-up, royalty-free,
non-exclusive license to use the intellectual property for non-profit
purposes. Under the Bayh-Dole Act of 1980 (codified at 35 USC section 200
et seq), the United States government retains a non-exclusive, non-transferable,
irrevocable, paid-up license to practice or have practiced for or on behalf
of
the United States the intellectual property.
|
Number
|
|
Country
|
|
Filing
Date
|
|
Issue Date
|
|
Expiration
Date
|
|
Title
|
|
|
Patents
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
6,504,014
|
|
|
US
|
|
|
6/7/00
|
|
|
1/7/2003
|
|
|
6/6/2020
|
|
Tissue
specific pro-drug (TG)
|
|
|
6,545,131
|
|
|
US
|
|
|
7/28/00
|
|
|
4/8/2003
|
|
|
7/27/2020
|
|
Tissue
specific pro-drug (TG)
|
|
|
6,265,540
|
|
|
US
|
|
|
5/19/98
|
|
|
7/24/2001
|
|
|
5/18/2018
|
|
Tissue
specific pro-drug (PSA)
|
|
|
6,410,514
|
|
|
US
|
|
|
6/7/00
|
|
|
6/25/2002
|
|
|
6/6/2020
|
|
Tissue
specific pro-drug (PSA)
|
|
|
7,053,042
|
|
|
US
|
|
|
7/28/00
|
|
|
5/30/2006
|
|
|
7/27/2020
|
|
Activation
of peptide pro-drugs by HK2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
Pending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
2004/0029778
|
|
|
US
|
|
|
11/30/01
|
|
|
Pending
|
|
|
N/A
|
|
Tissue
specific pro-drugs (PSMA)
|
|
|
PCT/US01/45100
|
|
|
WO
|
|
|
11/30/01
|
|
|
Pending
|
|
|
N/A
|
|
Tissue
specific pro-drugs (PSMA)
|
|
|
US
2006/0183689
|
|
|
US
|
|
|
8/24/05
|
|
|
Pending
|
|
|
N/A
|
|
Activation
of peptide pro-drugs by HK2
|
|
|
US
2006/0217317
|
|
|
US
|
|
|
11/18/03
|
|
|
Pending
|
|
|
N/A
|
|
Activation
of peptide pro-drugs by HK2
|
|
|
US
2007/0160536
|
|
|
US
|
|
|
1/6/2006
|
|
|
Pending
|
|
|
N/A
|
|
Tumor
Activated Pro-drugs (PSA,G-115)
|
|
When
appropriate, we will continue to seek patent protection for inventions in our
core technologies and in ancillary technologies that support our core
technologies or which we otherwise believe will provide us with a competitive
advantage. We will accomplish this by filing and maintaining patent applications
for discoveries we make, either alone or in collaboration with scientific
collaborators and strategic partners. Typically, although not always, we plan
to
file patent applications in the United States. In addition, we plan to obtain
licenses or options to acquire licenses to patent filings from other individuals
and organizations that we anticipate could be useful in advancing our research,
development and commercialization initiatives and our strategic business
interest.
Manufacturing
& Development
12-ADT
is
manufactured by chemically modifying the cytotoxin thaspigargin, which is
isolated from the seeds of
T.
garganica
,
a plant
found in the Mediterranean. Our pro-drug, G-202, is then manufactured by
attaching a specific peptide to 12-ADT.
Outsource
Manufacturing
To
leverage our experience and available financial resources, we do not plan to
develop company-owned or company-operated manufacturing facilities. We plan
to
outsource all drug manufacturing to a contract manufacturer that operates in
compliance with GMP. We may also seek to refine the current manufacturing
process and final drug formulation to achieve improvements in storage
temperatures and the like.
In
January, 2008 we entered into an Alliance Agreement with InB:Hauser
Pharmaceutical Services to perform most of our contract manufacturing efforts.
Under the terms of this agreement independent work orders have been, and will
be, constructed for various tasks including manufacture of chemical
intermediates and reference standards, manufacture of G-202 in compliance with
GMP, and development of analytical methods in support of our development
programs.
Supply
of Raw Materials
While
T.
garganica
is
relatively common in the wild, to our knowledge, there is only one commercial
supplier of
T.
garganica
seeds.
In
April 2007, we obtained the proper permits from the USDA for the importation
of
T.
garganica
seeds.
In
January 2008, we entered into a sole source agreement with this supplier,
Thapsibiza, SL. Under the terms of this agreement GenSpera agrees to purchase
a
minimum of 50 kg of
T.
garganica
seeds at
300 Euro/kg only if GenSpera is still actively engaged in the development of
a
thapsigargin prodrug. Thapsibiza, SL agrees to supply seeds to the company
on an
exclusive basis and is prohibited from selling
T.
garganica
seeds to
other companies.
Government
Regulation
In
December 2007, we entered into a Master Services Consulting Agreement with
Regulatory and Toxicology Services Corporation (“RTS”). Under the terms of this
agreement, RTS agrees to consult on, sub-contract and oversee our regulatory
and
toxicology programs.
The
FDA
and comparable regulatory agencies in foreign countries, as well as drug
regulators in state and local jurisdictions, impose substantial requirements
upon the clinical development, manufacture and marketing of pharmaceutical
products. These agencies and other federal, state and local entities
regulate research and development activities and the human testing, manufacture,
quality control, safety, effectiveness, labeling, storage, record keeping,
approval, advertising, and promotion of our lead product
G-202
(and any other products we may develop, acquire, or in-license).
The
process required by the FDA under the drug provisions of the United States
Food,
Drug, and Cosmetic Act before our initial products may be marketed in the U.S.
generally involves the following:
|
|
·
|
Preclinical
laboratory and animal tests;
|
|
|
·
|
Submission
of an Investigational New Drug Application (“IND”), which must become
effective before human clinical trials may
begin;
|
|
|
·
|
Adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the product candidate for its intended
use;
|
|
|
·
|
Submission
to the FDA of an New Drug Application (“NDA”);
and
|
|
|
·
|
FDA
review and approval of an NDA.
|
The
testing and approval process requires substantial time, effort, and financial
resources, and we cannot be certain that any approval will be granted on an
expeditious basis, if at all. Preclinical tests include laboratory
evaluation of the product candidate, its chemistry, formulation and stability,
as well as animal studies to assess the potential safety and efficacy of the
product candidate. Certain preclinical tests must be conducted in
compliance with good laboratory practice regulations. Violations of these
regulations can, in some cases, lead to invalidation of the studies, requiring
such studies to be replicated. In some cases, long-term preclinical
studies are conducted while clinical studies are ongoing.
We
then
submit the results of the preclinical tests, together with manufacturing
information and analytical data, to the FDA as part of an IND, which must become
effective before we may begin human clinical trials. The IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA, within
the
30-day time period, raises concerns or questions about the conduct of the trials
as outlined in the IND and imposes a clinical hold. In such a case, the
IND sponsor and the FDA must resolve any outstanding concerns before clinical
trials can begin. Our submission of an IND may not result in FDA
authorization to commence clinical trials. All clinical trials must be
conducted under the supervision of a qualified investigator in accordance with
good clinical practice regulations. These regulations include the
requirement that all prospective patients provide informed consent. Further,
an
independent Institutional Review Board (“IRB”) at each medical center proposing
to conduct the clinical trials must review and approve any clinical study.
The IRB also continues to monitor the study and must be kept aware of the
study’s progress, particularly as to adverse events and changes in the
research. Progress reports detailing the results of the clinical trials
must be submitted at least annually to the FDA and more frequently if adverse
events occur.
Human
cancer drug clinical trials are typically conducted in three sequential phases
that may overlap:
|
|
·
|
Phase
I: The experimental drug is initially introduced into cancer patients
and
tested for safety and tolerability at escalating dosages,
|
|
|
·
|
Phase
II: The drug is studied in a limited cancer patient population to
further
identify possible adverse effects and safety risks, to evaluate the
efficacy of the experimental drug for specific targeted diseases
and to
determine dosage tolerance and optimal
dosage.
|
|
|
·
|
Phase
III: When Phase II evaluations demonstrate that a dosage range of
the
experimental drug may be effective and has an acceptable safety profile,
Phase III trials are undertaken to further evaluate dose response,
clinical efficacy and safety profile in an expanded patient population,
often at geographically dispersed clinical study
sites.
|
Our
business strategy is to bring our drug candidates through Phase I/II clinical
trials before licensing them to third parties who would then further develop
the
drugs through to marketing approval. Once the drug is approved, the third party
licensee will be expected to market, sell, and distribute the products in
exchange for some combination of up-front payments, royalty payments, and
milestone payments. Management cannot be certain that we, or our licensees,
will
successfully initiate or complete Phase I, Phase II, or Phase III testing of
our
product candidates within any specific time period, if at all.
Furthermore, the FDA or the Institutional Review Board or the IND sponsor may
suspend clinical trials at any time on various grounds, including a finding
that
the patients are being exposed to an unacceptable health risk.
Concurrent
with clinical trials and pre-clinical studies, we also must develop information
about the chemistry and physical characteristics of the drug and finalize a
process for manufacturing the product in accordance with GMP requirements.
The manufacturing process must be capable of consistently producing quality
batches of the experimental drug, and management must develop methods for
testing the quality, purity, and potency of the final experimental drugs.
Additionally, appropriate packaging must be selected and tested and chemistry
stability studies must be conducted to demonstrate that the experimental drug
does not undergo unacceptable deterioration over its shelf-life.
The
results of drug development efforts, pre-clinical studies, and clinical studies
are submitted to the FDA as part of an NDA for approval of the marketing and
commercial shipment of the product. The FDA reviews each NDA submitted and
may request additional information, rather than accepting the NDA for filing.
In
this event, the application must be resubmitted with the additional
information. The resubmitted application is also subject to review before
the FDA accepts it for filing. Once the FDA accepts the NDA for filing,
the agency begins an in-depth review of the NDA. The FDA has substantial
discretion in the approval process and may disagree with our, or our licensees,
interpretation of the data submitted in the NDA.
The
review process may be significantly extended by FDA requests for additional
information or clarification regarding information already provided. Also,
as part of this review, the FDA may refer the application to an appropriate
advisory committee, typically a panel of clinicians, for review, evaluation
and
a recommendation. The FDA is not bound by the recommendation of an
advisory committee. Manufacturing establishments often also are subject to
inspections prior to NDA approval to assure compliance with GMPs and with
manufacturing commitments made in the relevant marketing
application.
Under
the
Prescription Drug User Fee Act (“PDUFA”), submission of an NDA with clinical
data requires payment of a fee to the FDA, which is adjusted annually. For
fiscal year 2007, that fee is $896,200. In return, the FDA assigns a goal
(often months) for standard NDA reviews from acceptance of the application
to
the time the agency issues its “complete response,” in which the FDA may approve
the NDA, deny the NDA if the applicable regulatory criteria are not satisfied,
or require additional clinical data. Even if these data are submitted, the
FDA
may ultimately decide that the NDA does not satisfy the criteria for
approval. If the FDA approves the NDA, the product becomes available for
physicians to prescribe. Even if the FDA approves the NDA, the agency may
decide later to withdraw product approval if compliance with regulatory
standards is not maintained or if safety problems are recognized after the
product reaches the market. The FDA may also require post-marketing
studies, also known as Phase IV studies, as a condition of approval to develop
additional information regarding the efficacy and safety of a product. In
addition, the FDA requires surveillance programs to monitor approved products
that have been commercialized, and the agency has the power to require changes
in labeling or to prevent further marketing of a product based on the results
of
these post-marketing programs.
Satisfaction
of the above FDA requirements or requirements of state, local and foreign
regulatory agencies typically takes several years, and the actual time required
may vary substantially based upon the type, complexity and novelty of the
pharmaceutical product. Government regulation may delay or prevent
marketing of potential products for a considerable period of time and impose
costly procedures upon our activities. Management cannot be certain that
the FDA or any other regulatory agency will grant approval for the lead product
G-202 (or any other products we may develop, acquire, or in-license) under
development on a timely basis, if at all. Success in preclinical or
early-stage clinical trials does not assure success in later-stage clinical
trials. Data obtained from preclinical and clinical activities are not
always conclusive and may be susceptible to varying interpretations that could
delay, limit or prevent regulatory approval. Even if a product receives
regulatory approval, the approval may be significantly limited to specific
indications or uses. Further, even after regulatory approval is obtained,
later discovery of previously unknown problems with a product may result in
restrictions on the product or even complete withdrawal of the product from
the
market. Delays in obtaining, or failures to obtain regulatory approvals
would have a material adverse effect on our business.
Any
products manufactured or distributed by us, or our licensees, pursuant to the
FDA clearances or approvals are subject to pervasive and continuing regulation
by the FDA, including record-keeping requirements, reporting of adverse
experiences with the drug, submitting other periodic reports, drug sampling
and
distribution requirements, notifying the FDA and gaining its approval of certain
manufacturing or labeling changes, complying with certain electronic records
and
signature requirements, and complying with the FDA promotion and advertising
requirements. Drug manufacturers and their subcontractors are required to
register their facilities with the FDA and state agencies and are subject to
periodic unannounced inspections by the FDA and state agencies for compliance
with good manufacturing practices, which impose procedural and documentation
requirements upon our third-party manufacturers. Failure to comply with
these regulations could result, among other things, in suspension of regulatory
approval, recalls, suspension of production or injunctions, seizures, or civil
or criminal sanctions. Management cannot be certain that our present or
future subcontractors or licensees will be able to comply with these regulations
and other FDA regulatory requirements.
The
FDA
regulates drug labeling and promotion activities. The FDA has actively
enforced regulations prohibiting the marketing of products for unapproved uses.
Under the FDA Modernization Act of 1997, the FDA will permit the promotion
of a
drug for an unapproved use in certain circumstances, but subject to very
stringent requirements.
Our
product candidates are also subject to a variety of state laws and regulations
in those states or localities where our lead product G-202 (and any other
products we may develop, acquire, or in-license) will be marketed. Any
applicable state or local regulations may hinder our ability to market our
lead
product G-202 (and any other products we may develop, acquire, or in-license)
in
those states or localities. In addition, whether or not FDA approval has
been obtained, approval of a pharmaceutical product by comparable governmental
regulatory authorities in foreign countries must be obtained prior to the
commencement of clinical trials and subsequent sales and marketing efforts
in
those countries. The approval procedure varies in complexity from country
to country, and the time required may be longer or shorter than that required
for FDA approval. We may incur significant costs to comply with these laws
and regulations now or in the future.
The
FDA’s
policies may change, and additional government regulations may be enacted which
could prevent or delay regulatory approval of our potential products.
Moreover, increased attention to the containment of health care costs in the
U.S. and in foreign markets could result in new government regulations that
could have a material adverse effect on our business. Management cannot
predict the likelihood, nature or extent of adverse governmental regulation
that
might arise from future legislative or administrative action, either in the
U.S.
or abroad.
Other
Regulatory Requirements
The
U.S.
Federal Trade Commission and the Office of the Inspector General of the U.S.
Department of Health and Human Services (“HHS”) also regulate certain
pharmaceutical marketing practices. Also, reimbursement practices and HHS
coverage of medicine or medical services are important to the success of
procurement and utilization of our product candidates, if they are ever approved
for commercial marketing.
We
are
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control, and disposal of hazardous or potentially hazardous
substances. We may incur significant costs to comply with these laws and
regulations now or in the future. Management cannot assure you that any
portion of the regulatory framework under which we currently operate will not
change and that such change will not have a material adverse effect on our
current and anticipated operations.
Employees
As
of
July 2008 we employed 2 individuals, both of whom hold advanced degrees.
Both of our professional employees have had prior experience with
pharmaceutical, biotechnology, or medical product companies. Collective
bargaining agreements do not cover any of our employees, and management
considers relations with its employees to be good.
PROPERTIES
Our
executive
offices
are located at 9901 IH 10 West, Suite 800, San Antonio, TX, 78230. We lease
this
facility consisting of approximately 300 square feet, for $2,470 per month
inclusive of receptionist, telecommunication, and internet services. Our lease
expires on December 31, 2008.
We
also
rent a virtual office at 12100 Wilshire Blvd, 8
th
Floor,
Los Angeles, CA 90025 to maintain a business presence in that state and for
meetings with participants who are located within travel distance to Los Angeles
so as not to require travel exclusively to our executive office in San Antonio.
This contract carries forward on a month by month basis at a charge of $210
per
month.
The
aforesaid properties are in good condition and we believe they will be suitable
for our purposes for the next 12 months. There is no affiliation between us
or
any of our principals or agents and our landlords or any of their principals
or
agents.
CONDITION
AND RESULTS OF OPERATIONS
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations contains statements and information about management’s view of our
future expectations, plans and prospects that constitute forward-looking
statements for purposes of the safe harbor provisions under the Private
Securities Litigation Reform Act of 1995. These statements are subject to risks
and uncertainties that could cause actual results and events to differ
materially from those we anticipate. We undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
We
are a
pharmaceutical company focused on the development of targeted cancer
therapeutics for the treatment of cancerous tumors, including breast, prostate,
bladder and kidney cancer. Our operations are based in San Antonio, TX.
Management's
Plan of Operation
At
June
30, 2008, we were pursuing a business plan related to the development of
targeted cancer therapeutics for the treatment of cancerous tumors, including
breast, prostate, bladder and kidney cancer and were considered to be in the
development stage as defined by SFAS No. 7, “
Accounting
and reporting by Development Stage Enterprises
“.
Business
Strategy
Our
business strategy is to develop a series of therapies based on our
target-activated pro-drug technology platform - identifying potentially
attractive drug candidates with strong Intellectual Property (IP) protection
that are still in the laboratory, and bringing them through Phase I/II clinical
trials. At that point, we plan to license the rights to further development
of
the drug candidates to major pharmaceutical companies. We believe that major
pharmaceutical companies see significant value in drug candidates that have
passed one or more phases of clinical trials, and these organizations have
the
significant resources and expertise already in-house to finalize drug
development and market the drugs.
This
strategy permits us to leverage our passion and core expertise of identifying
promising treatments and bringing them into the clinic, and to do so in a
relatively “lean” manner. For example, laboratory research is continuing in the
laboratories of our co-founders at John Hopkins University using funds derived
from standard academic channels. Toxicology, clinical trials and other
development activities can be outsourced to reliable, experienced contract
organizations known to us. We plan to realize the significant value of these
efforts after Phase I/II trials without having to incur the time, cost and
risk
of building a pharmaceutical marketing and sales organization.
Plan
of Operation
In
addition to the drug discovery work and the intellectual property development
described in the Business section of this Prospectus, we have made significant
progress in other key areas such as drug manufacture, toxicology, and clinical
and regulatory activities for our lead compound G-202.
For
the
manufacture of G-202, we have secured a stable supply of source material
(
T.
garganica
seeds)
from which thaspigargin is isolated, have a sole source agreement with a
European supplier, Thapsibiza, SL, and have obtained the proper import permits
from the USDA for these materials. We have also identified a clinically and
commercially viable formulation for G-202 and are in the process of
manufacturing G-202 at a large scale to supply our Phase I clinical needs.
We
have also conducted successful preliminary stability studies of seeds,
manufacturing intermediates and final drug substance.
Pilot
toxicology studies in rats and monkeys have been completed and definitive
toxicology studies in both species were launched in early September. We expect
a
draft report of the study results in the fourth quarter of 2008.
In
preparation for our clinical activities, we have formulated a draft clinical
plan for development of G-202 as a drug for metastatic breast cancer, and have
obtained active interest from two major medical centers to be involved in the
Phase I clinical trial (Johns Hopkins Oncology Center and the University of
Wisconsin Comprehensive Cancer Center).
The
continued characterization of our lead molecules and the development of second
generation approaches to the current programs will continue in the laboratories
of Drs. Isaacs and Denmeade at John Hopkins University using funds obtained
from
traditional academic channels.
As
part
of our regulatory activities, we sought and conducted a pre-Investigational
New
Drug application (IND) meeting with the United States Food and Drug
Administration (FDA) in August 2008. For this process we compiled all the
information from our manufacturing processes and preliminary toxicological
studies together with our proposed further development and clinical plans to
obtain guidance from, and open a dialog with, the FDA. The FDA responded to
our
proposed development plan with some helpful suggestions and remarks but did
not
require us to change any aspect of our proposed development program including
our manufacture, toxicology or clinical plans.
Over
the
next twelve months we plan to focus on the remaining pre-clinical work for
G-202
and initiate clinical trials of G-202 in cancer patients.
Firstly,
we have initiated the manufacture of clinical grade G-202 under Good
Manufacturing Practice (GMP) guidelines. We have contracted manufacture of
the
cytotoxin 12ADT to the company InB: Hauser Pharmaceutical Services (Denver,
CO),
synthesis of the peptide to Ambiopharm
(Augusta, SC), and the final coupling of the peptide to 12ADT to make G-202
to
InB: Hauser.
We
expect
to complete the definitive toxicology studies and obtain a draft report of
the
results in the fourth quarter of 2008.
We
plan
to prepare and submit an IND with the FDA in the fourth quarter of 2008. The
main purpose of an IND application is to provide the data showing that it is
reasonable to begin clinical evaluation of a new drug candidate in
humans. The application contains all of the preclinical data pertaining to
G-202 including the scientific rationale, efficacy data in animals,
toxicological data, manufacturing information, drug formulation and stability,
etc., and the proposed clinical plan. Although it is possible to assemble this
data after completion of all the studies, we make a point of assembling reports
and documents in final submissible format as the data are collected in order
to
facilitate the rapid assembly of the final IND application. Nevertheless, we
expect the application to require at least one month for assembly and up to
$100,000 in consultant’s fees to assure that we have complied with the high
level of regulatory requirements inherent in this process.
Finally,
we will continue to develop and protect our intellectual property position
particularly with regard to the outstanding claims contained within the core
PSMA-pro-drug patent application in the United States. We will also continue
to
prosecute the claims contained in our other patent applications in the United
States.
We
anticipate that the second year, and much of the third year, of operations
we
will be engaged in the conduct of a Phase I clinical trial of G-202, and, if
appropriate, extension into a Phase II clinical trial of G-202 in metastatic
breast cancer patients. The purpose of a Phase I study of G-202 is to evaluate
safety, understand the pharmacokinetics (the process by which a compound is
absorbed, distributed, metabolized, and eliminated by the body) of the drug
candidate in humans, and to determine an appropriate dosing regime for the
subsequent clinical studies. We currently plan to conduct the Phase I study
in
refractory cancer patients (those who have relapsed after former treatments)
with any type of solid tumors. This strategy is intended to facilitate
enrollment and perhaps give us a glimpse of safety across a wider variety of
patients. We expect to enroll up to 30 patients in this Phase I study at Johns
Hopkins Oncology Center (Michael Carducci, MD as Principal Investigator), and
the University of Wisconsin Comprehensive Cancer Center (George Wilding, MD
as
Principal Investigator).
Assuming
successful completion of the Phase I clinical program, we expect to conduct
a
Phase II clinical trial to determine the therapeutic efficacy of G-202 in cancer
patients. Although we believe that G-202 will be useful across a wide variety
of
cancer types, it is usually most efficient and medically prudent to evaluate
a
drug candidate in a single tumor type within a single trial. As discussed
earlier, we currently intend to focus our efforts in metastatic breast cancer,
and we expect that 42 patients will be required for an appropriate evaluation
over a total time span of 18 months.
We
currently have budgeted $3,200,000 in cash expenditures for the twelve month
period following the date of this prospectus, including (1) $490,000 to cover
our projected general and administrative expense during this period; and (2)
$2,710,000 for research and development activities. In order to cover these
expenses, we anticipate undertaking a series of financings.
To
date,
we have raised net proceeds of $2,278,000 through August 31, 2008 via the sale
of Units. The units consist of one share of our common stock and one-half
warrant with an exercise price of $2.00 per share of common stock, exercisable
any time within five years after the date of issuance. Also, in November of
2007
we sold 1,300,000 shares of common stock for proceeds of $650,000. Additionally,
we have received proceeds of $500,000 through the exercise of warrants that
were
issued for financial services. We expect that the working capital generated
by
the full funding of the sale of the units to be sufficient to fund our lead
drug
(G-202) development through Phase I clinical trials by the end of Q2 2010.
Should we not be able to raise the necessary funding, we may have to
substantially curtail our proposed expansion.
As
an
accommodation to the Company, TR Winston & Company, LLC, our placement
agent, agreed to receive a convertible debenture and warrants to purchase an
additional 81,800 common shares in lieu of $163,600 of its cash fee for the
sale
of the common stock units. The convertible debenture accrues interest at 5%
per
annum and has a maturity date of July 14, 2009. It is convertible into the
shares of our common stock, at the sole discretion of the holder, at $1.00
per
share subject to certain anti-dilution adjustments. The warrant has the same
terms as those issued to investors in the offering.
The
amounts and timing of our actual expenditures may vary significantly from our
expectations depending upon numerous factors, including our results of
operation, financial condition and capital requirements. Accordingly, we will
retain the discretion to allocate the cash proceeds of this offering among
the
identified uses described above, and we reserve the right to change the
allocation of the net proceeds among the uses described above. Pending their
use, we intend to invest the cash proceeds in short-term, interest-bearing,
investment-grade securities.
If
we
decide to raise additional sums of capital during the time periods described
above, we will be able to apply these funds to accelerate the other pipeline
drugs and development of other business opportunities such as diagnostic
imaging.
Significant
Accounting Policies
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts of assets, liabilities, revenues and expenses.
Note 1 of the Notes to Financial Statements describes the significant
accounting policies used in the preparation of the financial statements. Certain
of these significant accounting policies are considered to be critical
accounting policies, as defined below. We do not believe that there have been
significant changes to our accounting policies during the six months ended
June 30, 2008, as compared to those policies disclosed in the
December 31, 2007 financial statements contained elsewhere in this
Prospectus.
A
critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect
on
our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: 1) we are required to
make assumptions about matters that are highly uncertain at the time of the
estimate; and 2) different estimates we could reasonably have used, or
changes in the estimate that are reasonably likely to occur, would have a
material effect on our financial condition or results of operations.
Estimates
and assumptions about future events and their effects cannot be determined
with
certainty. We base our estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances.
These estimates may change as new events occur, as additional information is
obtained and as our operating environment changes. These changes have
historically been minor and have been included in the financial statements
as
soon as they became known. Based on a critical assessment of our accounting
policies and the underlying judgments and uncertainties affecting the
application of those policies, management believes that our financial statements
are fairly stated in accordance with accounting principles generally accepted
in
the United States, and present a meaningful presentation of our financial
condition and results of operations. We believe the following critical
accounting policies reflect our more significant estimates and assumptions
used
in the preparation of our financial statements:
Use
of Estimates
—
These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and, accordingly, require management
to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reporting period. Specifically, our management
has estimated the expected economic life and value of our licensed technology,
our net operating loss for tax purposes and our stock, option and warrant
expenses related to compensation to employees and directors and consultants.
Actual results could differ from those estimates.
Fair
Value of Financial Instruments
—For
certain of our financial instruments, including accounts payable, accrued
expenses and notes payable, the carrying amounts approximate fair value due
to
their relatively short maturities.
Cash
and Equivalents
—Cash
equivalents are comprised of certain highly liquid investments with maturity
of
three months or less when purchased. We maintain our cash in bank deposit
accounts, which at times, may exceed federally insured limits. We have not
experienced any losses in such accounts.
Intangible
and Long-Lived Assets
—
We
follow SFAS No. 144, "
Accounting
for Impairment of Disposal of Long-Lived Assets
", which
established a "primary asset" approach to determine the cash flow estimation
period for a group of assets and liabilities that represents the unit of
accounting for a long lived asset to be held and used. Long-lived assets to
be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if
it
exceeds the sum of the undiscounted cash flows expected to result from the
use
and eventual disposition of the asset. Long-lived assets to be disposed of
are
reported at the lower of carrying amount or fair value less cost to sell. During
the period ended June 30, 2008, no impairment losses were
recognized.
Research
and Development Costs
—
Research and development costs include expenses incurred by the Company for
research and development of therapeutic agents for the treatment of cancer
and
are charged to operations as incurred.
Stock
Based Compensation
—
We
account for our share-based compensation under the provisions of FASB Statement
No. 123(R), “Share-Based Payment”, (“FAS 123R”). We adopted FAS 123R as of
January 1, 2006, using the modified prospective application method. Prior to
January 1, 2006 we applied the provisions of FAS 123, “Accounting for
Stock-Based Compensation”.
Results
of Operations
Six
Months Ended June 30, 2008 Compared to the Six Months Ended June 30,
2007
Operating
losses increased from $408,215 in 2007 to $1,032,531 in 2008. The increase
of
$624,316 was the result of an increase of $249,885 in general and administrative
expenses, from $263,651 in 2007 to $513,536 in 2008, and an increase in research
and development expenses of $374,431, from $144,564 in 2007 to $518,995 in
2008.
Our expenses have increased as we have obtained financing and have begun to
implement our business plan.
Research
and Development Expenses
Research
and development expenses for the six month periods ended June 30, 2008 and
2007
were $518,995 and $144,564 respectively. The increase in 2008 was primarily
the
result of the increase in available cash as a result of our sale of equity
in
2008 and late 2007 and consequent implementation of the development program
for
G-202.
Our
research and development expenses consist primarily of expenditures for
toxicology and other studies, manufacturing, and compensation and consulting
costs.
Under
the
planning and direction of key personnel, we expect to outsource all of our
Good
Laboratory Practices (“GLP”) preclinical development activities (e.g.,
toxicology) and Good Manufacturing Practices (“GMP”) manufacturing and clinical
development activities to contract research organizations (“CRO”) and contract
manufacturing organizations (“CMO”). CROs and CMOs are third-parties that
specialize in executing processes relating to project-oriented research
activities on behalf of their clients’ company and are commonly engaged in the
industry. Manufacturing will also be outsourced to organizations with approved
facilities and manufacturing practices.
General
and Administrative Expenses
General
and administrative expenses for the six month periods ended June 30, 2008 and
2007 were $513,536 and $263,651 respectively. The increase in 2008 results
from
increases in compensation, consulting, professional fees and other expenses
as
we
have
obtained financing and have begun to implement our business plan.
Other
Expense
Other
expense for the six month periods ended June 30, 2008 and 2007 was $3,211 and
$3,220, respectively, and consists of interest expense on stockholder
loans.
Net
Loss
Net
losses for the six month periods ended June 30, 2008 and 2007 were $1,035,742
and $411,435 respectively, resulting from the expenses described
above.
Year
Ended December 31, 2007 Compared to the Year Ended December 31,
2006
Operating
losses increased from $240,443 in 2006 to $684,239 in 2007. The increase of
$443,796 was the result of an increase of $380,448 in general and administrative
expenses, from $9,351 in 2006 to $389,799 in 2007, and an increase in research
and development expenses of $63,348, from $231,092 in 2006 to $294,440 in 2007.
Our expenses increased as we have obtained financing and have begun to implement
our business plan.
Research
and Development Expenses
Research
and development expenses for 2007 and 2006 were $294,440 and $231,092
respectively. The increase in 2007 was primarily the result of increased
compensation and the increase in available cash as a result of our sale of
equity in late 2007.
Our
research and development expenses in 2007 consisted primarily of compensation
and patent costs.
Under
the
planning and direction of key personnel, we expect to outsource all of our
Good
Laboratory Practices (“GLP”) preclinical development activities (e.g.,
toxicology) and Good Manufacturing Practices (“GMP”) manufacturing and clinical
development activities to contract research organizations (“CRO”) and contract
manufacturing organizations (“CMO”). CROs and CMOs are third-parties that
specialize in executing processes relating to project-oriented research
activities on behalf of their clients’ company and are commonly engaged in the
industry. Manufacturing will also be outsourced to organizations with approved
facilities and manufacturing practices.
General
and Administrative Expenses
General
and administrative expenses for 2007 and 2006 were $389,799 and $9,351
respectively. The increase in 2007 results primarily from an increase in stock
based consulting costs. Other expenses have increased as we have obtained
financing and have begun to implement our business plan.
Other
Expense
Other
expense for 2007 and 2006 was $6,960 and $4,627, respectively, consisting of
interest expense, primarily on stockholder loans
.
Net
Loss
Net
losses for 2007 and 2006 were $691,199 and $245,070 respectively, resulting
from
the expenses described above
In
September 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No.157,
Fair
Value Measurements
(“SFAS
157”). SFAS 157 defines fair value to be the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date and emphasizes that fair
value is a market-based measurement, not an entity-specific measurement.
It establishes a fair value hierarchy and expands disclosures about fair
value measurements in both interim and annual periods. SFAS 157 is effective
for
fiscal years beginning after November 15, 2007 and interim periods within
those
fiscal years. We adopted SFAS 157 on January 1, 2008 which did not have a
material impact on our financial position and results of operations. We also
adopted the deferral provisions of the Financial Accounting Standards Board
Staff Position No. 157-2, which delays the effective date of SFAS
No. 157 for all nonrecurring fair value measurements of non-financial
assets and liabilities until fiscal years beginning after November 15,
2008.
Fair
value is defined as the exchange price that would be received for an asset
or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between
market participants on the measurement date. SFAS No. 157 also
expands disclosures about instruments measured at fair value and establishes
a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to
measure fair value:
Level
1 —
Quoted prices for identical assets and liabilities in active
markets;
Level
2 —
Quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are
not
active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets;
and
Level
3 —
Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
We
designate cash equivalents as Level 1. As of June 30, 2008, and
December 31, 2007, we did not have any cash equivalents, therefore there
were no assets measured at fair value.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities-Including
an
Amendment of FASB Statement No. 115
(“SFAS
159”). SFAS 159 permits entities to measure eligible assets and
liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. We adopted SFAS 159 on January 1, 2008 and did not
elect the fair value option which did not have a material impact on our
financial position and results of operations.
In
December 2007, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 141R,
Business
Combinations
, and
Statement of Financial Accounting Standards No. 160,
Noncontrolling
Interests in Consolidated Financial Statements,
an
amendment of ARB No. 51
.
These new standards significantly change the accounting for and reporting
of
business combination transactions and noncontrolling interests (previously
referred to as minority interests) in consolidated financial statements.
Both standards are effective for fiscal years beginning on or after December
15,
2008, with early adoption prohibited. These Statements are effective for
the
Company beginning on January 1, 2009. The Company is currently evaluating
the provisions of FAS 141(R) and FAS 160.
In
March
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 161,
Disclosures
About Derivative Instruments and Hedging Activities,
an
amendment of FASB Statement No. 133
.
This new standard enhances the disclosure requirements related to derivative
instruments and hedging activities required by
FASB
Statement No. 133
.
This standard is effective for fiscal years and interim periods beginning
after
November 15, 2008, with early adoption encouraged. We adopted the required
provisions of SFAS 161 on January 1, 2008 and the adoption did not have a
significant impact on our financial position and results of
operations.
Liquidity
and Capital Resources
We
are
financing our operations primarily with approximately $2,278,000 in net proceeds
from the sale of common stock units through August 31, 2008, $650,000 from
the
sale of 1,300,000 shares of common stock in November 2007 and with $500,000
received from the exercise of warrants in March, 2008. Through late 2007
financing of our operations has been provided by our majority stockholder in
the
form of promissory notes aggregating $155,000.
Cash
at
June 30, 2008 and December 31, 2007 was approximately $252,000 and
$590,000, respectively. During July and August 2008 we received an additional
$2,278,000 from the sale of common stock units. We have expended a substantial
portion of the proceeds of the common stock units to support ongoing operations
and research and development activities.
As
an
accommodation to the Company, TR Winston & Company, LLC, our placement
agent, agreed to receive a convertible debenture and warrants to purchase an
additional 81,800 common shares in lieu of $163,600 of its cash fee for the
sale
of the common stock units. The convertible debenture accrues interest at 5%
per
annum and has a maturity date of July 14, 2009. It is convertible into the
shares of our common stock, at the sole discretion of the holder, at $1.00
per
share subject to certain anti-dilution adjustments. The warrant has the same
terms as those issued to investors in the offering.
Off
Balance Sheet Arrangements
We
do not
have any off-balance sheet guarantees, interest rate swap transactions or
foreign currency contracts. We do not engage in trading activities involving
non-exchange traded contracts.
Inflation
We
believe that inflation has not had a material effect on our operations to
date.
LEGAL
PROCEEDINGS
As
of the
date of this prospectus, there are no material pending legal or governmental
proceedings relating to our company or properties to which we are a party,
and
to our knowledge there are no material proceedings to which any of our
directors, executive officers or affiliates are a party adverse to us or which
have a material interest adverse to us.
Directors
The
following sets forth our current directors and information concerning their
ages
and background. All directors hold office until the next annual meeting of
stockholders and until their respective successors are elected, except in the
case of death, resignation or removal:
|
Name
|
|
Principal Occupation
|
|
Age
|
|
Director
Since
|
|
Craig
A. Dionne, PhD
|
|
Chief
Executive Officer, Chief Financial Officer, President and Director
of
GenSpera
|
|
51
|
|
11/03
|
|
|
|
|
|
|
|
|
|
John
M. Farah, Jr., PhD
|
|
Vice
President Intercontinental Operations at Cephalon (NASDAQ:
CEPH)
|
|
56
|
|
02/08
|
|
|
|
|
|
|
|
|
|
Scott
Ogilvie
|
|
President
and CEO of Gulf Enterprises International, Ltd.
|
|
53
|
|
02/08
|
Craig
A. Dionne, PhD,
age
51,
has over 18 years experience in the pharmaceutical industry, including direct
experience of identifying promising oncology treatments and bringing them
through the clinic. For example, he served for five years as VP Discovery
Research at Cephalon, Inc. where he was responsible for its oncology and
neurobiology drug discovery and development programs. Dr. Dionne has also
recently served as EVP at the Prostate Cancer Research Foundation. In addition
to extensive executive experience, Dr. Dionne’s productive scientific career has
led to 6 issued patents and co-authorship of many scientific
papers.
John
M. Farah, Jr., Ph.D.
,
age 56,
is VP Intercontinental Operations at Cephalon (Nasdaq:CEPH), which he joined
in
1992 after six years as a discovery research scientist at G.D. Searle and Co.
He
is responsible for ensuring corporate support and managing sales performance
of
international partners in the Americas and Asia Pacific with specific growth
initiatives for Cephalon in China and Japan. His prior roles included the
responsibility for promoting and negotiating R&D and commercial alliances
with multinational and regional pharmaceutical firms, and responsibilities
in
scientific affairs, product licensing and academic collaborations. He currently
serves on the board of directors of Aeolus Pharmaceuticals
(AOLS.OB).
