As filed with the Securities and Exchange Commission on March 21, 2016.

Registration No. 333-209323

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Moleculin Biotech, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware 2834

47-4671997

(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)

  

2575 West Bellfort, Suite 333

Houston, Texas 77054

(713) 300-5160

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Mr. Walter Klemp, Chief Executive Officer

2575 West Bellfort, Suite 333

Houston, Texas 77054

(713) 300-5160

 

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

Cavas S. Pavri Jack I. Kantrowitz, Esq.
Schiff Hardin LLP DLA Piper LLP (US)
100 N. 18th, Suite 300 1251 Avenue of the Americas
Philadelphia, PA 19103 New York, New York 10020
Telephone: (202) 724-6847 Telephone: (212) 335-4500
Fax: (202) 778-6460 Fax: (212) 335-4501

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

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, 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 Securities Exchange Act of 1934. (Check one): 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ¨   (Do not check if a smaller reporting company) Smaller reporting company x

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement is 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.

 

Subject to Completion Dated March 21, 2016

 

Up to 2,000,000 Shares

 

Moleculin Biotech, Inc.

 

Common Stock

 

 

 

This is an initial public offering of Moleculin Biotech, Inc.

 

We are offering a minimum of 1,400,000 and a maximum of 2,000,000 shares of common stock in this offering.

 

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $5.00 and $6.00. We have applied to list the common stock on the Nasdaq Capital Market under the symbol “MBRX”. If the application is approved, trading of our common stock on the Nasdaq Capital Market is expected to begin within five days after the initial issuance of the common stock. If our common stock is not approved for listing on the Nasdaq Capital Market, we will not consummate this offering.

 

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and we have elected to comply with certain reduced public company reporting requirements.

 

 

An investment in our common stock involves significant risks. You should carefully consider the risk factors beginning on page 11 of this prospectus before you make your decision to invest in our shares of common stock.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

    Underwriting Proceeds to Us, Before
  Public Offering Price Commissions (1) Expenses (2)
Per share $ $ $
Total minimum offering $ $ $
Total maximum offering. $ $ $

 

(1) For the purpose of estimating the underwriting commissions, we have assumed that the underwriters will receive their maximum commission on all sales made in this offering, plus an advisory fee of $50,000. The underwriters will also be entitled to reimbursement of their out-of-pocket expenses incurred in connection with this offering, which shall not exceed $25,000, and fees and expenses of their counsel, not to exceed $100,000.

 

(2) We estimate the total expenses of this offering, excluding the underwriting commissions, will be approximately $500,000 if all 2,000,000 shares are sold in this offering. Because this is a best efforts offering, the actual public offering amount, underwriting commissions and proceeds to us are not presently determinable and may be substantially less than the total maximum offering set forth above. See “Underwriting” beginning on page 73 of this prospectus for more information on this offering and the underwriter arrangements.

 

 

 

Bonwick Capital Partners LLC is acting as the sole representative of the underwriters and, together with Network 1 Financial Securities, Inc., is acting as co-manager for this offering. The underwriters are selling shares of our common stock in this offering on a best efforts basis. We do not intend to close this offering unless we sell at least a minimum number of 1,400,000 shares of common stock, at the price per share set forth in the table above, and otherwise satisfy the listing conditions to trade our common stock on the NASDAQ Capital Market. This offering will terminate on [*], 2016 (60 days after the date of this prospectus) or [*], 2016, if extended, unless we sell the maximum number of shares of common stock set forth above before that date or we decide to terminate this offering prior to that date. The gross proceeds of this offering will be deposited at Signature Bank in an escrow account established by us, until we have sold a minimum of 1,400,000 shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. Once we satisfy the minimum stock sale and Nasdaq listing conditions, the funds will be released to us. In the event we do not sell a minimum of 1,400,000 shares of common stock and raise minimum gross proceeds of $7,000,000 by [*], 2016 or [*], 2016, if extended, all funds received will be promptly returned to investors without interest or offset. See “Prospectus Summary - The Offering” on page 7.

 

Delivery of the shares of our common stock is expected to be made on or about [*], 2016.

 

 

 

N E T W O R K    1    F I N A N C I A L

S   E   C   U   R   I   T   I   E   S,   I   N   C. 

Bonwick Capital Partners LLC Network 1 Financial Securities, Inc.

 

 

The date of this prospectus is                     , 2016

 

 

 

 

Table of Contents

 

 

 

PROSPECTUS SUMMARY 1
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 24
   
USE OF PROCEEDS 25
   
DIVIDEND POLICY 25
   
CAPITALIZATION 26
   
DILUTION 28
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS 36
   
BUSINESS 42
   
MANAGEMENT 60
   
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 66
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 67
   
DESCRIPTION OF CAPITAL STOCK 68
   
SHARES ELIGIBLE FOR FUTURE SALE 71
   
UNDERWRITING 72
   
VALIDITY OF COMMON STOCK 74
   
EXPERTS 74
   
WHERE YOU CAN FIND MORE INFORMATION 74

 

Through and including                     , 2016 (the 25 th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

 

 

i

 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” section, our historical financial statements and the notes thereto, and unaudited pro forma financial information, each included elsewhere in this prospectus. The terms “MBI”, “the Company”, “our”, or “we” refer to Moleculin Biotech, Inc. and, unless the context otherwise requires, its predecessors.

 

Overview

 

We are a preclinical and clinical-stage pharmaceutical company focused on the development of anti-cancer drug candidates, many of which are based on license agreements with The University of Texas System on behalf of the M.D. Anderson Cancer Center, which we refer to as MD Anderson. Our lead drug candidate is liposomal Annamycin, which we refer to as Annamycin, an anthracycline intended for the treatment of relapsed or refractory acute myeloid leukemia, or AML. Annamycin has been in clinical trials pursuant to an Investigational New Drug application, or IND, that had been filed with the U.S. Food and Drug Administration, or FDA. Due to a lack of development activity by a prior drug developer, this IND was terminated. However, we intend to apply for a new IND based on the same data that supported the original IND, updated for subsequent clinical data, and to commence a Phase II clinical trial for Annamycin funded with the proceeds from this offering. We have two other drug development projects in progress, one involving a portfolio of small molecules, which we refer to as the WP1066 Portfolio, focused on the modulation of key regulatory transcription factors involved in the progression of cancer, and the WP1122 Portfolio, a suite of molecules targeting the metabolic processes involved in cancer in general, and glioblastoma (the most common form of brain tumor) in particular.

 

We have been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to our WP1066 Portfolio and WP1122 Portfolio drug technologies, as these patent rights are owned by MD Anderson. The Annamycin drug substance is no longer covered by any existing patent protection. We intend to submit patent applications for formulation, synthetic process and reconstitution related to our Annamycin drug product candidate, although there is no assurance that we will be successful in obtaining such patent protection. Independently from potential patent protection, we believe Annamycin will qualify for Orphan Drug status, which could entitle us to market exclusivity of up to 7 and 10 years from the date of approval of a New Drug Application (NDA) and Marketing Authorization (MA), in the US and the European Union (EU), respectively. However, there can be no assurance that such status will be granted. Separately, the FDA may also grant market exclusivity of up to five years for newly approved new chemical entities (of which Annamycin would be one), but there can be no assurance that such exclusivity will be granted or, if granted, for how long.