Scott
Ogilvie
,
age
53,
is
President and
CEO
of
Gulf Enterprises International, Ltd, a company that brings strategic partners,
expertise and investment capital to the Middle East and North Africa. He began
his career as a corporate and securities lawyer with Hill, Farrer & Burrill,
and has extensive public and private corporate board experience in finance,
real
estate, and technology companies. Mr. Ogilvie currently serves on the board
of
directors of Neuralstem, Inc. (AMEX:CUR), Innovative Card Technologies, Inc.
(NASDAQ:INVC) and Preferred Voice Inc, (OTCBD:PRFV).
Committees
The
Board
of Directors currently does not have any committees. We intend to establish
audit and compensation committees and such other committees as determined
advisable by our Board.
Independent
Directors
For
purposes of determining independence, the Company has adopted the definition
of
independence as contained in NASDAQ Market Place Rules 4200. Pursuant to the
definition, the Company has determined that Messrs. Ogilvie and Farah qualify
as
independent.
Executive
Officers and Significant Employees
The
following sets forth our current executive officers and information concerning
their age and background:
|
Name
|
|
Position
|
|
Age
|
|
Position Since
|
|
Craig
A. Dionne, PhD
|
|
Chief
Executive Officer, Chief Financial Officer and President
|
|
51
|
|
11/03
|
|
|
|
|
|
|
|
|
|
Russell
Richerson, PhD
|
|
Chief
Operating Officer and Secretary
|
|
56
|
|
07/08
|
Craig
A. Dionne, PhD. –
See
Bio in Directors Section
Russell
Richerson, PhD
,
age 56,
has over 25 years experience in the Biotechnology/Diagnostics industry,
including 11 years at Abbott Laboratories in numerous management roles. He
has
extensive experience in senior research and development positions at companies
such as Boehringer Mannheim, Du Pont, Prometheus Laboratories, Ventana Medical
Systems, and the Molecular Profiling Institute.
Executive
Compensation
Summary
Compensation
The
following table sets forth information for our most recently completed fiscal
year concerning the compensation of (i) the Principal Executive Officer and
(ii) all other executive officers of GenSpera, Inc. who earned over
$100,000 in salary and bonus during the last most recently completed fiscal
year
ended December 31, 2007 (together the “Named Executive Officers”). No
other employees earned a salary over $100,000 in the last completed fiscal
years.
|
Name
and
principal
position
(a)
|
|
Year
(b)
|
|
Salary
($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards
($)
(e)
|
|
Option
Award
($)
(f)(2)
|
|
Nonequity
Incentive
Plan
compensation
($)
(g)
|
|
Non-qualified
deferred
compensation
earning
($)
(h)
|
|
All
other
Compensation
($)
(i)(1)
|
|
Total
($)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig
Dionne
Chief
Executive
Officer/Chief Financial Officer
|
|
|
2007
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,000
|
|
Employment
Agreements
At
present, there are no written employment agreements with Dr. Craig Dionne or
Dr.
Russell Richerson. The board has approved an annual salary for Dr. Dionne in
the
amount of $240,000 and for Dr. Richerson in the amount of $200,000.
Additionally, we have agreed to reimburse Messrs Dionne and Richerson up to
$1,500 per month for health insurance. We anticipate entering into a formal
written employment agreement with Dr. Dionne in the future.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information with respect to our 2007 Stock Plans
as
of December 31, 2007.
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
Number of Securities
to be Issued
upon Exercise of
Outstanding
Options, Warrants
and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
|
|
Number of Securities
Remaining Available or
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
|
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
2007
Stock Plan, as amended
|
|
|
1,500,000
|
|
$
|
0.00
|
|
|
1,500,000
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Total
|
|
|
1,500,000
|
|
$
|
0.00
|
|
|
1,500,000
|
|
GenSpera2007
Equity Compensation Plan
We
have
one equity incentive plan, our 2007 Equity Compensation Plan (“2007 Plan”). Our
2007 Plan is administered by a committee of non-employee directors who are
appointed by our board of directors (“Committee”). The purpose of our 2007 Plan
is to advance the interests of GenSpera and our stockholders by attracting,
retaining and rewarding persons performing services for us and to motivate
such
persons to contribute to our growth and profitability.
Issuance
of Awards.
The
issuance of awards under our 2007 Plan is at the discretion of the Committees,
which has the authority to determine the persons to whom any awards shall be
granted and the terms, conditions and restrictions applicable to any award.
Under our 2007 Plan, we may grant stock options and restricted stock to
employees, directors and consultants. Our 2007 Plan authorizes the issuance
of
up to 1,500,000 shares of our common stock for the foregoing awards. As of
December 31, 2007, we not had made any awards under our 2007 Plan and
1,500,000 shares were available for future awards. As of December 31, 2007,
we had not adopted any performance targets or other goals or objectives that
must be met in order to issue awards under our 2007 Plan. In the first half
of
2008, the Company awarded a total of 560,000 stock options as compensation
to
members of our Board of Directors, Scientific Advisory Board and consultants.
In
July 2008, the non-management members of the Board of Directors authorized
an
increase in the number of shares under the 2007 Plan by 560,000 shares such
that
the total number of shares available for future awards is 1,500,000. No further
shares have been issued, awarded, pledged or promised as of the date of this
Prospectus.
Exercise
Price for Options.
The
exercise price of Nonqualified Stock Options shall not be less than 85% of
the
fair market value per share on the date of grant. The exercise price per share
for Incentive Stock Option grants must be no less than 100% of the fair market
value per share on the date of grant. The exercise price per share for an
incentive stock option grant to an employee who, at the time of grant, owns
stock representing more than 10% of the voting power of all classes of stock
of
GenSpera or any parent or subsidiary, must be no less than 110% of the fair
market value per share on the date of grant.
Payment
of Exercise Price.
Generally, the option exercise price may be paid in cash, by check, by cashless
exercise, by net exercise or by tender or attestation of ownership of shares
having a fair market value not less than the exercise price and that either
(A) have been owned by the optionee for more than six months and not used
for another exercise by tender or attestation, or (B) were not acquired,
directly or indirectly, from us.
Exercisability
and Vesting.
At the
time an award is granted, the Committee must fix the period within which the
award may be exercised and determine any conditions that must be satisfied
before the award may be exercised. Notwithstanding, options shall vest over
a
period of not more than five years and at a rate of not less than 20% per year.
The Committee may accelerate the exercisability of any or all outstanding
options at any time for any reason.
Term
of Options.
The
maximum term of an option granted under our 2007 Plan is ten years.
Transferability
of Awards.
Grants
are nontransferable by the grantee other than by will or by the laws of descent
and distribution and are exercisable during the grantee’s lifetime only by the
grantee.
Change
in Control.
Our 2007
Plan provides that in the event of our merger with or into another corporation,
the sale of substantially all of our assets, or the sale or exchange of more
than 50% of our voting stock, each outstanding award shall be assumed or an
equivalent award substituted by the surviving, continuing, successor or
purchasing corporation or a parent thereof. The Committee may also deem an
award
assumed if the award confers the right to the award-holder to receive, for
each
share of stock subject to an award immediately prior to the change in control,
the consideration that a stockholder is entitled on the effective date of the
change in control. Upon a change in control, all outstanding options shall
automatically accelerate and become fully exercisable and all restrictions
and
conditions on all outstanding restricted stock grants shall immediately lapse.
Amendment
and Termination.
The
Committee may at any time amend, suspend or terminate our 2007 Plan.
Notwithstanding the forgoing, the Committee shall not amend the Plan without
shareholder approval if such approval is required by section 422 of the Internal
Revenue Code or section 162(m) therein.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
This
summary of certain agreements we have entered into with our stockholders does
not purport to be complete and is qualified in its entirety by reference to
the
respective agreements, a copy of each of which is filed or incorporated by
reference as an exhibit to this report. We believe the terms and conditions
set
forth in such agreements are reasonable and customary for transactions of these
types.
|
|
·
|
On
November 10, 2006, we issued options to purchase an aggregate of
150,000
common shares to the Company’s officers, directors and certain
shareholders as compensation for services provided to the Company.
The
options vested at grant and have a term of 10 years. The options
were
granted as follows: (i) 111,250 to Mr. Burgoon, a former director;
(ii)
8,875 to Mr. Dionne, a director and Chief Executive Officer; (iii)
10,000
to Mr. Richerson, our Chief Operating Officer; and (iv) 10,000 to
each of
Messrs. Isaacs and Demneade, each an advisor to the Company and a
beneficial owner of 5% or more of the Company’s common shares. The options
had an exercise price of $0.01 and a term of 10
years.
|
|
|
·
|
On
May 14, 2007, our Board of Directors approved the acceleration of
outstanding common stock options that were previously issued to Messrs
Isaacs and Denmeade as compensation. As a result of the acceleration,
10,500 common stock options because immediately vested. The options
have
an exercise price of $0.0016 and a term of 10 years.
|
|
|
·
|
On
January 7, 2008, we granted 100,000 shares of common stock, valued
at
$50,000, to a Mr. Burgoon, a former director, as compensation for
serving
on the board. The shares vested upon
grant.
|
|
|
·
|
On
February 1, 2008, we granted Messrs Isaacs and Denmeade common stock
purchase options to purchased 60,000 shares each as compensation
for
joining the Company’s scientific advisory board. The options have an
exercise price of $0.50 per share. The options vest in equal
installments quarterly over a period of three years commencing March
31,
2008, and lapse if unexercised on January
31, 2018.
|
|
|
·
|
On
February 11, 2008, we entered into a verbal employment agreement
with
Craig Dionne, our Chief Executive Officer. Under the terms of the
agreement, we have agreed to pay Mr. Dionne an annual salary of $240,000.
The agreement is retroactively effective December 1, 2007.
In
July 2008 we entered into a verbal agreement with Craig Dionne where
we
have agreed to a monthly reimbursement for medical benefits of $1,500.
We anticipate entering into a formal written agreement with
Mr.
Dionne in the near future.
|
|
|
·
|
In
March of 2008, we granted options to purchase an aggregate of 300,000
common shares to our directors Messrs Farah and Ogilvie as well as
our
former director Mr. Burgoon. Each director received options to purchase
100,000 common shares at an exercise price of $0.50 per share. Each
director’s grant vests 50,000 upon grant with the balance vesting
quarterly over a period of two years commencing March 31, 2008, and
lapses
if unexercised on April 1, 2018.
|
|
|
·
|
On
March 11, 2008 we exercised our option to license certain intellectual
property from Messrs Isaacs and Denmeade. As consideration for the
option
exercise, we paid each of Isaacs and Denmeade: (i) $37,995.90 which
they
immediately transferred to John Hopkins University as repayment of
past
patent costs; and (ii) $18,997 as a “gross-up” to pay for relevant tax
consequences of the option exercise
payment.
|
|
|
·
|
In
April of 2008, Messrs Isaacs and Denmeade transferred to the Company
their
interest in the intellectual property licensed on March 11, 2008.
|
|
|
·
|
On
July 1, 2008, we entered into a verbal employment agreement with
Russell
Richerson, our Chief Operating Officer. Under the terms of the agreement,
we have agreed to pay Mr. Richerson an annual salary of $200,000
and
monthly reimbursement for medical benefits of $1,500. We anticipate
entering into a formal written agreement with Mr. Richerson in the
near
future.
|
|
|
·
|
Between
December 2003 and December 2006, we entered into five convertible
notes
with Craig Dionne, our majority stockholder and Chief Executive Officer,
pursuant to which we have borrowed an aggregate of $155,000. The
notes
bear an interest rate of 4.2% and mature at various dates through
December
6, 2011. Interest accrued through February 29, 2008 was $15,859.
On March
7, 2008 we issued 31,718 shares of common stock as payment of this
amount.
|
PRINCIPAL
STOCKHOLDERS
The
following table sets forth, as of September 27, 2008, information regarding
beneficial ownership of our capital stock by:
|
·
|
each
person, or group of affiliated persons, known by us to be the beneficial
owner of 5% or more of any class of our voting
securities;
|
|
·
|
each
of our current directors and
nominees;
|
|
·
|
each
of our current named executive officers;
and
|
|
·
|
all
current directors and named executive officers as a
group.
|
Beneficial
ownership is determined according to the rules of the SEC. Beneficial ownership
means that a person has or shares voting or investment power of a security
and
includes any securities that person or group has the right to acquire within
60
days after the measurement date. This table is based on information supplied
by
officers, directors and principal stockholders. Except as otherwise indicated,
we believe that each of the beneficial owners of the common stock listed below,
based on the information such beneficial owner has given to us, has sole
investment and voting power with respect to such beneficial owner’s shares,
except where community property laws may apply.
|
|
|
Common
Stock
|
|
|
Name
and Address of Beneficial Owner(1)
|
|
Shares
|
|
Shares
Underlying
Convertible
Securities(2)
|
|
Total
|
|
Percent of
Class(2)
|
|
|
Directors
and named executive officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig
Dionne, PhD
|
|
|
2,438,662
|
|
|
310,000
|
|
|
2,748,662
|
|
|
21.5
|
%
|
|
Russell
B. Richerson, PhD
(3)
|
|
|
925,000
|
|
|
|
|
|
925,000
|
|
|
7.40
|
%
|
|
John
M. Farah, PhD
|
|
|
|
|
|
68,750
|
|
|
68,750
|
|
|
*
|
|
|
Scott
Ogilvie
|
|
|
|
|
|
68,750
|
|
|
68,750
|
|
|
*
|
|
|
All
directors and executive officers as a group
(4 persons)
|
|
|
3,363,662
|
|
|
447,500
|
|
|
3,811,162
|
|
|
29.5
|
%
|
|
Beneficial
Owners of 5% or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
T. Isaacs, PhD
(4)
|
|
|
1,271,528
|
|
|
15,000
|
|
|
1,286,528
|
|
|
10.3
|
%
|
|
Samuel
R. Denmeade, M.D
(5)
|
|
|
1,271,528
|
|
|
15,000
|
|
|
1,286,528
|
|
|
10.3
|
%
|
|
*
|
Less
than one percent.
|
|
|
|
|
(1)
|
Except
as otherwise indicated, the persons named in this table have sole
voting
and investment power with respect to all shares of common stock shown
as
beneficially owned by them, subject to community property laws where
applicable and to the information contained in the footnotes to this
table. Unless otherwise indicated, the address of the beneficial
owner is
GenSpera, Inc., 9901 IH-10 West, Suite 800, San Antonio, TX
78230.
|
|
|
|
|
(2)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership
includes any shares as to which a shareholder has sole or shared
voting
power or investment power, and also any shares which the shareholder
has
the right to acquire within 60 days, including upon exercise of common
shares purchase options or warrant. There are 12,486,718 shares of
common
stock issued and outstanding as of September 27, 2008
|
|
|
|
|
(3)
|
5050
East Gleneagles Drive, Tucson, AZ 85718
|
|
|
|
|
(4)
|
13638
Poplar Hill Road, Phoenix, Maryland 21131
|
|
|
|
|
(5)
|
5112
Little Creek Drive, Ellicott City, MD
21043
|
SELLING
STOCKHOLDERS
This
prospectus relates to the offering and sale, from time to time, of up to
6,387,400 shares of our common stock held by the stockholders named in the
table
below, which amount includes common shares issuable upon the exercise of
warrants held by the selling stockholders. The selling stockholders may exercise
their warrants at any time in their sole discretion. All of the selling
stockholders named below acquired their shares of our common stock and warrants
directly from us in private transactions.
Set
forth
below is information, to the extent known to us, setting forth the name of
each
Selling Shareholder and the amount and percentage of Common Stock owned by
each
(including shares that can be acquired on the exercise of outstanding warrants)
prior to the offering, the shares to be sold in the offering, and the amount
and
percentage of Common Stock to be owned by each (including shares that can
be
acquired on the exercise of outstanding warrants) after the offering assuming
all shares are sold. The footnotes provide information about persons who
have
investment voting power for the Selling Shareholders and about material
transactions between the Selling Shareholders and the Company.
The
selling stockholders may sell all or some of the shares of common stock they
are
offering, and may sell shares of our common stock otherwise than pursuant
to
this prospectus. The table below assumes that each selling stockholder exercises
all of its warrants and sells all of the shares issued upon exercise thereof,
and that each selling stockholder sells all of the shares offered by it in
offerings pursuant to this prospectus, and does not acquire any additional
shares. We are unable to determine the exact number of shares that will actually
be sold or when or if these sales will occur.
The
selling stockholders may sell all, some or none of their shares in this
offering. See “Plan of Distribution.”
The
total
number of common shares sold under this prospectus may be adjusted to reflect
adjustments due to stock dividends, stock distributions, splits, combinations,
recapitalizations or the triggering anti-dilution protective provisions with
regard to the common stock and warrants.
Unless
otherwise stated below in the footnotes, to our knowledge, no selling
shareholder nor any affiliate of such shareholder: (i) has held any position
or
office with, been employed by or otherwise has had any material relationship
with us or our affiliates during the three years prior to the date of this
prospectus; or (ii) is a broker-dealer, or an affiliate of a broker-dealer.
We
may
amend or supplement this prospectus from time to time in the future to update
or
change this list and shares which may be resold.
|
|
|
Common Shares Owned Before Sale
(1)
|
|
|
|
Common Shares Owned After Sale
(2)
|
|
|
|
|
Held
Outright
|
|
Warrants/
Options
|
|
Amount
|
|
% of class
|
|
Shares
being
registered
|
|
Amount
|
|
% of Class
|
|
|
Bristol Investment Fund,
Ltd. (3)
|
|
|
500,000
|
|
|
125,000
|
|
|
625,000
|
|
|
4.1
|
%
|
|
625,000
|
|
|
-
|
|
|
-
|
|
|
The
JD Group LLC (4)
|
|
|
500,000
|
|
|
-
|
|
|
500,000
|
|
|
3.3
|
%
|
|
500,000
|
|
|
-
|
|
|
-
|
|
|
G.
Tyler Runnels or Jasmine Niklas Runnels TTEES The Runnel Family
Trust dtd
1-11-20 (5)
|
|
|
375,000
|
|
|
62,500
|
|
|
437,500
|
|
|
2.8
|
%
|
|
437,500
|
|
|
-
|
|
|
-
|
|
|
IRA
FBO J. Steven Emerson Rollover II Pershing LLC as
Custodian
|
|
|
250,000
|
|
|
125,000
|
|
|
375,000
|
|
|
2.4
|
%
|
|
375,000
|
|
|
-
|
|
|
-
|
|
|
TR
Winston & Company, LLC (6)(7)
|
|
|
-
|
|
|
337,700
|
|
|
337,700
|
|
|
2.2
|
%
|
|
255,900
|
|
|
81,800
|
|
|
0.5
|
%
|
|
Richard
Hull, PhD
|
|
|
295,000
|
|
|
25,000
|
|
|
320,000
|
|
|
2.1
|
%
|
|
75,000
|
|
|
245,000
|
|
|
1.6
|
%
|
|
Steven
Mitchell Sack Profit Sharing Plan
|
|
|
200,000
|
|
|
50,000
|
|
|
250,000
|
|
|
1.6
|
%
|
|
250,000
|
|
|
-
|
|
|
-
|
|
|
Steven
Chizzik
|
|
|
245,000
|
|
|
-
|
|
|
245,000
|
|
|
1.6
|
%
|
|
245,000
|
|
|
-
|
|
|
-
|
|
|
Steven
Mitchell Sack
|
|
|
100,000
|
|
|
50,000
|
|
|
150,000
|
|
|
1.0
|
%
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
Ajax
Partners (8)
|
|
|
100,000
|
|
|
50,000
|
|
|
150,000
|
|
|
1.0
|
%
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
JAG
MULTI INVESTMENTS LLC (9)
|
|
|
100,000
|
|
|
50,000
|
|
|
150,000
|
|
|
1.0
|
%
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
Robert
R. Kauffman
|
|
|
100,000
|
|
|
50,000
|
|
|
150,000
|
|
|
1.0
|
%
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
Kathryn
F. Hopper
|
|
|
130,000
|
|
|
15,000
|
|
|
145,000
|
|
|
0.9
|
%
|
|
145,000
|
|
|
-
|
|
|
-
|
|
|
Robert
O'Mara
|
|
|
120,000
|
|
|
20,000
|
|
|
140,000
|
|
|
0.9
|
%
|
|
140,000
|
|
|
-
|
|
|
-
|
|
|
Subhash
C. Gulati
|
|
|
110,000
|
|
|
5,000
|
|
|
115,000
|
|
|
0.7
|
%
|
|
115,000
|
|
|
-
|
|
|
-
|
|
|
New
Giles, LLC
|
|
|
75,000
|
|
|
37,500
|
|
|
112,500
|
|
|
0.7
|
%
|
|
112,500
|
|
|
-
|
|
|
-
|
|
|
Samax
Family Limited Partnership (10)
|
|
|
75,000
|
|
|
37,500
|
|
|
112,500
|
|
|
0.7
|
%
|
|
112,500
|
|
|
-
|
|
|
-
|
|
|
D.
Carl Lustig, III
|
|
|
75,000
|
|
|
37,500
|
|
|
112,500
|
|
|
0.7
|
%
|
|
112,500
|
|
|
-
|
|
|
-
|
|
|
Core
Fund, L.P. (11)
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
0.7
|
%
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
Bruce
N. Barron & Jacqueline A. Barron
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
0.7
|
%
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
Thomas
E. Genna
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
0.7
|
%
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
Jay
R. Solan
|
|
|
75,000
|
|
|
12,500
|
|
|
87,500
|
|
|
0.6
|
%
|
|
87,500
|
|
|
-
|
|
|
-
|
|
|
Richard
W. Green
|
|
|
75,000
|
|
|
12,500
|
|
|
87,500
|
|
|
0.6
|
%
|
|
87,500
|
|
|
-
|
|
|
-
|
|
|
The
Verrazano Group, LLC (12)
|
|
|
-
|
|
|
84,000
|
|
|
84,000
|
|
|
0.5
|
%
|
|
84,000
|
|
|
-
|
|
|
-
|
|
|
Windermere
Insurance Co. Ltd. (13)
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Christopher
Miglino
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Doris
Sutz Roth IRA
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Dr.
Arnold Yoskowitz and Regina Yoskowitz
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Gerald
B. Lichtenberger
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
John
Peter Christensen
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Joseph
Giamanco
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Philip
S. Sassower
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Mitchell
J. Sassower
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Jerry
A. Lubliner, M.D.
|
|
|
50,000
|
|
|
25,000
|
|
|
75,000
|
|
|
0.5
|
%
|
|
75,000
|
|
|
-
|
|
|
-
|
|
|
Beatrice
Slomiuc
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Chaim
Slomiuc
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
David
N. Baker
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Equireal
Leasing, Inc., Andrew Margulies, VP (14)
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Jeff
Strauss & Mindy Schultheis
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
John
Curley & Patricia Jennings Curley
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Marie
A. Karanfilian
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Sheila
Sugerman
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Steven
E. Holzel
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Steven
Shum
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
0.3
|
%
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
Alan
Schwartz
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
Arthur
Dunkin
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
Faith
Griffin & John A. Lenhart JTWROS
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
IRA
FBO John Curley, Pershing LLC as Custodian
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
Patrick
Hund
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
Rhonda
Wesolak
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
John
G. Korman
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
A.C.
Providenti
|
|
|
25,000
|
|
|
12,500
|
|
|
37,500
|
|
|
0.2
|
%
|
|
37,500
|
|
|
-
|
|
|
-
|
|
|
Benjamin
Hill
|
|
|
15,000
|
|
|
7,500
|
|
|
22,500
|
|
|
0.1
|
%
|
|
22,500
|
|
|
-
|
|
|
-
|
|
|
John
Toedtman
|
|
|
20,000
|
|
|
-
|
|
|
20,000
|
|
|
0.1
|
%
|
|
20,000
|
|
|
-
|
|
|
-
|
|
|
Donald
L. Stahl
|
|
|
12,500
|
|
|
6,250
|
|
|
18,750
|
|
|
0.1
|
%
|
|
18,750
|
|
|
-
|
|
|
-
|
|
|
Leslie
M. James
|
|
|
12,500
|
|
|
6,250
|
|
|
18,750
|
|
|
0.1
|
%
|
|
18,750
|
|
|
-
|
|
|
-
|
|
|
Nathan
Sugerman
|
|
|
12,500
|
|
|
6,250
|
|
|
18,750
|
|
|
0.1
|
%
|
|
18,750
|
|
|
-
|
|
|
-
|
|
|
Robert
B. Greene
|
|
|
12,500
|
|
|
6,250
|
|
|
18,750
|
|
|
0.1
|
%
|
|
18,750
|
|
|
-
|
|
|
-
|
|
|
Klaus
Peter Eichner
|
|
|
12,500
|
|
|
6,250
|
|
|
18,750
|
|
|
0.1
|
%
|
|
18,750
|
|
|
-
|
|
|
-
|
|
|
Gary
J. Faden
|
|
|
12,500
|
|
|
6,250
|
|
|
18,750
|
|
|
0.1
|
%
|
|
18,750
|
|
|
-
|
|
|
-
|
|
|
Mercer
Capital, Ltd. (15)(7)
|
|
|
-
|
|
|
15,500
|
|
|
15,500
|
|
|
0.1
|
%
|
|
15,500
|
|
|
-
|
|
|
-
|
|
|
Andrew
B. Dorman
|
|
|
-
|
|
|
4,250
|
|
|
4,250
|
|
|
0.0
|
%
|
|
4,250
|
|
|
-
|
|
|
-
|
|
|
David
S. Lustig
|
|
|
-
|
|
|
2,080
|
|
|
2,080
|
|
|
0.0
|
%
|
|
2,080
|
|
|
-
|
|
|
-
|
|
|
Nicole
H. Tavernier
|
|
|
-
|
|
|
500
|
|
|
500
|
|
|
0.0
|
%
|
|
500
|
|
|
-
|
|
|
-
|
|
|
Mark
P. Eichner
|
|
|
-
|
|
|
170
|
|
|
170
|
|
|
0.0
|
%
|
|
170
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTALS
|
|
|
5,110,000
|
|
|
1,604,200
|
|
|
6,714,200
|
|
|
45.3
|
%
|
|
6,387,400
|
|
|
326,800
|
|
|
2.1
|
%
|
|
(1)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership
includes any common shares as to which a shareholder has sole or
shared
voting power or investment power, and also any common shares which
the
shareholder has the right to acquire within 60 days, including
upon
exercise of common shares purchase options or warrants. There were
12,486,718 common shares outstanding as of September 27,
2008.
|
|
(2)
|
Assumes
the sale of all common shares registered pursuant to this registration
statement.
|
|
(3)
|
Bristol
Capital Advisors, LLC (“BCA”) is the investment advisor to Bristol
Investment Fund, Ltd. (“Bristol”). Paul Kessler is the manager of BCA and
as such has voting and investment control over the securities held
by
Bristol. Mr. Kessler disclaims beneficial ownership of these
securities.
|
|
(4)
|
John
Davies, Manager, is the person with voting and dispositive control
with
respect to the securities being offered.
|
|
(5)
|
G.
Tyler Runnels and Jasmine Niklas Runnels, as Trustees, have voting
and
dispositive control with respect to the securities being offered.
|
|
(6)
|
G.
Tyler Runnels, as President, has voting and dispositive control
with
respect to the securities being
offered.
|
|
(7)
|
In
connection with our July and August offering, the Company issued:
(i)
255,900 warrants to TR Winston & Company, LLC; and (ii) 15,500 to
Mercer Capital, Ltd. The warrants issued to TR Winston & Company, LLC
and Mercer Capital, Ltd. are been deemed compensation by the NASD
and are
therefore subject to a 180-day lock-up from the date of this prospectus
pursuant to Rule 2710(g)(l) of the NASD Conduct Rules. Additionally,
the
warrants may not be sold, transferred, assigned, pledged or hypothecated
for a period of 180 days following the date of this prospectus.
However,
the warrants may be transferred to any underwriter and selected
dealer
participating in the offering and their bona fide officers or partners.
Thereafter, the warrants will be transferable provided such transfer
is in
accordance with the provisions of the Securities Act.
|
|
(8)
|
Richard
Stone, Managing Partner, has voting and dispositive control with
respect
to the securities being offered.
|
|
(9)
|
James
Coren, member has voting and dispositive control with respect to
the
securities being offered.
|
|
(10)
|
Andrew
Margulies, General Partner, has voting and dispositive control
with
respect to the securities being offered.
|
|
(11)
|
Steve
Shum, Managing Director, has voting and dispositive control with
respect
to the securities being offered.
|
|
(12)
|
Steven
Chizzik, Managing Director, has voting and dispositive control
with
respect to the securities being offered.
|
|
(13)
|
John
Scardino, Director, has voting and dispositive control with respect
to the
securities being offered.
|
|
(14)
|
Andrew
Margulies, Vice President, has voting and dispositive control with
respect
to the securities being offered.
|
|
(15)
|
Len
Demer, Managing Director, has voting and dispositive control with
respect
to the securities being offered.
|
DESCRIPTION
OF SECURITIES
General
As
of
July 8, 2008, our authorized capital stock consisted of:
|
|
·
|
80,000,000
shares of common stock, par value $0.0001;
and
|
|
|
·
|
10,000,000
shares of “blank check” preferred stock, par value
$0.0001.
|
As
of
September 27, 2008, 12,486,718 shares of common stock were issued and
outstanding and 0 shares of preferred stock were issued and outstanding. All
of
our currently issued and outstanding shares of capital stock were validly
issued, fully paid and non-assessable under the Delaware General Corporation
Law, as amended, or the DGCL.
Set
forth
below is a summary description of all the material terms of our common stock
and
warrants. This description is qualified in its entirety by reference to our
amended and restated certificate of incorporation, bylaws and form of warrants,
each of which is filed as an exhibit to this registration
statement.
Common
Stock
The
holders of our common stock are entitled to one vote per share on each matter
submitted to a vote at a meeting of our stockholders, except to the extent
that
the voting rights of our shares of any class or series of stock are determined
and specified as greater or lesser than one vote per share in the manner
provided by our certificate of incorporation. Our stockholders have no
pre-emptive rights to acquire additional shares of our common stock or other
securities. Our common stock is not subject to redemption rights and carries
no
subscription or conversion rights. In the event of liquidation of our company,
the shares of our common stock are entitled to share equally in corporate assets
after satisfaction of all liabilities. All shares of our common stock now
outstanding are fully paid and non-assessable. Our bylaws authorize the board
of
directors to declare dividends on our outstanding shares. As of September 27,
2008 there are 12,486,718 shares of our common stock issued and
outstanding.
Preferred
Stock
We
may
issue our preferred shares from time to time in one or more series as determined
by our board of directors. The voting powers and preferences, the relative
rights of each series, and the qualifications, limitations and restrictions
thereof may be established by our board of directors without any further vote
or
action by our shareholders. As of August 31, 2008 there were no shares of our
preferred stock issued and outstanding.
Warrants
and Debentures Convertible into Common Shares
In
connection with our July to August 2008 offering, we issued warrants and
convertible debentures to purchase up to 1,683,800 shares of our common stock.
Warrants
–
The
warrants have a term of 5 years and an exercise price of $2.00 per shares
subject to certain anti-dilution adjustments. The warrants are also callable
by
the Company in the event the Company’s shares are publically traded in the
future and certain price and volume conditions are met.
Convertible
Debentures
–
The convertible debenture accrues interest at 5% per annum and has a maturity
date of July 14, 2009. The debenture is convertible into the shares of the
Company’s common stock, at the sole discretion of the holder, at $1.00 per share
subject to certain anti-dilution adjustments.
Registration
Rights
From
July
14, 2008 through August 30, 2008, we received
$2,320,000
in
gross
proceeds from the private placement of units consisting of one share of common
stock
and
one-half warrant with an exercise price of $2.00 per share of common stock,
exercisable any time within five years
after
the
date of issuance.
As part
of the private placement, we entered into a registration rights agreements
with
the investors under which we agreed to file the registration statement of which
this prospectus is a part in order to register (1) the common shares issued
in
the private placement; and (2) the common shares issuable upon the exercise
of
the warrants.
The
registration rights agreement required us to use our best efforts
to:
|
·
|
file
the registration statement as soon as reasonably practicable after
the
first closing for the offering, but in no event later than September
27,
2008 (“Filing Deadline”);
|
|
·
|
have
the registration agreement declared effective by December 11, 2008
(“Effectiveness Deadline”)
;
and
|
|
|
|
|
·
|
maintain
the registration statement continuously effective until the date
that the
shares covered by this prospectus may be sold pursuant to Rule 144
of the
Securities Act without any manner of sale or volume
restrictions.
|
If
we
fail to file the registration statement by the Filing Deadline, have the
registration statement declared effective by the Effectiveness Deadline, or
the
registration statement does not stay effective for any 20 consecutive day
period, the Company will pay monthly partial liquidated damages, in cash, in
the
amount of 1.5% of the aggregate purchase price paid by the holder for any
unregistered securities.
MARKET
FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS
Holders
There
exists no market for our common stock. Private sales or transfers are permitted
under the respective state and Federal securities laws, subject to compliance
with exemptions set forth under the respective statutory guidelines. As of
September 27, 2008, we had 78 common shareholders of record.
Options,
Warrants and Convertible Securities
As
of
September 27, 2008, there were outstanding common share purchase options,
warrants and convertible securities entitling the holders to purchase up to
3,637,800 common shares at exercise prices between $0.50 and $2.00 with an
average weighted exercise price of $1.29 per share.
To
date,
there has been no market for our common stock. In the event a public market
for
our shares develops, future sales of substantial amounts of our common stock
in
the public market could adversely affect prevailing market prices from time
to
time. Further, since only a limited number of shares will be available for
sale
shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital
in
the future.
Sale
of Restricted Shares
Upon
completion of this offering, we will have 12,486,718 shares of common
stock outstanding, based on 12,486,718 shares of common stock outstanding
as of September 27, 2008. Of these shares, the shares sold in this offering
will
be freely tradable without restriction under the Securities Act, except for
any
shares purchased by our “affiliates” as that term is defined in
Rule
144
under
the Securities Act. In general, affiliates include executive officers,
directors, and 10% stockholders. Shares purchased by affiliates will remain
subject to the resale limitations of Rule
144.
|
Date
|
|
Number of Shares
|
|
|
On
the date of this prospectus
|
|
|
1,309,438
|
|
|
Within
90 days after the date of this prospectus
|
|
|
1,309,438
|
|
|
Between
90 and 360 days after the date of this prospectus
|
|
|
1,309,438
|
|
|
365 days
after the
effective date of this prospectus
|
|
|
7,621,718
|
|
Lock-Up
Agreements
|
|
|
|
|
|
•
|
1%
of the number of shares of common stock then outstanding; or
|
|
|
|
|
|
|
•
|
the
average weekly trading volume of the common stock during the four
calendar
weeks preceding the filing of a notice on Form
144
with respect to such sale.
|
Rule 701
Form S-8
Registration Statements
We
intend
to file one or more registration statements on Form S-8 under the
Securities Act as soon as practicable after the completion of this offering
for
shares issued upon the exercise of options and shares to be issued under our
employee benefit plans. As a result, any shares acquired upon the exercise
of
such options will be freely tradable in the public market.
PLAN
OF DISTRIBUTION
Each
Selling Stockholder (the “
Selling
Stockholders
”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock on
any
other stock exchange in which a market develops or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
·
|
a
combination of any such methods of sale;
or
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “
Securities
Act
”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASD Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASD IM-2440.
In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In
no
event shall any broker-dealer receive fees, commissions and markups which,
in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under
the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume or manner-of-sale limitations by reason of Rule
144, without the requirement for the Company to be in compliance with the
current public information under Rule 144 under the Securities Act or any other
rule of similar effect or (ii) all of the shares have been sold pursuant to
this
prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they
have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Corporation Laws of the State of Delaware and the Company's Bylaws provide
for
indemnification of the Company's Directors for expenses actually and necessarily
incurred by them in connection with the defense of any action, suit or
proceeding in which they, or any of them, are made parties, or a party, by
reason of having been Director(s) or Officer(s) of the corporation, or of such
other corporation, except, in relation to matter as to which any such Director
or Officer or former Director or Officer or person shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty. Furthermore, the personal liability of the Directors
is limited as provided in the Company's Articles of Incorporation.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
LEGAL
MATTERS
The
Law
Office of Raul Silvestre & Associates, APLC, will issue a legal opinion as
to the validity of the issuance of the shares of common stock offered under
this
prospectus.
EXPERTS
The
financial statements as of December 31, 2007 and 2006 and for each of the
two years in the period ended December 31, 2007 included in this prospectus
and in the registration statement of which it forms a part have been so included
in reliance on the report of RBSM LLP our independent registered public
accounting firm (which report contains an explanatory paragraph regarding our
ability to continue as a going concern), appearing elsewhere in this prospectus
and the registration statement of which it forms a part, given on the authority
of said firm as experts in auditing and accounting.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No
expert
or counsel named in this prospectus as having prepared or certified any part
of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the shares of common stock was employed on a contingency basis
or
had, or is to receive, in connection with the offering, a substantial interest,
directly or indirectly, in the registrant nor was any such person connected
with
the registrant as a promoter, managing or principal underwriter, voting trustee,
director, officer or employee.
WHERE
YOU CAN FIND MORE INFORMATION
We
will
file annual, quarterly and other reports, proxy statements and other information
with the SEC. You may read and copy any document we file at the public reference
facilities of the SEC at 100 F Street, NE, Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public at the SEC’s
web site at http://www.sec.gov and at our website at http://www.genspera.com.
We
will furnish our stockholders with annual reports containing audited financial
statements.
This
prospectus is part of a registration statement on Form S-1 that we filed with
the SEC. Certain information in the registration statement has been omitted
from
this prospectus in accordance with the rules and regulations of the SEC. We
have
also filed exhibits and schedules with the registration statement that are
excluded from this prospectus. For further information you may:
|
|
·
|
read
a copy of the registration statement, including the exhibits and
schedules, without charge at the SEC’s public reference rooms;
or
|
|
|
·
|
obtain
a copy from the SEC upon payment of the fees prescribed by the
SEC.
|
CERTIFIED
PUBLIC ACCOUNTANTS
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board
of
Directors
GenSpera
Inc.
Santa
Monia, CA
We
have
audited the accompanying balance sheets of
GenSpera
Inc.,
a
development stage company, as of December 31, 2007 and 2006, and the related
statements of losses, statement of stockholders' equity (deficit), and cash
flows for each of the two years in the period ended December 31, 2007 and
the
period November 21, 2003 (date of inception) through December 31, 2007. These
financial statements are the responsibility of the company's management.
Our
responsibility is to express an opinion on the financial statements based
upon
our audits.
We
have
conducted our audits in accordance with auditing standards of the Public
Company
Accounting Oversight Board (PCAOB) (United States of America). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe 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
GenSpera
Inc.,
a
development stage company, at December 31, 2007 and 2006 and the results
of its
operations and its cash flows for each of the two years in the period ended
December 31, 2007 and the period November 21, 2003 (date of inception) through
December 31, 2007 in conformity with accounting principles generally accepted
in
the United States of America.
|
|
|
|
|
|
RBSM
LLP
|
|
|
|
Certified
Public Accountants
|
|
New
York,
New York
March
10,
2008
FINANCIAL
INFORMATION
GENSPERA
INC.