 

Our Drug Candidates

 

Annamycin

 

Our lead product candidate is Annamycin, an anthracycline intended to target the treatment of relapsed or refractory AML. Anthracyclines are a class of chemotherapy drugs designed to disrupt the DNA of, and eventually destroy, targeted cancer cells. They are considered to be among the most effective anticancer drugs developed and are used to treat a range of cancers, including leukemias, lymphomas, and breast, stomach, uterine, ovarian, bladder, and lung cancers. The effectiveness of currently approved anthracyclines is limited, however, by their propensity to cause heart damage (cardiotoxicity) and for cancer cells to become resistant by natural cell defense (multidrug resistance) mechanisms.

 

Leukemia is a cancer of the white blood cells and acute forms of leukemia can manifest quickly and leave patients with limited treatment options. AML is the most common type of acute leukemia in adults. It occurs when a clone of leukemic progenitor white blood cells proliferates in the bone marrow, suppressing the production of normal blood cells. Currently, the only viable option for acute leukemia patients is a bone marrow transplant, which is successful in a significant number of patients. However, in order to qualify for a bone marrow transplant, the patient’s leukemia cells must be decreased to a sufficiently low level. This begins with a therapy of combining two chemotherapeutic drugs, which always includes an anthracycline, in inducing remission (a complete response, or CR), which therapy has not improved since it was first used in the 1970s and we estimate that this induction therapy has the same cure rate of about 20% as at that time. Unfortunately, the current clinically approved anthracyclines are cardiotoxic, which can result in damage to the heart and limit the dosage amount that may be administered to patients. Additionally, the tumor cells often present de novo or developed resistance to the first line anthracycline, often through what is called “multidrug resistance”, enabling them to purge themselves of the available anthracyclines. Consequently, there remains no effective therapy for these patients and most will succumb quickly to their leukemia. If a patient’s leukemia reappears before they can be prepared for a bone marrow transplant, they are considered to have “relapsed”. If a patient fails to achieve a sufficient response from the induction therapy to qualify for a bone marrow transplant, they are considered to be “refractory” (resistant to therapy). Together, this group of relapsed and refractory AML patients constitutes our primary focus for treatment with Annamycin and our intent is to pursue FDA approval for Annamycin as a second-line induction therapy for adult relapsed and refractory AML patients.

 

1  

 

 

We believe that pursuing approval as a second line induction therapy for adult relapsed or refractory AML patients is the shortest path to regulatory approval, but we also believe that one of the most important potential uses of Annamycin is in the treatment of children with either AML or ALL (acute lymphoblastic leukemia, which is more common in children). Accordingly, we also intend to pursue approval for pediatric use when practicable.

 

Annamycin is a liposome formulated anthracycline (also referred to in literature as “L-Annamycin”). It has been tested in 6 clinical trials and 114 patients without any reporting of cardiotoxicity and, in the two of those clinical trials focused on leukemia, with fewer dose-limiting toxicities than are normally experienced with doxorubicin (one of the leading first-line anthracyclines used for induction therapy). Each of these trials was conducted by previous holders of the intellectual property surrounding Annamycin and not by our company. Annamycin demonstrated significant activity in 8 of 16 patients in a Phase I study in adult relapsed or refractory AML patients, with 6 of 14 patients completely clearing leukemic blasts. A 30 patient dose-ranging Phase I/II study in ALL demonstrated a similar level of activity, with 3 of 10 patients treated with the maximum tolerable dose clearing their leukemic blasts to a level sufficient to qualify for a bone marrow transplant. One of these patients went on to receive a successful curative bone marrow transplant. The other two of these three patients died of tumor lysis syndrome, a condition resulting from the overloading of their system with the debris from leukemic blast cells destroyed by the induction therapy. Armed with the knowledge of this potential, prophylactic pretreatment known to protect patients from the effects of tumor lysis syndrome will be deployed in future trials. Based on the results of the above clinical trials, we believe Annamycin is different from currently approved induction therapy drugs in four key ways: (i) it has demonstrated clinical activity in a patient population for whom there are currently no effective therapies, (ii) it appears to be capable of avoiding the “multi-drug resistance” mechanisms that often limit the effectiveness of currently approved anthracyclines; (iii) it has been shown to be non-cardiotoxic in animal models and no events of cardiotoxicity have been reported from the use of Annamycin in 114 patients; and (iv) in AML cell lines, it has been shown to be more potent than one of the leading approved drugs.

 

Based on initial conversations with the FDA, because of the serious unmet medical need, we believe Annamycin may qualify for a “Special Protocol Assessment” providing for accelerated approval based on our planned Phase II clinical trial. In order to negotiate the Special Protocol Assessment with the FDA, the dose-ranging Phase I/II clinical trial discussed above, which was conducted by a previous holder of the intellectual property surrounding Annamycin, must be independently audited, which is an expensive and time consuming process. In addition, since the original IND was terminated for lack of development activity by the prior drug developer, we must apply for a new IND, based on the data that supported the original IND, updated for subsequent clinical activity. The ultimate negotiation with the FDA will determine the size and efficacy endpoints for the registration trial. We can provide no assurance that the audit of the most recent clinical trial will confirm the results reported by the prior drug developer or that we will be successful in obtaining a new IND or in negotiating a Special Protocol Assessment with the FDA. If we are successful, we estimate such process, including auditing the prior clinical trial results, will take approximately six months or more from the closing of this offering.

 

We also intend to pursue Orphan Drug status for Annamycin. The prevalence ceiling for qualifying rare diseases under the US Orphan Drug Act is 200,000 patients and proportionally similar guidelines exist in the EU. The most recently published prevalence statistics from the National Cancer Institute reported that an estimated 37,726 patients had acute myeloid leukemia in the United States as of January 1, 2011, and trend data since that publication would indicate that the prevalence today should still be well below the 200,000 patient limitation for Orphan Drugs, which would permit Annamycin for the treatment of acute myeloid leukemia to qualify for Orphan Drug status. Annamycin already qualified for Orphan Drug status with its prior developer and we intend to repeat that process. However, we can provide no assurance that we will be successful in obtaining Orphan Drug status for Annamycin.

 

The WP1066 Portfolio

 

We have a license agreement with MD Anderson pursuant to which we have been granted a royalty-bearing, worldwide, exclusive license for the patent and technology rights related to WP1066 and its close analogs, molecules targeting the modulation of key oncogenic transcription factors.

 

2  

 

 

In vitro testing has shown a high level of activity for WP1066 against a wide range of solid tumors, and in vivo testing has shown significant activity against head and neck, pancreatic, stomach, and ovarian cancers, as well as metastatic melanoma and glioblastoma, among others. In vivo testing in mouse tumor models has shown that WP1066 inhibits tumor growth, blocks angiogenesis (a process that provides necessary blood supply to tumors) and increases survival.

 

With respect to our WP1066 Portfolio, we must complete pre-clinical toxicology testing, along with additional chemistry, manufacturing and control work to fully characterize the drug, establish the desired formulation and develop reference standards for future drug release, among others, prior to submitting an application for an IND. Clinicians at MD Anderson submitted an IND for this drug candidate in March, 2016.

 

An analog of WP1066, referred to as WP1220, was previously the subject of an IND (WP1220 was referred to as MOL4239 for purposes of this IND) related to use of the molecule in the topical treatment of psoriasis. Clinical trials were commenced on WP1220 in the US, but were terminated early due to limited efficacy in the topical treatment of psoriatic plaques. Notwithstanding its limitations in treating psoriasis, our pre-clinical research has shown WP1220 to be effective in inhibiting cutaneous T-cell lymphoma (CTCL) in multiple CTCL cell lines. Based on this encouraging data, we are collaborating with a Polish drug development company, Dermin Sp. Zo. O., or Dermin, which has received a Polish government grant to begin a clinical trial in Poland for the topical treatment of early stage CTCL patients.

 

We also conducted a Phase II clinical trial for WP1066 for the topical treatment of psoriasis, however this trial was terminated early as a significant number of patients experienced a non-permanent worsening of their psoriatic plaques after extended use of the drug, suggesting that its use as a topical agent for non-life threatening diseases such as psoriasis will require further study to optimize dosing and scheduling regimens.

 

The WP1122 Portfolio

 

We have a license agreement with MD Anderson pursuant to which we have been granted a royalty-bearing, worldwide, exclusive license for the patent and technology rights related to our WP1122 Portfolio and similar molecules targeting the treatment of glioblastoma multiform, or GBM, and related central nervous system, or CNS, malignancies.

 

We believe this technology has the potential to target a wide variety of solid tumors, which eventually become resistant to all treatments, and thereby provide a large and important opportunity for novel drugs. Notwithstanding this potential, we are focused on the treatment of central nervous system malignancies and especially GBM. Although less prevalent than some larger categories of solid tumors, cancers of the central nervous system are particularly aggressive and resistant to treatment. The prognosis for such patients can be particularly grim and the treatment options available to their physicians are among the most limited of any cancer.

 

The American Cancer Society has estimated 23,770 new cases of brain and other nervous system cancers will occur in the United States in 2016, resulting in 16,050 deaths. Despite the severity and poor prognosis of these tumors, there are few FDA-approved drugs on the market.

 

We have proof of concept data for our WP1122 Portfolio, including data on survival of animals subjected to xenografts of human brain tumors, as well as biodistribution and pharmacokinetics. In non-optimal doses and treatment regimes, our WP1122 Portfolio performed equal to or better than the current market leader, temozolomide and provided for superior survival for animals treated in combination with temozolomide.

 

Risks Relating to Our Business

 

As a preclinical and clinical-stage, pharmaceutical company, our business and ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our securities. In particular, you should consider the following risks, which are discussed more fully in the section entitled “Risk Factors”:

 

· we currently do not have regulatory approval for our lead drug candidate, Annamycin, or any other product candidates, in the United States or elsewhere, although we plan to conduct clinical trials in the United States for Annamycin and other drug candidates in the future, there is no assurance that we will be successful in our clinical trials or receive regulatory approval in a timely manner, or at all;

 

3  

 

 

· a portion of our business is dependent upon the intellectual property rights that we license from MD Anderson, and in the past we have been in breach of these license agreements. Although we are currently in compliance with our obligations under our license agreements, there is no assurance that in the future we will not again be in breach of these agreements. Additionally, the intellectual property that we have licensed from MD Anderson may have been developed under a funding agreement with the United States government. To the extent that is the case, our license agreements with and the intellectual property rights we have licensed from MD Anderson are subject to such a funding agreement and any superior rights that the U.S. government may have with respect to the licensed intellectual property;

 

· our lead drug candidate, Annamycin, is not the subject of any patent protection, and, although we intend to apply for formulation and method-of-use patents for Annamycin, there is no assurance that we will be successful in obtaining such patents and, even if we are successful, such patents generally offer less protection than original composition of matter patents;

 

· unforeseen side effects from any of our product candidates could arise either during clinical development. For example, in the most recent Phase I/II dose-ranging clinical trial of Annamycin, two patients succumbed to tumor lysis syndrome (TLS) resulting from the debris created by Annamycin killing the targeted leukemic blasts more rapidly than anticipated;

 

· we do not currently carry product liability insurance covering any of our drug candidates and, although we intend to obtain product liability insurance for future clinical trial liability that we may incur, there can be no assurance that we will secure adequate coverage or that, even if we do so, any such coverage will be sufficient to prevent the exposure of our operations to significant potential liability in the future;

 

· the patents we have licensed from MD Anderson may not be valid or enforceable and may not protect us against competitors who challenge those licensed patents, obtain their own patents that may have an adverse effect on our ability to conduct business, or are able to otherwise circumvent our patents. Additionally, our products and technologies are complex and one patent may not be sufficient to protect our products where a series of patents may be needed. Further, we may not have the necessary financial resources to enforce or defend our patents or patent applications. In addition, any patent applications we may have made or may make relating to inventions for our actual or potential products and technologies may not result in patents being issued or may result in patents that provide insufficient or incomplete coverage for our inventions;

 

· third parties may claim that the manufacture, use or sale of our technologies infringe their intellectual property rights. As with any litigation where such claims may be asserted, we may have to seek licenses, defend infringement actions or challenge the validity of those patents in the patent office or the courts. If these are not resolved favorably, we may not be able to continue to develop and commercialize our product candidates. Even if we were able to obtain rights to a third party’s intellectual property, these rights may be non-exclusive, thereby giving our competitors potential access to the same intellectual property. If we are found liable for infringement or are not able to have these patents declared invalid or unenforceable, we may be liable for significant monetary damages, encounter significant delays in bringing products to market or be precluded from participating in the manufacture, use or sale of products or technologies by patents of others. We may not have identified, or be able to identify in the future, U.S. or foreign patents that pose a risk of potential infringement claims;

 

  · we have completed and will in the future complete related party transactions that were not and will not be conducted on an arm’s length basis. We acquired the rights to the license agreement with MD Anderson covering our WP1122 Portfolio held by IntertechBio Corporation, a company affiliated with certain members of our management and board of directors. We acquired the rights to all data related to the development of Annamycin held by AnnaMed, Inc., a company affiliated with certain members of our management and board of directors. Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin, LLC will be merged with and into our company. Moleculin, LLC is affiliated with certain members of our management and board of directors. In addition, prior to the effective date of the registration statement of which this prospectus is a part, we will enter into an agreement with Houston Pharmaceuticals, Inc., or HPI, whereby HPI will agree to terminate its option to sublicense certain rights to the WP1066 Portfolio and to enter into a co-development agreement with us. Waldemar Priebe and Don Picker are shareholders of HPI. Since these transactions were not conducted on an arm’s length basis, it is possible that the terms were less favorable to us than in an arm’s length transaction.