(A
Development Stage Company)
BALANCE
SHEETS
DECEMBER
31, 2007 AND 2006
|
|
|
2007
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
590,435
|
|
$
|
15,763
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses:
|
|
$
|
3,874
|
|
$
|
8,725
|
|
|
Accrued
interest - stockholder
|
|
|
14,800
|
|
|
8,360
|
|
|
Convertible
note payable - stockholder, current portion
|
|
|
35,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
53,674
|
|
|
17,085
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable - stockholder, long term portion
|
|
|
120,000
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
173,674
|
|
|
172,085
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $.0001 per share; 10,000,000 shares authorized,
none
issued and outstanding
|
|
|
-
|
|
|
-
|
|
|
Common
stock, par value $.0001 per share; 80,000,000 shares authorized,
9,035,000
and 6,100,000 shares issued and outstanding, respectively
|
|
|
904
|
|
|
610
|
|
|
Additional
paid-in capital
|
|
|
1,857,842
|
|
|
593,854
|
|
|
Deficit
accumulated during the development stage
|
|
|
(1,441,985
|
)
|
|
(750,786
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficit)
|
|
|
416,761
|
|
|
(156,322
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
590,435
|
|
$
|
15,763
|
|
See
accompanying notes to financial statements.
GENSPERA,
INC.
(A
Development Stage Company)
STATEMENTS
OF LOSSES
FOR
THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR
THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2007
|
|
|
|
|
Cumulative Period
|
|
|
|
|
|
|
from November 21, 2003
|
|
|
|
|
|
|
(date of inception) to
|
|
|
|
|
Years ended December 31,
|
|
December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
389,799
|
|
$
|
9,351
|
|
$
|
435,248
|
|
|
Research
and development
|
|
|
294,440
|
|
|
231,092
|
|
|
991,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
684,239
|
|
|
240,443
|
|
|
1,426,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(684,239
|
)
|
|
(240,443
|
)
|
|
(1,426,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(6,960
|
)
|
|
(4,627
|
)
|
|
(15,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(691,199
|
)
|
|
(245,070
|
)
|
|
(1,441,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(691,199
|
)
|
$
|
(245,070
|
)
|
$
|
(1,441,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
7,103,904
|
|
|
6,100,000
|
|
|
|
|
See
accompanying notes to these financial statements.
GENSPERA,
INC.
(A
Development Stage Company)
STATEMENT
OF STOCKHOLDERS' EQUITY
FROM
DATE
OF INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
During the
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Development
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
November 21, 2003
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock to founders at $0.0001 per share in November,
2003
|
|
|
6,100,000
|
|
|
610
|
|
|
(510
|
)
|
|
-
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
120,000
|
|
|
-
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(125,127
|
)
|
|
(125,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
6,100,000
|
|
|
610
|
|
|
119,490
|
|
|
(125,127
|
)
|
|
(5,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
192,000
|
|
|
-
|
|
|
192,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
24,102
|
|
|
-
|
|
|
24,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(253,621
|
)
|
|
(253,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
6,100,000
|
|
|
610
|
|
|
335,592
|
|
|
(378,748
|
)
|
|
(42,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
48,000
|
|
|
-
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
24,100
|
|
|
-
|
|
|
24,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(126,968
|
)
|
|
(126,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
6,100,000
|
|
|
610
|
|
|
407,692
|
|
|
(505,716
|
)
|
|
(97,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
144,000
|
|
|
-
|
|
|
144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
42,162
|
|
|
-
|
|
|
42,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(245,070
|
)
|
|
(245,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
6,100,000
|
|
|
610
|
|
|
593,854
|
|
|
(750,786
|
)
|
|
(156,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
sold for cash at $0.50 per share in November, 2007
|
|
|
1,300,000
|
|
|
130
|
|
|
649,870
|
|
|
-
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
735,000
|
|
|
74
|
|
|
367,426
|
|
|
-
|
|
|
367,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
220,000
|
|
|
-
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
24,082
|
|
|
-
|
|
|
24,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options for cash at $0.003 per share in March and June,
2007
|
|
|
900,000
|
|
|
90
|
|
|
2,610
|
|
|
-
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(691,199
|
)
|
|
(691,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
9,035,000
|
|
$
|
904
|
|
$
|
1,857,842
|
|
$
|
(1,441,985
|
)
|
$
|
416,761
|
|
See
accompanying notes to these financial statements.
GENSPERA,
INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
FOR
THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR
THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2007
|
|
|
|
|
|
|
Cumulative Period
|
|
|
|
|
|
|
|
|
from November 21, 2003
|
|
|
|
|
|
|
|
|
(date of inception) to
|
|
|
|
|
Years ended December 31,
|
|
December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(691,199
|
)
|
$
|
(245,070
|
)
|
$
|
(1,441,985
|
)
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
391,582
|
|
|
42,162
|
|
|
481,946
|
|
|
Contributed
services
|
|
|
220,000
|
|
|
144,000
|
|
|
724,000
|
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
1,589
|
|
|
(12,164
|
)
|
|
18,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used in operating activities
|
|
|
(78,028
|
)
|
|
(71,072
|
)
|
|
(217,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
652,700
|
|
|
-
|
|
|
652,800
|
|
|
Proceeds
from convertible notes - stockholder
|
|
|
-
|
|
|
70,000
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by financing activities
|
|
|
652,700
|
|
|
70,000
|
|
|
807,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
574,672
|
|
|
(1,072
|
)
|
|
590,435
|
|
|
Cash,
beginning of period
|
|
|
15,763
|
|
|
16,835
|
|
|
-
|
|
|
Cash,
end of period
|
|
$
|
590,435
|
|
$
|
15,763
|
|
$
|
590,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
520
|
|
$
|
-
|
|
|
|
|
See
accompanying notes to these financial statements.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR THE PERIOD FROM NOVEMBER 21, 2003
(INCEPTION)
TO DECEMBER 31, 2007
A
summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows.
Business
and Basis of Presentation
GenSpera
Inc. (“
we”,
“us”,
“
our
company
“,
“our”,
“GenSpera”
or the “Company”
) was
formed under the laws of the State of Delaware in 2003. We are a development
stage company, as defined by Statement of Financial Accounting Standards
(“SFAS”) No. 7. GenSpera, Inc. is a pharmaceutical company focused on the
development of targeted cancer therapeutics for the treatment of cancerous
tumors, including breast, prostate, bladder and kidney cancer. Our operations
are based in Los Angeles, California.
To
date,
we have generated no sales revenues, have incurred significant expenses and
have
sustained losses. Consequently, our operations are subject to all the risks
inherent in the establishment of a new business enterprise. For the period
from
inception on November 21, 2003 through December 31, 2007, we have accumulated
losses of $1,441,985.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the financial statements and accompanying
disclosures. Although these estimates are based on management's best knowledge
of current events and actions the Company may undertake in the future, actual
results may differ from those estimates.
Income
Taxes
Deferred
income taxes are provided for using the asset and liability method for financial
reporting purposes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are recognized for temporary differences between the tax bases
of
assets and liabilities and their carrying values for financial reporting
purposes and for operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be removed or settled. The effect on deferred tax assets and liabilities of
a
change in tax rates is recognized in the statements of losses in the period
that
includes the enactment date.
Research
and Development
Research
and development costs include expenses incurred by the Company for research
and
development of therapeutic agents for the treatment of cancer and are charged
to
operations as incurred.
GenSpera
incurred research and development expenses of $294,440, $231,092 and $991,416
for the years ended December 31, 2007 and 2006, and from November 21, 2003
(inception) through December 31, 2007, respectively.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR THE PERIOD FROM NOVEMBER 21, 2003
(INCEPTION)
TO DECEMBER 31, 2007
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (cont’d)
Cash
Equivalents
For
purposes of the statements of cash flows, we consider all highly liquid debt
instruments purchased with a maturity date of three months or less to be cash
equivalents. We maintain our cash in bank deposit accounts which, at times,
may
exceed insured limits. We have not experienced any losses in our
accounts.
Concentrations
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents.
The Company places its cash and temporary cash investments with credit quality
institutions. At times, such investments may be in excess of applicable
government mandated insurance limits. At December 31, 2007, deposits exceeded
insurance limits by approximately $490,000.
Fair
Value of Financial Instruments
SFAS
No.
107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts payable and short-term borrowings,
as reflected in the balance sheets, approximate fair value because of the
short-term maturity of these instruments.
Loss
Per Share
We
use
SFAS No. 128, “Earnings Per Share” for calculating the basic and diluted
loss per share. We compute basic loss per share by dividing net loss and net
loss attributable to common shareholders by the weighted average number of
common shares outstanding. Diluted loss per share is computed similar to basic
loss per share except that the denominator is increased to include the number
of
additional common shares that would have been outstanding if the potential
shares had been issued and if the additional shares were dilutive. Common
equivalent shares are excluded from the computation of net loss per share if
their effect is anti-dilutive. There were 339,600 and 1,226,720 common share
equivalents at December 31, 2007 and 2006, respectively. For the years
ended December 31, 2007 and 2006, these potential shares were excluded
from the shares used to calculate diluted earnings per share as their inclusion
would reduce net loss per share.
Stock-Based
Compensation
We
account for our share-based compensation under the provisions of FASB Statement
No. 123(R), “Share-Based Payment”, (“FAS 123R”). We adopted FAS 123R as of
January 1, 2006, using the modified prospective application method. Prior to
January 1, 2006 we applied the provisions of FAS 123, “Accounting for
Stock-Based Compensation”.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
157), which provides guidance on how to measure assets and liabilities that
use
fair value. SFAS 157 will apply whenever another US GAAP standard requires
(or
permits) assets or liabilities to be measured at fair value but does not expand
the use of fair value to any new circumstances. This standard also will require
additional disclosures in both annual and quarterly reports. SFAS 157 will
be
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be adopted by us beginning in the first quarter
of
2008. We do not believe the impact of the application of this guidance will
be
material.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR THE PERIOD FROM NOVEMBER 21, 2003
(INCEPTION)
TO DECEMBER 31, 2007
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (cont’d)
Recent
Accounting Pronouncements (cont’d)
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on our financial
condition or results of operations.
NOTE
2 - CAPITAL STOCK AND STOCKHOLDER’S EQUITY
We
are
authorized to issue 80,000,000 shares of common stock with a par value of $.0001
per share and 10,000,000 shares of preferred stock with a par value of $.0001
per share.
On
November 24, 2003 we issued 6,100,000 founders shares for proceeds of
$100.
Our
majority stockholder has provided his services without compensation from
inception through November 2007. We have recorded compensation expense for
these
contributed services, with the corresponding credit to additional paid-in
capital. For the years ended December 31, 2007 and 2006, we have recorded
compensation expense of $220,000 and $144,000. For the period from November
21,
2003 to December 31, 2007, compensation expense for contributed services
aggregated $724,000.
On
June
7, 2004, we granted a total of 750,000 common stock options to members of our
Scientific Advisory Board. The options vested over a four year period on
December 31 of each year. On May 15, 2007 our board approved a resolution to
accelerate the vesting of the remaining 187,500 unvested options. At that time,
all of the options were exercised. We have recorded compensation expense of
$24,082, $24,089 and $96,373 for the years ended December 31, 2007 and 2006
and
for the period from November 21, 2003 to December 31, 2007, respectively,
related to the fair value of the options that vested during that period, using
the Black-Scholes method based on the following assumption
ranges: (1) risk free interest rate of 3% - 4.9%;
(2) dividend yield of 0%; (3) estimated volatility factor of the
expected market price of our common stock of 89%; and (4) an expected
life of the options of .5 - 3 years.
On
November 10, 2006, we granted a total of 150,000 common stock options to
employees and advisors. The options vested upon grant. We have recorded
compensation expense of $18,073 for the year ended December 31, 2006 related
to
the fair value of the options, using the Black-Scholes method based on the
following assumptions: (1) risk free interest rate of 4.9%;
(2) dividend yield of 0%; (3) estimated volatility factor of the
expected market price of our common stock of 89%; and (4) an expected
life of the options of 1 year. All of these options were exercised during
2007.
During
2007, we issued an aggregate of 735,000 shares of common stock, valued at
$367,500, as compensation for consulting and financial and legal advisory
services. The compensation cost was based on the fair value of our common
stock.
During
November 2007, we sold an aggregate of 1,300,000 common shares in a private
placement at $0.50 per share, for proceeds of $650,000.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR THE PERIOD FROM NOVEMBER 21, 2003
(INCEPTION)
TO DECEMBER 31, 2007
NOTE
3 -CONVERTIBLE NOTES PAYABLE - STOCKHOLDER
We
have
executed five convertible notes with our majority stockholder pursuant to which
we have borrowed an aggregate of $155,000. The notes bear an interest rate
of
4.2% and mature at various dates through December 6, 2011. Upon the completion
of an equity financing in the amount of at least $500,000, the principal amount
of the notes, along with accrued interest, are convertible, at the option of
the
holder, into shares of our common stock at a price per share equal to that
paid
in the equity financing. Accrued interest at December 31, 2007 is
$14,800.
Principal
amounts of the notes mature as follows:
|
Years
ended December 31,
|
|
|
|
|
|
2008
|
|
$
|
35,000
|
|
|
2009
|
|
|
15,000
|
|
|
2010
|
|
|
35,000
|
|
|
2011
|
|
|
70,000
|
|
|
|
|
$
|
155,000
|
|
We
have
acquired know-how, pre-clinical data, development data and related patent
portfolios for a series of technologies that relate to targeted, potentially
curative treatments for a variety of human cancers. We currently have exclusive
option agreements to exclusively license 5 issued patents and 3 patent
applications pending worldwide. The previous owner of the intellectual
property, John Hopkins University, agreed to assign the patents underlying
the
technology to our co-founders (the “Assignee Co-Founders”) in return for their
assumption of future patent fees and costs, and patent attorney fees and costs,
associated with all of the assigned technology. In exchange for us continuing
to
pay for these future costs, the Assignee Co-Founders have entered into
world-wide, exclusive option agreements with us. These exclusive option
agreements automatically convert into world-wide, exclusive, non-fee,
non-royalty bearing license agreements upon the reimbursement of approximately
$116,000 in previously-paid patent costs, fees and expenses to John Hopkins
University. These reimbursement costs must be paid by the Assignee
Co-Founders to Johns Hopkins University. As part of our agreements with the
Assignee Co-Founders, we have agreed to provide these reimbursement costs
directly to the Assignee Co-Founders specifically for reimbursement to Johns
Hopkins University. Because these payments are to be made by us to the Assignee
Co-Founders, this may trigger a taxable event such that the Assignee Co-Founders
may be required to pay Federal and state taxes (if any) based upon our payment
of the reimbursement costs to the Assignee Co-Founders. Therefore, as part
of our agreements with the Assignee Co-Founders, we have further agreed to
provide additional funds to cover applicable Federal and state taxes (if
any) associated with the reimbursement payments. Under our agreement with the
Assignee Co-Founders, we will not be required to
make
any
other future payments, including fees, milestone or royalty fees, to either
Johns Hopkins University or the Assignee Co-Founders.
The
requirement to reimburse Johns Hopkins University for patent costs shall occur
within thirty (30) days of the first to occur of: (1) the Assignee Co-Founders
entering into a license agreement for the assigned rights with us (the exclusive
option agreements do not constitute a license agreement for purposes of this
reimbursement), or (2) the first commercial sale of any product covered by
the
claims of the intellectual property rights, or (3) any other commercial
disposition of the rights granted under the assignments. Our exclusive option
agreements expire in March 2009, and may be extended by mutual agreement of
our
co-founders and us. We expect to provide the reimbursement costs, plus any
associated Federal and state taxes, to the Assignee Co-Founders prior to March
2009. We estimate that the total monetary obligation for the reimbursement
plus taxes will not exceed $175,000.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR THE PERIOD FROM NOVEMBER 21, 2003
(INCEPTION)
TO DECEMBER 31, 2007
NOTE
5 - INCOME TAXES
We
have
adopted SFAS No. 109 which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statement or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between
financial statements and tax bases of assets and liabilities using enacted
tax
rates in effect for the year in which the differences are expected to reverse.
Temporary differences between taxable income reported for financial reporting
purposes and income tax purposes are insignificant.
Net
operating losses for tax purposes of approximately $236,000 at December 31,
2007
are available for carryover. The net operating losses will expire from 2013
through 2027. We have provided a 100% valuation allowance for the deferred
tax
benefit resulting from the net operating loss carryover due to our limited
operating history. In addressing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences are deductible. A
reconciliation of the statutory Federal income tax rate and the effective income
tax rate for the years ended December 31, 2007 and 2006 follows:
Significant
components of deferred tax assets and liabilities are as follows:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
|
94,000
|
|
|
63,000
|
|
|
Valuation
allowance
|
|
|
(94,000
|
)
|
|
(63,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
-34
|
%
|
|
-34
|
%
|
|
State
income taxes, net of federal taxes
|
|
|
-7
|
%
|
|
-7
|
%
|
|
Non-deductible
items
|
|
|
30
|
%
|
|
26
|
%
|
|
Valuation
allowance
|
|
|
11
|
%
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
0
|
%
|
|
0
|
%
|
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
AND
FOR THE PERIOD FROM NOVEMBER 21, 2003
(INCEPTION)
TO DECEMBER 31, 2007
NOTE
5- STOCK OPTIONS
Transactions
involving our stock options are summarized as follows:
|
|
|
2007
|
|
2006
|
|
|
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
at beginning of the period
|
|
|
900,000
|
|
$
|
0.003
|
|
|
750,000
|
|
$
|
0.0016
|
|
|
Granted
during the period
|
|
|
—
|
|
|
—
|
|
|
150,000
|
|
|
0.01
|
|
|
Exercised
during the period
|
|
|
(900,000
|
)
|
|
0.003
|
|
|
—
|
|
|
—
|
|
|
Terminated
during the period
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding
at end of the period
|
|
|
—
|
|
$
|
—
|
|
|
900,000
|
|
$
|
0.003
|
|
|
Exercisable
at end of the period
|
|
|
—
|
|
$
|
—
|
|
|
712,500
|
|
$
|
0.003
|
|
The
intrinsic value of options exercised during 2007 was approximately $114,000.
NOTE
6- SUBSEQUENT EVENTS
Subsequent
to December 31, 2007:
|
|
·
|
We
granted 100,000 shares of common stock as
compensation.
|
|
|
·
|
We
issued 31,718 shares of common stock as payment of accrued interest
on our
convertible notes.
|
|
|
·
|
We
granted an aggregate of 300,000 stock options to members of our board
of
directors.
|
|
|
·
|
We
granted an aggregate of 240,000 stock options to members of our Scientific
Advisory Board.
|
|
|
·
|
We
granted an aggregate of 2,120,000 stock options and warrants as
compensation for consulting
services.
|
Of
the
above options and warrants, 1,660,000 have an exercise price of $0.50 per share
and 1,000,000 have an exercise price of $1.00 per share.
During
March 2008, we received $500,000 upon the exercise of 1,000,000 warrants granted
in 2008.
GENSPERA
INC.
(A
Development Stage Company)
CONDENSED
BALANCE SHEET
JUNE
30,2008
(Unaudited)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
251,781
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
251,781
|
|
|
|
|
|
|
|
|
Intangible
assets, net of accumulated amortization of $3,837
|
|
|
180,331
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
432,112
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses:
|
|
$
|
32,333
|
|
|
Accrued
interest - stockholder
|
|
|
2,153
|
|
|
Convertible
note payable - stockholder, current portion
|
|
|
35,000
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
69,486
|
|
|
|
|
|
|
|
|
Convertible
notes payable - stockholder, long term portion
|
|
|
120,000
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
189,486
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $.0001 per share; 10,000,000 shares authorized,
|
|
|
|
|
|
none
issued and outstanding
|
|
|
-
|
|
|
Common
stock, par value $.0001 per share; 80,000,000 shares
authorized,
|
|
|
|
|
|
10,166,718
shares issued and outstanding
|
|
|
1,017
|
|
|
Additional
paid-in capital
|
|
|
2,719,336
|
|
|
Deficit
accumulated during the development stage
|
|
|
(2,477,727
|
)
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
242,626
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
432,112
|
|
See
accompanying notes to these unaudited condensed financial
statements.
GENSPERA,
INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF LOSSES
FOR
THE
SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
AND
FOR
THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO JUNE 30, 2008
(Unaudited)
|
|
|
|
|
|
|
Cumulative Period
|
|
|
|
|
|
|
|
|
from November 21, 2003
|
|
|
|
|
|
|
|
|
(date of inception) to
|
|
|
|
|
Six Months ended June 30,
|
|
June 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
513,536
|
|
$
|
263,651
|
|
$
|
948,784
|
|
|
Research
and development
|
|
|
518,995
|
|
|
144,564
|
|
|
1,510,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,032,531
|
|
|
408,215
|
|
|
2,459,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,032,531
|
)
|
|
(408,215
|
)
|
|
(2,459,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(3,211
|
)
|
|
(3,220
|
)
|
|
(18,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(1,035,742
|
)
|
|
(411,435
|
)
|
|
(2,477,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,035,742
|
)
|
$
|
(411,435
|
)
|
$
|
(2,477,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.11
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
9,789,282
|
|
|
6,547,347
|
|
|
|
|
See
accompanying notes to these unaudited condensed financial
statements.
GENSPERA,
INC.
(A
Development Stage Company)
CONDENSED
STATEMENT OF STOCKHOLDERS' EQUITY
FROM
DATE
OF INCEPTION (NOVEMBER 21, 2003) TO JUNE 30, 2008
(Unaudited)
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Additional
|
|
During the
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Development
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
November 21, 2003
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock to founders at $0.0001 per share in November,
2003
|
|
|
6,100,000
|
|
|
610
|
|
|
(510
|
)
|
|
-
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
120,000
|
|
|
-
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(125,127
|
)
|
|
(125,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
6,100,000
|
|
|
610
|
|
|
119,490
|
|
|
(125,127
|
)
|
|
(5,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
192,000
|
|
|
-
|
|
|
192,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
24,102
|
|
|
-
|
|
|
24,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(253,621
|
)
|
|
(253,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
6,100,000
|
|
|
610
|
|
|
335,592
|
|
|
(378,748
|
)
|
|
(42,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
48,000
|
|
|
-
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
24,100
|
|
|
-
|
|
|
24,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(126,968
|
)
|
|
(126,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
6,100,000
|
|
|
610
|
|
|
407,692
|
|
|
(505,716
|
)
|
|
(97,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
144,000
|
|
|
-
|
|
|
144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
42,162
|
|
|
-
|
|
|
42,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(245,070
|
)
|
|
(245,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
6,100,000
|
|
|
610
|
|
|
593,854
|
|
|
(750,786
|
)
|
|
(156,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
sold for cash at $0.50 per share in November, 2007
|
|
|
1,300,000
|
|
|
130
|
|
|
649,870
|
|
|
-
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
735,000
|
|
|
74
|
|
|
367,426
|
|
|
-
|
|
|
367,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services
|
|
|
-
|
|
|
-
|
|
|
220,000
|
|
|
-
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
24,082
|
|
|
-
|
|
|
24,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options for cash at $0.003 per share in March and June,
2007
|
|
|
900,000
|
|
|
90
|
|
|
2,610
|
|
|
-
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(691,199
|
)
|
|
(691,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
9,035,000
|
|
$
|
904
|
|
$
|
1,857,842
|
|
$
|
(1,441,985
|
)
|
$
|
416,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants for cash at $0.50 per share on March 7,2008 -
Unaudited
|
|
|
1,000,000
|
|
|
100
|
|
|
499,900
|
|
|
-
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for accrued interest - Unaudited
|
|
|
31,718
|
|
|
3
|
|
|
15,856
|
|
|
-
|
|
|
15,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services - Unaudited
|
|
|
100,000
|
|
|
10
|
|
|
49,990
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation - Unaudited
|
|
|
-
|
|
|
-
|
|
|
245,748
|
|
|
-
|
|
|
245,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
services - Unaudited
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss - Unaudited
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,035,742
|
)
|
|
(1,035,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008 - Unaudited
|
|
|
10,166,718
|
|
$
|
1,017
|
|
$
|
2,719,336
|
|
$
|
(2,477,727
|
)
|
$
|
242,626
|
|
See
accompanying notes to these unaudited condensed financial
statements.
GENSPERA,
INC.
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CASH FLOWS
FOR
THE
SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
AND
FOR
THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO JUNE 30, 2008
(Unaudited)
|
|
|
|
|
Cumulative Period
|
|
|
|
|
|
|
from November 21, 2003
|
|
|
|
|
|
|
(date of inception) to
|
|
|
|
|
Six Months ended June 30,
|
|
June 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,035,742
|
)
|
$
|
(411,435
|
)
|
$
|
(2,477,727
|
)
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
3,837
|
|
|
-
|
|
|
3,837
|
|
|
Stock
based compensation
|
|
|
295,748
|
|
|
269,082
|
|
|
777,694
|
|
|
Contributed
services
|
|
|
50,000
|
|
|
120,000
|
|
|
774,000
|
|
|
Increase
in accounts payable and accrued expenses
|
|
|
31,671
|
|
|
4,819
|
|
|
50,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used in operating activities
|
|
|
(654,486
|
)
|
|
(17,534
|
)
|
|
(871,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of intangibles
|
|
|
(184,168
|
)
|
|
-
|
|
|
(184,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
500,000
|
|
|
2,700
|
|
|
1,152,800
|
|
|
Proceeds
from convertible notes - stockholder
|
|
|
-
|
|
|
-
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by financing activities
|
|
|
500,000
|
|
|
2,700
|
|
|
1,307,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(338,654
|
)
|
|
(14,834
|
)
|
|
251,781
|
|
|
Cash,
beginning of period
|
|
|
590,435
|
|
|
15,763
|
|
|
-
|
|
|
Cash,
end of period
|
|
$
|
251,781
|
|
$
|
929
|
|
$
|
251,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financial activities:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest paid with common stock
|
|
$
|
15,859
|
|
$
|
-
|
|
|
|
|
See
accompanying notes to these unaudited condensed financial
statements.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
A
summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows.
Business
and Basis of Presentation
GenSpera
Inc. (“
we”,
“us”,
“
our
company
“,
“our”,
“GenSpera”
or the “Company”
) was
formed under the laws of the State of Delaware in 2003. We are a development
stage company, as defined by Statement of Financial Accounting Standards
(“SFAS”) No. 7. GenSpera, Inc. is a pharmaceutical company focused on the
development of targeted cancer therapeutics for the treatment of cancerous
tumors, including breast, prostate, bladder and kidney cancer. Our operations
are based in Los Angeles, California.
To
date,
we have generated no sales revenues, have incurred significant expenses and
have
sustained losses. Consequently, our operations are subject to all the risks
inherent in the establishment of a new business enterprise. For the period
from
inception on November 21, 2003 through June 30, 2008, we have accumulated
losses
of $2,477,727.
The
accompanying unaudited condensed financial statements as of June 30, 2008
and
for the six month periods ended June 30, 2008 and 2007 and from date of
inception as development stage enterprise (November 21, 2003) to June 30,
2008
have been prepared by GenSpera pursuant to the rules and regulations of the
Securities and Exchange Commission, including Form 10-Q and Regulation S-X.
The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective periods.
Certain information and footnote disclosures normally present in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to such
rules and regulations. The company believes that the disclosures provided
are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the audited financial statements
and explanatory notes for the year ended December 31, 2007 as disclosed
elsewhere in this Prospectus.
The
results of the six months ended June 30, 2008 are not necessarily indicative
of
the results to be expected for the pending full year ending December 31,
2008.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the financial statements and accompanying
disclosures. Although these estimates are based on management's best knowledge
of current events and actions the Company may undertake in the future, actual
results may differ from those estimates.
Research
and Development
Research
and development costs include expenses incurred by the Company for research
and
development of therapeutic agents for the treatment of cancer and are charged
to
operations as incurred.
GenSpera
incurred research and development expenses of $518,995, $144,564 and $1,510,411
for the six month periods ended June 30, 2008 and 2007, and from November
21,
2003 (inception) through June 30, 2008, respectively.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
1 - SUMMARY OF ACCOUNTING POLICIES (cont’d)
Intangible
Assets
Intangible
assets consist of the world-wide, exclusive, non-fee, non-royalty bearing
license agreements covering 5 issued patents and 3 patent applications pending
worldwide (see Note 4). These assets are recorded at cost. The patents are
being amortized on the straight line basis over their estimated useful lives
of
twelve years.
Loss
Per Share
We
use
SFAS No. 128, “Earnings Per Share” for calculating the basic and diluted
loss per share. We compute basic loss per share by dividing net loss and
net
loss attributable to common shareholders by the weighted average number of
common shares outstanding. Diluted loss per share is computed similar to
basic
loss per share except that the denominator is increased to include the number
of
additional common shares that would have been outstanding if the potential
shares had been issued and if the additional shares were dilutive. Common
equivalent shares are excluded from the computation of net loss per share
if
their effect is anti-dilutive. There were 1,958,306 and 333,160 common share
equivalents at June 30, 2008 and 2007, respectively. For the six month
periods ended June 30, 2008 and 2007, these potential shares were excluded
from the shares used to calculate diluted earnings per share as their inclusion
would reduce net loss per share.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No.157,
Fair
Value Measurements
(“SFAS
157”). SFAS 157 defines fair value to be the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date and emphasizes that
fair
value is a market-based measurement, not an entity-specific measurement.
It establishes a fair value hierarchy and expands disclosures about fair
value measurements in both interim and annual periods. SFAS 157 is effective
for
fiscal years beginning after November 15, 2007 and interim periods within
those
fiscal years. We adopted SFAS 157 on January 1, 2008 which did not have a
material impact on our financial position and results of operations. We
also
adopted the deferral provisions of the Financial Accounting Standards Board
Staff Position No. 157-2, which delays the effective date of SFAS
No. 157 for all nonrecurring fair value measurements of non-financial
assets and liabilities until fiscal years beginning after November 15,
2008.
Fair
value is defined as the exchange price that would be received for an asset
or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between
market participants on the measurement date. SFAS No. 157 also
expands disclosures about instruments measured at fair value and establishes
a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to
measure fair value:
Level
1 —
Quoted prices for identical assets and liabilities in active
markets;
Level
2 —
Quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that
are not
active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets;
and
Level
3 —
Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
We
designate cash equivalents as Level 1. As of June 30, 2008, and
December 31, 2007, we did not have any cash equivalents, therefore there
were no assets measured at fair value.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities-Including
an
Amendment of FASB Statement No. 115
(“SFAS
159”). SFAS 159 permits entities to measure eligible assets and
liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. We adopted SFAS 159 on January 1, 2008 and did not
elect the fair value option which did not have a material impact on our
financial position and results of operations.
In
December 2007, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 141R,
Business
Combinations
, and
Statement of Financial Accounting Standards No. 160,
Noncontrolling
Interests in Consolidated Financial Statements,
an
amendment of ARB No. 51
.
These new standards significantly change the accounting for and reporting
of
business combination transactions and noncontrolling interests (previously
referred to as minority interests) in consolidated financial statements.
Both standards are effective for fiscal years beginning on or after December
15,
2008, with early adoption prohibited. These Statements are effective for
the
Company beginning on January 1, 2009. The Company is currently evaluating
the provisions of FAS 141(R) and FAS 160.
In
March
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 161,
Disclosures
About Derivative Instruments and Hedging Activities,
an
amendment of FASB Statement No. 133
.
This new standard enhances the disclosure requirements related to derivative
instruments and hedging activities required by
FASB
Statement No. 133
.
This standard is effective for fiscal years and interim periods beginning
after
November 15, 2008, with early adoption encouraged. We adopted the required
provisions of SFAS 161 on January 1, 2008 and the adoption did not have
a
significant impact on our financial position and results of
operations.
NOTE
2 - CAPITAL STOCK AND STOCKHOLDER’S EQUITY
We
are
authorized to issue 80,000,000 shares of common stock with a par value of
$.0001
per share and 10,000,000 shares of preferred stock with a par value of $.0001
per share.
Our
majority stockholder has provided his services without compensation from
inception through November 2007. We have recorded compensation expense for
these
contributed services, with the corresponding credit to additional paid-in
capital. For the six months ended June 30, 2007, we have recorded compensation
expense of $120,000.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
2 - CAPITAL STOCK AND STOCKHOLDER’S EQUITY (cont’d)
On
January 1, 2008, we granted a total of 1,000,000 common stock warrants to
consultants for financial services. The warrants have an exercise price
of $0.50 per share. The warrants vested upon grant. We have recorded an
expense of $89,680 during the six months ended June 30, 2008 related to the
fair
value of the warrants that vested during that period, using the Black-Scholes
method based on the following assumptions: (1) risk free
interest rate of 3.2%; (2) dividend yield of 0%; (3) volatility
factor of the expected market price of our common stock of 89%; and
(4) an expected life of the warrants of .25 years. The warrants were
exercised during March and we received proceeds of $500,000.
On
January 7, 2008, we granted 100,000 shares of common stock, valued at $50,000,
to a director as payment for services. The shares were vested upon
grant.
On
February 1, 2008, we granted a total of 240,000 common stock options to members
of our Scientific Advisory Board. The options have an exercise price
of $0.50 per share.
The
options vest in equal installments quarterly over a period of three years
commencing March 31, 2008, and lapse if unexercised on January
31, 2018.
We have
recorded an expense of $10,155 during the six months ended June 30, 2008
related
to the fair value of the options that vested during that period, using the
Black-Scholes method based on the following weighted average
assumptions: (1) risk free interest rate of 2.4%;
(2) dividend yield of 0%; (3) volatility factor of the expected market
price of our common stock of 95%; and (4) an expected life of the
options of 2 years.
On
February 11, 2008, we granted a total of 100,000 common stock options to
a
consultant for investor relation services. The options have an exercise price
of $0.50 per share and expire if unexercised on February 11, 2013. The
options vest 20,000 upon grant and 80,000 upon the attainment of certain
financial milestones. Any options not vesting by June 30, 2008 terminate
on that
date. Of the 80,000 options subject to the attainment of financial milestones,
64,000 vested on June 30, 2008. We have recorded an expense of $21,906 during
the six months ended June 30, 2008 related to the fair value of the options
that
vested during that period, using the Black-Scholes method based on the following
weighted average assumptions: (1) risk free interest rate
of 2.7%; (2) dividend yield of 0%; (3) volatility factor of the
expected market price of our common stock of 97%; and (4) an expected
life of the options of 2 years.
On
February 11, 2008, we granted a total of 20,000 common stock options to a
consultant for professional services. The options have an exercise price
of $0.50 per share. The options vest in equal installments quarterly over a
period of one year commencing March 31, 2008, and lapse if unexercised on
February 11, 2018. We have recorded an expense of $2,538 during the six
months ended June 30, 2008 related to the fair value of the options that
vested
during that period, using the Black-Scholes method based on the following
weighted average assumptions: (1) risk free interest rate
of 2.4%; (2) dividend yield of 0%; (3) volatility factor of the
expected market price of our common stock of 95%; and (4) an expected
life of the options of 2 years.
On
March
6, 2008, we granted a total of 1,000,000 common stock warrants to consultants
for financial services. The warrants have an exercise price of $1.00 per
share. The warrants vested upon grant and expire if unexercised on March
6,
2011. We have recorded an expense of $76,338 during the six months ended
June
30, 2008 related to the fair value of the warrants that vested during that
period, using the Black-Scholes method based on the following
assumptions: (1) risk free interest rate of 2%;
(2) dividend yield of 0%; (3) volatility factor of the expected market
price of our common stock of 89%; and (4) an expected life of the
warrants of 1 year.
During
March 2008, we granted to each of three new members of our board of directors,
as compensation for serving on our board of directors, options to
purchase 100,000 common shares at $0.50 per share, reflecting the fair
market value of the shares as of that date. The options vest 50,000 each
upon
grant with the balance vesting quarterly over a period of two years commencing
March 31, 2008, and lapse if unexercised on April 1, 2018. The 300,000
options have been valued at $72,208 at the date of grant using the Black-Scholes
method based on the following assumptions: (1) risk free
interest rate of 2%; (2) dividend yield of 0%; (3) volatility
factor of the expected market price of our common stock of 100%; and
(4) an expected life of the options of 2 years. We have recorded an
expense of $45,130 during the six months ended June 30, 2008.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
2 - CAPITAL STOCK AND STOCKHOLDER’S EQUITY (cont’d)
On
March
7, 2008, we issued 31,718 shares of common stock to our president as payment
of
accrued interest in the amount of $15,859. Of this amount, $14,800 had been
accrued at December 31, 2007.
On
June
7, 2004, we granted a total of 750,000 common stock options to members of
our
Scientific Advisory Board. The options vested over a four year period on
December 31 of each year. On May 15, 2007 our board approved a resolution
to
accelerate the vesting of the remaining 187,500 unvested options. At that
time,
all of the options were exercised and we received proceeds of $1,200. We
have
recorded compensation expense of $24,082 for the six months ended June 30,
2007
related to the fair value of the options that vested during that period,
using
the Black-Scholes method based on the following assumption
ranges: (1) risk free interest rate of 3% - 4.9%;
(2) dividend yield of 0%; (3) estimated volatility factor of the
expected market price of our common stock of 89%; and (4) an expected
life of the options of .5 - 3 years.
On
November 10, 2006, we granted a total of 150,000 common stock options to
employees and advisors. The options vested upon grant. All of these options
were
exercised during 2007 and we received proceeds of $1,500.
During
May 2007, we issued an aggregate of 245,000 shares of common stock, valued
at
$122,500, as compensation for legal advisory services. The compensation cost
was
based on the fair value of our common stock.
NOTE
3 -CONVERTIBLE NOTES PAYABLE - STOCKHOLDER
We
have
executed five convertible notes with our majority stockholder pursuant to
which
we have borrowed an aggregate of $155,000. The notes bear an interest rate
of
4.2% and mature at various dates through December 6, 2011. Interest accrued
through February 29, 2008 was $15,859. On March 7, 2008 we issued 31,718
shares
of common stock as payment of this amount. Accrued interest at June 30, 2008
was
$2,153.
We
have
acquired know-how, pre-clinical data, development data and related patent
portfolios for a series of technologies that relate to targeted, potentially
curative treatments for a variety of human cancers. We currently have
world-wide, exclusive, non-fee, non-royalty bearing license agreements covering
5 issued patents and 3 patent applications pending worldwide. The previous
owner of the intellectual property, John Hopkins University, agreed to assign
the patents underlying the technology to our co-founders (the “Assignee
Co-Founders”) in return for their assumption of future patent fees and costs,
and patent attorney fees and costs, associated with all of the assigned
technology. In exchange for us continuing to pay for these future costs,
the
Assignee Co-Founders have entered into world-wide, exclusive option agreements
with us. These exclusive option agreements automatically converted into
world-wide, exclusive, non-fee, non-royalty bearing license agreements upon
the
reimbursement of approximately $122,778 in previously-paid patent costs,
fees
and expenses to John Hopkins University. These reimbursement costs were
required to be paid by the Assignee Co-Founders to Johns Hopkins University.
As
part of our agreements with the Assignee Co-Founders, we have provided these
reimbursement costs directly to the Assignee Co-Founders specifically for
reimbursement to Johns Hopkins University. Because these payments have been
made
by us to the Assignee Co-Founders, this may trigger a taxable event such
that
the Assignee Co-Founders may be required to pay Federal and state taxes (if
any)
based upon our payment of the reimbursement costs to the Assignee
Co-Founders. Therefore, as part of our agreements with the Assignee Co-Founders,
we have further provided additional funds aggregating $61,389, to cover
applicable Federal and state taxes (if any) associated with the
reimbursement payments. Under our agreement with the Assignee Co-Founders,
we
will not be required to make any other future payments, including fees,
milestone or royalty fees, to either Johns Hopkins University or the Assignee
Co-Founders.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
4 – INTELLECTUAL PROPERTY (cont’d)
On
March
10, 2008, we paid an aggregate of $184,167 to acquire the world-wide, exclusive,
non-fee, non-royalty bearing license agreements covering 5 issued patents
and 3
patent applications pending worldwide described above.
Amortization
expense recorded during the period ended June 30, 2008 was $3,837.
NOTE
5- STOCK OPTIONS AND WARRANTS
Transactions
involving our stock options and warrants are summarized as
follows:
|
|
|
2008
|
|
2007
|
|
|
|
|
Number
|
|
Weighted
Average
Exercise Price
|
|
Number
|
|
Weighted
Average Exercise
Price
|
|
|
Outstanding
at beginning of the period
|
|
|
—
|
|
$
|
—
|
|
|
900,000
|
|
$
|
0.003
|
|
|
Granted
during the period
|
|
|
2,660,000
|
|
|
0.69
|
|
|
—
|
|
|
—
|
|
|
Exercised
during the period
|
|
|
(1,000,000
|
)
|
|
0.50
|
|
|
(900,000
|
)
|
|
0.003
|
|
|
Terminated
during the period
|
|
|
(16,000
|
)
|
|
0.50
|
|
|
—
|
|
|
—
|
|
|
Outstanding
at end of the period
|
|
|
1,644,000
|
|
$
|
0.80
|
|
|
—
|
|
$
|
—
|
|
|
Exercisable
at end of the period
|
|
|
1,301,500
|
|
$
|
0.88
|
|
|
—
|
|
$
|
—
|
|
There
was
no intrinsic value to the warrants exercised during 2008. The intrinsic value
of
options exercised during 2007 was approximately $114,000.
NOTE
6- SUBSEQUENT EVENTS
During
July and August of 2008, we sold an aggregate of 2,320,000 units resulting
in
gross proceeds of
$2,320,000
or
$1.00
per unit. Net cash received was $2,278,000. Each unit consists of 1 share
of
common stock and ½ common stock purchase warrant. The warrants have a term of 5
years and an exercise price of $2.00 per share subject to certain anti-dilution
adjustments. The warrants are also callable by the Company in the event the
Company’s shares are publically traded in the future and certain price and
volume conditions are met.
TR
Winston & Company, LLC acted as the Company’s placement agent with respect
to the transaction. Pursuant to a placement agent agreement with TR Winston
& Company, LLC we agreed to the following compensation: (i) cash fee equal
to 8% of gross proceeds raised, including any payments made to the Company
upon
the exercise of the warrants; (ii) the issuance of a warrant to purchase
8% of
all securities issued; and (iii) payment of legal expenses totaling $20,000.
As
an accommodation to the Company, TR Winston & Company, LLC agreed to receive
a convertible debenture and warrants to purchase an additional 81,800 common
shares in lieu of $163,600 of its cash fee.
GENSPERA,
INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
The
convertible debenture accrues interest at 5% per annum and has a maturity
date
of July 14, 2009. It is convertible into the shares of the Company’s common
stock, at the sole discretion of the holder, at $1.00 per share subject to
certain anti-dilution adjustments.
6,387,400
Shares of Common Stock
Prospectus
October
3, 2008
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13.
Other
Expenses of Issuance and Distribution.
The
following table sets forth the estimated costs and expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission, or SEC, registration
fees.
|
|
|
To
be Paid
by
the
Registrant
|
|
|
SEC
registration fees
|
|
$
|
316
|
|
|
Legal
fees and expenses
|
|
$
|
0
|
|
|
Accounting
fees and expenses
|
|
$
|
10,000
|
|
|
Printing
and engraving expenses
|
|
$
|
5,000
|
|
|
Transfer
agent’s fees
|
|
$
|
2,000
|
|
|
Miscellaneous
fees and expenses
|
|
$
|
5,000
|
|
|
Total
|
|
$
|
22,316
|
|
Item 14.
Indemnification
of Directors and Officers.
Section 102
of the Delaware General Corporation Law, as amended, or DGCL, allows a
corporation to eliminate the personal liability of directors to a corporation
or
its stockholders for monetary damages for a breach of a fiduciary duty as a
director, except where the director breached his duty of loyalty, failed to
act
in good faith, engaged in intentional misconduct or knowingly violated a law,
authorized the payment of a dividend or approved a stock repurchase or
redemption in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145
of the DGCL provides, among other things, that a corporation 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 an
action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation,
or
is or was serving at the corporation’s request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys’ fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding. The power to indemnify applies
if (i) such person is successful on the merits or otherwise in defense of
any action, suit or proceeding or (ii) such person acted in good faith and
in a manner he or she 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 his conduct was unlawful. The
power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense expenses (including
attorneys’ fees but excluding amounts paid in settlement) actually and
reasonably incurred and not to any satisfaction of judgment or settlement of
the
claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence
or
misconduct in the performance of his duties to the corporation, unless a court
believes that in light of all the circumstances indemnification should
apply.
Section 174
of the DGCL provides, among other things, that a director who willfully and
negligently approves of an unlawful payment of dividends or an unlawful stock
purchase or redemption may be held liable for such actions. A director who
was
either absent when the unlawful actions were approved or dissented at the time,
may avoid liability by causing his or her dissent to such actions to be entered
in the books containing the minutes of the meetings of the board of directors
at
the time the action occurred or immediately after the absent director receives
notice of the unlawful acts.
Our
certificate of incorporation states that, to the fullest extent permitted by
the
DGCL, no director shall be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as director.
Our
bylaws provide that we shall, to the fullest extent authorized by the DGCL,
indemnify any person who was or is made a party or threatened to be made a
party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she or a
person of whom he or she is the legal representative, is or was our director
or
officer or is or was serving at our request as a director or officer of another
corporation, or as a controlling person of a partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director or officer, or in any other capacity while serving as a director
or officer, against all expenses, liability or loss reasonably incurred or
suffered by such person in connection with such action, suit or proceeding.
Our
bylaws also provide that we may enter into one or more agreements with any
director, officer, employee or agent of ours, or any person serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, that provides for indemnification rights equivalent to or, if
our
board of directors so determines, greater than, those provided for in such
bylaws.
We
maintain a liability insurance policy for our directors and officers, subject
to
certain exclusions.
Item 15.
Recent
Sales of Unregistered Securities.
The
following information is given with regard to unregistered securities sold
during the preceding three years including the dates and amounts of securities
sold, the persons or class of persons to whom we sold the securities, the
consideration received in connection with such sales and, if the securities
were
issued or sold other than for cash, the description of the transaction and
the
type and amount of consideration received. The descriptions contained
below are a summary and qualified by the agreements, if applicable, included
as
Exhibits to this Registration Statement. The following securities were issued
in
private offerings pursuant to the exemption from registration contained in
Section 4(2) of the Securities Act and the rules promulgated
thereunder:
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|
·
|
On
June 7, 2004, we granted a total of 750,000 common stock options
to
members of our Scientific Advisory Board. The options vested over
a four
year period on December 31 of each year and have an exercise price
of
$0.0016.
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|
|
·
|
On
September 29, 2004, we issued one of our shareholders a convertible
note
in the amount of $15,000. The consideration paid by the shareholder
was
cash. The note accrues interest at 4.2% per annum and is convertible
into
common shares at $0.50 per share. The note is due and payable on
September
28, 2009.
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|
|
·
|
On
December 23, 2005, we issued one of our shareholders a convertible
note in
the amount of $35,000. The consideration paid by the shareholder
was cash.
The note accrues interest at 4.2% per annum and is convertible into
common
shares at $0.50 per share. The note is due and payable on December
22,
2010.
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|
|
·
|
On
May 19, 2006, we issued one of our shareholders a convertible note
in the
amount of $40,000. The consideration paid by the shareholder was
cash. The
note accrues interest at 4.2% per annum and is convertible into common
shares at $0.50 per share. The note is due and payable on May 18,
2011.
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|
|
·
|
On
November 10, 2006, we granted a total of 150,000 common stock options
to
employees and advisors. The options vested upon grant, have a term
of 10
years and an exercise price of $0.01. All of these options were exercised
during 2007.
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|
|
·
|
On
December 6, 2006, we issued one of our shareholders a convertible
note in
the amount of $30,000. The consideration paid by the shareholder
was cash.
The note accrues interest at 4.2% per annum and is convertible into
common
shares at $0.50 per share. The note is due and payable on December
6,
2011.
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|
|
·
|
In
March and June of 2007 we issued a total of 900,000 common shares
to
employees and advisors in connection with the exercise of the options
granted on June 7, 2004 and November 10, 2006.
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|
|
·
|
During
2007, we issued an aggregate of 735,000 shares of common stock, valued
at
$367,500, as compensation for consulting and financial and legal
advisory
services. The compensation cost was based on the fair value of our
common
stock as determined by the Company’s board of
directors.
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|
|
·
|
During
November 2007, we sold an aggregate of 1,300,000 common shares in
a
private placement to accredited investors at $0.50 per share, for
gross
proceeds of $650,000.
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|
|
·
|
On
January 1, 2008, we granted a total of 1,000,000 common stock warrants
to
consultants for financial services. The warrants have an exercise
price
of $0.50 per share. The warrants vested upon grant.
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|
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·
|
On
January 7, 2008, we granted 100,000 shares of common stock, valued
at
$50,000, to a director as compensation for serving on the board.
The
shares were vested upon grant.
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|
|
·
|
On
February 1, 2008, we granted a total of 240,000 common stock options
to
members of our Scientific Advisory Board. The options have an exercise
price of $0.50 per share.
The
options vest in equal installments quarterly over a period of three
years
commencing March 31, 2008, and lapse if unexercised on January 31,
2018.
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|
|
·
|
On
February 11, 2008, we granted a total of 100,000 common stock options
to a
consultant for investor relation services. The options have an exercise
price of $0.50 per share and expire if unexercised on February 11,
2013. The options vest 20,000 upon grant and 80,000 upon the attainment
of
certain financial milestones. Any options not vesting by June 30,
2008
terminate on that date. Of the 80,000 options subject to the attainment
of
financial milestones, 64,000 vested on June 30, 2008.
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|
|
·
|
On
February 11, 2008, we granted a total of 20,000 common stock options
to a
consultant for professional services. The options have an exercise
price
of $0.50 per share. The options vest in equal installments quarterly
over a period of one year commencing March 31, 2008, and lapse if
unexercised on February 11, 2018.
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|
|
·
|
On
March 6, 2008, we granted a total of 1,000,000 common stock warrants
to
consultants for financial services. The warrants have an exercise
price
of $1.00 per share.
|
|
|
·
|
On
March 7, 2008, we issued 1,000,000 common shares upon the exercise
of
1,000,000 common stock warrants at $.50 per share. We received gross
proceeds of $500,000.
|
|
|
·
|
During
March 2008, we granted to our board of directors, as compensation
for
serving on our board of directors, options to purchase an aggregate
of 300,000 common shares at $0.50 per share, reflecting the fair
market value of the shares as of that date. The options vest 150,000
upon
grant with the balance vesting quarterly over a period of two years
commencing March 31, 2008, and lapse if unexercised on April 1, 2018.
|
|
|
·
|
On
March 7, 2008, we issued 31,718 shares of common stock to our Chief
Executive Officer and President as payment of accrued interest in
the
amount of $15,859.
|
|
|
·
|
During
July and August of 2008, we sold an aggregate of 2,320,000 units
resulting
in gross proceeds of
$2,320,000
or
$1.00 per unit. Each unit consists of: (i) 1 share of common stock;
and
(ii) ½ common stock purchase warrant.
The
warrants have a term of 5 years and an exercise price of $2.00 per
shares
subject to certain anti-dilution adjustments. The warrants are also
callable by the Company in the event the Company’s shares are publically
traded in the future and certain price and volume conditions are
met.
|
TR
Winston & Company, LLC acted as the Company’s placement agent with respect
to the transaction. Pursuant to a placement agent agreement with TR Winston
& Company, LLC we agreed to the following compensation: (i) cash fee equal
to 8% of gross proceeds raised, including any payments made to the Company
upon
the exercise of the warrants; (ii) the issuance of a warrant to purchase 8%
of
all securities issued; and (iii) payment of legal expenses totaling $20,000.
Accordingly, we issued to TR Winston & Company, LLC a warrant to purchase
278,400 common shares. The warrant has an exercise price per common shares
of
$2.00 and a term of 5 years.
Also,
as
an accommodation to the Company, TR Winston & Company, LLC agreed to receive
a convertible debenture and warrants to purchase an additional 81,800 common
shares in lieu of $163,600 of its cash fee. The convertible debenture accrues
interest at 5% per annum and has a maturity date of July 14, 2009. It is
convertible into the shares of the Company’s common stock, at the sole
discretion of the holder, at $1.00 per share subject to certain anti-dilution
adjustments. The warrant has the same terms as those issued to investors in
the
offering.
See
Exhibit Index beginning on page 66 of this registration
statement.
Insofar
as indemnification by the Registrant for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions referenced in Item 15 of this
registration statement or otherwise, the Registrant has been advised that in
the
opinion of the SEC such indemnification is against public policy as expressed
in
the Securities Act, and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
The
undersigned Registrant hereby undertakes:
|
(1)
|
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration
statement:
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|
(i)
|
To
include any prospectus required by section 10(a)(3) of the Securities
Act;
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|
(ii)
|
To
reflect in the prospectus any facts or events arising after the
effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may
be
reflected in the form of prospectus filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
and
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(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
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(2)
|
That,
for the purpose of determining any liability under the Securities
Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the
offering of such securities at that time shall be deemed to be
the initial
bona fide offering thereof.
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(3)
|
To
remove from registration by means of a post-effective amendment
any of the
securities being registered which remain unsold at the termination
of the
offering.
|
The
undersigned Registrant hereby undertakes that, for purposes of determining
any
liability under the Securities Act, each filing of the Registrant’s annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange
Act
of 1934, as amended, or the Exchange Act, that is incorporated by reference
in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of San Antonio, State of Texas, on October 3,
2008.
|
GENSPERA,
INC.
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By:
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/S/ Craig
Dionne,
PhD
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Craig
Dionne, PhD
Chief
Executive Officer
|
POWER
OF ATTORNEY
KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Craig Dionne and Russel Richerson, and each of them
acting alone, with full power of substitution and resubstitution and full power
to act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him and in his name, place
and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and all documents in connection therewith (including
all
post-effective amendments and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act), with the SEC, granting unto
said attorney-in-fact and agent, full power and authority to do and perform
each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done
by
virtue hereof.
Pursuant
to the requirements of the Securities Act, this registration statement has
been
signed by the following persons in the capacities and on the dates
indicated.
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Signature
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Title
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Date
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/S/ CRAIG
DIONNE
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Chief
Executive Officer, President and Director
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October
3, 2008
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(Principal
Executive Officer)
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/S/ CRAIG
DIONNE
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Chief
Financial Officer
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(Principal
Financial and Accounting Officer)
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/S/ JOHN
M. FARAH,
JR
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Director
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/S/ SCOTT
OGILVIE
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Director
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Scott
Ogilvie
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INDEX
TO EXHIBITS
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Incorporated
by Reference
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Exhibit
No.
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Form
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Exhibit
No.
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File No.
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Filing Date
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3.01
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Amended
and Restated Certificate of Incorporation
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*
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3.02
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Bylaws
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*
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4.01
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Specimen
of Common Stock certificate
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*
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4.02
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GenSpera
2007 Equity Compensation Plan
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*
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4.03
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GenSpera
2007 Equity Compensation Plan form of Incentive Stock Option
Grant
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*
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4.04
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GenSpera
2007 Equity Compensation Plan form of Nonqualified Stock Option
Grant
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*
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4.05
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Form
of 4.2% convertible note issued to shareholder
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*
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4.06
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Form
of Subscription Agreement for November 2007 offering
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*
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4.07
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Form
of Warrant dated March 6, 2008 issued to consultant for financial
consulting services.
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*
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4.08
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Form
of Securities Purchase Agreement—July and August 2008 private
placement
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*
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4.09
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Form
of Registration Rights Agreement – July and August 2008 private
placement
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*
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4.10
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Form
of Warrant – July and August 2008 private placement
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*
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4.11
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Form
of insider Lock-Up Agreement – July and August 2008 private
placement
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*
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4.12
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Form
of 5% convertible debenture issued to TR Winston & Company,
LLC
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*
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5.01
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Opinion
of Law Offices of Raul Silvestre & Associates, APLC
|
|
*
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10.01
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Form
of Transactional Fee Agreement between the Company and TR Winston
&
Company, LLC dated March 17, 2008
|
|
*
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10.02
|
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Exclusive
Supply Agreement between GenSpera and Thapsibiza dated January 22,
2008
|
|
*
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10.03
|
|
Terms
of verbal employment agreement with Craig Dionne dated February 11,
2008
|
|
*
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10.04
|
|
Terms
of verbal employment agreement with Russell Richerson dated July
1,
2008
|
|
*
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23.01
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*
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23.02
|
|
Consent
of Law Offices of Raul Silvestre &
Associates, APLC (contained in opinion filed as Exhibit 5.01 to this
registration statement)
|
|
*
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24.01
|
|
Power
of Attorney – Included on the signature page
|
|
*
|
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|
Grantee:
________________
Grant
Date:
_____________
GENSPERA,
INC.
2007
EQUITY COMPENSATION PLAN
INCENTIVE
STOCK OPTION GRANT
This
INCENTIVE STOCK OPTION GRANT (“Grant Instrument”), dated as of ____________
____, 20___ (the “Date of Grant”), is delivered by GenSpera, Inc. (the
“Company”) to _____________________________________________________ (the
“Grantee”).
RECITALS
A.
The
GenSpera, Inc., 2007 Equity Compensation Plan (the “Plan”) provides for the
grant of options to purchase shares of common stock of the Company. The Board
of
Directors of the Company (the “Board”) has decided to make a stock option grant
as an inducement for the Grantee to promote the best interests of the Company
and its stockholders. A copy of the Plan is attached as
Appendix
A
to this
Grant Instrument.
B.
The
Board
is authorized to appoint a committee to administer the Plan. If a committee
is
appointed, all references in this Grant Instrument to the “Board” shall be
deemed to refer to the committee.
NOW,
THEREFORE, the parties to this Grant Instrument, intending to be legally bound
hereby, agree as follows:
1.
Grant
of Option
.
(a)
Subject
to the terms and conditions set forth in this Grant Instrument and in the Plan,
the Company hereby grants to the Grantee an incentive stock option (the
“Option”) to purchase _______ shares of common stock of the Company (“Shares”)
at an exercise price of $_____ per Share. The Option shall become vested and
exercisable according to Paragraph 2 below.
(b)
The
Option is designated as an incentive stock option, as described in Paragraph
6
below. However, if and to the extent the Option exceeds the limits for an
incentive stock option, as described in Paragraph 6, the Option shall be a
nonqualified stock option.
2.
Vesting
of Option
.
(a)
The
Option shall become vested on each of the following Vesting Dates, if the
Grantee has been continuously employed by, or providing service to, the Company
(as defined in the Plan) from the Date of Grant through to the applicable
Vesting Date:
|
Vesting Date
|
|
Vested Shares
|
|
______________________
|
|
_______
|
|
______________________
|
|
_______
|
|
______________________
|
|
_______
|
|
______________________
|
|
_______
|
The
vesting of the Option is cumulative.
(b)
The
Grantee may exercise the Option before or after it becomes vested, provided
that
if the Grantee exercises any portion of the Option before it has become vested,
the Shares received upon the exercise of the nonvested Option (“Nonvested
Shares”) shall be subject to the restrictions described in Subsection (c) below
until the date on which the applicable portion of the Option would have vested.
The period before the applicable portion of the Option would have vested is
referred to as the “Restriction Period.”
(c)
During
the Restriction Period, the Grantee may not sell, assign, encumber or otherwise
transfer the Nonvested Shares, notwithstanding anything in the Plan to the
contrary. If the Grantee ceases to be employed by, or provide service to, the
Company for any reason during the Restriction Period, the Grantee shall
immediately return the Nonvested Shares to the Company and the Company shall
pay
to the Grantee, as consideration for the return of the Nonvested Shares,
$_________ per share for each returned Share. If the Grantee continues to be
employed by, or perform service to, the Company through the vesting dates
described in Subsection (a) above, the restrictions on the Nonvested Shares
shall lapse according to the vesting schedule.
(d)
If
the
Grantee exercises the Option and receives Nonvested Shares, the Grantee shall
have the right to vote any Nonvested Shares and to receive dividends and
distributions on Nonvested Shares during the Restriction Period, provided that
all dividends and distributions payable on Nonvested Shares during the
Restriction Period shall be held by the Company subject to the same restrictions
as the underlying Nonvested Shares.
(e)
Any
stock
certificates representing Nonvested Shares shall be held in escrow by the
Company or by an escrow agent designated by the Company until the Nonvested
Shares vest. When the Grantee obtains a vested right to the Nonvested Shares,
a
certificate representing the vested Shares shall be issued to the Grantee.
The
certificate representing the vested Shares shall be duly endorsed (or
accompanied by an executed stock power) so as to transfer to the Grantee all
right, title and interest in and to the Shares represented by such
certificate.
3.
Lock-Up
Period
.
Notwithstanding the provisions of Paragraph 2, above, Grantee agrees that
Grantee will not sell, transfer, or otherwise dispose of any securities of
the
Company during the period: (i) commencing upon the date that the Company’s
registration statement filed with the Securities and Exchange Commission with
respect to Company’s initial public offering (“IPO”) is declared effective (the
“IPO Effective Date”) and, (ii) terminating on the 180
th
day
following the IPO Effective Date (the “Lock-Up Period”), provided, however, that
the Lock-Up Period may be shortened to any period less than 180 days from the
IPO Effective Date if agreed to by the managing underwriter for the
IPO.
4.
Term
of Option
.
(a)
The
Option shall have a term of ten (10) years from the Date of Grant and shall
terminate at the expiration of that period (____________ ____, 20___), unless
it
is terminated at an earlier date pursuant to the provisions of this Grant
Instrument or the Plan.
(b)
The
Option shall automatically terminate upon the happening of the first of the
following events:
(i)
The
expiration of the 90-day period after the Grantee ceases to be employed by,
or
provide service to, the Company, if the termination is for any reason other
than
disability (as defined in the Plan) or death.
(ii)
The
expiration of the one-year period after the Grantee ceases to be employed by,
or
provide service to, the Company on account of the Grantee’s disability (as
defined in the Plan).
(iii)
The
expiration of the one-year period after the Grantee ceases to be employed by,
or
provide service to, the Company, if the Grantee dies while employed by, or
providing service to, the Company or within 90 days after the Grantee ceases
to
be so employed or provide services on account of a termination described in
Subparagraph (i) above.
Notwithstanding
the foregoing, in no event may the Option be exercised after the date that
is
ten (10) years from the Date of Grant. Any portion of the Option that is not
vested at the time the Grantee ceases to be employed by, or provide service
to,
the Company shall immediately terminate.
5.
Exercise
Procedures
.
(a)
Subject
to the provisions of Paragraphs 2, 3 and 4 above, the Grantee may exercise
part
or all of the Option by giving the Board written notice of intent to exercise
in
the manner provided in Paragraph 15 below, specifying the number of Shares
as to
which the Option is to be exercised. On the delivery date, the Grantee shall
pay
the exercise price (i) in cash, (ii) with the approval of the Board, by
delivering Shares of the Company which shall be valued at their fair market
value on the date of delivery, or (iii) by such other method as the Board may
approve, including, after a public offering of the Company’s stock, payment
through a broker in accordance with procedures permitted by Regulation T of
the
Federal Reserve Board. The Board may impose from time to time such limitations
as it deems appropriate on the use of Shares of the Company to exercise the
Option.
(b)
The
obligation of the Company to deliver Shares upon exercise of the Option shall
be
subject to all applicable laws, rules, and regulations and such approvals by
governmental agencies as may be deemed appropriate by the Board, including
such
actions as Company counsel shall deem necessary or appropriate to comply with
relevant securities laws and regulations. The Company may require that the
Grantee (or other person exercising the Option after the Grantee’s death)
represent that the Grantee is purchasing Shares for the Grantee’s own account
and not with a view to or for sale in connection with any distribution of the
Shares, or such other representation as the Board deems appropriate. All
obligations of the Company under this Grant Instrument shall be subject to
the
rights of the Company as set forth in the Plan to withhold amounts required
to
be withheld for any taxes, if applicable. Subject to Board approval, the Grantee
may elect to satisfy any income tax withholding obligation of the Company with
respect to the Option by having Shares withheld up to an amount that does not
exceed the applicable withholding tax rate for federal (including FICA), state
and local tax liabilities.
6.
Designation
as Incentive Stock Option
.
(a)
This
Option is designated an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”). If the aggregate fair market
value of the stock on the date of the grant with respect to which incentive
stock options are exercisable for the first time by the Grantee during any
calendar year, under the Plan or any other stock option plan of the Company
or a
parent or subsidiary, exceeds $100,000, then the Option, as to the excess,
shall
be treated as a nonqualified stock option that does not meet the requirements
of
Section 422. If and to the extent that the Option fails to qualify as an
incentive stock option under the Code, the Option shall remain outstanding
according to its terms as a nonqualified stock option.
(b)
The
Grantee understands that favorable incentive stock option tax treatment is
available only if the Option is exercised while the Grantee is an employee
of
the Company or a parent or subsidiary or within a time specified in the Code
after the Grantee ceases to be an employee. The Grantee should consult with
his
or her tax adviser regarding the tax consequences of the
Option.
7.
Change
of Control
.
The
provisions of the Plan applicable to a Change of Control shall apply to the
Option, and, in the event of a Change of Control, the Board may take such
actions as it deems appropriate pursuant to the Plan.
8.
Stockholder’s
Agreement
.
As a
condition of receiving this Option, the Grantee hereby agrees that, if requested
by the Company prior to a public offering of the Company’s stock, the
Grantee
(or other person exercising the Option after the Grantee’s death) will execute a
stockholder’s agreement, on such terms as may be approved by the Company, with
respect to all Shares issued upon the exercise of the Option.
9.
Restrictions
on Exercise
.
Only
the Grantee may exercise the Option during the Grantee’s lifetime. After the
Grantee’s death, the Option shall be exercisable (subject to the limitations
specified in the Plan) solely by the legal representatives of the Grantee,
or by
the person who acquires the right to exercise the Option by will or by the
laws
of descent and distribution, to the extent that the Option is exercisable
pursuant to this Grant Instrument.
10.
Grant
Subject to Plan Provisions
.
This
grant is made pursuant to the Plan, the terms of which are incorporated herein
by reference, and in all respects shall be interpreted in accordance with the
Plan. The grant and exercise of the Option are subject to the provisions of
the
Plan and to interpretations, regulations and determinations concerning the
Plan
established from time to time by the Board in accordance with the provisions
of
the Plan, including, but not limited to, provisions pertaining to (i) rights
and
obligations with respect to withholding taxes, (ii) the registration,
qualification or listing of the Shares, (iii) capital or other changes of the
Company and (iv) other requirements of applicable law. The Board shall have
the
authority to interpret and construe the Option pursuant to the terms of the
Plan, and its decisions shall be conclusive as to any questions arising
hereunder.
11.
No
Employment or Other Rights
.
The
grant of the Option shall not confer upon the Grantee any right to be retained
by or in the employ or service of the Company and shall not interfere in any
way
with the right of the Company to terminate the Grantee’s employment or service
at any time. The right of the Company to terminate at will the Grantee’s
employment or service at any time for any reason is specifically
reserved.
12.
No
Stockholder Rights
.
Neither
the Grantee, nor any person entitled to exercise the Grantee’s rights in the
event of the Grantee’s death, shall have any of the rights and privileges of a
stockholder with respect to the Shares subject to the Option, until Shares
have
been issued upon the exercise of the Option.
13.
Assignment
and Transfers
.
The
rights and interests of the Grantee under this Grant Instrument may not be
sold,
assigned, encumbered or otherwise transferred except, in the event of the death
of the Grantee, by will or by the laws of descent and distribution. In the
event
of any attempt by the Grantee to alienate, assign, pledge, hypothecate, or
otherwise dispose of the Option or any right hereunder, except as provided
for
in this Grant Instrument, or in the event of the levy or any attachment,
execution or similar process upon the rights or interests hereby conferred,
the
Company may terminate the Option by notice to the Grantee, and the Option and
all rights hereunder shall thereupon become null and void. The rights and
protections of the Company hereunder shall extend to any successors or assigns
of the Company and to the Company’s parents, subsidiaries, and affiliates. This
Grant Instrument may be assigned by the Company without the Grantee’s
consent.
14.
Applicable
Law; Consent to Jurisdiction
.
The
validity, construction, interpretation and effect of this instrument shall
be
governed by and determined in accordance with the laws of the State of Texas
without regard for conflict of law principles. GRANTEE HEREBY EXPRESSLY CONSENTS
TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE
STATE OF TEXAS FOR ANY LAWSUIT FILED BY OR AGAINST THE GRANTEE ARISING FROM
OR
RELATING TO THIS AGREEMENT.
15.
Notice
.
Any
notice to the Company provided for in this instrument shall be addressed to
the
Company in care of the CEO at the Company headquarters (with a copy also sent
to
the attention of the Secretary at the same address), and any notice to the
Grantee shall be addressed to such Grantee at the current address shown on
the
payroll of the Company, or to such other address as the Grantee may designate
to
the Company in writing. Any notice shall be delivered by hand, sent by telecopy
or enclosed in a properly sealed envelope addressed as stated above, registered
and deposited, postage prepaid, in a post office regularly maintained by the
United States Postal Service.
IN
WITNESS WHEREOF, the Company has caused its duly authorized officers to execute
and attest this Grant Instrument, and the Grantee has executed this Grant
Instrument, effective as of the Grant Date.
|
GenSpera,
Inc
.
|
|
|
|
|
|
By:
|
|
|
Attest:
|
|
|
|
|
|
Accepted:
|
|
|
|
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|
Grantee
|
|
APPENDIX
A
GENSPERA,
INC.
2007
EQUITY COMPENSATION PLAN
NONQUALIFIED
STOCK OPTION GRANT
This
NONQUALIFIED
STOCK OPTION GRANT
(“Grant
Instrument”), dated as of ____________ ____, 20__ (the “Date of Grant”), is
delivered by GenSpera, Inc. (the “Company”) to
___________________________________________________ (the
“Grantee”).
RECITALS
A.
The
GenSpera, Inc. 2007 Equity Compensation Plan (the “Plan”) provides for the grant
of options to purchase shares of common stock of the Company. The Board of
Directors of the Company (the “Board”) has decided to make a stock option grant
as an inducement for the Grantee to promote the best interests of the Company
and its stockholders. A copy of the Plan is attached as
Appendix
A
to this
Grant Instrument.
B.
The
Board
is authorized to appoint a committee to administer the Plan. If a committee
is
appointed, all references in this Grant Instrument to the “Board” shall be
deemed to refer to the committee.
NOW,
THEREFORE, the parties to this Grant Instrument, intending to be legally bound
hereby, agree as follows:
1.
Grant
of Option
:
Subject
to the terms and conditions set forth in this Grant Instrument and in the Plan,
the Company hereby grants to the Grantee a nonqualified stock option (the
“Option”) to purchase ______________ shares of common stock of the Company
(“Shares”) at an exercise price of $__________ per Share. The Option shall
become vested and exercisable according to Paragraph 2 below.
2.
Vesting
of Option
.
(a)
The
Option shall become vested on the following Vesting Date:
(b)
The
Grantee may exercise the Option before or after it becomes vested, provided
that
if the Grantee exercises any portion of the Option before it has become vested,
the Shares received upon the exercise of the nonvested Option (“Nonvested
Shares”) shall be subject to the restrictions described in Subsection (c) below
until the date on which the applicable portion of the Option would have vested.
The period before the applicable portion of the Option would have vested is
referred to as the “Restriction Period.”
(c)
During
the Restriction Period, the Grantee may not sell, assign, encumber or otherwise
transfer the Nonvested Shares, notwithstanding anything in the Plan to the
contrary. If the Grantee ceases to be employed by, or provide service to, the
Company for any reason during the Restriction Period, the Grantee shall
immediately return the Nonvested Shares to the Company and the Company shall
pay
to the Grantee, as consideration for the return of the Nonvested Shares, $______
per share for each returned Share. If the Grantee continues to be employed
by,
or perform service to, the Company through the vesting dates described in
Subsection (a) above, the restrictions on the Nonvested Shares shall lapse
according to the vesting schedule.
(d)
If
the
Grantee exercises the Option and receives Nonvested Shares, the Grantee shall
have the right to vote any Nonvested Shares and to receive dividends and
distributions on Nonvested Shares during the Restriction Period, provided that
all dividends and distributions payable on Nonvested Shares during the
Restriction Period shall be held by the Company subject to the same restrictions
as the underlying Nonvested Shares.
(e)
Any
stock
certificates representing Nonvested Shares shall be held in escrow by the
Company or by an escrow agent designated by the Company until the Nonvested
Shares vest. When the Grantee obtains a vested right to the Nonvested Shares,
a
certificate representing the vested Shares shall be issued to the Grantee.
The
certificate representing the vested Shares shall be duly endorsed (or
accompanied by an executed stock power) so as to transfer to the Grantee all
right, title and interest in and to the Shares represented by such
certificate.
3.
Lock-Up
Period
.
Notwithstanding the provisions of Paragraph 2, above, Grantee agrees that
Grantee will not sell, transfer, or otherwise dispose of any securities of
the
Company during the period: (i) commencing upon the date that the Company’s
registration statement filed with the Securities and Exchange Commission with
respect to Company’s initial public offering (“IPO”) is declared effective (the
“IPO Effective Date”) and, (ii) terminating on the 180
th
day
following the IPO Effective Date (the “Lock-Up Period”), provided, however, that
the Lock-Up Period may be shortened to any period less than 180 days from the
IPO Effective Date if agreed to by the managing underwriter for the
IPO.
4.
Term
of Option
.
(a)
The
Option shall have a term of ten (10) years from the Date of Grant and shall
terminate at the expiration of that period (_____________ ___, 20____), unless
it is terminated at an earlier date pursuant to the provisions of this Grant
Instrument or the Plan.
(b)
The
Option shall automatically terminate upon the happening of the first of the
following events:
(i)
The
expiration of the 90-day period after the Grantee ceases to be employed by,
or
provide service to, the Company, if the termination is for any reason other
than
disability (as defined in the Plan) or death.
(ii)
The
expiration of the one-year period after the Grantee ceases to be employed by,
or
provide service to, the Company on account of the Grantee’s disability (as
defined in the Plan).
(iii)
The
expiration of the one-year period after the Grantee ceases to be employed by,
or
provide service to, the Company, if the Grantee dies while employed by, or
providing service to, the Company or within 90 days after the Grantee ceases
to
be so employed or provide services on account of a termination described in
Subparagraph (i) above.
Notwithstanding
the foregoing, in no event may the Option be exercised after the date that
is
ten (10) years from the Date of Grant. Any portion of the Option that is not
vested at the time the Grantee ceases to be employed by, or provide service
to,
the Company shall immediately terminate.
5.
Exercise
Procedures
.
(a)
Subject
to the provisions of Paragraphs 2, 3 and 4 above, the Grantee may exercise
part
or all of the Option by giving the Board written notice of intent to exercise
in
the manner provided in Paragraph 14 below, specifying the number of Shares
as to
which the Option is to be exercised. On the delivery date, the Grantee shall
pay
the exercise price (i) in cash, (ii) with the approval of the Board, by
delivering Shares of the Company which shall be valued at their fair market
value on the date of delivery, or (iii) by such other method as the Board may
approve, including, after a public offering of the Company’s stock, payment
through a broker in accordance with procedures permitted by Regulation T of
the
Federal Reserve Board. The Board may impose from time to time such limitations
as it deems appropriate on the use of Shares of the Company to exercise the
Option.
(b)
The
obligation of the Company to deliver Shares upon exercise of the Option shall
be
subject to all applicable laws, rules, and regulations and such approvals by
governmental agencies as may be deemed appropriate by the Board, including
such
actions as Company counsel shall deem necessary or appropriate to comply with
relevant securities laws and regulations. The Company may require that the
Grantee (or other person exercising the Option after the Grantee’s death)
represent that the Grantee is purchasing Shares for the Grantee’s own account
and not with a view to or for sale in connection with any distribution of the
Shares, or such other representation as the Board deems appropriate. All
obligations of the Company under this Grant Instrument shall be subject to
the
rights of the Company as set forth in the Plan to withhold amounts required
to
be withheld for any taxes, if applicable. Subject to Board approval, the Grantee
may elect to satisfy any income tax withholding obligation of the Company with
respect to the Option by having Shares withheld up to an amount that does not
exceed the applicable withholding tax rate for federal (including FICA), state
and local tax liabilities.
6.
Change
of Control
.
The
provisions of the Plan applicable to a Change of Control shall apply to the
Option, and, in the event of a Change of Control, the Board may take such
actions as it deems appropriate pursuant to the Plan.
7.
Stockholder’s
Agreement
.
As a
condition of receiving this Option, the Grantee hereby agrees that, if requested
by the Company prior to a public offering of the Company’s stock, the
Grantee
(or other person exercising the Option after the Grantee’s death) will execute a
stockholder’s agreement, on such terms as may be approved by the Company, with
respect to all Shares issued upon the exercise of the Option.
8.
Restrictions
on Exercise
.