 

· we have never been profitable, have not generated significant revenue to date and we expect to incur significant additional losses to fund our clinical trials;

 

· we will require substantial additional funding beyond the proceeds of the offering to which this prospectus relates to complete the development and commercialization of our drug candidates, and such funding may not be available on acceptable terms or at all;

 

· our development work is dependent in part on collaborations with other drug development companies and funding from government and philanthropic funding sources and there can be no assurance that such collaborations and funding will continue in the future;

 

· our short-to-medium term prospects depend largely on our ability to develop and commercialize one drug candidate, Annamycin, and our ability to generate revenues in the future will depend heavily on the successful development and commercialization of Annamycin;

 

· we may be subject to delays in our clinical trials, which could result in increased costs and delays or limit our ability to obtain regulatory approval for Annamycin and/or any other potential drug candidates;

 

· we have never commercialized any of our drug candidates, including Annamycin, and, even if approved, our drug candidates may not be accepted by healthcare providers or healthcare payors; and

 

· we may be unable to maintain and protect our intellectual property assets, which could impair the advancement of our pipeline and commercial opportunities.

 

4  

 

 

Company Information and Moleculin Merger

 

We were organized as a Delaware corporation in July 2015. In August 2015, in exchange for the issuance of 630,000 shares of common stock, we acquired the rights to the license agreement with MD Anderson covering our WP1122 Portfolio held by IntertechBio Corporation, a company affiliated with certain members of our management and board of directors. In August 2015, in exchange for the issuance of 1,431,000 shares of common stock, we acquired the rights to all data related to the development of Annamycin held by AnnaMed, Inc., a company affiliated with certain members of our management and board of directors.

 

Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin, LLC, a Texas limited liability company, will be merged with and into our company. Moleculin, LLC is the holder of the license agreement with MD Anderson covering the WP1066 Portfolio. As a result of the merger, we will issue the holders of Moleculin, LLC equity interests an aggregate of 1,000,000 shares of our common stock. As part of the acquisition process of Moleculin, LLC by MBI, we will provide operating loans for Moleculin in the estimated range of $300,000 to $310,000 for Moleculin to meet its license obligations to MD Anderson, and maintain its current level of operations. These loans will be in the form of promissory notes payable with an interest rate of 8% from Moleculin to us that will be forgiven at the completion of the IPO. As of the date hereof, MBI has secured a total of $615,000 of convertible indebtedness and estimates that it will need approximately an additional $535,000 to $635,000 to complete the IPO process.

 

Prior to the effective date of the registration statement of which this prospectus is a part, in exchange for 629,000 shares of our common stock, we will enter into an agreement with Houston Pharmaceuticals, Inc., or HPI, whereby HPI will agree to terminate its option to sublicense certain rights to the WP1066 Portfolio and to enter into a co-development agreement with us, allowing us to benefit from HPI’s grant-funded development efforts currently under way.

 

Except as otherwise noted, the narrative discussion and other information set forth in this prospectus assumes the completion of the merger described above and reflects, as appropriate, the effects of the merger. Unless the context indicates otherwise, the terms “our,” “we,” and “us,” refer to Moleculin Biotech, Inc. after the merger.

 

Conversion of our Outstanding Notes

 

Unless otherwise indicated, this prospectus gives effect to the automatic conversion of $615,000 in aggregate principal amount of our 8% unsecured promissory notes that we have issued as of the date hereof into an aggregate of 3,749,557 shares of our common stock contemporaneously with the closing of this offering. The foregoing does not include any shares of common stock issuable upon conversion of the accrued interest on such convertible notes. However, we expect to issue additional shares of our common stock as payment of the aggregate amount of interest at the same conversion rate as principal conversion. The financial statements of the Company in this prospectus do not reflect the conversion of any of these unsecured promissory notes. The conversion of the unsecured promissory notes on our financial statements will reduce our debt by $615,000 plus accrued interest as a result of the extinguishment thereof, and to increase our stockholders’ equity by the same amount as a result of the issuance of the additional shares of common stock. No holder of these notes will be permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock after such conversion. The number of shares set forth above assumes no such limitation on the conversion of the notes.

 

Implications of Being an Emerging Growth Company

 

We qualify as an “emerging growth company” as the term is used in The Jumpstart Our Business Startups Act of 2012 (JOBS Act), and therefore, we may take advantage of certain exemptions from various public company reporting requirements, including:

 

· a requirement to only have two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis;

 

· exemption from the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;

 

· reduced disclosure obligations regarding executive compensation; and

 

· exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments.

 

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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available benefits of the JOBS Act. We have taken advantage of some of the reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

   

Our principal executive offices are located at 2575 West Bellfort, Suite 333, Houston, Texas 77054. Our telephone number is (713) 300-5160. Our website address is www.moleculin.com. The information on or accessible through our website is not part of this prospectus.

 

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The Offering

 

Common stock we are offering 1,400,000 shares (minimum) to 2,000,000 shares (maximum)  
Common stock outstanding immediately before this offering 6,661,000 shares  
Common stock outstanding immediately after this offering (1) [*] shares (minimum) to [*] shares (maximum)  
Offering price $[*] per share  
Best efforts offering The underwriters are selling the shares of our common stock offered in this prospectus on a “best efforts” basis and are not required to sell any specific number or dollar amount of the shares offered by this prospectus, but will use their best efforts to sell such shares. However, one of the conditions to our obligation to sell any of the shares through the underwriters is that, upon the closing of the offering, our common stock would qualify for listing on the Nasdaq Capital Market. In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $4.0 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock. We do not intend to close this offering unless we sell a minimum of 1,000,000 shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market.  
Use of proceeds

Based on an estimated initial public offering price of $5.50 per share, which is the midpoint of the offering price range, we estimate that the net proceeds to us from this offering, assuming we sell a minimum of 1,400,000 shares, will be approximately $6.7 million and, assuming we sell all 2,000,000 shares, will be approximately $9.7 million, after payment of underwriting commissions and our estimated offering expenses. However, this is a best efforts offering, and there is no assurance that we will sell any shares or receive any proceeds.

We intend to use the proceeds from this offering to: apply for a new IND for Annamycin, audit the Phase I/II clinical trial conducted by a prior developer, negotiate a Special Protocol Assessment with the FDA, commence a Phase II clinical trial for Annamycin, facilitate the maintenance of our licenses and ongoing development work relating to the WP1066 and WP1122 Portfolios and for working capital. See “Use of Proceeds” for more information.

 
Risk Factors See “Risk Factors” and other information appearing elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding whether to invest in our common stock.  
Lock-up

We, our directors, executive officers, and certain shareholders have agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities for a period of 12 months following the closing of the offering of the shares, and thereafter such individuals, if they wish to sell, have agreed to a leak-out of their shares for a period ending on the third anniversary of this offering. See “Shares Eligible for Future Sale” for more information.

 

 

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Escrow

The gross proceeds of this offering will be deposited at Signature Bank, New York, New York, in an escrow account established by us. Purchasers are to make payment for the shares they purchase by wire transfer to Signature Bank, ABA No. [*], 261 Madison Avenue, New York, New York 10016, for credit to Signature Bank, as Escrow Agent for Moleculin Biotech, Account No. [*].  The previous sentence notwithstanding, any checks received by the underwriter will be delivered to Signature Bank for deposit into the escrow account not later than 12:00 p.m. on the business day immediately following receipt. The funds will be held in escrow until we receive a minimum of $7.0 million (assuming the offering price is at the low end of the price range) and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market, at which time the funds will be released to us.  Any funds received in excess of the foregoing minimum amount and following the satisfaction of the Nasdaq listing requirements will immediately be available to us. Unless the offering is previously canceled or withdrawn, if we do not receive the minimum amount by [*], 2016 (60 days after the date of this prospectus) or [*], 2016, if extended, all funds will be returned to purchasers in this offering on the next business day after the offering’s termination, without charge, deduction or interest unless the offering is previously canceled or withdrawn. Prior to [*], 2016, in no event will funds be returned to you. You will only be entitled to receive a refund of your subscription if we do not raise the minimum amount set forth above and satisfy the Nasdaq listing conditions by [*], 2016 (60 days after the date of this prospectus).