Only
the Grantee may exercise the Option during the Grantee’s lifetime. After the
Grantee’s death, the Option shall be exercisable (subject to the limitations
specified in the Plan) solely by the legal representatives of the Grantee,
or by
the person who acquires the right to exercise the Option by will or by the
laws
of descent and distribution, to the extent that the Option is exercisable
pursuant to this Grant Instrument.
9.
Grant
Subject to Plan Provisions
.
This
grant is made pursuant to the Plan, the terms of which are incorporated herein
by reference, and in all respects shall be interpreted in accordance with the
Plan. The grant and exercise of the Option are subject to the provisions of
the
Plan and to interpretations, regulations and determinations concerning the
Plan
established from time to time by the Board in accordance with the provisions
of
the Plan, including, but not limited to, provisions pertaining to (i) rights
and
obligations with respect to withholding taxes, (ii) the registration,
qualification or listing of the Shares, (iii) capital or other changes of the
Company and (iv) other requirements of applicable law. The Board shall have
the
authority to interpret and construe the Option pursuant to the terms of the
Plan, and its decisions shall be conclusive as to any questions arising
hereunder.
10.
No
Employment or Other Rights
.
The
grant of the Option shall not confer upon the Grantee any right to be retained
by or in the employ or service of the Company and shall not interfere in any
way
with the right of the Company to terminate the Grantee’s employment or service
at any time. The right of the Company to terminate at will the Grantee’s
employment or service at any time for any reason is specifically
reserved.
11.
No
Stockholder Rights
.
Neither
the Grantee, nor any person entitled to exercise the Grantee’s rights in the
event of the Grantee’s death, shall have any of the rights and privileges of a
stockholder with respect to the Shares subject to the Option, until Shares
have
been issued upon the exercise of the Option.
12.
Assignment
and Transfers
.
The
rights and interests of the Grantee under this Grant Instrument may not be
sold,
assigned, encumbered or otherwise transferred except, in the event of the death
of the Grantee, by will or by the laws of descent and distribution. In the
event
of any attempt by the Grantee to alienate, assign, pledge, hypothecate, or
otherwise dispose of the Option or any right hereunder, except as provided
for
in this Grant Instrument, or in the event of the levy or any attachment,
execution or similar process upon the rights or interests hereby conferred,
the
Company may terminate the Option by notice to the Grantee, and the Option and
all rights hereunder shall thereupon become null and void. The rights and
protections of the Company hereunder shall extend to any successors or assigns
of the Company and to the Company’s parents, subsidiaries, and affiliates. This
Grant Instrument may be assigned by the Company without the Grantee’s
consent.
13.
Applicable
Law; Consent to Jurisdiction
.
The
validity, construction, interpretation and effect of this instrument shall
be
governed by and determined in accordance with the laws of the State of Texas
without regard for conflict of law principles. GRANTEE HEREBY EXPRESSLY CONSENTS
TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE
STATE OF TEXAS FOR ANY LAWSUIT FILED BY OR AGAINST THE GRANTEE ARISING FROM
OR
RELATING TO THIS AGREEMENT.
14.
Notice
.
Any
notice to the Company provided for in this instrument shall be addressed to
the
Company in care of the CEO at the Company headquarters (with a copy also sent
to
the attention of the Secretary at the same address), and any notice to the
Grantee shall be addressed to such Grantee at the current address shown below,
or to such other address as the Grantee may designate to the Company in writing.
Any notice shall be delivered by hand, sent by telecopy or enclosed in a
properly sealed envelope addressed as stated above, registered and deposited,
postage prepaid, in a post office regularly maintained by the United States
Postal Service.
IN
WITNESS WHEREOF, the Company has caused its duly authorized officers to execute
and attest this Grant Instrument, and the Grantee has executed this Grant
Instrument, effective as of the Grant Date.
IN
WITNESS WHEREOF, the Company has caused its duly authorized officers to execute
and attest this Grant Instrument, and the Grantee has executed this Grant
Instrument, effective as of the Grant Date.
|
GenSpera,
Inc
.
|
|
|
|
|
|
|
|
By:
|
|
|
Attest:
|
|
|
|
|
|
|
Accepted:
|
|
|
|
|
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|
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|
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|
|
Grantee
|
***********
APPENDIX
A
THE
COMPANY HAS NOT REGISTERED THE SECURITIES EVIDENCED BY THIS NOTE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. YOU
MAY
NOT SELL, OFFER TO SELL, PLEDGE, HYPOTHECATE OR OTHERWISE TRANSFER YOUR INTEREST
IN THIS NOTE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR, SUPPORTED BY AN OPINION OF COUNSEL
DELIVERED TO THE COMPANY IF THE COMPANY REQUIRES ONE, QUALIFYING THE TRANSACTION
FOR AN EXEMPTION TO THE REGISTRATION REQUIREMENT.
CONVERTIBLE
PROMISSORY NOTE
|
|
_____________.
|
|
Company:
|
GenSpera,
Inc.
|
|
Note
Date:
|
December
___, 2003
|
|
Maturity
Date:
|
December
___, 2008
|
|
Principal
Amount:
|
US$______.
|
|
|
4.20%
|
|
Place:
|
____________.
|
For
value
received,
GENSPERA,
INC.,
a
Delaware corporation (the "Company"), whose address is 106 Victoria Ct.,
Downingtown, PA, 19335, promises to pay to
__________
("Lender") or to Lender's registered assigns (in either case, the "Holder"),
at
_______________________, or such other address as may be designated in written
notice by the Holder to the Company, the principal sum of ___________ Dollars
($
00,000.00
)
(the
"Principal Amount").
The
following is a statement of the rights of the Holder and the conditions to
which
this Note is subject, to which the Holder, by the acceptance of this Note,
agrees:
1.
Principal
and Interest; Prepayment
.
1.1
Principal
and Interest
.
Interest shall accrue on the unpaid Principal Amount at a rate of Four Percent
(4.20%) per annum, simple interest ("Interest"). The outstanding Principal
Amount and any unpaid Interest shall become due and payable upon demand
beginning anytime on or after
December
___, 2008
,
unless
this Note is converted earlier pursuant to the terms of its Section
2
.
1.2
Prepayment
.
At
anytime beginning five (5) business days after providing the Holder written
notice of a Qualified Financing, as defined in Section
2.1
,
and
subject to the provisions of Section 2.1.2, the Company may prepay in whole
or
in part the outstanding Principal Amount plus the accrued and unpaid Interest.
2.
Conversion
2.1
Conversion
.
2.1.1
Upon the
Company's giving the Holder written notice of its completion of an equity
financing in the amount of at least $500,000, in one closing or a series of
closings (a "Qualified Financing"), the outstanding Principal Amount plus
accrued and unpaid Interest may, at the Holder's option, be converted into
fully
paid and non-assessable shares of such equity securities (the "Qualified
Securities") at the price per share (the "Conversion Price") paid by the
investors in such Qualified Financing. The shares of Qualfied Securities to
be
issued upon conversion of the Note shall be entitled to the same rights and
be
subject to the same obligations provided in the purchase agreement entered
into
with investors with respect to the sale of the Qualified
Securities.
2.1.2
In the
event that the investors require the Holder to convert the Principal Amount
plus
accrued and unpaid Interest into Qualified Securities as a condition to
completion of the Qualified Financing, Holder agrees that by operation of this
Section 2.1.2 and without further instrument, the conversion of Section 2.1.1
shall be automatic and not at the Holder’s option.
2.2
Issuance
of Stock; Fractional Shares.
As soon
as practicable after conversion of this Note, the Company, at its expense,
will
cause to be issued in the name of and delivered to the Holder, a certificate
or
certificates for the number of fully paid and nonassessable shares of Qualified
Securities to which the Holder shall be entitled upon such conversion, which
certificates shall include legends restricting transfer under the federal and
state securities laws. No fractional shares will be issued upon conversion
of
this Note. If, upon conversion of this Note, a fraction of a share results,
the
Company will pay the cash value of that fractional share, calculated on the
basis of the Conversion Price.
3.
Holder's
Representations
.
This
Note has been executed in favor of Holder in reliance upon the following
representations and covenants of the Holder, which by receipt of this Note
the
Holder hereby confirms:
3.1
Disclosure
Documents.
In
connection with the transactions pursuant to which this Note has been issued,
the Holder and its representatives and legal counsel have been afforded full
and
free access to corporate books, financial statements, records, contracts,
documents and other information concerning the Company and to its offices and
facilities, have been afforded an opportunity to ask such questions of the
Company’s officers, employees, agents, accountants and representatives
concerning the Company’s business, operations, financial condition, assets,
liabilities, and other relevant matters as it has deemed necessary or desirable,
and has been given all such information requested, in order to evaluate the
merits and risks of this Warrant and the Preferred Stock into which it is
exercisable.
3.2
Investment
Purpose.
The
Holder is acquiring the Shares issued or issuable upon exercise of the Holder’s
rights contained herein for the Holder’s own account for the purpose of
investment and not for or with a view to the resale, distribution, subdivision,
or fractionalization thereof.
3.3
Restricted
Securities.
The
Holder understands that (i) the Shares have not been registered under the U.S.
Securities Act of 1933, as amended (the “Act”) because it is being issued in a
transaction exempt from the registration requirements of the Act pursuant to
Section 4(2) thereof or Regulation D promulgated under the Act, (ii) the
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under the Act or is exempt from such registration (and accordingly,
the Holder should be prepared to bear the economic risk of an investment in
the
Shares for an indefinite period), and (iii) the Company will make a notation
on
its transfer books to such effect.
3.4
Sufficient
Knowledge and Experience.
The
Holder has sufficient knowledge and experience in investing so as to be able
to
evaluate the risks and merits of the investment in the Company upon exercise
of
the Note.
3.5
High Degree of Risk.
The
Holder acknowledges and understands that the purchase of the Shares upon
exercise of the Note is speculative and involves a high degree of risk. In
electing to exercise the Note, the Holder recognizes the potential of losing
the
Holder’s entire investment and hereby acknowledges the Holder’s ability to bear
such loss.
4.
Transfer
of Note; Restrictions on Transfer.
This
Note may be transferred only in compliance with applicable federal and state
securities laws and only upon surrender of the original Note for registration
of
transfer, duly endorsed, or accompanied by a duly executed written instrument
of
transfer in form satisfactory to the Company. A new Note for like principal
amount and interest will be issued to, and registered in the name of, the
transferee. Interest and principal are payable only to the registered holder
of
the Note. The Holder agrees to provide a Form W-9 to the Company upon
request.
5.
Events
of Default.
If any
of the following events (each an "Event of Default") shall occur, the Holder
may, so long as such condition exists, declare the outstanding Principal Amount
and accrued but unpaid Interest immediately due and payable, by notice in
writing to the Company:
5.1
If
the
Company (a) institutes proceedings to be adjudicated as bankrupt or insolvent,
(b) files a petition or answer or consent seeking reorganization or release
under the federal Bankruptcy Act, or any other applicable federal or state
law,
(c) has a receiver, liquidator, or trustee, appointed with respect to
substantially all of its assets, (d) makes an assignment for the benefit of
creditors, or (e) takes any corporate action in furtherance of any such
action;
5.2
If,
within 60 days after commencement of an action against the Company (and service
of process on the Company) seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution, or similar relief under any present or future statute,
law, or regulation, such action shall not have been resolved in favor of the
Company or all orders or proceedings thereunder affecting the operations or
the
business of the Company stayed, or if the stay of any such order or proceeding
shall thereafter be set aside, or if, within 60 days after the appointment
without consent or acquiescence of the Company of any trustee, receiver, or
liquidator of the Company, such appointment shall hot have been vacated;
5.3
Any
declared default of the Company under any indebtedness that gives the holder
the
right to accelerate such indebtedness, and such indebtedness is in fact
accelerated by the holder;
5.4
Failure
to pay the Principal Amount and Interest when due; or
5.5
The
adoption of any plan of liquidation, dissolution, or winding up of the Company,
or the involuntary occurrence thereof.
6.
Miscellaneous
.
6.1
Remedies
.
The
Company and all endorsers of this Note hereby waive notice, presentment,
protest, and notice of dishoner.
6.2
Holder
as Owner.
The
Company may deem and treat the holder of record of this Note as the absolute
owner for all purposes regardless of any notice to the contrary.
6.3
No
Shareholder Rights.
This
Note shall not entitle the Holder to any voting rights or any other rights
as a
shareholder of the Company or to any other rights except the rights stated
herein; and no dividend shall be payable or shall accrue in respect of this
Note
or the Qualified Securities, until this Note is converted.
6.4
Successors
and Assigns.
This
Note
shall inure to the benefit of and be binding on the successors and assigns
of
the parties.
6.5
Governing
Law; Jurisdiction.
This
Note
shall be governed by and construed under the internal laws of the Commonwealth
of the State of Pennsylvania, without reference to the principles of conflicts
of law or choice of laws. The Holder and the Company consent to the jurisdiction
and venue of the federal and state courts located in Philadelphia, Pennsylvania,
with respect to any controversy or claims arising under or related to this
Note.
6.6
Notices.
Any
notice to be given by one party to the other pursuant to this Note shall be
in
writing and shall be deemed to have been duly given when received if personally
delivered; when transmitted if transmitted by telecopy, or by electronic or
digital transmission method and an appropriate confirmation is received; the
day
after it is sent, if sent for next day delivery to a domestic address by a
recognized overnight delivery service; and upon receipt if delivered in person,
sent by facsimile, or deposited into the United States mail, postage pre-paid,
by certified or registered mail, return receipt requested. Notice shall be
sent
to Holder and to the Company at their respective addresses set forth above,
or
at such other address as either shall furnish to the other in writing.
6.7
Headings.
The
captions and headings contained in this Note are for convenience of reference
only and shall not limit or otherwise affect the meaning or interpretation
hereof.
6.8
Severability.
In the
event that any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
6.9
Further
Assurances.
At any
time and from time to time after the date hereof the parties hereto agree to
do
all such further acts and things as the other party may reasonably request
for
the purpose of carrying out the intent of this Note and the documents referred
to herein, and as may be deemed reasonably necessary by the
parties.
6.10
Entire
Agreement; Amendment.
This
Note, together with any schedules, annexes and exhibits hereto, contains the
entire understanding of the parties relating to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect to the same
subject matter. This Note may not be amended or modified except by a written
agreement executed by the party to be charged with the amendment.
Signature
block on next page
IN
WITNESS WHEREOF, the Company has caused this Note to be executed as of the
date
first written above.
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GenSpera,
Inc.
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By:
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Its:
Secretary
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NOTICE
OF EXERCISE
OF
CONVERSION
OF PROMISSORY NOTE
To:
GenSpera,
Inc.:
The
undersigned hereby elects to convert the attached Promissory Note into the
number of shares of Qualified Securities as may be determined by dividing the
Principal Amount plus accrued but unpaid Interest by the Conversion Price.
The
undersigned represents that the undersigned acquires the Qualified Securities
for the undersigned's own account and not with a view to, or for resale in
connection with, the distribution thereof, and that the undersigned has no
present intention of distributing or reselling such Qualified Securities.
Please
issue a certificate or certificates representing the Qualified Securities in
the
name of the undersigned or in such other name as is specified below.
Dated
this ____ day of ______________________.
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___________________________
(Signature)
___________________________
(Print
Name)
___________________________
(Title
if an Entity)
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___________________________
(Name
of Certificate Holder)
___________________________
___________________________
(Address)
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NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
COMMON
STOCK PURCHASE WARRANT
GENSPERA,
INC.
Warrant
Shares: _______
Initial
Exercise Date: March ___, 2008
THIS
COMMON STOCK PURCHASE WARRANT (the “
Warrant
”)
certifies that, for value received, _____________ (the “
Holder
”)
is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof (the
“
Initial
Exercise Date
”)
and on
or prior to the close of business on the five year anniversary of the Initial
Exercise Date (the “
Termination
Date
”)
but
not thereafter, to subscribe for and purchase from GenSpera, Inc., a Delaware
corporation (the “
Company
”),
up to
______ shares (the “
Warrant
Shares
”)
of
Common Stock. The purchase price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section 2(b).
Section
1
.
Definitions
.
“
Affiliate
”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 405 under the Securities
Act.
With
respect to a Holder, any investment fund or managed account that is managed
on a
discretionary basis by the same investment manager as such Holder will be deemed
to be an Affiliate of such Holder.
“
Board
of Directors
”
means
the board of directors of the Company.
“
Business
Day
”
means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Commission
”
means
the Securities and Exchange Commission.
“
Common
Stock
”
means
the common stock of the Company, par value $0.001 per share, and any other
class
of securities into which such securities may hereafter be reclassified or
changed into.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
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 members of the Board of
Directors or a majority of the members of a committee of directors established
for such purpose, (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, (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,
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, and (d) securities issued for cash at the prevailing market price
on
a Trading Market.
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Trading
Day
”
means
a
day on which the New York Stock Exchange is open for trading.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange, and the OTC Bulletin Board.
“
Transfer
Agent
”
means
American Stock Transfer and Trust Company, the current transfer agent of the
Company with a mailing address of 59 Maiden Lane, New York, New York 10038
and a
facsimile number of (718) 921-8336, and any successor transfer agent of the
Company.
“
VWAP
”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from
9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the
OTC Bulletin Board is not a Trading Market, the volume weighted average price
of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
OTC
Bulletin Board and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price
per
share of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest
of
the Securities then outstanding and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.
Section
2
.
Exercise
.
a)
Exercise
of Warrant
.
Exercise of the purchase rights represented by this Warrant may be made, in
whole or in part, at any time or times on or after the Initial Exercise Date
and
on or before the Termination Date by delivery to the Company (or such other
office or agency of the Company as it may designate by notice in writing to
the
registered Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the Notice of Exercise Form
annexed hereto; and, within 3 Business Days of the date said Notice of Exercise
is delivered to the Company, the Company shall have received payment of the
aggregate Exercise Price of the shares thereby purchased by wire transfer or
cashier’s check drawn on a United States bank. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within
3
Business Days of the date the final Notice of Exercise is delivered to the
Company. Partial exercises of this Warrant resulting in purchases of a portion
of the total number of Warrant Shares available hereunder shall have the effect
of lowering the outstanding number of Warrant Shares purchasable hereunder
in an
amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall
maintain
records showing the number of Warrant Shares purchased and the date of such
purchases. The Company shall deliver any objection to any Notice of Exercise
Form within 1 Business Day of receipt of such notice. In the event of any
dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
The
Holder and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a
portion of the Warrant Shares hereunder, the number of Warrant Shares available
for purchase hereunder at any given time may be less than the amount stated
on
the face hereof.
b)
Exercise
Price
.
The
exercise price per share of the Common Stock under this Warrant shall be
$1.00,
subject
to adjustment hereunder (the “
Exercise
Price
”).
c)
Cashless
Exercise
.
If at
any time after the earlier of (i) the one year anniversary of the date of the
Initial Exercise Date and (ii) the completion of the then-applicable holding
period required by Rule 144, or any successor provision then in effect, there
is
no effective registration statement registering, or no current prospectus
available for, the resale of the Warrant Shares by the Holder, then this Warrant
may also be exercised at such time by means of a “cashless exercise” in which
the Holder shall be entitled to receive a certificate for the number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A)
= the
VWAP on the Business Day immediately preceding the date of such
election;
(B)
= the
Exercise Price of this Warrant, as adjusted; and
(X)
= the
number of Warrant Shares issuable upon exercise of this Warrant in accordance
with the terms of this Warrant by means of a cash exercise rather than a
cashless exercise.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall
be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d)
Exercise
Limitations
.
The
Company shall not effect any exercise of this Warrant, and a Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section
2 or
otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together
with the Holder’s Affiliates, and any other person or entity acting as a group
together with the Holder or any of the Holder’s Affiliates), would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below).
For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number
of
shares of Common Stock issuable upon exercise of this Warrant with respect
to
which such determination is being made, but shall exclude the number of shares
of Common Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder
or
any
of
its Affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Common Stock Equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
the
Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder, it being acknowledged by the Holder
that
the Company is not representing to the Holder that such calculation is in
compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance therewith.
To
the extent that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable shall be in the sole discretion of the
Holder, and the submission of a Notice of Exercise shall be deemed to be the
Holder’s determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject to the Beneficial
Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination as
to
any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
periodic or annual report, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect
to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The “
Beneficial
Ownership Limitation
”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice
to the Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2(c), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common
Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon exercise of this Warrant held by the Holder and the provisions of
this Section 2(d) shall continue to apply. Any such increase or decrease will
not be effective until the 61
st
day
after such notice is delivered to the Company. The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 2(c) to correct this paragraph (or
any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation.
The limitations contained in this paragraph shall apply to a successor holder
of
this Warrant.
e)
Mechanics
of Exercise
.
i.
Delivery
of Certificates Upon Exercise
.
Certificates for shares purchased hereunder shall be transmitted by the transfer
agent of the Company to the Holder by crediting the account of the Holder’s
prime broker with the Depository Trust Company through its Deposit Withdrawal
Agent Commission (“
DWAC
”)
system
if the Company is then a participant in such system and either (A) there is
an
effective registration statement permitting the resale of the Warrant Shares
by
the Holder or (B) the shares are eligible for resale without volume or
manner-of-sale limitations pursuant to Rule 144, and otherwise by physical
delivery to the address specified by the Holder in the Notice of Exercise within
3 Business Days from the delivery to the Company of the Notice of Exercise
Form,
surrender of this Warrant (if required) and payment of the aggregate Exercise
Price as set forth above (the “
Warrant
Share Delivery Date
”).
This
Warrant shall be deemed to have been exercised on the date the Exercise Price
is
received by the Company. The Warrant Shares shall be deemed to have been issued,
and Holder or any other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be
paid
by the Holder, if any, pursuant to Section 2(e)(v) prior to the issuance of
such
shares, have been paid.
ii.
Delivery
of New Warrants Upon Exercise
.
If this
Warrant shall have been exercised in part, the Company shall, at the request
of
a Holder and upon surrender of this Warrant certificate, at the time of delivery
of the certificate or certificates representing Warrant Shares, deliver to
Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
iii.
Rescission
Rights
.
If the
Company fails to cause the transfer agent of the Company to transmit to the
Holder a certificate or the certificates representing the Warrant Shares
pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder
will have the right to rescind such exercise.
iv.
No
Fractional Shares or Scrip
.
No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall, at
its
election,
either
pay a cash adjustment in respect of such final fraction in an amount equal
to
such fraction multiplied by the Exercise Price or round up to the next whole
share.
v.
Charges,
Taxes and Expenses
.
Issuance of certificates for Warrant Shares shall be made without charge to
the
Holder for any issue or transfer tax or other incidental expense in respect
of
the issuance of such certificate, all of which taxes and expenses shall be
paid
by the Company, and such certificates shall be issued in the name of the Holder
or in such name or names as may be directed by the Holder;
provided
,
however
,
that in
the event certificates for Warrant Shares are to be issued in a name other
than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
vi.
Closing
of Books
.
The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.
Section
3
.
Certain
Adjustments
.
a)
Stock
Dividends and Splits
.
If the
Company, at any time while this Warrant is outstanding: (i) pays a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon exercise of this Warrant),
(ii) subdivides outstanding shares of Common Stock into a larger number of
shares, (iii) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares or (iv) issues by
reclassification of shares of the Common Stock any shares of capital stock
of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable
upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment
made pursuant to this Section 3(a) shall become effective immediately after
the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b)
Subsequent
Equity Sales
.
If the
Company or any Subsidiary thereof, as applicable, at any time while this Warrant
is outstanding, shall sell or grant any option to purchase, or sell or grant
any
right to reprice, or otherwise dispose of or issue (or announce any offer,
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 less than the then Exercise Price
(such lower price, the “
Base
Share 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 which is less than the Exercise Price, such issuance shall be deemed
to have occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then, the Exercise Price shall be reduced and only reduced to equal
the Base Share Price and the number of Warrant Shares issuable hereunder shall
be increased such that the aggregate Exercise Price payable hereunder, after
taking into account the decrease in the Exercise Price, shall be equal to the
aggregate Exercise Price prior to such adjustment. Such adjustment shall be
made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustments shall be made, paid or issued
under this Section 3(b) in respect of an Exempt Issuance. The Company shall
notify the Holder, in writing, no later than the Business Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this Section
3(b), 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(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share Price
regardless of whether the Holder accurately refers to the Base Share Price
in
the Notice of Exercise.
c)
Subsequent
Rights Offerings
.
If the
Company, at any time while the Warrant is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the VWAP at the record date mentioned below, then, the
Exercise Price shall be multiplied by a fraction, of which the denominator
shall
be the number of shares of the Common Stock outstanding on the date of issuance
of such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock outstanding on the date of issuance of
such
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered (assuming receipt by the Company in
full of all consideration payable upon exercise of such rights, options or
warrants) would purchase at such VWAP. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after
the record date for the determination of stockholders entitled to receive such
rights, options or warrants.
d)
Pro
Rata Distributions
.
If the
Company, at any time while this Warrant is outstanding, shall distribute to
all
holders of Common Stock (and not to Holders of the Warrants) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security other than the Common
Stock
(which
shall be subject to Section 3(b)), then in each such case the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then per share fair market
value
at such record date of the portion of such assets or evidence of indebtedness
so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
e)
Fundamental
Transaction
.
If, at
any time while this Warrant is outstanding, (i) the Company effects any merger
or consolidation of the Company with or into another Person, (ii) the Company
effects any sale of all or substantially all of its assets in one or a series
of
related transactions, (iii) any tender offer or exchange offer (whether by
the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property or (iv) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(each “
Fundamental
Transaction
”),
then,
upon any subsequent exercise of this Warrant, the Holder shall have the right
to
receive, for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, the number
of shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “
Alternate
Consideration
”)
receivable as a result of such merger, consolidation or disposition of assets
by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted to
apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value
of
any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice
as
to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity
in
such Fundamental Transaction shall issue to the Holder a new warrant consistent
with the foregoing provisions and evidencing the Holder’s right to exercise such
warrant into Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this Section
3(e) and insuring that this Warrant (or any such replacement security) will
be
similarly adjusted upon any
subsequent
transaction analogous to a Fundamental Transaction. Notwithstanding anything
to
the contrary, in the event of a Fundamental Transaction that is (1) an all
cash
transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the
Exchange Act, or (3) a Fundamental Transaction involving a person or entity
not
traded on a national securities exchange, the Nasdaq Global Select Market,
the
Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor
entity shall pay at the Holder’s option, exercisable at any time concurrently
with or within 30 days after the consummation of the Fundamental Transaction,
an
amount of cash equal to the value of this Warrant as determined in accordance
with the Black Scholes Option Pricing Model obtained from the “OV” function on
Bloomberg L.P. using (A) a price per share of Common Stock equal to the VWAP
of
the Common Stock for the Business Day immediately preceding the date of
consummation of the applicable Fundamental Transaction, (B) a risk-free interest
rate corresponding to the U.S. Treasury rate for a 30 day period immediately
prior to the consummation of the applicable Fundamental Transaction, (C) an
expected volatility equal to the 100 day volatility obtained from the “HVT”
function on Bloomberg L.P. determined as of the Business Day immediately
following the public announcement of the applicable Fundamental Transaction
and
(D) a remaining option time equal to the time between the date of the public
announcement of such transaction and the Termination Date.
f)
Calculations
.
All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section
3,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
g)
Notice
to Holder
.
i.
Adjustment
to Exercise Price
.
Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly mail to the Holder a notice setting forth
the Exercise Price after such adjustment and setting forth a brief statement
of
the facts requiring such adjustment.
ii.
Notice
to Allow Exercise by Holder
.
If (A)
the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to
subscribe for or purchase any shares of capital stock of any class or of any
rights, (D) the approval of any stockholders of the Company shall be required
in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property,
or (E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or
winding
up of the affairs of the Company, then, in each case, the Company shall cause
to
be mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date
on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined
or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record
shall
be entitled to exchange their shares of the Common Stock for securities, cash
or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity
of
the corporate action required to be specified in such notice. The Holder is
entitled to exercise this Warrant during the period commencing on the date
of
such notice to the effective date of the event triggering such
notice.
Section
4
.
Transfer
of Warrant
.
a)
Transferability
.
Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d), this Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part,
upon
surrender of this Warrant at the principal office of the Company or its
designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such payment,
the Company shall execute and deliver a new Warrant or Warrants in the name
of
the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. The Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b)
New
Warrants
.
This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the original Issue Date and shall
be
identical with this Warrant except as to the number of Warrant Shares issuable
pursuant thereto.
c)
Warrant
Register
.
The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “
Warrant
Register
”),
in
the name of the record Holder hereof from time to time. The Company may deem
and
treat the registered Holder of this Warrant as the absolute owner hereof for
the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
d)
Transfer
Restrictions
.
If
,
at the
time
of
the surrender of this Warrant in connection with any transfer of this Warrant,
the transfer of this Warrant shall not be either (i) registered pursuant to
an
effective
registration
statement under the Securities Act
and
under
applicable state securities or blue sky laws or (ii) eligible for resale without
volume or manner-of-sale restrictions pursuant to Rule 144, the Company may
require, as a condition of allowing such transfer, that the Holder or transferee
of this Warrant, as the case may be,
comply
with the provisions of Section 5.7 of the Purchase Agreement.
Section
5
.
Miscellaneous
.
a)
No
Rights as Stockholder Until Exercise
.
This
Warrant does not entitle the Holder to any voting rights or other rights as
a
stockholder of the Company prior to the exercise hereof as set forth in Section
2(e)(i).
b)
Loss,
Theft, Destruction or Mutilation of Warrant
.
The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any bond),
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.
c)
Saturdays,
Sundays, Holidays, etc
.
If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then, such action
may be taken or such right may be exercised on the next succeeding Business
Day.
d)
Authorized
Shares
.
The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise
of
any purchase rights under this Warrant. The Company further covenants that
its
issuance of this Warrant shall constitute full authority to its officers who
are
charged with the duty of executing stock certificates to
execute
and issue the necessary certificates for the Warrant Shares upon the exercise
of
the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may
be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may
be
listed. The Company covenants that all Warrant Shares which may be issued upon
the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and
charges created by the Company in respect of the issue thereof (other than
taxes
in respect of any transfer occurring contemporaneously with such issue).
Except
and to the extent as waived or consented to by the Holder, the Company shall
not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this
Warrant, but will at all times in good faith assist in the carrying out of
all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value,
(ii) take all such action as may be necessary or appropriate in order that
the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares upon the exercise of this Warrant and (iii) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof, as may be, necessary to
enable the Company to perform its obligations under this Warrant.
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e)
Governing
Law
.
All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of Delaware, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Warrant (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of Los Angeles. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of Los Angeles for the adjudication of any dispute hereunder or in
connection
herewith
or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper or is an inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. If either party shall commence an action or proceeding to
enforce any provisions of this Warrant, then the prevailing party in such action
or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceedings or questions
concerning the construction, validity, enforcement and interpretation of this
Warrant.
f)
Restrictions
.
The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.
g)
Nonwaiver
and Expenses
.
No
course of dealing or any delay or failure to exercise any right hereunder on
the
part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder’s rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results
in
any material damages to the Holder, the Company shall pay to Holder such amounts
as shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto
or
in otherwise enforcing any of its rights, powers or remedies
hereunder.
h)
Notices
.
Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
i)
Limitation
of Liability
.
No
provision hereof, in the absence of any affirmative action by Holder to exercise
this Warrant to purchase Warrant Shares, and no enumeration herein of the rights
or privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.
j)
Remedies
.
The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of
its
rights under this Warrant. The Company agrees that monetary damages would not
be
adequate compensation for any loss incurred by reason of a breach by it of
the
provisions
of this Warrant and hereby agrees to waive and not to assert the defense in
any
action for specific performance that a remedy at law would be
adequate.
k)
Successors
and Assigns
.
Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by the Holder or
holder of Warrant Shares.
l)
Amendment
.
This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holder.
m)
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
n)
Headings
.
The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
|
GENSPERA,
INC.
|
|
|
|
|
|
By:
__________________________________________
Name:
Title:
|
NOTICE
OF EXERCISE
TO:
GENSPERA,
INC.
(1)
The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full),
and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2)
Payment
shall take the form of (check applicable box):
[
] in
lawful money of the United States; or
[
] [if
permitted] the cancellation of such number of Warrant Shares as is necessary,
in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).
(3)
Please
issue a certificate or certificates representing said Warrant Shares in the
name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4)
Accredited
Investor
.
The
undersigned is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act of 1933, as amended.
[SIGNATURE
OF HOLDER]
Name
of
Investing Entity:
________________________________________________________________________
Signature
of Authorized Signatory of Investing Entity
:
_________________________________________________
Name
of
Authorized Signatory:
___________________________________________________________________
Title
of
Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this
form
and supply required information.
Do
not
use this form to exercise the warrant.)
FOR
VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated:
______________, _______
Holder’s
Signature:
_____________________________
Holder’s
Address:
_____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE:
The
signature to this Assignment Form must correspond with the name as it appears
on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing
Warrant.
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”)
is
dated as of July ____, 2008, between GenSpera, Inc., a Delaware corporation
(the
“
Company
”),
and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “
Purchaser
”
and
collectively, the “
Purchasers
”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “
Securities
Act
”),
and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1
Definitions
.
In addition to the terms defined elsewhere in this Agreement, for all purposes
of this Agreement, the following terms have the meanings set forth in this
Section 1.1:
“
Accounts
Receivable
” shall have the meaning ascribed to such term in Section 3.1(hh).
“
Acquiring
Person
” shall have the meaning ascribed to such term in Section
4.5.
“
Action
”
shall
have the meaning ascribed to such term in Section 3.1(j).
“
Affiliate
”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person as such
terms are used in and construed under Rule 405 under the Securities Act.
“
Board
of Directors
”
means
the board of directors of the Company.
“
Business
Day
”
means
any day except Saturday, Sunday, any day which is a federal legal holiday in
the
United States or any day on which banking institutions in the State of New
York
are authorized or required by law or other governmental action to close and,
upon the Company becoming listed or quoted on a Trading Market, except any
day
that the Common Stock is not trading on the Trading Market.
“
Business
Plan
”
means
the business plan attached hereto as
Exhibit
E
.
“
Closing
”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“
Closing
Date
”
means
the Business Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“
Closing
Statement
”
means
the Closing Statement in the form
Annex
A
attached
hereto.
“
Commission
”
means
the United States Securities and Exchange Commission.
“
Common
Stock
”
means
the common stock of the Company, par value $0.001 per share, and any other
class
of securities into which such securities may hereafter be reclassified or
changed into.
“
Common
Stock Equivalents
”
means
any securities of the Company or the 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.
“
Company
Counsel
”
means
Raul Silvestre, Esq. with offices located at 31200 Via Colinas, Suite 200,
Westlake Village, CA 91362.
“
Disclosure
Schedules
”
means
the Disclosure Schedules of the Company delivered concurrently herewith.
“
Discounted
Purchase Price
”
shall
have the meaning ascribed to such term in Section 4.16.
“
Discussion
Time
”
shall
have the meaning ascribed to such term in Section 3.2(f).
“
Effective
Date
”
means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.
“
Escrow
Agent
”
means
Signature Bank, a New York State chartered bank and having an office at, 261
Madison Avenue, New York, New York 10016.
“
Escrow
Agreement
”
means
the escrow agreement entered into prior to the date hereof, by and among the
Company, T.R. Winston & Company and the Escrow Agent pursuant to which the
Purchasers, shall deposit Subscription Amounts with the Escrow Agent to be
applied to the transactions contemplated hereunder.
“
Evaluation
Date
”
shall
have the meaning ascribed to such term in Section 3.1(r).
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
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 members of the Board of
Directors or a majority of the members of a committee of directors established
for such purpose (provided, however, any such issuances to consultants shall
not
exceed an aggregate of 100,000 shares, subject to adjustment for forward and
reverse stock splits, stock dividends and similar transactions of the Common
Stock that occur after the Closing Date, in any 12-month period), (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, or (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, 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.
“
FDA
”
shall
have the meaning ascribed to such term in Section 3.1(mm).
“
FDCA
”
shall
have the meaning ascribed to such term in Section 3.1(mm).
“
FWS
”
means
Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.
“
GAAP
”
shall
have the meaning ascribed to such term in Section 3.1(h).
“
Indebtedness
”
shall
have the meaning ascribed to such term in Section 3.1(w).
“
Intellectual
Property Rights
”
shall
have the meaning ascribed to such term in Section 3.1(o).
“
Legend
Removal Date
”
shall
have the meaning ascribed to such term in Section 4.1(c).
“
Liens
”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“
Lock-Up
Agreements
”
means
the lock-up agreements, in the form of
Exhibit
D
attached
hereto, duly executed by each officer, director and 5% stockholder of the
Company and each Subsidiary.
“
Material
Adverse Effect
”
shall
have the meaning assigned to such term in Section 3.1(b).
“
Material
Permits
”
shall
have the meaning ascribed to such term in Section 3.1(m).
“
Per
Share Purchase Price
”
equals
$1.00, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock
that occur after the date of this Agreement.
“
Person
”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Pharmaceutical
Product
”
shall
have the meaning ascribed to such term in Section 3.1(mm).
“
Pre-Notice
”
shall
have the meaning ascribed to such term in Section 4.16(b).
“
Proceeding
”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
“
Purchaser
Party
”
shall
have the meaning ascribed to such term in Section 4.8.
“
Registration
Rights Agreement
”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Purchasers, in the form of
Exhibit
A
attached
hereto.
“
Registration
Statement
”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Shares and
the
Warrant Shares.
“
Required
Approvals
”
shall
have the meaning ascribed to such term in Section 3.1(e).
“
Risk
Factors
”
means
the Risk Factors attached hereto as
Exhibit
F
.
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
Securities
”
means
the Shares, the Warrants and the Warrant Shares.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Shares
”
means
the shares of Common Stock issued or issuable to each Purchaser pursuant to
this
Agreement.
“
Short
Sales
”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“
Subscription
Amount
”
means,
as to each Purchaser, the aggregate amount to be paid for Shares and Warrants
purchased hereunder as specified below such Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount,” in United
States dollars and in immediately available funds.
“
Subsequent
Financing
”
means
any issuance by the Company or any of its Subsidiaries of Common Stock, Common
Stock Equivalents for cash consideration, Indebtedness (or a combination of
units hereof).
“
Subsequent
Financing Notice
”
shall
have the meaning ascribed to such term in Section 4.16(b).
“
Subsidiary
”
means
any subsidiary of the Company as set forth on
Schedule
3.1(a)
,
and
shall, where applicable, also include any direct or indirect subsidiary of
the
Company formed or acquired after the date hereof.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the
New York Stock Exchange or the OTC Bulletin Board.
“
Transaction
Documents
”
means
this Agreement, the Warrants, the Lock-Up Agreements, the Escrow Agreement,
the
Business Plan, the Risk Factors, the Registration Rights Agreement and any
other
documents or agreements executed in connection with the transactions
contemplated hereunder.