 
Proposed listing symbol “MBRX”  

 

(1)           The number of shares of common stock to be outstanding after this offering includes (i) 1,000,000 shares of common stock to be issued to the members of Moleculin, LLC, (ii) the issuance of 629,000 shares of common stock in connection with our agreement HPI; and (iii) the issuance of 3,749,557 shares of common stock upon the conversion of $615,000 in principal amount of our outstanding bridge notes. The number of shares does not give effect to:

 

· 2,500,000 shares of common stock available for issuance under the Moleculin Biotech, Inc. 2015 Stock Plan; and

 

· between 98,000 shares (assuming the minimum offering is completed) and 140,000 shares (assuming the maximum offering is completed) of common stock issuable upon the exercise of the warrants issued to the representatives of the underwriters.

 

Unless otherwise indicated, all information in this prospectus reflects and assumes the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering.

 

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Summary Financial Data

 

We have derived the following summary statement of operations data for the period from July 28, 2015 (Inception) to December 31, 2015 and the summary balance sheet data as of December 31, 2015 from MBI’s audited financial statements included elsewhere in this prospectus. We have derived the following summary statements of operations data for the years ended December 31, 2015 and 2014 and the summary statements of financial position data as of December 31, 2015 and 2014 from Moleculin’s audited financial statements included elsewhere in this prospectus. You should read the following summary financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and financial statements of MBI and Moleculin and related notes included elsewhere in this prospectus.

 

    From July 28, 2015
(Inception) to
December 31, 2015
 
Statement of Operations Data – MBI        
Revenue   $ -  
Research and development expense     260,418  
General and administrative expense     477,810  
Other expense     10,132  
Net loss   $ (748,360 )
         
Net loss per common share   $ (0.13 )

 

    December 31,
2015
 
         
Balance Sheet Data – MBI        
Cash and cash equivalents   $ 28,091  
Working capital deficit     (744,699 )
Total assets     28,091  
Accumulated deficit     (748,360 )
Total stockholders’ deficit     (744,699 )

 

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    Year Ended December 31,  
    2015     2014  
             
Statements of Operations Data - Moleculin                
Revenue   $ -     $ -  
Research and development expense     125,442       798,785  
General and administrative expense     328,570       839,556  
Depreciation expense     11,336       11,005  
Other (income) expense     (99,537 )     159,740  
Net loss   $ (365,811 )   $ (1,809,086 )

 

    As of  
    December 31,
2015
    December 31,
2014
 
             
Statements of Financial Position Data - Moleculin                
Cash and cash equivalents   $ 31,867     $ 524,477  
Working capital deficit     (2,844,589 )     (1,095,276 )
Total assets     45,480       781,448  
Accumulated deficit     (14,203,516 )     (13,837,705 )
Total members’ deficit     (2,833,330 )     (2,467,519 )

 

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Risk Factors

 

Investing in our common stock involves a high degree of risk. You should carefully consider each of the following risks, together with all other information set forth in this prospectus, including the financial statements and the related notes, before making a decision to buy our common stock. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

Risks Relating to Our Business

 

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.

 

We intend to use the proceeds from this offering to advance Annamycin through clinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We will require substantial additional future capital in order to complete clinical development and commercialize Annamycin. If the FDA requires that we perform additional nonclinical studies or clinical trials, our expenses would further increase beyond what we currently expect and the anticipated timing of any potential approval of Annamycin would likely be delayed. Further, there can be no assurance that the costs we will need to incur to obtain regulatory approval of Annamycin will not increase.

 

We will continue to require substantial additional capital to continue our clinical development and commercialization activities. Because successful development of our product candidates is uncertain, we are unable to estimate the actual amount of funding we will require to complete research and development and commercialize our products under development.

 

The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

 

· whether the results of our audit of the most recent Phase I/II clinical trial conducted by a prior developer comport with our understanding of the informal summary of the trial results;

 

· whether we are successful in obtaining a Special Protocol Assessment, or SPA, with the FDA related to Annamycin;

 

· the progress, costs, results of and timing of our clinical trials for Annamycin;

 

· the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

 

· the progress of our collaborative drug development partners, which is dependent upon their continued access to grant funding;

 

· the costs associated with securing and establishing commercialization and manufacturing capabilities;

 

· market acceptance of our product candidates;

 

· the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;

 

· our ability to maintain, expand and enforce the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

 

· our need and ability to rely on data to be generated by our sublicensee partner, Dermin;

 

· our need and ability to hire additional management and scientific and medical personnel;

 

· the effect of competing drug candidates and new product approvals;

 

· our need to implement additional internal systems and infrastructure, including financial and reporting systems; and

 

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· the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future.

 

Some of these factors are outside of our control. Based upon our currently expected level of operating expenditures, we believe that we will be able to fund our operations through mid-2017. This period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress of development programs than anticipated. We do not believe that our existing capital resources are sufficient to enable us to complete the development and commercialization of Annamycin, if approved, or to initiate any clinical trials or additional development work needed for any other drug candidates, other than as described above. Accordingly, we expect that we will need to raise additional funds in the future.

 

We may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline.

 

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us.

 

We have completed and will in the future complete related party transactions that were not and will not be conducted on an arm’s length basis.

 

We acquired the rights to the license agreement with MD Anderson covering our WP1122 Portfolio held by IntertechBio Corporation, a company affiliated with certain members of our management and board of directors. We acquired the rights to all data related to the development of Annamycin held by AnnaMed, Inc., a company affiliated with certain members of our management and board of directors. Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin, LLC will be merged with and into our company. Moleculin, LLC is affiliated with certain members of our management and board of directors. Prior to the effective date of the registration statement of which this prospectus is a part, we will enter into an agreement with HPI whereby HPI will agree to terminate its option to sublicense certain rights to the WP1066 Portfolio and to enter into a co-development agreement with us. Waldemar Priebe and Don Picker are shareholders of HPI.

 

None of the foregoing transactions were conducted on an arm’s length basis. As such, it is possible that the terms were less favorable to us than in an arm’s length transaction.

 

Our ability to retain the development rights to the WP1066 Portfolio will require us to make up to $1.75 million in future payments to HPI, in addition to payments of shares of our common stock and cash made prior to the completion of this offering, pursuant to the development agreement we intend to enter into with HPI prior to this offering.

 

Our acquisition of Moleculin, LLC prior to this offering will provide us with the rights to the license agreement Moleculin, LLC has with MD Anderson covering the WP1066 Portfolio. However, Moleculin, LLC previously granted HPI an option to obtain an exclusive sub-license to develop the WP1066 Portfolio in all non-dermatological fields. Prior to this offering, we will enter into two agreements with HPI. The first agreement will terminate HPI’s option to obtain the aforementioned exclusive sublicense in exchange for a payment of $100,000 and the issuance of 629,000 shares of our common stock. The second agreement, the HPI Out-Licensing Agreement will be a technology rights and development license agreement that will provide HPI with a non-exclusive sublicense to develop the WP1066 Portfolio. Pursuant to this HPI Out-Licensing Agreement, we will agree to make payments to HPI of $750,000 over a three-year period commencing after this offering in exchange for HPI allowing us to access any data, information or know-how resulting from the research and development conducted by HPI. Notwithstanding our obligation to make the foregoing payments, the HPI Out-Licensing Agreement does not obligate HPI to conduct any specific research or to meet any milestones. Pursuant to the HPI Out-Licensing Agreement, we have the right within three years of the date we enter into the agreement to buy-out from HPI all rights granted to HPI under the agreement for a payment of $1.0 million. If we do not exercise the foregoing buy-out right within three years, the license granted to HPI shall convert into an exclusive license even as to our company. As such, if we do not exercise the buy-out right for any reason, we will no longer have access to the non-dermatology uses of the WP1066 Portfolio and all amounts paid to HPI prior to such date will have value only to the extent that the data, information and know-how may be applicable to dermatology applications of the WP1066 Portfolio. We do not expect to maintain a reserve of $1.0 million to make the buy-out payment and, as such, we will need to raise additional funds to make the buy-out payment. We cannot assure you that such additional funding will be available on satisfactory terms, or at all.

 

We have never been profitable, we have no products approved for commercial sale, and to date we have not generated any revenue from product sales. As a result, our ability to reduce our losses and reach profitability is unproven, and we may never achieve or sustain profitability.

 

We have never been profitable and do not expect to be profitable in the foreseeable future. We have not yet submitted any drug candidates for approval by regulatory authorities in the United States or elsewhere. From inception, July 28, 2015, to December 31, 2015, we incurred a net loss of $748,360 and Moleculin incurred a net loss of $365,811 for the year ended December 31, 2015. Moleculin incurred net a loss of $1,809,086 for the year ended December 31, 2014. We had an accumulated deficit of $748,360 and Moleculin had an accumulated deficit of $14,203,516 as of December 31, 2015.

 

To date, we have devoted most of our financial resources to our corporate overhead and research and development, including our drug discovery research, preclinical development activities and clinical trials. We have not generated any revenues from product sales. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for Annamycin, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our continuing product development efforts. We anticipate that any such losses could be significant for the next several years. If Annamycin or any of our other drug candidates fails in clinical trials or does not gain regulatory approval, or if our drug candidates do not achieve market acceptance, we may never become profitable. As a result of the foregoing, we expect to continue to experience net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders' equity and working capital.

 

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the FDA to perform studies or trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our drug candidates. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.

 

We have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on an annual basis, which may make it difficult to predict our future performance.

 

We are a preclinical and clinical-stage pharmaceutical company with a limited operating history. Our operations to date have been limited to acquiring our technology portfolio. We have not yet commenced any clinical trials or obtained any regulatory approvals for any of our drug candidates. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. Our operating results are expected to significantly fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include:

 

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· any delays in regulatory review and approval of our product candidates in clinical development, including our ability to receive approval from the FDA for Annamycin;

 

· delays in the commencement, enrollment and timing of clinical trials;

 

· difficulties in identifying patients suffering from our target indications;

 

· the success of our clinical trials through all phases of clinical development;

 

· potential side effects of our product candidate that could delay or prevent approval or cause an approved drug to be taken off the market;

 

· our ability to obtain additional funding to develop drug candidates;

 

· our ability to identify and develop additional drug candidates beyond Annamycin and our WP1066 and WP1122 Portfolios;

 

· competition from existing products or new products that continue to emerge;

 

· the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;

 

· our ability to adhere to clinical trial requirements directly or with third parties such as contract research organizations (CROs);

 

· our dependency on third-party manufacturers to manufacture our products and key ingredients;

 

· our ability to establish or maintain collaborations, licensing or other arrangements, particularly with MD Anderson;

 

· our ability to defend against any challenges to our intellectual property including, claims of patent infringement;

 

· our ability to enforce our intellectual property rights against potential competitors;

 

· our ability to secure additional intellectual property protection for our developing drug candidates and associated technologies;

 

· our ability to attract and retain key personnel to manage our business effectively; and

 

· potential product liability claims.

 

Accordingly, the results of any historical quarterly or annual periods should not be relied upon as indications of future operating performance.

 

We cannot be certain that Annamycin will receive regulatory approval, and without regulatory approval we will not be able to market Annamycin.

 

Our business currently depends largely on the successful development and commercialization of Annamycin. Our ability to generate revenue related to product sales, if ever, will depend on the successful development and regulatory approval of Annamycin for the treatment of relapsed or refractory acute myeloid leukemia, or AML.

 

We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States and regulatory authorities in other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States until we receive approval of a NDA from the FDA. We have not submitted any marketing applications for any of our product candidates.

 

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NDAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of a NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take years to complete and approval is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators in other jurisdictions have their own procedures for approval of product candidates. Even if a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must comply with prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or other products. Also, regulatory approval for any of our product candidates may be withdrawn.

 

If we are unable to obtain approval from the FDA, or other regulatory agencies, for Annamycin and our other product candidates, or if, subsequent to approval, we are unable to successfully commercialize Annamycin or our other product candidates, we will not be able to generate sufficient revenue to become profitable or to continue our operations.

 

Any statements in this prospectus indicating that Annamycin has demonstrated preliminary evidence of efficacy are our own and are not based on the FDA’s or any other comparable governmental agency’s assessment of Annamycin and do not indicate that Annamycin will achieve favorable efficacy results in any later stage trials or that the FDA or any comparable agency will ultimately determine that Annamycin is effective for purposes of granting marketing approval.

 

Delays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our ability to obtain regulatory approval for Annamycin and our other product candidates.

 

Delays in the commencement, enrollment and completion of clinical trials could increase our product development costs or limit the regulatory approval of our product candidates. We do not know whether any future trials or studies of our other product candidates will begin on time or will be completed on schedule, if at all. The start or end of a clinical study is often delayed or halted due to changing regulatory requirements, manufacturing challenges, including delays or shortages in available drug product, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability or prevalence of use of a comparative drug or required prior therapy, clinical outcomes or financial constraints. For instance, delays or difficulties in patient enrollment or difficulties in retaining trial participants can result in increased costs, longer development times or termination of a clinical trial. Clinical trials of a new product candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the product candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, including the size of the patient population, the eligibility criteria for the clinical trial, that include the age and condition of the patients and the stage and severity of disease, the nature of the protocol, the proximity of patients to clinical sites and the availability of effective treatments and/or availability of investigational treatment options for the relevant disease.