“
Variable
Rate Transaction
”
shall
have the meaning ascribed to such term in Section 4.12(b).
“
VWAP
”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted for trading as reported by Bloomberg L.P. (based on a
Business Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink Sheets,
LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock
so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith
by
the Purchasers of a
majority
in interest of the Shares then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
“
Warrants
”
means,
collectively, the Common Stock purchase warrants delivered to the Purchasers
at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be
exercisable immediately and have a term of exercise equal to five years, in
the
form of
Exhibit
C
attached
hereto.
“
Warrant
Shares
”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II.
PURCHASE
AND SALE
2.1
Closing
.
On the Closing Date, upon the terms and subject to the conditions set forth
herein, substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and the Purchasers,
severally and not jointly, agree to purchase, up to an aggregate of Six Million
Dollars ($6,000,000) of Shares and Warrants. Each Purchaser shall deliver to
the
Company via wire transfer or a certified check immediately available funds
equal
to its Subscription Amount and the Company shall deliver to each Purchaser
its
respective Shares and a Warrant as determined pursuant to Section 2.2(a), and
the Company and each Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants
and
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of FWS or such other location as the parties shall mutually agree and
T.R. Winston shall deliver to the Escrow Agent the Form of Escrow Release Notice
(as defined in the Escrow Agreement), duly executed.
2.2
Deliveries
.
(a)
On
or
prior to the Closing Date, the Company shall deliver or cause to be delivered
to
each Purchaser the following:
(i)
this
Agreement duly executed by the Company;
(ii)
a
legal
opinion of Company Counsel, substantially in the form of
Exhibit
B
attached
hereto;
(iii)
a
certificate evidencing a number of Shares equal to such Purchaser’s Subscription
Amount divided by the Per Share Purchase Price, registered in the name of such
Purchaser;
(iv)
a
Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of
Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by the
Per Share Purchase Price, with an exercise price equal to
$2.00
,
subject
to adjustment therein;
(v)
the
Lock-Up Agreements;
(vi)
the
Business Plan;
(vii)
the
Risk
Factors; and
(viii)
the
Registration Rights Agreement duly executed by the Company.
(b)
On
or
prior to the Closing Date, each Purchaser shall deliver or cause to be delivered
to the Company the following:
(i)
this
Agreement duly executed by such Purchaser;
(ii)
such
Purchaser’s Subscription Amount by wire transfer to the Escrow Agent;
and
(iii)
the
Registration Rights Agreement duly executed by such Purchaser.
2.3
Closing
Conditions
.
(a)
The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i)
the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Purchasers contained herein;
(ii)
all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed;
and
(iii)
the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b)
The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i)
the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained herein;
(ii)
all
obligations, covenants and agreements of the Company required to be performed
at
or prior to the Closing Date shall have been performed;
(iii)
the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv)
there
shall have been no Material Adverse Effect with respect to the Company since
the
date hereof; and
(v)
from
the
date hereof to the Closing Date, a banking moratorium shall not have been
declared either by the United States or New York State
authorities
nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity of such magnitude in its effect
on,
or any material adverse change in, any financial market which, in each case,
in
the reasonable judgment of each Purchaser, makes it impracticable or inadvisable
to purchase the Securities at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1
Representations
and Warranties of the Company. Except as set forth in the Disclosure Schedules,
which Disclosure Schedules shall be deemed a part hereof and shall qualify
any
representation or otherwise made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedules, the Company
hereby makes the following representations and warranties to each
Purchaser:
(a)
Subsidiaries
.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a)
.
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights
to
subscribe for or purchase securities. If the Company has no subsidiaries, then
all other references to the Subsidiaries or any of them in the Transaction
Documents shall be disregarded.
(b)
Organization
and Qualification
.
The
Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the requisite power
and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
nor default of any of the provisions of its respective certificate or articles
of incorporation, bylaws or other organizational or charter documents. Each
of
the Company and the Subsidiaries is duly qualified to conduct business and
is in
good standing as a foreign corporation or other entity in each jurisdiction
in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability
of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise)
of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “
Material
Adverse Effect
”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c)
Authorization;
Enforcement
.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and
thereunder.
The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of the Company
and
no further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document to which it is a party has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute
the
valid and binding obligation of the Company enforceable against the Company
in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar
as
indemnification and contribution provisions may be limited by applicable
law.
(d)
No
Conflicts
.
The
execution, delivery and performance by the Company of the Transaction Documents,
the issuance and sale of the Securities and the consummation by it to which
it
is a party of the other transactions contemplated hereby and thereby do not
and
will not: (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or assets
of the Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding
to
which the Company or any Subsidiary is a party or by which any property or
asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to
the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any
property or asset of the Company or a Subsidiary is bound or affected; except
in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e)
Filings,
Consents and Approvals
.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than: (i) the filings required pursuant to Section
4.4 of this Agreement, (ii) application(s) to each applicable Trading Market
for
the listing of the Securities for trading thereon in the time and manner
required thereby and (iii) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws
(collectively, the “
Required
Approvals
”).
(f)
Issuance
of the Securities
.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be
duly
and
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in
the
Transaction Documents. The Warrant Shares, when issued in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Company
has reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable pursuant to this Agreement and the
Warrants.
(g)
Capitalization
.
The
capitalization of the Company is as set forth on
Schedule
3.1(g)
.
Immediately prior to the Closing, the number of shares of Common Stock
outstanding on a fully-diluted basis shall be 11,826,718. No Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities, and
as
otherwise set forth on
Schedule
3.1(g)
,
there
are no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exercisable or exchangeable for, or giving
any
Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company
or
any Subsidiary is or may become bound to issue additional shares of Common
Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to
any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable, have
been
issued in compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval
or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. Except as set forth on
Schedule
3.1(g)
,
there
are no stockholders agreements, voting agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company’s
stockholders.
(h)
Financial
Statements
.
The
audited financial statements for fiscal 2007 are attached hereto on
Schedule
3.1(h)
.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“
GAAP
”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i)
Material
Changes; Undisclosed Events, Liabilities or Developments
.
Since
the date of the latest audited financial statements attached hereto as
Schedule
3.1(h)
,
except
as specifically disclosed on
Schedule
3.1(i)
:
(i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
(j)
Litigation
.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “
Action
”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim
of
violation of or liability under federal or state securities laws or a claim
of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of
the Company.
(k)
Labor
Relations
.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and
the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the Company,
is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement
or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each
such
executive officer does not subject the Company or any of its Subsidiaries to
any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms
and
conditions of employment and wages and hours, except where the failure to be
in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(l)
Compliance
.
Neither
the Company nor any Subsidiary: (i) is in default under or in violation of
(and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could
not
have or reasonably be expected to result in a Material Adverse
Effect.
(m)
Regulatory
Permits
.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses, except where
the
failure to possess such permits could not reasonably be expected to result
in a
Material Adverse Effect (“
Material
Permits
”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n)
Title
to Assets
.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them and good and marketable title in all personal
property owned by them that is material to the business of the Company and
the
Subsidiaries, in each case free and clear of all Liens, except for Liens as
do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state or other taxes,
the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance.
(o)
Patents
and Trademarks
.
The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as necessary or material for use in connection with
their respective businesses and which the failure to so have could have a
Material Adverse Effect (collectively, the “
Intellectual
Property Rights
”).
Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights used by the Company
or
any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(p)
Insurance
.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to $5,000,000. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.
(q)
Transactions
With Affiliates and Employees
.
Except
as disclosed on
Schedule
3.1(q)
,
none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, or otherwise requiring payments to or from
any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.
(r)
Internal
Accounting Controls
.
The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(s)
Certain
Fees
.
Except
as disclosed on
Schedule
3.1(s)
,
no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or
on
behalf of other Persons for fees of a type contemplated in this Section that
may
be due in connection with the transactions contemplated by the Transaction
Documents which have been incurred by the Company.
(t)
Registration
Rights
.
Other
than each of the Purchasers, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(u)
Disclosure
.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither
it
nor any other Person acting on its behalf has provided any of the Purchasers
or
their agents or counsel with any information that it believes constitutes or
might constitute material, non-public information. The Company understands
and
confirms that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company. All disclosure furnished
by
or on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. The press releases disseminated by the
Company during the twelve months preceding the date of this Agreement taken
as a
whole do not contain any untrue statement of a material fact or omit to state
a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made
and
when made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
(v)
No
Integrated Offering
.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act
which
would require the registration of any such securities under the Securities
Act,
or (ii) any applicable shareholder approval provisions of any Trading Market
on
which any of the securities of the Company are listed or
designated.
(w)
Solvency
.
Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the
sale
of the Securities hereunder: (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof, and (iii)
the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account
all
anticipated uses of the cash, would be sufficient to pay all amounts on or
in
respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts
as
they mature (taking into account the timing and amounts of cash to be payable
on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization
or
liquidation under the bankruptcy or reorganization laws of any
jurisdiction
within one year from the Closing Date.
Schedule
3.1(ww)
sets
forth as of the date thereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary
has
commitments. For the purposes of this Agreement, “
Indebtedness
”
means
(x) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect
of
indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value
of
any lease
payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP.
Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(x)
Tax
Status
.
Except
as set forth on
Schedule
3.1(x)
and
except for matters that would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, the Company
and
each Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
(y)
No
General Solicitation
.
Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(z)
Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has: (i) directly or indirectly, used any
funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(aa)
Accountants
.
The
Company’s accounting firm is set forth on
Schedule
3.1(aa)
of the
Disclosure Schedules. To the knowledge and belief of the Company, such
accounting firm: (i) is a registered public accounting firm as required by
the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Registration Statement.
(bb)
No
Disagreements with Accountants and Lawyers.
There
are
no disagreements of any kind presently existing, or reasonably anticipated
by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company which could affect the Company’s
ability to perform any of
its
obligations under any of the Transaction Documents, and the Company is current
with respect to any fees owed to its accountants and lawyers.
(cc)
Acknowledgment
Regarding Purchasers’ Purchase of Securities
.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on
the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
(dd)
Marketing
Rights
.
Neither
the Company nor any of its Subsidiaries have granted rights to license, market,
or sell its products or services to any other Person and is not bound by any
agreement that affects the Company’s (or any Subsidiary’s) exclusive right to
develop, distribute, market or sell its products or services.
(ee)
Employees
.
Neither
the Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company’s knowledge, threatened with respect to the Company or its
Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to
or
bound by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To the Company’s
knowledge, no employee of the Company or any Subsidiary, nor any consultant
with
whom the Company or any Subsidiary has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or
to
contract with, the Company (or any Subsidiary) because of the nature of the
business to be conducted by the Company (or any Subsidiary); and to the
Company’s knowledge the continued employment by the Company (and its
Subsidiaries) of their respective present employees, and the performance of
the
Company’s (and Subsidiaries’) contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company or
any
Subsidiary has been granted the right to continued employment by the Company
(or
any Subsidiary) or to any material compensation following termination of
employment with the Company (or any Subsidiary). The Company is not aware that
any officer, key employee or group of employees intends to terminate his, her
or
their employment with the Company (or any Subsidiary) nor does the Company
have
a present intention to terminate the employment of any officer, key employee
or
group of employees. The Company and its Subsidiaries are in compliance with
all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms
and
conditions of employment and wages and hours, except where the failure to be
in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(ff)
Obligations
of Management
.
Each
officer and key employee of the Company and its Subsidiaries is currently
devoting substantially all of his or her business time to the conduct of
business of the Company and its Subsidiaries. Neither the Company nor any of
its
Subsidiaries is aware that any officer or key employee of the Company or any
Subsidiary is planning to work less than full time at the Company or any
Subsidiary, as applicable, in the future. No officer or key employee is the
currently working or, to the Company’s knowledge, plans to work for a
competitive enterprise, whether or not such officer of key employee is or will
be compensated by such enterprise.
(gg)
Minute
Books
.
The
minute books of the Company and its Subsidiaries made available to the
Purchasers contain a complete summary of all meetings of directors and
stockholders since the time of incorporation.
(hh)
Accounts
Receivable
.
All
accounts receivable of the Company and its Subsidiaries that are reflected
on
the Company’s and its Subsidiaries’ balance sheets or interim balance sheets or
on the accounting records of the Company and its Subsidiaries as of the Closing
Date (collectively, the “
Accounts
Receivable
”)
represent or will represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. Unless paid
prior to the Closing Date, the Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on
the
balance sheet or interim balance sheet or on the accounting records of the
Company and its Subsidiaries as of the Closing Date (which reserves are adequate
and calculated consistent with past practice and, in the case of the reserve
as
of the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the interim
balance sheet represented of the Accounts Receivable reflected therein and
will
not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full without any set-off,
within ninety days after the day on which it must becomes due and payable.
There
is no contest, claim, or right of set-off, other than returns in the ordinary
course of business, under any agreement and/or contract with any obligor of
an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable.
Schedule
3.1(hh)
contains
a complete and accurate list of all Accounts Receivable as of the date of the
interim balance sheet, which list sets forth the aging of such Accounts
Receivable.
(ii)
Inventory
.
All
inventory of the Company and the Subsidiaries, whether or not reflected in
the
balance sheet or interim balance sheet, consists of a quality and quantity
usable and salable in the ordinary course of business, except for obsolete
items
and items of below standard quality, all of which have been written off or
written down to net realizable value in the balance sheet or interim balance
sheet or on the accounting records of the Company and the Subsidiaries as of
the
Closing Date, as the case may be. All inventories not written off have been
priced at the lower of cost or market on the last in,
first
out
basis. The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in
the
present circumstances of the Company and the Subsidiaries.
(jj)
Returns
and Complaints
.
Neither
the Company nor any Subsidiary has received any customer complaints concerning
its respective products and/or services, nor has it had any of its products
returned by a purchaser thereof, other than minor, nonrecurring warranty
problems.
(kk)
Employee
Benefits
.
Except
as set forth on
Schedule
3.1(kk)
,
neither
the Company nor any Subsidiary has (nor for the two years preceding the date
hereof has had) any plans which are subject to ERISA. “
ERISA
”
means
the Employee Retirement Income Security Act of 1974 or any successor law and
the
regulations and rules issued pursuant to that act or any successor
law.
(ll)
Elections
.
To the
Company’s knowledge, all elections and notices permitted by Section 83(b) of the
Internal Revenue Code and any analogous provisions of applicable state tax
laws
have been timely filed by all employees who have purchased shares of the Common
Stock under agreements that provide for the vesting of such shares of Common
Stock.
(mm)
FDA
.
As to
each product subject to the jurisdiction of the U.S. Food and Drug
Administration (“
FDA
”)
under
the Federal Food, Drug and Cosmetic Act, as amended, and the regulations
thereunder (“
FDCA
”)
that
is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed
by the Company or any of its Subsidiaries (each such product, a “
Pharmaceutical
Product
”),
such
Pharmaceutical Product is being manufactured, packaged, labeled, tested,
distributed, sold and/or marketed by the Company in compliance with all
applicable requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket clearance, licensure,
or application approval, good manufacturing practices, good laboratory
practices, good clinical practices, product listing, quotas, labeling,
advertising, record keeping and filing of reports, except where the failure
to
be in compliance would not have a Material Adverse Effect. There is no pending,
completed or, to the Company's knowledge, threatened, action (including any
lawsuit, arbitration, or legal or administrative or regulatory proceeding,
charge, complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice, warning letter or other communication from the FDA or any other
governmental entity, which (i) contests the premarket clearance, licensure,
registration, or approval of, the uses of, the distribution of, the
manufacturing or packaging of, the testing of, the sale of, or the labeling
and
promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
requests the recall, suspension, or seizure of, or withdraws or orders the
withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
investigation by the Company or any of its Subsidiaries, (iv) enjoins production
at any facility of the Company or any of its Subsidiaries, (v) enters or
proposes to enter into a consent decree of permanent injunction with the Company
or any of its Subsidiaries, or (vi) otherwise alleges any violation of any
laws,
rules or regulations by
the
Company or any of its Subsidiaries, and which, either individually or in the
aggregate, would have a Material Adverse Effect. The properties, business and
operations of the Company have been and are being conducted in all material
respects in accordance with all applicable laws, rules and regulations of the
FDA. The Company has not been informed by the FDA that the FDA will prohibit
the
marketing, sale, license or use in the United States of any product proposed
to
be developed, produced or marketed by the Company nor has the FDA expressed
any
concern as to approving or clearing for marketing any product being developed
or
proposed to be developed by the Company.
3.2
Representations
and Warranties of the Purchasers
. Each Purchaser, for itself and for no
other Purchaser, hereby represents and warrants as of the date hereof and as
of
the Closing Date to the Company as follows:
(a)
Organization;
Authority
.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of
the
Transaction Documents and performance by such Purchaser of the transactions
contemplated by the Transaction Documents have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except: (i)
as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
(b)
Own
Account
.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and
has
no direct or indirect arrangement or understandings with any other persons
to
distribute or regarding the distribution of such Securities (this representation
and warranty not limiting such Purchaser’s right to sell the Securities pursuant
to the Registration Statement or otherwise in compliance with applicable federal
and state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities hereunder
in
the ordinary course of its business.
(c)
Purchaser
Status
.
At the
time such Purchaser was offered the Securities, it was, and as of the date
hereof it is, and on each date on which it exercises any Warrants, it will
be
either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3),
(a)(7)
or
(a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required
to be registered as a broker-dealer under Section 15 of the Exchange Act.
(d)
Experience
of Such Purchaser
.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(e)
General
Solicitation
.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
(f)
Confidentiality
Prior To The Date Hereof
.
Other
than to other Persons party to this Agreement, such Purchaser has maintained
the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction).
(g)
Due
Diligence Review
.
Each
Purchaser has reviewed the Business Plan and the Risk Factors and had an
opportunity to obtain all of the information such Purchaser deems necessary
in
order to make the decision to purchase the Securities.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a)
The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company
or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide to
the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing
to
be bound by the terms of this Agreement and the Registration Rights Agreement
and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b)
The
Purchasers agree to the imprinting, so long as is required by this Section
4.1,
of a legend on any of the Securities in the following form:
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject
to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further,
no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under
the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c)
Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including
the legend set forth in Section 4.1(b) hereof), (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, (ii) following any sale of
such
Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares or Warrant
Shares are eligible for sale under Rule 144, without the requirement for the
Company to be in compliance with the current public information required under
Rule 144 as to such Underlying Shares and without volume or manner-of-sale
restrictions, or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the transfer agent of the Company
promptly after the Effective Date if required by the transfer agent of the
Company to effect the removal of
the
legend hereunder. If all or any portion of a Warrant is exercised at a time
when
there is an effective registration statement to cover the resale of the Warrant
Shares, or if such Warrant Shares may be sold under Rule 144, without the
requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without
volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Warrant Shares shall be issued free of all legends. The Company agrees
that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Business Days
following the delivery by a Purchaser to the Company or the transfer agent
of
the Company of a certificate representing Shares or Warrant Shares, as the
case
may be, issued with a restrictive legend (such third Business Day, the
“
Legend
Removal Date
”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may
not make any notation on its records or give instructions to the transfer agent
of the Company that enlarge the restrictions on transfer set forth in this
Section 4. Certificates for Securities subject to legend removal hereunder
shall
be transmitted by the transfer agent of the Company to the Purchaser by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System as directed by such Purchaser.
(d)
In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock
on the date such Securities are submitted to the transfer agent of the Company)
delivered for removal of the restrictive legend and subject to Section 4.1(c),
$10 per Business Day (increasing to $20 per Business Day five (5) Business
Days
after such damages have begun to accrue) for each Business Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing
herein shall limit such Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief.
(e)
Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
such
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with
the
plan of distribution set forth therein, and acknowledges that the removal of
the
restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.
4.2
Furnishing
of Information
. If after the date hereof the Company becomes subject to the
rules and regulations of the Exchange Act and as long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof
pursuant
to the Exchange Act. As long as any Purchaser owns Securities, if the Company
is
not required to file reports pursuant to the Exchange Act, it will prepare
and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
4.3
Integration
.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities to the Purchasers for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4
Publicity
.
The Company and each Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby,
and
neither the Company nor any Purchaser shall issue any such press release nor
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except
if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement
or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in
any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (a) as required by federal
securities law in connection with any registration statement contemplated by
the
Registration Rights Agreement and (b) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under this clause
(b).
4.5
Shareholder
Rights Plan
. No claim will be made or enforced by the Company or, with the
consent of the Company, any other Person, that any Purchaser is an “Acquiring
Person” under any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar anti-takeover
plan or arrangement in effect or hereafter adopted by the Company, or that
any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the
Purchasers.
4.6
Non-Public
Information
. If at any time the Company becomes subject to the reporting
provisions of the Exchange Act, the Company covenants and agrees that neither
it, nor any other Person acting on its behalf, will provide any Purchaser or
its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall
have
executed a written agreement regarding the
confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing covenant in effecting transactions
in securities of the Company.
4.7
Use
of
Proceeds
. Except as set forth on Schedule 4.7 attached hereto, the Company
shall use the net proceeds from the sale of the Securities hereunder for working
capital purposes and shall not use such proceeds for: (a) the satisfaction
of
any portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices), (b) the
redemption of any Common Stock or Common Stock Equivalents or (c) the settlement
of any outstanding litigation.
4.8
Indemnification
of Purchasers
. Subject to the provisions of this Section 4.8, the Company
will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities
Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding
a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as
a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or
in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party
in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party
shall
have the right to employ separate counsel in any such action and participate
in
the defense thereof, but the fees and expenses of such counsel shall be at
the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense
and
to employ counsel or (iii) in such action there is, in the reasonable opinion
of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which
case
the Company shall be responsible for the reasonable fees and expenses of no
more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (y) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (z) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction
Documents.
4.9
Reservation
of Common Stock
.
As of
the date hereof, the Company has reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, a sufficient
number of shares of Common Stock for the purpose of enabling the Company to
issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
exercise of the Warrants.
4.10
L
isting
of Common Stock
.
The
Company hereby agrees to use best efforts to obtain the listing of the Common
Stock on a Trading Market as soon as reasonably practicable following the
Effective Date. The Company further agrees, if the Company applies to have
the
Common Stock traded on any other Trading Market, it will then include in such
application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible. The Company will
then take all action reasonably necessary to continue the listing and trading
of
its Common Stock on a Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
4.11
Equal
Treatment of Purchasers
. No consideration (including any modification of any
Transaction Document) shall be offered or paid to any Person to amend or consent
to a waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. For clarification purposes, this provision constitutes
a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.
4.12
Subsequent
Equity Sales
.
(a)
From
the
date hereof until 90 days after the Effective Date, neither the Company nor
any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided
,
however
,
that
the 90 day period set forth in this Section 4.12 shall be extended for the
number of Business Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following the Effective Date,
the Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of
the
Shares and Warrant Shares.
(b)
From
the
date hereof until the 12 month anniversary of the later of (i) the Effective
Date and (ii) the date that the Common Stock is listed on a Trading Market
and
as long as the Purchaser hold any of the Securities, the Company shall be
prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a Variable Rate Transaction. “
Variable
Rate Transaction
”
means
a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion price, exercise price or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares
of
Common Stock at any time after the initial issuance of such debt or equity
securities or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such debt
or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price. Any Purchaser shall be entitled to obtain injunctive
relief against the Company to preclude any such issuance, which remedy shall
be
in addition to any right to collect damages.
(c)
Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.13
Form
D; Blue Sky Filings
. The Company agrees to timely file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of any Purchaser. The Company shall take such action
as
the Company shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Securities for, sale to the Purchasers at
the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.
4.14
Capital
Changes
. Until the one year anniversary of the Effective Date, the Company
shall not undertake a reverse or forward stock split or reclassification of
the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Shares.
4.15
Per
Share Purchase Price Protection
. From the date hereof until the date that
the 18 month anniversary of the date hereof, if in connection with a Subsequent
Financing, the Company or any Subsidiary shall issue any Common Stock or Common
Stock Equivalents entitling any person or entity to acquire shares of Common
Stock at an effective price per share less than the Per Share Purchase Price
(subject to reverse and forward stock splits and the like) (the “Discounted
Purchase Price,” as further defined below), the Company shall issue to such
Purchaser that number of additional shares of Common Stock equal to (a) the
Subscription Amount paid by such Purchaser at the Closing divided by the
Discounted Purchase Price, less (b) the Shares issued to such Purchaser at
the
Closing pursuant to this Agreement and pursuant to this Section 4.15. The term
“Discounted Purchase Price” shall mean the amount actually paid in new cash
consideration by third parties for each share of Common Stock. The sale of
Common Stock Equivalents shall be deemed to have occurred at the time of the
issuance of the Common Stock Equivalents and the Discounted Purchase Price
covered thereby shall also include the actual exercise or conversion price
thereof at the time of the conversion or exercise (in addition to the
consideration per share of Common Stock underlying the Common Stock Equivalents
received by the Company upon such sale or issuance of the Common Stock
Equivalents). If shares are issued for a consideration other than cash, the
per
share selling price shall be the fair value of such consideration as determined
in good faith by the Board of Directors. The Company shall not refuse to issue
a
Purchaser additional Shares hereunder based on any claim that such Purchaser
or
any one associated or affiliated with such Purchaser has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from
a
court, on notice, restraining and or enjoining an issuance hereunder shall
have
been sought and obtained and the Company posts a surety bond for the benefit
of
such Purchaser in the amount of 150% of the market value of such Shares (based
on the VWAP of the Common Stock on the date of the event giving rise to the
Company’s obligation hereunder), which is subject to the injunction, which bond
shall remain in effect until the completion of litigation of the dispute and
the
proceeds of which shall be payable to the Purchaser to the extent it obtains
judgment. Nothing herein shall limit a Purchaser’s right to pursue actual
damages for the Company's failure to deliver Shares hereunder and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. On the date of closing of any transaction pursuant to which
securities are issued for a Discounted Purchase Price, the Company shall give
the Purchasers written notice thereof. Notwithstanding anything to the contrary
herein, this Section 4.15 shall not apply to an Exempt Issuance.
4.16
Most
Favored Nation Provision
.
(a)
From
the
date hereof until the date that is the 18 month anniversary of the date hereof,
if the Company effects a upon any Subsequent Financing, each Purchaser may
elect, in its sole discretion, to (a) exchange all or some of the Shares (but
not the Warrants) then held by such Purchaser for any securities or units issued
in a Subsequent Financing on a $1.00 for $1.00 basis based on the outstanding
Shares, along with any liquidated damages and other amounts owing thereon,
and
the effective price at which such securities are to be sold in such Subsequent
Financing, or (b) to have any particular provisions of the Subsequent Financing
legal documents apply to the Transaction Documents ex post facto;
provided
,
however
,
that
this Section 4.16 shall not apply with respect to (i) an Exempt Issuance or
(ii)
an underwritten public offering of Common Stock.
(b)
At
least
5 Business Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“
Pre-Notice
”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “
Subsequent
Financing Notice
”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser, for
a
Subsequent Financing Notice, the Company shall promptly, but no later than
1
Business Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder and the Person or Persons through or with whom such
Subsequent Financing is proposed to be effected and shall include a term sheet
or similar document relating thereto as an attachment. Any
Purchaser desiring to exercise its rights under Section 4.16(a) in connection
with such Subsequent Financing must provide written notice to the Company by
not
later than 5:30 p.m. (New York City time) on the fifth (5th) Business Day after
all of the Purchasers have received the Pre-Notice that the Purchaser desires
to
exercise its rights under Section 4.16(a) in the Subsequent Financing. If the
Company receives no notice from a Purchaser as of such fifth (5th) Business
Day,
such Purchaser shall be deemed to have notified the Company that it does not
desire to exercise its rights under Section 4.16(a). The Company must
provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right to exercise their rights under Section
4.16(a), if the Subsequent Financing subject to the initial Subsequent Financing
Notice is not consummated for any reason on the terms set forth in such
Subsequent Financing Notice within 30 Business Days after the date of the
initial Subsequent Financing Notice.
ARTICLE
V.
MISCELLANEOUS
5.1
Termination
.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before July 31, 2008;
provided, however, that no such termination will affect the right of any party
to sue for any breach by the other party (or parties).
5.2
Fees
and Expenses
. At the Closing, the Company has agreed to reimburse T.R.
Winston & Company (“T.R. Winston”) the non-accountable sum of $20,000 for
its legal fees and expenses, $10,000 of which shall have been paid prior to
the
Closing. The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A. Except
as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to
the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes
and
duties levied in connection with the delivery of any Securities to the
Purchasers.
5.3
Entire
Agreement
. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.4
Notices
.
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto prior to 5:30 p.m. (New York City time)
on a
Business Day, (b) the next Business Day after the date of transmission, if
such
notice or communication is delivered via facsimile at the facsimile number
set
forth on the signature pages attached hereto on a day that is not a Business
Day
or later than 5:30 p.m. (New York City time) on any Business Day, (c) the
2
nd
Business
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5
Amendments;
Waivers
. No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and
the
Purchasers holding at least 67% of the Shares then outstanding or, in the case
of a waiver, by the party against whom enforcement of any such waived provision
is sought. No waiver of any default with respect to any provision, condition
or
requirement of this Agreement shall be deemed to be a continuing waiver in
the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party
to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6
Headings
.
The headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.7
Successors
and Assigns
. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns. The Company may
not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser (other than by merger). Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom
such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the
“Purchasers.”
5.8
No
Third-Party Beneficiaries
. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is
not
for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.8.
5.9
Governing
Law
. All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the
state and federal courts sitting in the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or
with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for
such
proceeding. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law. If either party shall commence an action or proceeding
to enforce any provisions of the Transaction Documents, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
5.10
Survival
.
The representations and warranties contained herein shall survive the Closing
and the delivery of the Securities for the applicable statute of
limitations.
5.11
Execution
.
This Agreement may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
5.12
Severability
.
If any term, provision, covenant or restriction of this Agreement is held by
a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
5.13
Rescission
and Withdrawal Right
. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to
the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, that in the
case
of a rescission of an exercise of a Warrant, the Purchaser shall be required
to
return any shares of Common Stock subject to with any such rescinded exercise
notice.
5.14
Replacement
of Securities
. If any certificate or instrument evidencing any Securities is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to
the
Company of such loss, theft or destruction. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such
replacement Securities.
5.15
Remedies
.
In addition to being entitled to exercise all rights provided herein or granted
by law, including recovery of damages, each of the Purchasers and the Company
will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at
law
would be adequate.
5.16
Payment
Set Aside
. To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation
or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
5.17
Independent
Nature of Purchasers’ Obligations and Rights
. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights including, without limitation, the rights arising out
of
this Agreement or out of the other Transaction Documents, and it shall not
be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS.
FWS
does not represent all of the Purchasers but only T.R. Winston. The Company
has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.18
Liquidated
Damages
. The Company’s obligations to pay any partial liquidated damages or
other amounts owing under the Transaction Documents is a continuing obligation
of the Company and shall not terminate until all unpaid partial liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such partial liquidated damages or
other amounts are due and payable shall have been canceled.
5.19
Saturdays,
Sundays, Holidays, etc
.
If
the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then such action
may be taken or such right may be exercised on the next succeeding Business
Day.
5.20
Construction
.
The parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
5.21
WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT
BY
ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY,
TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY
JURY.
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
|
GENSPERA,
INC.
|
|
Address for Notice:
|
|
|
|
|
|
|
By:
|
|
|
Fax:
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
With a copy to (which shall not constitute notice):
|
|
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO GENSPERA SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name
of
Purchaser: ________________________________________________________
Signature
of Authorized Signatory of Purchaser
:
__________________________________
Name
of
Authorized Signatory:
____________________________________________________
Title
of
Authorized Signatory:
_____________________________________________________
Email
Address of Authorized Signatory:
_____________________________________________
Fax
Number of Authorized Signatory:
________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription
Amount: $_________________
Shares:
_________________
Warrant
Shares: __________________
EIN
Number:
[PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto,
the
purchasers shall purchase up to $5,000,000 of Common Stock and Warrants from
GenSpera, Inc., a Delaware corporation (the “
Company
”).
All
funds will be wired into an account maintained by the Company. All funds will
be
disbursed in accordance with this Closing Statement.
Disbursement
Date:
June
___,
2008
|
I.
PURCHASE
PRICE
|
|
|
|
Gross
Proceeds to be Received
|
$
|
|
|
|
|
|
II.
DISBURSEMENTS
|
|
|
|
Feldman
Weinstein & Smith LLP
|
$20,000
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
Total Amount Disbursed:
|
|
$
|
WIRE
INSTRUCTIONS
:
EXHIBIT
B
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “
Agreement
”)
is
made and entered into as of July ___, 2008, between GenSpera, Inc., a Delaware
corporation (the “
Company
”)
and
each of the several purchasers signatory hereto (each such purchaser, a
“
Purchaser
”
and,
collectively, the “
Purchasers
”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the
date hereof, between the Company and each Purchaser (the “
Purchase
Agreement
”).
The
Company and each Purchaser hereby agrees as follows:
1.
Definitions
Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.
As used
in this Agreement, the following terms shall have the following
meanings:
“
Advice
”
shall
have the meaning set forth in Section 6(d).
“
Effectiveness
Date
”
means,
with respect to the Initial Registration Statement required to be filed
hereunder, the 150
th
calendar
day following the date hereof and with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 90
th
calendar
day following the date on which an additional Registration Statement is required
to be filed hereunder;
provided
,
however
,
that in
the event the Company is notified by the Commission that one or more of the
above Registration Statements will not be reviewed or is no longer subject
to
further review and comments, the Effectiveness Date as to such Registration
Statement shall be the fifth Business Day following the date on which the
Company is so notified if such date precedes the dates otherwise required
above.
“
Effectiveness
Period
”
shall
have the meaning set forth in Section 2(a).
“
Event
”
shall
have the meaning set forth in Section 2(b).
“
Event
Date
”
shall
have the meaning set forth in Section 2(b).
“
Filing
Date
”
means,
with respect to the Initial Registration Statement required hereunder, the
75
th
calendar
day following the date hereof and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the earliest
practical date on which the Company is permitted by SEC Guidance to file such
additional Registration Statement related to the Registrable
Securities.
“
Holder
”
or
“
Holders
”
means
the holder or holders, as the case may be, from time to time of Registrable
Securities.
“
Indemnified
Party
”
shall
have the meaning set forth in Section 5(c).
“
Indemnifying
Party
”
shall
have the meaning set forth in Section 5(c).
“
Initial
Registration Statement
”
means
the initial Registration Statement filed pursuant to this
Agreement.
“
Initial
Shares
”
means
a
number of Registrable Securities equal to the lesser of (i) the total number
of
Registrable Securities and (ii) one-third of the number of issued and
outstanding shares of Common Stock that are held by non-affiliates of the
Company on the day immediately prior to the filing date of the Initial
Registration Statement.
“
Losses
”
shall
have the meaning set forth in Section 5(a).
“
Plan
of Distribution
”
shall
have the meaning set forth in Section 2(a).
“
Prospectus
”
means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a
prospectus filed as part of an effective registration statement in reliance
upon
Rule 430A promulgated by the Commission pursuant to the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such
Prospectus.
“
Registrable
Securities
”
means
(a) all of the Shares (b) all Warrant Shares (assuming on the date of
determination the Warrants are exercised in full without regard to any exercise
limitations therein), (c) any additional shares of Common Stock issuable in
connection with any anti-dilution provisions in the Shares or the Warrants
(without giving effect to any limitations on exercise set forth in the Warrants)
and (d) any securities issued or issuable upon any stock split, dividend or
other distribution, recapitalization or similar event with respect to the
foregoing;
provided,
however
,
that
the Company shall not be required to maintain the effectiveness, or file another
Registration Statement hereunder with respect to any Registrable Securities
that
are not subject to the current public information requirement under Rule 144
and
that are eligible for resale without volume or manner-of-sale restrictions
without current public information pursuant to Rule 144 promulgated by the
Commission pursuant to a written opinion letter to such effect, addressed,
delivered and acceptable to the transfer agent of the Company and the affected
Holders.
“
Registration
Statement
”
means
any registration statement required to be filed hereunder pursuant to Section
2(a) and any additional registration statements contemplated by Section 3(c),
including (in each case) the Prospectus, amendments and supplements to any
such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference
or
deemed to be incorporated by reference in any such registration
statement.
“
Rule
415
”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
Rule
424
”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“
Selling
Stockholder Questionnaire
”
shall
have the meaning set forth in Section 3(a).
“
SEC
Guidance
”
means
(i) any publicly-available written or oral guidance, comments, requirements
or
requests of the Commission staff and (ii) the Securities Act.
2.
Shelf
Registration
(a)
On
or
prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all or such maximum
portion of the Registrable Securities as permitted by SEC Guidance (provided
that, the Company shall use diligent efforts to advocate with the Commission
for
the registration of all of the Registrable Securities in accordance with the
SEC
Guidance, including without limitation, the Manual of Publicly Available
Telephone Interpretations D.29) that are not then registered on an effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415. Each Registration Statement filed hereunder shall be on Form S-1
and shall contain (unless otherwise directed by at least an 85% majority in
interest of the Holders) substantially the “
Plan
of Distribution
”
attached hereto as
Annex
A
.
Subject
to the terms of this Agreement, the Company shall use its best efforts to cause
a Registration Statement to be declared effective under the Securities Act
as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until
all
Registrable Securities covered by such Registration Statement have been sold,
or
may be sold without volume or manner-of-sale restrictions pursuant to Rule
144,
without the requirement for the Company to be in compliance with the current
public information requirement under Rule 144, as determined by the counsel
to
the Company pursuant to a written opinion letter to such effect, addressed
and
acceptable to the transfer agent of the Company and the affected Holders (the
“
Effectiveness
Period
”).
The
Company shall telephonically request effectiveness of a Registration Statement
as of 5:00 p.m. New York City time on a Business Day. The Company shall
immediately notify the Holders via facsimile or by e-mail of the effectiveness
of a Registration Statement on the same Business Day that the Company
telephonically confirms effectiveness with the Commission, which shall be the
date requested for effectiveness of such Registration Statement. The Company
shall, by 9:30 a.m. New York City time on the Business Day after the effective
date of such Registration Statement, file a final Prospectus with the Commission
as required by Rule 424. Failure to so notify the Holder within 1 Business
Day
of such notification of effectiveness or failure to file a final Prospectus
as
foresaid shall be deemed an Event under Section 2(b).
Notwithstanding
any other provision of this Agreement and subject to the payment of liquidated
damages pursuant to Section 2(b), if any SEC Guidance sets forth a limitation
on
the number of Registrable Securities permitted to be registered on a particular
Registration Statement (and notwithstanding that the Company used diligent
efforts to advocate with the Commission for the registration of all or a greater
portion of Registrable Securities), unless otherwise directed in writing by
a
Holder as to its Registrable Securities, the number of Registrable Securities
to
be registered on such Registration Statement will be reduced by Registrable
Securities represented by Warrant Shares (applied, in the case that some Warrant
Shares may be registered, to the Holders on a pro rata basis based on the total
number of unregistered Warrant Shares held by such Holders);
provided
,
however
,
that,
prior to any reduction in the number of Registrable Securities included in
a
Registration Statement as set forth in this sentence, all shares of Common
Stock
set forth on
Schedule
6(b)
hereto
shall be reduced first. In the event of a cutback hereunder, the Company shall
give the Holder at least 5 Business Days prior written notice along with the
calculations as to such Holder’s allotment.
(b)
If:
(i)
the Initial Registration Statement is not filed on or prior to its Filing Date
(if the Company files the Initial Registration Statement without affording
the
Holders the opportunity to review and comment on the same as required by Section
3(a) herein, the Company shall be deemed to have not satisfied this clause
(i)),
or (ii) the Company fails to file with the Commission a request for acceleration
of a Registration Statement in accordance with Rule 461 promulgated by the
Commission pursuant to the Securities Act, within five Business Days of the
date
that the Company is notified (orally or in writing, whichever is earlier) by
the
Commission that such Registration Statement will not be “reviewed” or will not
be subject to further review, or (iii) prior to the effective date of a
Registration Statement, the Company fails to file a pre-effective amendment
and
otherwise respond in writing to comments made by the Commission in respect
of
such Registration Statement within 15 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for such Registration Statement to be declared effective, or (iv) as
to,
in the aggregate among all Holders on a pro-rata basis based on their purchase
of the Securities pursuant to the Purchase Agreement, a Registration Statement
registering for resale all of the Initial Shares is not declared effective
by
the Commission by the Effectiveness Date of the Initial Registration Statement,
or (v) all of the Registrable Securities are not registered for resale pursuant
to one or more effective Registration Statements on or before March 31, 2009,
or
(vi) after the effective date of a Registration Statement, such Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities included in such Registration Statement, or the Holders
are otherwise not permitted to utilize the Prospectus therein to resell such
Registrable Securities, for more than 20 consecutive calendar days or more
than
an aggregate of 30 calendar days (which need not be consecutive calendar days)
during any 12-month period, or (vii) the Company shall fail for any reason
to
satisfy the current public information requirement under Rule 144 as to the
applicable Registrable Securities (any such failure or breach being referred
to
as an “
Event
”,
and
for purposes of clauses (i), (iv), (v) and (vii), the date on which such Event
occurs, and for purpose of clause (ii) the date on which such five Business
Day
period is exceeded, and for purpose of clause (iii) the date which such 15
calendar day period is exceeded, and for purpose of clause (vi) the date on
which such 20 or 30 calendar day period, as applicable, is exceeded being
referred to as “
Event
Date
”),
then,
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of
each
such Event Date (if the applicable Event shall not have been cured by such
date)
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as partial liquidated damages and not as a penalty, equal to
1.5% of the aggregate purchase price paid by such Holder pursuant to the
Purchase Agreement for any unregistered Registrable Securities then held by
such
Holder. The parties agree that (1) the Company shall not be liable for
liquidated damages under this Agreement with respect to any unexercised Warrants
or Warrant Shares and (2) the maximum aggregate liquidated damages payable
to a
Holder under this Agreement shall be 18% of the aggregate Subscription Amount
paid by such Holder pursuant to the Purchase Agreement. If the Company fails
to
pay any partial liquidated damages pursuant to this Section in full within
seven
days after the date payable, the Company will pay interest thereon at a rate
of
18% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Holder, accruing daily from the date such partial
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The partial liquidated damages pursuant to the terms hereof
shall apply on a daily pro rata basis for any portion of a month prior to the
cure of an Event.
3.
Registration
Procedures
.
In
connection with the Company’s registration obligations hereunder, the Company
shall:
(a)
Not
less
than three (3) Business Days prior to the filing of each Registration Statement
and not less than one (1) Business Day prior to the filing of any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall (i) furnish to each Holder, via email, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of
such
Holders, and (ii) cause its officers and directors, counsel and independent
registered public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to each Holder,
to
conduct a reasonable investigation within the meaning of the Securities Act;
provided
,
however
,
for
Section 3(a)(i), each Holder has provided to the Company a current and correct
email address within at least five (5) Business Days of the date hereof and,
if
the Holder does not provide a current and correct email address within such
time
period, then the Holder may provide to the Company a current and correct
facsimile number such that the Company may satisfy the requirements of this
Section 3(a)(i), and, if the Holder does not provide either a current and
correct email address or facsimile number within such time period, the
requirements of this Section 3(a)(i) shall not apply with respect to such Holder
only. The Company shall not file a Registration Statement or any such Prospectus
or any amendments or supplements thereto to which the Holders of a majority
of
the Registrable Securities shall reasonably object in good faith, provided
that,
the Company is notified of such objection in writing no later than three (3)
Business Days after the Holders have been so furnished copies of a Registration
Statement or one (1) Business Day after the Holders have been so furnished
copies of any related Prospectus or amendments or supplements thereto. Each
Holder agrees to furnish to the Company a completed questionnaire in the form
attached to this Agreement as
Annex
B
(a
“
Selling
Stockholder Questionnaire
”)
on a
date that is not less than two (2) Business Days prior to the Filing Date or
by
the end of the fourth (4
th
)
Business Day following the date on which such Holder receives draft materials
in
accordance with this Section.
(b)
(i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of
the
Registrable Securities, (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of
this
Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
424, (iii) respond as promptly as reasonably possible to any comments received
from the Commission with respect to a Registration Statement or any amendment
thereto and provide as promptly as reasonably possible to the Holders true
and
complete copies of all correspondence from and to the Commission relating to
a
Registration Statement (provided that, the Company may excise any information
contained therein which would constitute material non-public information as
to
any Holder which has not executed a confidentiality agreement with the Company),
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period
in
accordance (subject to the terms of this Agreement) with the intended methods
of
disposition by the Holders thereof set forth in such Registration Statement
as
so amended or in such Prospectus as so supplemented.
(c)
If
during
the Effectiveness Period, the number of Registrable Securities at any time
exceeds 100% of the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably
practicable, but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holders of not less than
the
number of such Registrable Securities.
(d)
Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (iii) through (vi) hereof, be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made)
as
promptly as reasonably possible (and, in the case of (i)(A) below, not less
than
one Business Day prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one Business Day following the
day
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed, (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement, and (C) with respect to a Registration Statement or
any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or
for
additional information, (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of
the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of
any
Proceeding for such purpose, (v) of the occurrence of any event or passage
of
time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in a Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus,
as
the case may be, it will not contain any untrue statement of a material fact
or
omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which they
were
made, not misleading and (vi) of the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes
may
be material and that, in the determination of the Company, makes it not in
the
best interest of the Company to allow continued availability of a Registration
Statement or Prospectus, provided that, any and all of such information shall
remain confidential to each Holder until such information otherwise becomes
public, unless disclosure by a Holder is required by law;
provided
,
further
,
that
notwithstanding each Holder’s agreement to keep such information confidential,
each such Holder makes no acknowledgement that any such information is material,
non-public information.
(e)
Use
its
best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of
(i) any order stopping or suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(f)
Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission; provided, that any such item which is available
on the EDGAR system need not be furnished in physical form.
(g)
Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except
after
the giving of any notice pursuant to Section 3(d).
(h)
The
Company shall cooperate with any broker-dealer through which a Holder proposes
to resell its Registrable Securities in effecting a filing with the FINRA
Corporate Financing Department pursuant to NASD Rule 2710, as requested by
any
such Holder, and the Company shall pay the filing fee required by such filing
within two (2) Business Days of request therefor.
(i)
Prior
to
any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale
by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that, the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax
in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(j)
If
requested by a Holder, cooperate with such Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be
in
such denominations and registered in such names as any such Holder may
request.
(k)
Upon
the
occurrence of any event contemplated by Section 3(d), as promptly as reasonably
possible under the circumstances taking into account the Company’s good faith
assessment of any adverse consequences to the Company and its stockholders
of
the premature disclosure of such event, prepare a supplement or amendment,
including a post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to
be incorporated therein by reference, and file any other required document
so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
If
the
Company notifies the Holders in accordance with clauses (iii) through (vi)
of
Section 3(d) above to suspend the use of any Prospectus until the requisite
changes to such Prospectus have been made, then the Holders shall suspend use
of
such Prospectus. The Company will use its best efforts to ensure that the use
of
the Prospectus may be resumed as promptly as is practicable. The Company shall
be entitled to exercise its right under this Section 3(k) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages otherwise required pursuant to Section 2(b),
for a
period not to exceed 60 calendar days (which need not be consecutive days)
in
any 12 month period
.
(l)
Comply
with all applicable rules and regulations of the Commission.
(m)
The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by
such
Holder and, if required by the Commission, the natural persons thereof that
have
voting and dispositive control over the shares. During any periods that the
Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails
to
furnish such information within three Business Days of the Company’s request,
any liquidated damages that are accruing at such time as to such Holder only
shall be tolled and any Event that may otherwise occur solely because of such
delay shall be suspended as to such Holder only, until such information is
delivered to the Company.
4.
Registration
Expenses
.
All
fees and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses of the Company’s counsel and independent registered public
accountants) (A) with respect to filings made with the Commission, (B) with
respect to filings required to be made with any Trading Market on which the
Common Stock is then listed for trading, (C) in compliance with applicable
state
securities or Blue Sky laws reasonably agreed to by the Company in writing
(including, without limitation, fees and disbursements of counsel for the
Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities) and (D) if not previously paid by the Company in
connection with an Issuer Filing, with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales
of Registrable Securities with the FINRA pursuant to NASD Rule 2710, so long
as
the broker is receiving no more than a customary brokerage commission in
connection with such sale, (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities),
(iii)
messenger, telephone and delivery expenses, (iv) reasonable and customary fees
and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) reasonable and
customary fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries
and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit and the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder. In no event shall the Company be responsible for any broker
or similar commissions of any Holder or, except to the extent provided for
in
the Transaction Documents, any legal fees or other costs of the
Holders.
5.
Indemnification
.
(a)
Indemnification
by the Company
.
The
Company shall, notwithstanding any termination of this Agreement, indemnify
and
hold harmless each Holder, the officers, directors, members, partners, agents,
brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin
call
of Common Stock), investment advisors and employees (and any other Persons
with
a functionally equivalent role of a Person holding such titles, notwithstanding
a lack of such title or any other title) of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities
Act
or Section 20 of the Exchange Act) and the officers, directors, members,
stockholders, partners, agents and employees (and any other Persons with a
functionally equivalent role of a Person holding such titles, notwithstanding
a
lack of such title or any other title) of each such controlling Person, to
the
fullest extent permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, reasonable
attorneys’ fees) and expenses (collectively, “
Losses
”),
as
incurred, arising out of or relating to (1) any untrue statement of a material
fact contained in a Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission
of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading or (2)
any
violation by the Company of the Securities Act, the Exchange Act or any state
securities law, or any rule or regulation thereunder, in connection with the
performance of its obligations under this Agreement, except to the extent,
but
only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement, such
Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (ii) in the case
of
an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
the
use by such Holder of an outdated or defective Prospectus after the Company
has
notified such Holder in writing that the Prospectus is outdated or defective
and
prior to the receipt by such Holder of the Advice contemplated in Section 6(d).
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.
(b)
Indemnification
by Holders
.
Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, agents or employees of
such controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses, as incurred, to the extent arising out of or based
solely upon: (x) such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue statement of a material
fact contained in any Registration Statement, any Prospectus, or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not misleading
(i) to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration Statement or
such
Prospectus or (ii) to the extent that such information relates to such Holder’s
proposed method of distribution of Registrable Securities and was reviewed
and
expressly approved in writing by such Holder expressly for use in a Registration
Statement (it being understood that the Holder has approved Annex A hereto
for
this purpose), such Prospectus or in any amendment or supplement thereto or
(ii)
in the case of an occurrence of an event of the type specified in Section
3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving
rise
to such indemnification obligation.
(c)
Conduct
of Indemnification Proceedings
.
If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “
Indemnified
Party
”),
such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “
Indemnifying
Party
”)
in
writing, and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that, the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to
the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have prejudiced the Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses, (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such
Indemnified Party in any such Proceeding, or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and counsel to the Indemnified Party shall
reasonably believe that a material conflict of interest is likely to exist
if
the same counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and the reasonable fees and expenses of no more than one
separate counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all
liability on claims that are the subject matter of such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in
a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Business Days of written notice thereof to the
Indemnifying Party; provided, that, the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined not to be entitled to indemnification hereunder.
(d)
Contribution
.
If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses,
then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in this Agreement, any reasonable attorneys’ or other fees or expenses incurred
by such party in connection with any Proceeding to the extent such party would
have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its
terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by
any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which
the
net proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that
such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
6.
Miscellaneous
.
(a)
Remedies
.
In the
event of a breach by the Company or by a Holder of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation
for
any losses incurred by reason of a breach by it of any of the provisions of
this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall not assert or shall
waive the defense that a remedy at law would be adequate.
(b)
No
Piggyback on Registrations; Prohibition on Filing Other Registration
Statements
.
Except
as set forth on
Schedule
6(b)
attached
hereto, neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of the Company
in any Registration Statements other than the Registrable Securities. The
Company shall not file any other registration statements until all Registrable
Securities are registered pursuant to a Registration Statement that is declared
effective by the Commission, provided that this Section 6(b) shall not prohibit
the Company from filing amendments to registration statements filed prior to
the
date of this Agreement.
(c)
Compliance
.
Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to a Registration Statement.
(d)
Discontinued
Disposition
.
By its
acquisition of Registrable Securities, each Holder agrees that, upon receipt
of
a notice from the Company of the occurrence of any event of the kind described
in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration Statement until
it is advised in writing (the “
Advice
”)
by the
Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. The Company will use its best efforts
to ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company agrees and acknowledges that any periods during which
the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section
2(b).
(e)
Piggy-Back
Registrations
.
If, at
any time during the Effectiveness Period, there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under
the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans, then
the Company shall deliver to each Holder a written notice of such determination
and, if within fifteen days after the date of the delivery of such notice,
any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered;
provided
,
however
,
that
the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
144
promulgated by the Commission pursuant to the Securities Act or that are the
subject of a then effective Registration Statement.
(f)
Amendments
and Waivers
.
The
provisions of this Agreement, including the provisions of this sentence, may
not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in writing
and
signed by the Company and the Holders of 67% or more of the then outstanding
Registrable Securities (including, for this purpose any Registrable Securities
issuable upon exercise or conversion of any Security). If a Registration
Statement does not register all of the Registrable Securities pursuant to a
waiver or amendment done in compliance with the previous sentence, then the
number of Registrable Securities to be registered for each Holder shall be
reduced pro rata among all Holders and each Holder shall have the right to
designate which of its Registrable Securities shall be omitted from such
Registration Statement. Notwithstanding the foregoing, a waiver or consent
to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of a Holder or some Holders and that does not directly
or indirectly affect the rights of other Holders may be given by such Holder
or
Holders of all of the Registrable Securities to which such waiver or consent
relates;
provided
,
however
,
that
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the first sentence of this Section
6(f).
(g)
Notices
.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be delivered as set forth in the Purchase Agreement.
(h)
Successors
and Assigns
.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit of
each
Holder. The Company may not assign (except by merger) its rights or obligations
hereunder without the prior written consent of all of the Holders of the then
outstanding Registrable Securities. Each Holder may assign their respective
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i)
No
Inconsistent Agreements
.
Neither
the Company nor any of its Subsidiaries has entered, as of the date hereof,
nor
shall the Company or any of its Subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities, that would
have the effect of impairing the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. Except as set forth on
Schedule
6(i)
,
neither
the Company nor any of its Subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j)
Execution
and Counterparts
.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.
(k)
Governing
Law
.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the provisions of
the
Purchase Agreement.
(l)
Cumulative
Remedies
.
The
remedies provided herein are cumulative and not exclusive of any other remedies
provided by law.
(m)
Severability
.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be
hereafter declared invalid, illegal, void or unenforceable.
(n)
Headings
.
The
headings in this Agreement are for convenience only, do not constitute a part
of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
(o)
Independent
Nature of Holders’ Obligations and Rights
.
The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible
in
any way for the performance of the obligations of any other Holder hereunder.
Nothing contained herein or in any other agreement or document delivered at
any
closing, and no action taken by any Holder pursuant hereto or thereto, shall
be
deemed to constitute the Holders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Holders
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be entitled
to
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Holder to
be
joined as an additional party in any proceeding for such purpose.
********************
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as
of the date first written above.
|
GENSPERA,
INC.
|
|
|
|
|
By:
|
|
|
|
Name:
Title:
|
[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[SIGNATURE
PAGE OF HOLDERS TO GENSPERA RRA]
Name
of
Holder: __________________________
Signature
of Authorized Signatory of Holder
:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
[SIGNATURE
PAGES CONTINUE]
Annex
A
Plan
of Distribution
Each
Selling Stockholder (the “
Selling
Stockholders
”)
of the
common stock and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of common stock on
the
[principal Trading Market] or any other stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. A Selling Stockholder may use any one
or
more of the following methods when selling shares:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
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|
·
|
a
combination of any such methods of sale;
or
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “
Securities
Act
”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
FINRA NASD Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with NASD IM-2440.
In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In
no
event shall any broker-dealer receive fees, commissions and markups which,
in
the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under
the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale shares by the Selling Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume or manner-of-sale limitations by reason of Rule
144, without the requirement for the Company to be in compliance with the
current public information under Rule 144 under the Securities Act or any other
rule of similar effect or (ii) all of the shares have been sold pursuant to
this
prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they
have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
Annex
B
GenSpera,
Inc.
Selling
Stockholder Notice and Questionnaire
The
undersigned beneficial owner of common stock (the “
Registrable
Securities
”)
of
GenSpera, Inc., a Delaware corporation (the “
Company
”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “
Commission
”)
a
registration statement (the “
Registration
Statement
”)
for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “
Securities
Act
”),
of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement (the “
Registration
Rights Agreement
”)
to
which this document is annexed. A copy of the Registration Rights Agreement
is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain
legal consequences arise from being named as a selling stockholder in the
Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling stockholder in the Registration Statement and the related
prospectus.
NOTICE
The
undersigned beneficial owner (the “
Selling
Stockholder
”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it in the Registration Statement.
The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1.
Name.
|
|
(a)
|
Full
Legal Name of Selling Stockholder
|
|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities are
held:
|
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural person
who
directly or indirectly alone or with others has power to vote or
dispose
of the securities covered by this
Questionnaire):
|
2.
Address for Notices to Selling Stockholder:
|
|
|
|
|
|
|
Telephone:
___________________________________________________________________________________________
|
|
Fax: ________________________________________________________________________________________________
|
|
Contact
Person:
_______________________________________________________________________________________
|
3.
Broker-Dealer Status:
|
|
(a)
|
Are
you a broker-dealer?
|
Yes
¨
No
¨
|
|
(b)
|
If
“yes” to Section 3(a), did you receive your Registrable Securities as
compensation for investment banking services to the
Company?
|
Yes
¨
No
¨
|
|
Note:
|
If
“no” to Section 3(b), the Commission’s staff has indicated that you should
be identified as an underwriter in the Registration
Statement.
|
|
|
(c)
|
Are
you an affiliate of a
broker-dealer?
|
Yes
¨
No
¨
|
|
(d)
|
If
you are an affiliate of a broker-dealer, do you certify that you
purchased
the Registrable Securities in the ordinary course of business, and
at the
time of the purchase of the Registrable Securities to be resold,
you had
no agreements or understandings, directly or indirectly, with any
person
to distribute the Registrable
Securities?
|
Yes
¨
No
¨
|
|
Note:
|
If
“no” to Section 3(d), the Commission’s staff has indicated that you should
be identified as an underwriter in the Registration
Statement.
|
4.
Beneficial Ownership of Securities of the Company Owned by the Selling
Stockholder.
Except
as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.
|
|
(a)
|
Type
and Amount of other securities beneficially owned by the Selling
Stockholder:
|
5.
Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.
State
any
exceptions here:
The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
at any time while the Registration Statement remains effective.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus
and
any
amendments or supplements thereto
.
The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
|
|
|
|
Beneficial
Owner: ___________________________________
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
Title:
|
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
EXHIBIT
C
NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
COMMON
STOCK PURCHASE WARRANT
GENSPERA,
INC.
|
Warrant
Shares: _______
|
Initial
Exercise Date: July ___,
2008
|
THIS
COMMON STOCK PURCHASE WARRANT (the “
Warrant
”)
certifies that, for value received, _____________ (the “
Holder
”)
is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof (the
“
Initial
Exercise Date
”)
and on
or prior to the close of business on the five year anniversary of the Initial
Exercise Date (the “
Termination
Date
”)
but
not thereafter, to subscribe for and purchase from GenSpera, Inc., a Delaware
corporation (the “
Company
”),
up to
______ shares (the “
Warrant
Shares
”)
of
Common Stock. The purchase price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section 2(b).
Section
1
.
Definitions
.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in that certain Securities Purchase Agreement (the “
Purchase
Agreement
”),
dated
July ___, 2008, among the Company and the purchasers signatory
thereto.
Section
2
.
Exercise
.
a)
Exercise
of Warrant
.
Exercise of the purchase rights represented by this Warrant may be made, in
whole or in part, at any time or times on or after the Initial Exercise Date
and
on or before the Termination Date by delivery to the Company (or such other
office or agency of the Company as it may designate by notice in writing to
the
registered Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the Notice of Exercise Form
annexed hereto; and, within 3 Business Days of the date said Notice of Exercise
is delivered to the Company, the Company shall have received payment of the
aggregate Exercise Price of the shares thereby purchased by wire transfer or
cashier’s check drawn on a United States bank. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within
3
Business Days of the date the final Notice of Exercise is delivered to the
Company. Partial exercises of this Warrant resulting in purchases of a portion
of the total number of Warrant Shares available hereunder shall have the effect
of lowering the outstanding number of Warrant Shares purchasable hereunder
in an
amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the number of Warrant Shares
purchased and the date of such purchases. The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt of
such notice. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest error.
The
Holder and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a
portion of the Warrant Shares hereunder, the number of Warrant Shares available
for purchase hereunder at any given time may be less than the amount stated
on
the face hereof.
b)
Exercise
Price
.
The
exercise price per share of the Common Stock under this Warrant shall be
$2.00,
subject
to adjustment hereunder (the “
Exercise
Price
”).
c)
Cashless
Exercise
.
If at
any time after the earlier of (i) the one year anniversary of the date of the
Purchase Agreement and (ii) the completion of the then-applicable holding period
required by Rule 144, or any successor provision then in effect, there is no
effective Registration Statement registering, or no current prospectus available
for, the resale of the Warrant Shares by the Holder, then this Warrant may
also
be exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A)
= the
VWAP on the Business Day immediately preceding the date of such
election;
(B)
= the
Exercise Price of this Warrant, as adjusted; and
(X)
= the
number of Warrant Shares issuable upon exercise of this Warrant in accordance
with the terms of this Warrant by means of a cash exercise rather than a
cashless exercise.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall
be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d)
Exercise
Limitations
.
The
Company shall not effect any exercise of this Warrant, and a Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section
2 or
otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together
with the Holder’s Affiliates, and any other person or entity acting as a group
together with the Holder or any of the Holder’s Affiliates), would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below).
For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number
of
shares of Common Stock issuable upon exercise of this Warrant with respect
to
which such determination is being made, but shall exclude the number of shares
of Common Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any
of
its Affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Common Stock Equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
the
Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder, it being acknowledged by the Holder
that
the Company is not representing to the Holder that such calculation is in
compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance therewith.
To
the extent that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable shall be in the sole discretion of the
Holder, and the submission of a Notice of Exercise shall be deemed to be the
Holder’s determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject to the Beneficial
Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. In addition, a determination as
to
any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (A)
Schedule
3.1(g)
to the
Purchase Agreement, as the case may be, (B) a more recent public announcement
by
the Company or (C) any other notice by the Company or the transfer agent of
the
Company setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two
Business Days confirm orally and in writing to the Holder the number of shares
of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion
or exercise of securities of the Company, including this Warrant, by the Holder
or its Affiliates since the date as of which such number of outstanding shares
of Common Stock was reported. The “
Beneficial
Ownership Limitation
”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice
to the Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2(d), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common
Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon exercise of this Warrant held by the Holder and the provisions of
this Section 2(d) shall continue to apply. Any such increase or decrease will
not be effective until the 61
st
day
after such notice is delivered to the Company. The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 2(d) to correct this paragraph (or
any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder
of
this Warrant.
e)
Mechanics
of Exercise
.
i.
Delivery
of Certificates Upon Exercise
.
Certificates for shares purchased hereunder shall be transmitted by the transfer
agent of the Company to the Holder by crediting the account of the Holder’s
prime broker with the Depository Trust Company through its Deposit Withdrawal
Agent Commission (“
DWAC
”)
system
if the Company is then a participant in such system and either (A) there is
an
effective Registration Statement permitting the resale of the Warrant Shares
by
the Holder or (B) the shares are eligible for resale without volume or
manner-of-sale limitations pursuant to Rule 144, and otherwise by physical
delivery to the address specified by the Holder in the Notice of Exercise within
3 Business Days from the delivery to the Company of the Notice of Exercise
Form,
surrender of this Warrant (if required) and payment of the aggregate Exercise
Price as set forth above (the “
Warrant
Share Delivery Date
”).
This
Warrant shall be deemed to have been exercised on the date the Exercise Price
is
received by the Company. The Warrant Shares shall be deemed to have been issued,
and Holder or any other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be
paid
by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of
such shares, have been paid. If the Company fails for any reason to deliver
to
the Holder certificates evidencing the Warrant Shares subject to a Notice of
Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000
of
Warrant Shares subject to such exercise (based on the VWAP of the Common Stock
on the date of the applicable Notice of Exercise), $10 per Business Day
(increasing to $20 per Business Day on the fifth Business Day after such
liquidated damages begin to accrue) for each Business Day after such Warrant
Share Delivery Date until such certificates are delivered.
ii.
Delivery
of New Warrants Upon Exercise
.
If this
Warrant shall have been exercised in part, the Company shall, at the request
of
a Holder and upon surrender of this Warrant certificate, at the time of delivery
of the certificate or certificates representing Warrant Shares, deliver to
Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
iii.
Rescission
Rights
.
If the
Company fails to cause the transfer agent of the Company to transmit to the
Holder a certificate or the certificates representing the Warrant Shares
pursuant to Section 2(e)(i) by the Warrant Share Delivery Date, then, the Holder
will have the right to rescind such exercise.
iv.
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Exercise
.
In
addition to any other rights available to the Holder, if the Company fails
to
cause the transfer agent of the Company to transmit to the Holder a certificate
or the certificates representing the Warrant Shares pursuant to an exercise
on
or before the Warrant Share Delivery Date, and if after such date the Holder
is
required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which
the
Holder anticipated receiving upon such exercise (a “
Buy-In
”),
then
the Company shall (A) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required
to
deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was
executed, and (B) at the option of the Holder, either reinstate the portion
of
the Warrant and equivalent number of Warrant Shares for which such exercise
was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (A) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In and, upon request of
the
Company, evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant
as
required pursuant to the terms hereof.
v.
No
Fractional Shares or Scrip
.
No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall, at
its
election, either pay a cash adjustment in respect of such final fraction in
an
amount equal to such fraction multiplied by the Exercise Price or round up
to
the next whole share.
vi.
Charges,
Taxes and Expenses
.
Issuance of certificates for Warrant Shares shall be made without charge to
the
Holder for any issue or transfer tax or other incidental expense in respect
of
the issuance of such certificate, all of which taxes and expenses shall be
paid
by the Company, and such certificates shall be issued in the name of the Holder
or in such name or names as may be directed by the Holder;
provided
,
however
,
that in
the event certificates for Warrant Shares are to be issued in a name other
than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
vii.
Closing
of Books
.
The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.
f)
Call
Provision
.
Subject
to the provisions of Section 2(d) and this Section 2(f), if, after the Effective
Date, (i) the VWAP for each of 20 consecutive Business Days (the “
Measurement
Period
,”
which
20 consecutive Business Day period shall not have commenced until after the
Effective Date) exceeds $4.00 (subject to adjustment for forward and reverse
stock splits, recapitalizations, stock dividends and the like after the Initial
Exercise Date), (ii) the average daily minimum volume for such Measurement
Period exceeds 75,000 shares of Common Stock per Business Day (subject to
adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like after the Initial Exercise Date), (iii) the Holder is
not
in possession of any information that constitutes, or might constitute, material
non-public information which was provided by the Company, and (iv) there is
an
effective Registration Statement pursuant to which the Holder is permitted
to
utilize the prospectus thereunder to resell all of the shares issuable pursuant
to the Transaction Documents (and the Company believes, in good faith, that
such
effectiveness will continue uninterrupted for the foreseeable future) then,
the
Company may, within 1 Business Day of the end of such Measurement Period, call
for cancellation of all or any portion of this Warrant for which a Notice of
Exercise has not yet been delivered (such right, a “
Call
”)
for
consideration equal to $.001 per Share. To exercise this right, the Company
must
deliver to the Holder an irrevocable written notice (a “
Call
Notice
”),
indicating therein the portion of unexercised portion of this Warrant to which
such notice applies. If the conditions set forth below for such Call are
satisfied from the period from the date of the Call Notice through and including
the Call Date (as defined below), then any portion of this Warrant subject
to
such Call Notice for which a Notice of Exercise shall not have been received
by
the Call Date will be cancelled at 6:30 p.m. (New York City time) on the
20
th
Business
Day after the date the Call Notice is received by the Holder (such date and
time, the “
Call
Date
”).
Any
unexercised portion of this Warrant to which the Call Notice does not pertain
will be unaffected by such Call Notice. In furtherance thereof, the Company
covenants and agrees that it will honor all Notices of Exercise with respect
to
Warrant Shares subject to a Call Notice that are tendered through 6:30 p.m.
(New
York City time) on the Call Date. The parties agree that any Notice of Exercise
delivered following a Call Notice which calls less than all the Warrants shall
first reduce to zero the number of Warrant Shares subject to such Call Notice
prior to reducing the remaining Warrant Shares available for purchase under
this
Warrant. For example, if (A) this Warrant then permits the Holder to acquire
100
Warrant Shares, (B) a Call Notice pertains to 75 Warrant Shares, and (C) prior
to 6:30 p.m. (New York City time) on the Call Date the Holder tenders a Notice
of Exercise in respect of 50 Warrant Shares, then (x) on the Call Date the
right
under this Warrant to acquire 25 Warrant Shares will be automatically cancelled,
(y) the Company, in the time and manner required under this Warrant, will have
issued and delivered to the Holder 50 Warrant Shares in respect of the exercises
following receipt of the Call Notice, and (z) the Holder may, until the
Termination Date, exercise this Warrant for 25 Warrant Shares (subject to
adjustment as herein provided and subject to subsequent Call Notices). Subject
again to the provisions of this Section 2(f), the Company may deliver subsequent
Call Notices for any portion of this Warrant for which the Holder shall not
have
delivered a Notice of Exercise. Notwithstanding anything to the contrary set
forth in this Warrant, the Company may not deliver a Call Notice or require
the
cancellation of this Warrant (and any such Call Notice shall be void), unless,
from the beginning of the Measurement Period through the Call Date, (1) the
Company shall have honored in accordance with the terms of this Warrant all
Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call
Date, and (2) the Registration Statement shall be effective as to all Warrant
Shares and the prospectus thereunder available for use by the Holder for the
resale of all such Warrant Shares, and (3) the Common Stock shall be listed
or
quoted for trading on the Trading Market, and (4) there is a sufficient number
of authorized shares of Common Stock for issuance of all Securities under the
Transaction Documents, and (5) the issuance of the shares shall not cause a
breach of any provision of 2(d) herein. The Company’s right to call the Warrants
under this Section 2(f) shall be exercised ratably among the Holders based
on
each Holder’s initial purchase of Warrants.
Section
3
.
Certain
Adjustments
.
a)
Stock
Dividends and Splits
.
If the
Company, at any time while this Warrant is outstanding: (i) pays a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon exercise of this Warrant),
(ii) subdivides outstanding shares of Common Stock into a larger number of
shares, (iii) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares or (iv) issues by
reclassification of shares of the Common Stock any shares of capital stock
of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable
upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment
made pursuant to this Section 3(a) shall become effective immediately after
the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b)
Subsequent
Equity Sales
.
If the
Company or any Subsidiary thereof, as applicable, at any time while this Warrant
is outstanding, shall sell or grant any option to purchase, or sell or grant
any
right to reprice, or otherwise dispose of or issue (or announce any offer,
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 less than the then Exercise Price (such lower price,
the “
Base
Share 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 which is less than the Exercise Price, such issuance shall be deemed
to have occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then, the Exercise Price shall be reduced and only reduced to equal
the Base Share Price and the number of Warrant Shares issuable hereunder shall
be increased such that the aggregate Exercise Price payable hereunder, after
taking into account the decrease in the Exercise Price, shall be equal to the
aggregate Exercise Price prior to such adjustment. Such adjustment shall be
made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustments shall be made, paid or issued
under this Section 3(b) in respect of an Exempt Issuance. The Company shall
notify the Holder, in writing, no later than the Business Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this Section
3(b), 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(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Warrant Shares based upon the Base Share Price
regardless of whether the Holder accurately refers to the Base Share Price
in
the Notice of Exercise.
c)
Subsequent
Rights Offerings
.
If the
Company, at any time while the Warrant is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the VWAP at the record date mentioned below, then, the
Exercise Price shall be multiplied by a fraction, of which the denominator
shall
be the number of shares of the Common Stock outstanding on the date of issuance
of such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock outstanding on the date of issuance of
such
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered (assuming receipt by the Company in
full of all consideration payable upon exercise of such rights, options or
warrants) would purchase at such VWAP. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after
the record date for the determination of stockholders entitled to receive such
rights, options or warrants.
d)
Pro
Rata Distributions
.
If the
Company, at any time while this Warrant is outstanding, shall distribute to
all
holders of Common Stock (and not to Holders of the Warrants) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security other than the Common Stock (which
shall be subject to Section 3(b)), then in each such case the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator
shall be such VWAP on such record date less the then per share fair market
value
at such record date of the portion of such assets or evidence of indebtedness
so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
e)
Fundamental
Transaction
.
If, at
any time while this Warrant is outstanding, (i) the Company effects any merger
or consolidation of the Company with or into another Person, (ii) the Company
effects any sale of all or substantially all of its assets in one or a series
of
related transactions, (iii) any tender offer or exchange offer (whether by
the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property or (iv) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(each “
Fundamental
Transaction
”),
then,
upon any subsequent exercise of this Warrant, the Holder shall have the right
to
receive, for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, the number
of shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “
Alternate
Consideration
”)
receivable as a result of such merger, consolidation or disposition of assets
by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted to
apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value
of
any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice
as
to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity
in
such Fundamental Transaction shall issue to the Holder a new warrant consistent
with the foregoing provisions and evidencing the Holder’s right to exercise such
warrant into Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this Section
3(e) and insuring that this Warrant (or any such replacement security) will
be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
or the Nasdaq Capital Market, the Company or any successor entity shall pay
at
the Holder’s option, exercisable at any time concurrently with or within 30 days
after the consummation of the Fundamental Transaction, an amount of cash equal
to the value of this Warrant as determined in accordance with the Black Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (A)
a price per share of Common Stock equal to the VWAP of the Common Stock for
the
Business Day immediately preceding the date of consummation of the applicable
Fundamental Transaction, (B) a risk-free interest rate corresponding to the
U.S.
Treasury rate for a 30 day period immediately prior to the consummation of
the
applicable Fundamental Transaction, (C) an expected volatility equal to the
100
day volatility obtained from the “HVT” function on Bloomberg L.P. determined as
of the Business Day immediately following the public announcement of the
applicable Fundamental Transaction and (D) a remaining option time equal to
the
time between the date of the public announcement of such transaction and the
Termination Date.
f)
Calculations
.
All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section
3,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
g)
Notice
to Holder
.
i.
Adjustment
to Exercise Price
.
Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly mail to the Holder a notice setting forth
the Exercise Price after such adjustment and setting forth a brief statement
of
the facts requiring such adjustment. If the Company enters into a Variable
Rate
Transaction, despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion or exercise price at which such securities
may
be converted or exercised.
ii.
Notice
to Allow Exercise by Holder
.
If (A)
the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to
subscribe for or purchase any shares of capital stock of any class or of any
rights, (D) the approval of any stockholders of the Company shall be required
in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property,
or (E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case,
the
Company shall cause to be mailed to the Holder at its last address as it shall
appear upon the Warrant Register of the Company, at least 20 calendar days
prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not
to
be taken, the date as of which the holders of the Common Stock of record to
be
entitled to such dividend, distributions, redemption, rights or warrants are
to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to exercise this Warrant during the
period commencing on the date of such notice to the effective date of the event
triggering such notice.
Section
4
.
Transfer
of Warrant
.
a)
Transferability
.
Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees,
as applicable, and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. The Warrant, if properly assigned, may be exercised
by a
new holder for the purchase of Warrant Shares without having a new Warrant
issued.
b)
New
Warrants
.
This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the original Issue Date and shall be identical with this Warrant except as
to
the number of Warrant Shares issuable pursuant thereto.
c)
Warrant
Register
. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “
Warrant Register
”), in
the name of the record Holder hereof from time to time. The Company may deem
and
treat the registered Holder of this Warrant as the absolute owner hereof for
the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
d)
Transfer
Restrictions
. If, at the time of the surrender of this Warrant in connection
with any transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective registration statement under
the
Securities Act and under applicable state securities or blue sky laws or (ii)
eligible for resale without volume or manner-of-sale restrictions pursuant
to
Rule 144, the Company may require, as a condition of allowing such transfer,
that the Holder or transferee of this Warrant, as the case may be, comply with
the provisions of Section 5.7 of the Purchase Agreement.
Section
5
.
Miscellaneous
.
a)
No
Rights as Stockholder Until Exercise
.
This
Warrant does not entitle the Holder to any voting rights or other rights as
a
stockholder of the Company prior to the exercise hereof as set forth in Section
2(e)(i).
b)
Loss,
Theft, Destruction or Mutilation of Warrant
.
The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, in the case of the Warrant, shall not include the posting of any bond),
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.
c)
Saturdays,
Sundays, Holidays, etc
.
If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall not be a Business Day, then, such action
may be taken or such right may be exercised on the next succeeding Business
Day.
d)
Authorized
Shares
.