 

A product candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate for product candidates is high due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The results from preclinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in later phase clinical trials of the product candidate. We, the FDA or other applicable regulatory authorities may suspend clinical trials of a product candidate at any time for various reasons, including, but not limited to, a belief that subjects participating in such trials are being exposed to unacceptable health risks or adverse side effects, or other adverse initial experiences or findings. We may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:

 

· inability to obtain sufficient funds required for a clinical trial;

 

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· inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

· negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;

 

· serious and unexpected drug-related side effects experienced by subjects in our clinical trials or by individuals using drugs similar to our product candidates;

 

· conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

 

· delays in enrolling research subjects in clinical trials;

 

· high drop-out rates and high fail rates of research subjects;

 

· inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;

 

· greater than anticipated clinical trial costs;

 

· poor effectiveness of our product candidates during clinical trials; or

 

· unfavorable FDA or other regulatory agency inspection and review of a clinical trial site or vendor.

 

We have never conducted a clinical trial or submitted an NDA before, and any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

 

Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and our collaborators or we may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials.

 

In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts.

 

If Annamycin is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be harmed.

 

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we or any of our potential future collaborators may conduct will demonstrate the consistent or adequate efficacy and safety that would be required to obtain regulatory approval and market any products. If we are unable to bring Annamycin to market, or to acquire other products that are on the market or can be developed, our ability to create long-term stockholder value will be limited.

 

Our product candidates may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

 

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Unforeseen side effects from any of our product candidates could arise either during clinical development or, if Annamycin is approved, after the approved product has been marketed. For example, in the most recent Phase I/II dose-ranging clinical trial of Annamycin, two patients succumbed to tumor lysis syndrome (TLS) resulting from the debris created by Annamycin killing the targeted leukemic blasts more rapidly than anticipated. Now that this potential has been identified, prophylactic measures known to protect patients from TLS will be deployed in future clinical trials, but there can be no assurance that such measures will be effective or that other adverse events may not emerge related to our drug. Additional or unforeseen side effects from Annamycin or any of our other product candidates could arise either during clinical development or, if approved, after the approved product has been marketed.

 

The range and potential severity of possible side effects from therapies such as Annamycin are significant. A showing that Annamycin causes undesirable or unacceptable side effects could interrupt, delay or halt clinical trials and result in the failure to obtain or suspension or termination of marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities only with restrictive label warnings.

 

If any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products:

 

· regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

· we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

· we may be subject to limitations on how we may promote the product;

 

· sales of the product may decrease significantly;

 

· regulatory authorities may require us to take our approved product off the market;

 

· we may be subject to litigation or product liability claims; and

 

· our reputation may suffer.

 

Any of these events could prevent us or our potential future collaborators from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.

 

If the FDA does not find the manufacturing facilities of our future contract manufacturers acceptable for commercial production, we may not be able to commercialize any of our product candidates.

 

We do not intend to manufacture the pharmaceutical products that we plan to sell. We are currently utilizing contract manufacturers for the production of the active pharmaceutical ingredients and the formulation of drug product for our trials of Annamycin that we will need to conduct prior to seeking regulatory approval. However, we do not have agreements for supplies of Annamycin or any of our other product candidates and we may not be able to reach agreements with these or other contract manufacturers for sufficient supplies to commercialize Annamycin if it is approved. Additionally, the facilities used by any contract manufacturer to manufacture Annamycin or any of our other product candidates must be the subject of a satisfactory inspection before the FDA approves the product candidate manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture material that conform to our specifications and the FDA’s current good manufacturing practice standards, or cGMP, and other requirements of any governmental agency whose jurisdiction to which we are subject, our product candidates will not be approved or, if already approved, may be subject to recalls. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product candidates, including:

 

· the possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our product candidates;

 

· the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and

 

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· the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-party manufacturer.

 

Any of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur higher costs or prevent us from commercializing our product candidates successfully. Furthermore, if any of our product candidates are approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for our product candidates and to have any such new source approved by the government agencies that regulate our products.

 

We have no sales, marketing or distribution experience and we will have to invest significant resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.

 

We have no sales, marketing or distribution experience. To develop sales, distribution and marketing capabilities, we will have to invest significant amounts of financial and management resources, some of which will need to be committed prior to any confirmation that Annamycin or any of our other product candidates will be approved by the FDA. For product candidates where we decide to perform sales, marketing and distribution functions ourselves or through third parties, we could face a number of additional risks, including that we or our third-party sales collaborators may not be able to build and maintain an effective marketing or sales force. If we use third parties to market and sell our products, we may have limited or no control over their sales, marketing and distribution activities on which our future revenues may depend.

 

We may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results.

 

Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more experience. Additionally, if any of our product candidates receives marketing approval, we may enter into sales and marketing arrangements with third parties with respect to our unlicensed territories. If we are unable to enter into arrangements on acceptable terms, if at all, we may be unable to effectively market and sell our products in our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements for the development of our product candidates.

 

When we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. For example, have formed a collaboration with a Polish drug development company called Dermin, where we have provided them with sub-license rights to our technologies for use in limited territories in exchange for their use of Polish government grant funding to pay for development costs we would otherwise have to fund ourselves. With the exception of Annamycin, Dermin’s territories are primarily Poland and lesser surrounding countries, but not including any of the major European markets (UK, Germany, France, Spain and Italy). In the case of Annamycin, Dermin’s territories also include Germany, but we retain the right to repurchase that territory for $500,000 at any time in the future.

 

One or more of our collaboration partners may not devote sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may contain provisions that are not favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical and initial clinical development of a product candidate or research program under a collaboration arrangement, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators for our product candidates, we would face increased costs, we may be forced to limit the number of our product candidates we can commercially develop or the territories in which we commercialize them. As a result, we might fail to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successful collaborations, our operating results and financial condition could be materially and adversely affected.

 

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  Our success depends greatly on the success of Annamycin’s development for the treatment of relapsed or refractory AML, and our pipeline of product candidates beyond this lead indication is extremely early stage and limited.

 

Other than Annamycin, our other two drug candidates, our WP1066 Portfolio and our WP1122 Portfolio, are each in the early stages of development. As such, we are dependent on the success of Annamycin in the near term. We cannot provide you any assurance that we will be able to successfully advance any of these indications through the development process.

 

We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

 

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of our competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing drugs for the diseases that we are targeting before we do or may develop drugs that are deemed to be more effective or gain greater market acceptance than ours. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become active in our target disease areas. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than any of our product candidates that we are currently developing or that we may develop, which could render our products obsolete or noncompetitive.

 

A number of attempts have been made or are under way to provide an improved treatment for AML. Drugs attempting to target a subset of AML patients who present with particular anomalies involving a gene referred to as FLT3 are currently in clinical trials. Other approaches to improve the effectiveness of induction therapy are in early stage clinical trials and, although they do not appear to address the underlying problems with anthracyclines, we can provide no assurance that such improvements, if achieved, would not adversely impact the need for improved anthracyclines. A modified version of doxorubicin designed to reduce cardiotoxicity is in clinical trials for the treatment of sarcoma and, although this drug does not appear to address multidrug resistance and is not currently intended for the treatment of acute leukemia, we can provide no assurance that it will not become a competitive alternative to Annamycin. Although we are not aware of any other single agent therapies in clinical trials that would directly compete against Annamycin in the treatment of relapsed and refractory AML, we can provide no assurance that such therapies are not in development, will not receive regulatory approval and will reach market before our drug candidate Annamycin. In addition, any such competing therapy may be more effective and / or cost-effective than ours.