The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise
of
any purchase rights under this Warrant. The Company further covenants that
its
issuance of this Warrant shall constitute full authority to its officers who
are
charged with the duty of executing stock certificates to execute and issue
the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action
as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be listed.
The Company covenants that all Warrant Shares which may be issued upon the
exercise of the purchase rights represented by this Warrant will, upon exercise
of the purchase rights represented by this Warrant, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
Except
and to the extent as waived or consented to by the Holder, the Company shall
not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this
Warrant, but will at all times in good faith assist in the carrying out of
all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value,
(ii) take all such action as may be necessary or appropriate in order that
the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares upon the exercise of this Warrant and (iii) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof, as may be, necessary to
enable the Company to perform its obligations under this Warrant.
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e)
Jurisdiction
.
All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.
f)
Restrictions
.
The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.
g)
Nonwaiver
and Expenses
.
No
course of dealing or any delay or failure to exercise any right hereunder on
the
part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder’s rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results
in
any material damages to the Holder, the Company shall pay to Holder such amounts
as shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto
or
in otherwise enforcing any of its rights, powers or remedies
hereunder.
h)
Notices
.
Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
i)
Limitation
of Liability
.
No
provision hereof, in the absence of any affirmative action by Holder to exercise
this Warrant to purchase Warrant Shares, and no enumeration herein of the rights
or privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.
j)
Remedies
.
The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of
its
rights under this Warrant. The Company agrees that monetary damages would not
be
adequate compensation for any loss incurred by reason of a breach by it of
the
provisions of this Warrant and hereby agrees to waive and not to assert the
defense in any action for specific performance that a remedy at law would be
adequate.
k)
Successors
and Assigns
.
Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by the Holder or
holder of Warrant Shares.
l)
Amendment
.
This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holders holding Warrants at least equal
to
67% of the Warrant Shares issuable upon exercise of all then outstanding
Warrants.
m)
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
n)
Headings
.
The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
|
GENSPERA,
INC.
|
|
|
|
By:
|
|
|
|
Craig
A. Dionne, Ph.D.
|
|
|
President
and CEO
|
NOTICE
OF EXERCISE
TO:
GENSPERA,
INC.
(1)
The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full),
and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2)
Payment
shall take the form of (check applicable box):
¨
in
lawful money of the United States; or
¨
[if
permitted] the cancellation of such number of Warrant Shares as is necessary,
in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).
(3)
Please
issue a certificate or certificates representing said Warrant Shares in the
name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4)
Accredited
Investor
.
The
undersigned is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act of 1933, as amended.
[SIGNATURE
OF HOLDER]
Name
of
Investing Entity:
_______________________________________________________________________________
Signature
of Authorized Signatory of Investing Entity
:
________________________________________________________
Name
of
Authorized Signatory:
__________________________________________________________________________
Title
of
Authorized Signatory:
___________________________________________________________________________
Date:
_______________________________________________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this
form
and supply required information.
Do
not
use this form to exercise the warrant.)
FOR
VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated:
______________, _______
Holder’s
Signature:
_____________________________
Holder’s
Address:
_____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE:
The
signature to this Assignment Form must correspond with the name as it appears
on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT
D
FORM
OF
LOCK-UP AGREEMENT
July
__,
2008
Each
Purchaser referenced below:
|
|
Re:
|
Securities
Purchase Agreement, dated as of July __, 2008 (the “
Purchase
Agreement
”),
between GenSpera, Inc., a Delaware corporation (the “
Company
”)
and the purchasers signatory thereto (each, a “
Purchaser
”
and, collectively, the “
Purchasers
”)
|
Ladies
and Gentlemen:
Defined
terms not otherwise defined in this letter agreement (the “
Letter
Agreement
”)
shall
have the meanings set forth in the Purchase Agreement. Pursuant to Section
2.2(a) of the Purchase Agreement and in satisfaction of a condition of the
Company’s obligations under the Purchase Agreement, the undersigned irrevocably
agrees with the Company that, from the date hereof until the 12 month
anniversary of the Effective Date (such period, the “
Restriction
Period
”),
the
undersigned will not offer, sell, contract to sell, hypothecate, pledge or
otherwise dispose of (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the undersigned or any Affiliate of the undersigned or any person
in privity with the undersigned or any Affiliate of the undersigned), directly
or indirectly, including the filing (or participation in the filing) of a
registration statement with the Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Exchange Act with respect
to,
any shares of Common Stock or Common Stock Equivalents beneficially owned,
held
or hereafter acquired by the undersigned (the “
Securities
”)
.
Beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act. In order to enforce this covenant, at such time as the Company appoints
a
transfer agent for the securities of the Company, the Company shall notify
such
transfer agent to immediately impose irrevocable stop-transfer instructions
preventing such transfer agent from effecting any actions in violation of this
Letter Agreement.
The
undersigned acknowledges that the execution, delivery and performance of this
Letter Agreement is a material inducement to each Purchaser to complete the
transactions contemplated by the Purchase Agreement and that each Purchaser
(which shall be a third party beneficiary of this Letter Agreement) and the
Company shall be entitled to specific performance of the undersigned’s
obligations hereunder. The undersigned hereby represents that the undersigned
has the power and authority to execute, deliver and perform this Letter
Agreement, that the undersigned has received adequate consideration therefor
and
that the undersigned will indirectly benefit from the closing of the
transactions contemplated by the Purchase Agreement.
This
Letter Agreement may not be amended or otherwise modified in any respect without
the written consent of each of the Company, each Purchaser and the undersigned.
This Letter Agreement shall be construed and enforced in accordance with the
laws of the State of New York without regard to the principles of conflict
of
laws. The undersigned hereby irrevocably submits to the exclusive jurisdiction
of the United States District Court sitting in the Southern District of New
York
and the courts of the State of New York located in Manhattan, for the purposes
of any suit, action or proceeding arising out of or relating to this Letter
Agreement, and hereby waives, and agrees not to assert in any such suit, action
or proceeding, any claim that (i) it is not personally subject to the
jurisdiction of such court, (ii) the suit, action or proceeding is brought
in an
inconvenient forum, or (iii) the venue of the suit, action or proceeding is
improper. The undersigned hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under the Purchase Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. The
undersigned hereby waives any right to a trial by jury. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The undersigned agrees and understands that this Letter
Agreement does not intend to create any relationship between the undersigned
and
each Purchaser and that each Purchaser is not entitled to cast any votes on
the
matters herein contemplated and that no issuance or sale of the Securities
is
created or intended by virtue of this Letter Agreement.
By
its
signature below, the Company hereby acknowledges and agrees that, reflecting
this Letter Agreement, upon the appointment of a transfer agent for the Company,
it shall immediately notify such transfer agent to place an irrevocable stop
transfer instruction on all Securities beneficially owned by the undersigned
until the end of the Restriction Period. This Letter Agreement shall be binding
on successors and assigns of the undersigned with respect to the Securities
and
any such successor or assign shall enter into a similar agreement for the
benefit of the Purchasers.
***
SIGNATURE PAGE FOLLOWS***
This
Letter Agreement may be executed in two or more counterparts, all of which
when
taken together may be considered one and the same agreement.
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Signature
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Print
Name
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Position
in Company
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Address
for Notice:
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Number
of shares of Common Stock
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_______________________________________________________________________________________________
Number
of
shares of Common Stock underlying subject to warrants, options, debentures
or
other convertible securities
By
signing below, the Company agrees to enforce the restrictions on transfer set
forth in this Letter Agreement.
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By:
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Craig
A. Dionne, Ph.D.
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NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original
Issue Date: July ___, 2008
Original
Conversion Price (subject to adjustment herein):
$1.00
$163,600.00
5%
CONVERTIBLE DEBENTURE
DUE
JULY ___, 2009
THIS
5%
CONVERTIBLE DEBENTURE is a duly authorized and validly issued 5% Convertible
Debentures of GenSpera, Inc., a Delaware corporation, (the “
Company
”),
having its principal place of business at 9901 I-10 West, Suite 800, San
Antonio, TX 78230, designated as its 5% Convertible Debenture due July ___,
2009
(this debenture, the “
Debenture
”
and,
collectively with the other debentures of such series, the “
Debentures
”).
FOR
VALUE
RECEIVED, the Company promises to pay to
T.R.
Winston & Company LLC
or its
registered assigns (the “
Holder
”),
or
shall have paid pursuant to the terms hereunder, the principal sum of
$163,600.00
on July
___, 2009 (the “
Maturity
Date
”)
or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section
1
.
Definitions
.
For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture,
the following terms shall have the following meanings:
“
Affiliate
”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person as such
terms are used in and construed under Rule 405 under the Securities Act.
“
Alternate
Consideration
”
shall
have the meaning set forth in Section 5(e).
“
Bankruptcy
Event
”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof, (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement, (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered, (d) the Company or
any
Significant Subsidiary thereof suffers any appointment of any custodian or
the
like for it or any substantial part of its property that is not discharged
or
stayed within 60 calendar days after such appointment, (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate
or
other action for the purpose of effecting any of the foregoing.
“
Base
Conversion Price
”
shall
have the meaning set forth in Section 5(b).
“
Beneficial
Ownership Limitation
”
shall
have the meaning set forth in Section 4(c).
“
Board
of Directors
”
means
the board of directors of the Company.
“
Business
Day
”
means
any day except any Saturday, any Sunday, any day which shall be a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close and, upon the Company becoming listed or quoted on a Trading Market,
except any day that the Common Stock is not trading on the Trading
Market.
“
Buy-In
”
shall
have the meaning set forth in Section 4(d)(v).
“
Change
of Control Transaction
”
means
the occurrence after the date hereof of any of (a) an acquisition after the
date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of 33% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and
the
Securities issued together with the Debentures), (b) the Company merges into
or
consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (c) the Company sells or transfers all or substantially all
of
its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power of
the
acquiring entity immediately after the transaction, (d) a replacement at one
time or within a one year period of more than one-half of the members of the
Board of Directors which is not approved by a majority of those individuals
who
are members of the Board of Directors on the date hereof (or by those
individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by a majority of the
members of the Board of Directors who are members on the date hereof), or (e)
the execution by the Company of an agreement to which the Company is a party
or
by which it is bound, providing for any of the events set forth in clauses
(a)
through (d) above.
“
Commission
”
means
the United States Securities and Exchange Commission.
“
Common
Stock
”
means
the common stock of the Company, par value $0.0001 per share, and any other
class of securities into which such securities may hereafter be reclassified
or
changed into.
“
Common
Stock Equivalents
”
means
any securities of the Company or the 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.
“
Conversion
”
shall
have the meaning ascribed to such term in Section 4.
“
Conversion
Date
”
shall
have the meaning set forth in Section 4(a).
“
Conversion
Price
”
shall
have the meaning set forth in Section 4(b).
“
Conversion
Shares
”
means,
collectively, the shares of Common Stock issuable upon conversion of this
Debenture in accordance with the terms hereof.
“
Debenture
Register
”
shall
have the meaning set forth in Section 2(c).
“
Dilutive
Issuance
”
shall
have the meaning set forth in Section 5(b).
“
Dilutive
Issuance Notice
”
shall
have the meaning set forth in Section 5(b).
“
Equity
Conditions
”
means,
during the period in question,
(a)
the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notices of Conversion of the Holder,
if any, (b) the Company shall have paid all liquidated damages and other amounts
owing to the Holder in respect of this Debenture,
(c)(i)
there is an effective registration statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the Conversion
Shares (and the Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future) or (ii) all of the Conversion
Shares issuable may be resold pursuant to Rule 144 without volume or
manner-of-sale restrictions or current public information requirements as
determined by the counsel to the Company pursuant to a written opinion letter
to
such effect, addressed and acceptable to the Transfer Agent and the Holder,
(d)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the Conversion Shares, (e)
there is no existing Event of Default or no existing event which, with the
passage of time or the giving of notice, would constitute an Event of Default,
(f) the issuance of the shares in question (or, in the case of an Optional
Redemption, the shares issuable upon conversion in full of the Optional
Redemption Amount)
to
the
Holder would not violate the limitations set forth in Section 4(c) herein,
(h)
there
has been no public announcement of a pending or proposed Fundamental Transaction
or Change of Control Transaction that has not been consummated, and (i) the
Holder is not in possession of any information provided by the Company that
constitutes, or may constitute, material non-public information.
“
Event
of Default
”
shall
have the meaning set forth in Section 8(a).
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
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 members of the Board of
Directors or a majority of the members of a committee of directors established
for such purpose (provided, however, any such issuances to consultants shall
not
exceed an aggregate of 100,000 shares, subject to adjustment for forward and
reverse stock splits, stock dividends and similar transactions of the Common
Stock that occur after the Closing Date, in any 12-month period), (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 Original Issue Date,
provided that such securities have not been amended since the Original Issue
Date to increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities, or (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, 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.
“
Fundamental
Transaction
”
shall
have the meaning set forth in Section 5(e).
“
Interest
Conversion Rate
”
means
the lesser of (a) the Conversion Price or (b) 90% of the lesser of (i) the
average of the VWAPs for the 20 consecutive Business Days ending on the Business
Day that is immediately prior to the applicable Interest Payment Date or (ii)
the average of the VWAPs for the 20 consecutive Business Days ending on the
Business Day that is immediately prior to the date the applicable Interest
Conversion Shares are issued and delivered if such delivery is after the
Interest Payment Date.
“
Interest
Conversion Shares
”
means
the shares of Common Stock issue in lieu of cash interest payments.
“
Interest
Notice Period
”
shall
have the meaning set forth in Section 2(a).
“
Interest
Payment Date
”
shall
have the meaning set forth in Section 2(a).
“
Late
Fees
”
shall
have the meaning set forth in Section 2(d).
“
Liens
”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“
Mandatory
Default Amount
”
means
the sum of (a) the greater of (i) the outstanding principal amount of this
Debenture, plus all accrued and unpaid interest hereon, divided by the
Conversion Price on the date the Mandatory Default Amount is either (A) demanded
(if demand or notice is required to create an Event of Default) or otherwise
due
or (B) paid in full, whichever has a lower Conversion Price, multiplied by
the
VWAP on the date the Mandatory Default Amount is either (x) demanded or
otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 100%
of
the outstanding principal amount of this Debenture, plus 100% of accrued and
unpaid interest hereon, and (b) all other amounts, costs, expenses and
liquidated damages due in respect of this Debenture.
“
New
York Courts
”
shall
have the meaning set forth in Section 9(d).
“
Notice
of Conversion
”
shall
have the meaning set forth in Section 4(a).
“
Optional
Redemption
”
shall
have the meaning set forth in Section 6(a).
“
Optional
Redemption Amount
”
means
the sum of (a) 100% of the then outstanding principal amount of the Debenture,
(b) accrued but unpaid interest and (c) all liquidated damages and other amounts
due in respect of the Debenture.
“
Optional
Redemption Date
”
shall
have the meaning set forth in Section 6.
“
Optional
Redemption Notice
”
shall
have the meaning set forth in Section 6.
“
Optional
Redemption Notice Date
”
shall
have the meaning set forth in Section 6.
“
Optional
Redemption Period
”
shall
have the meaning set forth in Section 6.
“
Original
Issue Date
”
means
the date of the first issuance of the Debentures, regardless of any transfers
of
any Debenture and regardless of the number of instruments which may be issued
to
evidence such Debentures.
“
Person
”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Share
Delivery Date
”
shall
have the meaning set forth in Section 4(d)(ii).
“
Subsidiary
”
means
any direct or indirect subsidiary of the Company formed or acquired after the
date hereof.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question (or any successor market or exchange):
the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market,
the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
“
VWAP
”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted for trading as reported by Bloomberg L.P. (based on a
Business Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(d) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder
and
reasonably acceptable to the Company.
Section
2
.
Interest
.
a)
Payment
of Interest in Cash or Kind
.
The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 5% per annum,
payable in arrears, on each Conversion Date (as to that principal amount then
being converted), on each Optional Redemption Date (as to that principal amount
then being redeemed) and on the Maturity Date (each such date, an “
Interest
Payment Date
”)
(if
any Interest Payment Date is not a Business Day, then the applicable payment
shall be due on the next succeeding Business Day), in cash or, at the Company’s
option, in duly authorized, validly issued, fully paid and non-assessable shares
of Common Stock at the Interest Conversion Rate or a combination thereof;
provided
,
however
,
that
payment in shares of Common Stock may only occur if all of the Equity Conditions
have been met (unless waived by the Holder in writing) during the 20 Business
Days immediately prior to the applicable Interest Payment Date (the
“
Interest
Notice Period
”)
and
through and including the date such shares of Common Stock are actually issued
to the Holder.
b)
Company’s
Election to Pay Interest in Cash or Shares of Common Stock
.
Subject
to the terms and conditions herein, the decision whether to pay interest
hereunder in cash, shares of Common Stock or a combination thereof shall be
at
the sole discretion of the Company.
c)
Interest
Calculations
.
Interest shall be calculated on the basis of a 360-day year, consisting of
twelve 30 calendar day periods, and shall accrue daily commencing on the
Original Issue Date until payment in full of the outstanding principal, together
with all accrued and unpaid interest, liquidated damages and other amounts
which
may become due hereunder, has been made. Payment of interest in shares of Common
Stock (other than the Interest Conversion Shares issued prior to an Interest
Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein and,
solely for purposes of the payment of interest in shares, the Interest Payment
Date shall be deemed the Conversion Date. Interest shall cease to accrue with
respect to any principal amount converted, provided that, the Company actually
delivers the Conversion Shares within the time period required by Section
4(d)(ii) herein. Interest hereunder will be paid to the Person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of this Debenture (the “
Debenture
Register
”).
d)
Late
Fee
.
All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law (the “
Late
Fees
”)
which
shall accrue daily from the date such interest is due hereunder through and
including the date of actual payment in full. Notwithstanding anything to the
contrary contained herein, if, on any Interest Payment Date the Company has
elected to pay accrued interest in the form of Common Stock but the Company
is
not permitted to pay accrued interest in Common Stock because it fails to
satisfy the conditions for payment in Common Stock set forth in Section 2(a)
herein, then, at the option of the Holder,
the
Company, in lieu of delivering
either
shares
of
Common Stock pursuant to this Section 2
or
paying
the regularly scheduled interest payment in cash, shall deliver, within three
(3) Business Days of each applicable Interest Payment Date, an amount in cash
equal to the product of (x) the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest due on
such
Interest Payment Date multiplied by (y) the highest VWAP during the period
commencing on the Interest Payment Date and ending on the Business Day prior
to
the date such payment is actually made.
e)
Prepayment
.
Except
as otherwise set forth in this Debenture, the Company may not prepay any portion
of the principal amount of this Debenture without the prior written consent
of
the Holder.
Section
3.
Registration
of Transfers and Exchanges
.
a)
Different
Denominations
.
This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be payable for such registration of transfer
or
exchange.
b)
Investment
Representations
.
This
Debenture may be transferred or exchanged only in compliance with the applicable
federal and state securities laws and regulations.
c)
Reliance
on Debenture Register
.
Prior
to due presentment for transfer to the Company of this Debenture, the Company
and any agent of the Company may treat the Person in whose name this Debenture
is duly registered on the Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether
or
not this Debenture is overdue, and neither the Company nor any such agent shall
be affected by notice to the contrary.
Section
4.
Conversion
.
a)
Voluntary
Conversion
.
At any
time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible, in whole or in part, into
shares of Common Stock at the option of the Holder, at any time and from time
to
time (subject to the conversion limitations set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the Company a
Notice of Conversion, the form of which is attached hereto as
Annex
A
(each, a
“
Notice
of Conversion
”),
specifying therein the principal amount of this Debenture to be converted and
the date on which such conversion shall be effected (such date, the
“
Conversion
Date
”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion is deemed delivered hereunder.
To effect conversions hereunder, the Holder shall not be required to physically
surrender this Debenture to the Company unless the entire principal amount
of
this Debenture, plus all accrued and unpaid interest thereon, has been so
converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture in an amount equal to the
applicable conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s). The
Company may deliver an objection to any Notice of Conversion within 1 Business
Day of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative
in
the absence of manifest error.
The
Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of
a
portion of this Debenture, the unpaid and unconverted principal amount of this
Debenture may be less than the amount stated on the face
hereof.
b)
Conversion
Price
.
The
conversion price in effect on any Conversion Date shall be equal to
$1.00,
subject
to adjustment herein (the “
Conversion
Price
”).
c)
Conversion
Limitations
.
After
such date that the Common Stock is registered under Section 12(b) or 12(g)
of
the Exchange Act, the Company shall not effect any conversion of this Debenture,
and a Holder shall not have the right to convert any portion of this Debenture,
to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder’s
Affiliates, and any other person or entity acting as a group together with
the
Holder or any of the Holder’s Affiliates) would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which are issuable upon (A) conversion of the remaining, unconverted
principal amount of this Debenture beneficially owned by the Holder or any
of
its Affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including,
without limitation, any other Debentures or the Warrants) beneficially owned
by
the Holder or any of its Affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. To the extent that the limitation
contained in this Section 4(c) applies, the determination of whether this
Debenture is convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this Debenture
is
convertible shall be in the sole discretion of the Holder, and the submission
of
a Notice of Conversion shall be deemed to be the Holder’s determination of
whether this Debenture may be converted (in relation to other securities owned
by the Holder together with any Affiliates) and which principal amount of this
Debenture is convertible, in each case subject to the Beneficial Ownership
Limitation. To ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set forth
in
this paragraph and the Company shall have no obligation to verify or confirm
the
accuracy of such determination.
In
addition, a determination as to any group status as contemplated above shall
be
determined in accordance with Section 13(d) of the Exchange Act
and
the
rules and regulations promulgated thereunder
.
For
purposes of this Section 4(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as stated in the most recent of the following: (A) the Company’s
most recent periodic or annual report, as the case may be; (B) a more recent
public announcement by the Company; or (C) a more recent notice by the Company
or the Company’s transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of a Holder, the
Company shall within two Business Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its Affiliates since the date as
of
which such number of outstanding shares of Common Stock was reported. The
“
Beneficial
Ownership Limitation
”
shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The Holder, upon not less
than
61 days’ prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(c), provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of this Debenture held by
the
Holder and the Beneficial Ownership Limitation provisions of this Section 4(c)
shall continue to apply. Any such increase or decrease will not be effective
until the 61
st
day
after such notice is delivered to the Company.
The
Beneficial Ownership Limitation provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms
of this Section 4(c) to correct this paragraph (or any portion hereof) which
may
be defective or inconsistent with the intended Beneficial Ownership Limitation
contained herein or to make changes or supplements necessary or desirable to
properly give effect to such limitation.
The
limitations contained in this paragraph shall apply to a successor holder of
this
Debenture
.
d)
Mechanics
of Conversion
.
i.
Conversion
Shares Issuable Upon Conversion of Principal Amount
.
The
number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion
Price.
ii.
Delivery
of Certificate Upon Conversion
.
Not
later than three Business Days after each Conversion Date (the “
Share
Delivery Date
”),
the
Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the six
month anniversary of the Original Issue Date, shall be free of restrictive
legends and trading restrictions representing the number of Conversion Shares
being acquired upon the conversion of this Debenture and (B) a bank check in
the
amount of accrued and unpaid interest (if the Company has elected or is required
to pay accrued interest in cash). On or after the six month anniversary of
the
Original Issue Date, the Company shall use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 4(d) electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.
iii.
Failure
to Deliver Certificates
.
If in
the case of any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third Business
Day
after the Conversion Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such certificate
or certificates, to rescind such Conversion, in which event the Company shall
promptly return to the Holder any original Debenture delivered to the Company
and the Holder shall promptly return to the Company the Common Stock
certificates representing the principal amount of this Debenture unsuccessfully
tendered for conversion to the Company.
iv.
Obligation
Absolute
.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares;
provided
,
however
,
that
such delivery shall not operate as a waiver by the Company of any such action
the Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from
a
court, on notice to Holder, restraining and or enjoining conversion of all
or
part of this Debenture shall have been sought and obtained, and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of
the
outstanding principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which
shall
be payable to the Holder to the extent it obtains judgment. In the absence
of
such injunction, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion.
v.
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion
.
In
addition to any other rights available to the Holder, if the Company fails
for
any reason to deliver to the Holder such certificate or certificates by the
Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in
an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “
Buy-In
”),
then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied
with
its delivery requirements under Section 4(d)(ii). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect
to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In
and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock
upon
conversion of this Debenture as required pursuant to the terms
hereof.
vi.
Reservation
of Shares Issuable Upon Conversion
.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock for the sole purpose of
issuance upon conversion of this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder, not less
than such aggregate number of shares of the Common Stock as shall be issuable
(taking into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and payment
of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if subject to Section 7 hereof, shall be
registered for public sale in accordance with such registration
statement.
vii.
Fractional
Shares
.
No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of this Debenture. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such conversion, the Company shall
at its election, either pay a cash adjustment in respect of such final fraction
in an amount equal to such fraction multiplied by the Conversion Price or round
up to the next whole share.
viii.
Transfer
Taxes
.
The
issuance of certificates for shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder hereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that, the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name other than that
of the Holder of this Debenture so converted and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
Section
5
.
Certain
Adjustments
.
a)
Stock
Dividends and Stock Splits
.
If the
Company, at any time while this Debenture is outstanding: (i) pays a stock
dividend or otherwise makes a distribution or distributions payable in shares
of
Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
for avoidance of doubt, shall not include any shares of Common Stock issued
by
the Company upon conversion of, or payment of interest on, the Debentures),
(ii)
subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares
of
Common Stock into a smaller number of shares or (iv) issues, in the event of
a
reclassification of shares of the Common Stock, any shares of capital stock
of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
any
treasury shares of the Company) outstanding immediately before such event and
of
which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this Section
shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Subsequent
Equity Sales
.
If, at
any time while this Debenture is outstanding, the Company or any Subsidiary,
as
applicable, 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 the then Conversion Price (such
lower price, the “
Base
Conversion 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 the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock
or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than 1
Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), 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 5(b), upon the occurrence of any
Dilutive Issuance, the Holder is entitled to receive a number of Conversion
Shares based upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately refers to the
Base Conversion Price in the Notice of Conversion.
c)
Subsequent
Rights Offerings
.
If the
Company, at any time while the Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share that is lower than the VWAP on the record date referenced below,
then
the Conversion Price shall be multiplied by a fraction of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
delivery to the Company in full of all consideration payable upon exercise
of
such rights, options or warrants) would purchase at such VWAP. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
d)
Pro
Rata Distributions
.
If the
Company, at any time while this Debenture is outstanding, distributes to all
holders of Common Stock (and not to the Holders) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security (other than the Common Stock, which shall be
subject to Section 5(b)), then in each such case the Conversion Price shall
be
adjusted by multiplying such Conversion Price in effect immediately prior to
the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be
such
VWAP on such record date less the then fair market value at such record date
of
the portion of such assets or evidence of indebtedness so distributed applicable
to 1 outstanding share of the Common Stock as determined by the Board of
Directors of the Company in good faith. In either case the adjustments shall
be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to 1 share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after
the
record date mentioned above.
e)
Fundamental
Transaction
.
If, at
any time while this Debenture is outstanding, (i) the Company effects any merger
or consolidation of the Company with or into another Person, (ii) the Company
effects any sale of all or substantially all of its assets in one transaction
or
a series of related transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “
Fundamental
Transaction
”),
then,
upon any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of 1 share of Common Stock (the “
Alternate
Consideration
”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of 1 share of Common
Stock
in such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.
If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall
be
given the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to
the
Holder a new debenture consistent with the foregoing provisions and evidencing
the Holder’s right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this Section 5(e) and insuring that this Debenture (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
f)
Calculations
.
All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section
5,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Company) issued and outstanding.
g)
Notice
to the Holder
.
i.
Adjustment
to Conversion Price
.
Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly deliver to each Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii.
Notice
to Allow Conversion by Holder
.
If (A)
the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any
rights, (D) the approval of any stockholders of the Company shall be required
in
connection with any reclassification of the Common Stock, any consolidation
or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property
or
(E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case,
the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of this Debenture, and shall cause to be
delivered
to the Holder at its last address as it shall appear upon the Debenture
Register, at least twenty (20) calendar days prior to the applicable record
or
effective date hereinafter specified, a notice stating (x) the date on which
a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined
or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record
shall
be entitled to exchange their shares of the Common Stock for securities, cash
or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver such
notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The
Holder is entitled to convert this Debenture during the 20-day period commencing
on the date of such notice through the effective date of the event triggering
such notice.
Section
6
.
Optional
Redemption at Election of Holder
.
Subject
to the provisions of this Section 6, at any time after the Original Issue Date,
if the Company consummates an offering of securities for proceeds equal to
or
greater than $3,000,000, the Holder may deliver a notice to the Company (an
“
Optional
Redemption Notice
”
and
the
date such notice is deemed delivered hereunder, the “
Optional
Redemption Notice Date
”)
of its
irrevocable election to request the Company to redeem some or all of the then
outstanding principal amount of this Debenture for cash in an amount equal
to
the Optional Redemption Amount on the 20
th
Business
Day following the Optional Redemption Notice Date (such date, the “
Optional
Redemption Date
”,
such
20 Business Day period, the “
Optional
Redemption Period
”
and
such redemption, the “
Optional
Redemption
”).
The
Optional Redemption Amount is payable in full on the Optional Redemption Date.
The Company covenants and agrees that it will honor all Notices of Conversion
tendered from the time of delivery of the Optional Redemption Notice through
the
date all amounts owing thereon are due and paid in full.
The
payment of cash pursuant to an Optional Redemption shall be payable on the
Optional Redemption Date. If any portion of the payment pursuant to an Optional
Redemption shall not be paid by the Company by the applicable due date, interest
shall accrue thereon at an interest rate equal to the lesser of 18% per annum
or
the maximum rate permitted by applicable law until such amount is paid in full.
Notwithstanding anything herein contained to the contrary, if any portion of
the
Optional Redemption Amount remains unpaid after such date, the Holder may elect,
by written notice to the Company given at any time thereafter,
to invalidate such Optional Redemption,
ab
initio
.
The
Holder may elect to convert the outstanding principal amount of the Debenture
pursuant to Section 4 prior to actual payment in cash for any redemption under
this Section 6 by the delivery of a Notice of Conversion to the
Company.
Section
7
.
Piggyback
Registration Rights
.
If, at
any time while this Debenture is outstanding, there is not an effective
registration statement covering all of the Conversion Shares and the Company
shall determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under
the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans, then
the Company shall deliver to each Holder a written notice of such determination
and, if within fifteen days after the date of the delivery of such notice,
any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Conversion Shares such Holder
requests to be registered;
provided
,
however
,
that
the Company shall not be required to register any Conversion Shares pursuant
to
this Section 7 that are eligible for resale pursuant to Rule 144 promulgated
by
the Commission pursuant to the Securities Act or that are the subject of a
then
effective registration statement.
Section
8
.
Events
of Default
.
a)
“
Event
of Default
”
means,
wherever used herein, any of the following events (whatever the reason for
such
event and whether such event shall be voluntary or involuntary or effected
by
operation of law or pursuant to any judgment, decree or order of any court,
or
any order, rule or regulation of any administrative or governmental
body):
i.
any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within 3 Business Days;
ii.
the
Company shall fail to observe or perform any other covenant or agreement
contained in this Debenture (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (iii) below) which failure is not cured,
if
possible to cure, within the earlier to occur of
(A)
5
Business
Days after notice of such failure sent by the Holder or by any other
Holde
r
to the
Company and (B) 10 Business Days after the Company has become or should have
become aware of such failure; or
iii.
the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the fifth Business Day after a Conversion Date pursuant to Section 4(d) or
the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof.
b)
Remedies
Upon Event of Default
.
If any
Event of Default occurs, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, liquidated damages and other amounts owing
in
respect thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default Amount.
Commencing 5 days after the occurrence of any Event of Default that results
in
the eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at an interest rate equal to the lesser of 18% per annum or the
maximum rate permitted under applicable law. Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this Debenture
to
or as directed by the Company. In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all
of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by Holder at
any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b). No such rescission or annulment shall affect
any
subsequent Event of Default or impair any right consequent thereon.
Section
9
.
Miscellaneous
.
a)
Notices
.
Any and
all notices or other communications or deliveries to be provided by the Holder
hereunder, including, without limitation, any Notice of Conversion, shall be
in
writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9(a). Any and all notices or other communications or deliveries
to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile number or address of the
Holder appearing on the books of the Company, or if no such facsimile number
or
address appears, at the principal place of business of the Holder. Any notice
or
other communication or deliveries hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified on the signature
page prior to 5:30 p.m. (New York City time), (ii) the date immediately
following the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number specified on the signature page between
5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) upon actual receipt
by
the party to whom such notice is required to be given.
b)
Absolute
Obligation
.
Except
as expressly provided herein, no provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, liquidated damages and accrued interest, as applicable,
on
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks
pari
passu
with all
other Debentures now or hereafter issued under the terms set forth
herein.
c)
Lost
or Mutilated Debenture
.
If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation
of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
of
such loss, theft or destruction of such Debenture, and of the ownership hereof,
reasonably satisfactory to the Company.
d)
Governing
Law
.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflict of laws thereof. Each party agrees that all legal
proceedings concerning the interpretation, enforcement and defense of the
transactions contemplated hereof (whether brought against a party hereto or
its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state and federal courts sitting in the City of New
York, Borough of Manhattan (the “
New
York Courts
”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of
such New York Courts, or such New York Courts are improper or inconvenient
venue
for such proceeding. Each party hereby irrevocably waives personal service
of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Debenture and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and
all right to trial by jury in any legal proceeding arising out of or relating
to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed
by
the other party for its attorneys fees and other costs and expenses incurred
in
the investigation, preparation and prosecution of such action or
proceeding.
e)
Waiver
.
Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not
be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any waiver
by
the Company or the Holder must be in writing.
f)
Severability
.
If any
provision of this Debenture is invalid, illegal or unenforceable, the balance
of
this Debenture shall remain in effect, and if any provision is inapplicable
to
any Person or circumstance, it shall nevertheless remain applicable to all
other
Persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable law.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law
which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of
any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
g)
Next
Business Day
.
Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
h)
Headings
.
The
headings contained herein are for convenience only, do not constitute a part
of
this Debenture and shall not be deemed to limit or affect any of the provisions
hereof.
i)
Assumption
.
Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (i) assume, prior to such Fundamental Transaction, all of
the
obligations of the Company under this Debenture pursuant to written agreements
in form and substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) and (ii) issue to the Holder a new debenture
of such successor entity evidenced by a written instrument substantially similar
in form and substance to this Debenture, including, without limitation, having
a
principal amount and interest rate equal to the principal amount and the
interest rate of this Debenture and having similar ranking to this Debenture,
which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 9(i)
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations of this
Debenture.
*********************
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
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GENSPERA,
INC.
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By:
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Name:
Craig A. Dionne, Ph.D.
Title:
President and CEO
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Facsimile
No. for delivery of Notices: (210)
477-8547
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ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the 5% Convertible
Debenture due July ___, 2009, of GenSpera, Inc., a Delaware corporation (the
“
Company
”),
into
shares of common stock (the “
Common
Stock
”),
of
the Company according to the conditions hereof, as of the date written below.
If
shares of Common Stock are to be issued in the name of a person other than
the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to
the
holder for any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and warrants
to
the Company that its ownership of the Common Stock does not exceed the amounts
specified under Section 4 of this Debenture, as determined in accordance with
Section 13(d) of the Exchange Act.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
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Conversion
calculations:
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Date
to Effect Conversion:
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Principal
Amount of Debenture to be Converted:
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Payment
of Interest in Common Stock __ yes __ no
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If
yes, $_____ of Interest Accrued on Account of Conversion at
Issue.
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Number
of shares of Common Stock to be issued:
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Signature:
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Name:
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Address
for Delivery of Common Stock Certificates:
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Or
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DWAC
Instructions:
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Broker
No:
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Account
No:
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The
Law Offices of
RAUL
SILVESTRE & ASSOCIATES
31200
Via
Colinas, Suite 200
Westlake
Village, CA 91362
(818)
597-7552
Fax
(818)
597-7551
October
3, 2008
GenSpera,
Inc.
9901
IH
10 West, Suite 800
San
Antonio, TX 78230
Ladies
and Gentlemen:
We
have
acted as counsel for GenSpera, Inc., a Delaware corporation (the “Company”) in
connection with the registration statement on Form S-1 filed by the Company
with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the “Securities Act”), for the registration and sale from time to
time of up to 6,387,400 shares (the “Shares”) of common stock, par value $0.001
per share, of the Company (the “Common Stock”) of which 4,865,000 have
previously been issued and 1,522,400 are issuable upon the exercise of warrants
(the “Warrants”). The Common Stock is to be offered and sold by the selling
stockholders named in the Registration Statement (the “Selling Stockholders”).
Such registration statement, as it may be amended from time to time, is herein
referred to as the “Registration Statement”.
We
have
examined originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary for the purposes
of
rendering this opinion.
Based
upon and subject to the foregoing, we are of the opinion that the Shares have
been duly authorized. Additionally, when the Shares underlying the Warrants
are
issued and paid for in accordance with the terms of the Warrants, will be
validly issued, fully paid and non-assessable.
We
hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and any amendment thereto, including any and all post-effective
amendments and any registration statement relating to the same offering that
is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
and to the reference to our firm under the heading “Legal Matters” in the
prospectus contained within the Registration Statement. In giving such consent,
we do not thereby admit that we are included in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission. We express no opinion as to any matters not
expressly set forth herein.
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Very
truly yours,
/s/
Raul Silvestre & Associates,
APLC
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Compensation
for Dr. Craig Dionne, President and CEO
February
11, 2008
At
the
meeting of GenSpera’s Board of Directors on February 11, 2008, the Board
approved an annual salary to Dr. Craig Dionne as President and CEO the sum
of
$240,000 per annum effective December 1, 2007.
Compensation
for Dr. Russell Richerson, COO
Budget
for Benefits Package to Employees
July
30, 2008
At
the
meeting of GenSpera’s Board of Directors on July 30, 2008, the Board approved an
annual salary to Dr. Russell Richerson the sum of $200,000 per annum effective
July 1, 2008.
The
Board
also approved a budget of $1,500 per month for expenses related to medical,
dental and disability insurance benefits for each employee of the
Company.
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
To:
Genspera, Inc.
We
hereby
consent to the use in this Form S-1 Registration Statement Under The Securities
Act of 1933 of our report dated March 10, 2008 included in Genspera, Inc.’s
Annual Report for the years ended December 31, 2007 and 2006, relating to
the financial statements of Genspera, Inc., which appear in such Registration
Statement and related Prospectus for the registration of 6,387,400 shares of
its
common stock.
We
also
consent to the references to us under the heading “Experts” in such Registration
Statement.
New
York,
New York
October
3, 2008