 

If our competitors market products that are more effective, safer or less expensive or that reach the market sooner than our future products, if any, we may not achieve commercial success. In addition, because of our limited resources, it may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

 

Annamycin does not have any patent protections, including composition of matter patent protection.

 

We intend to pursue patents with claims directed to Annamycin drug product formulations and the methods of use of Annamycin to treat relapsed or refractory AML and other conditions, and methods for its synthesis, as the composition of matter patent protection for Annamycin has expired. As a result, competitors may be able to offer and sell products so long as these competitors do not infringe any other patents that third parties or we hold, including formulation, synthesis and method of use patents. However, method of use patents, in particular, are more difficult to enforce than composition of matter patents because of the risk of off-label sale or use of the subject compounds. Physicians are permitted to prescribe an approved product for uses that are not described in the product's labeling. Although off-label prescriptions may infringe our method of use patents, the practice is common across medical specialties and such infringement is difficult to prevent or prosecute. Off-label sales would limit our ability to generate revenue from the sale of Annamycin, if approved for commercial sale.

 

The intellectual property rights we have licensed from MD Anderson are subject to the rights of the U.S. government.

 

We have obtained a royalty-bearing, worldwide, exclusive license to intellectual property rights, including patent rights related to our WP1066 Portfolio and WP1122 Portfolio drug product candidates from MD Anderson. Some of our licensed intellectual property rights from MD Anderson have been developed in the course of research funded by the U.S. government. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future products pursuant to the Bayh-Dole Act of 1980. Government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us, or an assignee or exclusive licensee to such inventions, to grant licenses to any of these inventions to a third party if they determine that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; (iii) government action is necessary to meet requirements for public use under federal regulations; or (iv) the right to use or sell such inventions is exclusively licensed to an entity within the U.S. and substantially manufactured outside the U.S. without the U.S. government’s prior approval. Additionally, we may be restricted from granting exclusive licenses for the right to use or sell our inventions created pursuant to such agreements unless the licensee agrees to additional restrictions (e.g., manufacturing substantially all of the invention in the U.S.). The U.S. government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the U.S. government may acquire title in any country in which a patent application is not filed within specified time limits. Additionally, certain inventions are subject to transfer restrictions during the term of these agreements and for a period thereafter, including sales of products or components, transfers to foreign subsidiaries for the purpose of the relevant agreements, and transfers to certain foreign third parties. If any of our intellectual property becomes subject to any of the rights or remedies available to the U.S. government or third parties pursuant to the Bayh-Dole Act of 1980, this could impair the value of our intellectual property and could adversely affect our business.

 

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  We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

 

We may from time to time seek to enforce our intellectual property rights against infringers when we determine that a successful outcome is probable and may lead to an increase in the value of the intellectual property. If we choose to enforce our patent rights against a party, then that individual or company has the right to ask the court to rule that such patents are invalid or should not be enforced. Additionally, the validity of our patents and the patents we have licensed may be challenged if a petition for post grant proceedings such as inter-partes review and post grant review is filed within the statutorily applicable time with the U.S. Patent and Trademark Office (USPTO). These lawsuits and proceedings are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court will decide that such patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the ground that such other party's activities do not infringe our intellectual property rights. In addition, in recent years the U.S. Supreme Court modified some tests used by the USPTO in granting patents over the past 20 years, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of a challenge of any patents we obtain or license.

 

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.

 

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

 

We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.

 

As of March 15, 2016, we had one full-time and two part-time employees. As we advance our product candidates through preclinical studies and clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we may need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.

 

We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.

 

We may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.

 

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We are highly dependent on the development, regulatory, commercialization and business development expertise of our management team, key employees and consultants. We currently do not have any employment agreements with any of our management team or key employees. If we lose one or more of our executive officers or key employees or consultants, our ability to implement our business strategy successfully could be seriously harmed. Any of our executive officers or key employees or consultants may terminate their employment at any time. Replacing executive officers, key employees and consultants may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully. Competition to hire and retain employees and consultants from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel and consultants. Our failure to retain key personnel or consultants could materially harm our business.

 

In addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

 

Our acting chief executive officer and our chief operating officer are currently working for us on a part-time basis.

 

Two of our key employees are currently part-time and provide services for other biotechnology development efforts. Specifically, Walter Klemp, our chairman and acting chief executive officer is also the chief executive officer of Soliton, Inc., a medical device development company whose business operations we do not believe conflict with those of our company, and Donald Picker, our president and chief operating officer, is currently also serving as chief operating officer of two other biotechnology companies, whose business operations we do not believe conflict with those of our company. Both Messrs. Klemp and Picker currently provide services as needed by us, which we estimate does not exceed 10 hours per week. Upon closing of this offering, Mr. Picker will become a full time officer of our company and Mr. Klemp will continue to provide part time services to us as needed. As we progress, we will need to identify a suitable CEO who can dedicate substantially full time to our company. We can provide no assurance that we will be able to successfully identify and retain a qualified candidate for this position.

 

Upon the closing of this offering, we do not expect that our insurance policies will cover all of our business exposures thus leaving us exposed to significant uninsured liabilities.

 

We do not carry insurance for all categories of risk that our business may encounter. In particular, we do not carry product liability insurance covering any clinical trials liability that we may incur. Although we intend to obtain such insurance before we commence any clinical trials, there can be no assurance that we will secure adequate insurance coverage or that any such insurance coverage will be sufficient to protect our operations to significant potential liability in the future. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations.

 

Risks Relating to this Offering of Our Common Stock

 

There has been no public market for our common stock and an active market may not develop or be sustained, which could limit your ability to sell shares of our common stock.

 

There currently is no public market for our common stock, and our common stock will not be traded in the open market prior to this offering. Although we intend to list the common stock on the Nasdaq Capital Market in connection with this offering, an adequate trading market for the common stock may not develop or be sustained after this offering. The initial public offering price will be determined by negotiations between the underwriters and our board of directors and may not be representative of the market price at which our shares of common stock will trade after this offering. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price.

 

The best efforts structure of this offering may yield insufficient gross proceeds to fully execute on our business plan.

 

The underwriters are offering shares of our common stock in this offering on a best efforts basis. The underwriters are not required to sell any specific number or dollar amount of common stock, but will use their best efforts to sell the shares offered by us. It is a condition to this offering that, upon the closing of the offering, our common stock would qualify for listing on the Nasdaq Capital Market. In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $4.0 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock. As a “best efforts” offering, there can be no assurance that we will successfully raise this minimum amount, that the offering will satisfy the listing conditions required to trade our common stock on the Nasdaq Capital Market or that the offering contemplated by this prospectus will ultimately be completed or will result in any proceeds being made available to us.

 

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The success of this offering will impact, in large part, our ability to cover expenses and finance operations over the next 13 to 19 months. If no shares are sold in this offering, or if we sell only the minimum number of shares yielding insufficient gross proceeds, we may be unable to cover our expenses, sufficiently fund operations or fully execute on our business plan. This could potentially result in a material adverse effect on our business, prospects, financial condition and results of operations.

 

If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our common stock, then our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price could be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, our stock price could decline.

 

Purchasers in this offering will experience immediate and substantial dilution in net tangible book value.

 

The initial public offering price is substantially higher than the net tangible book value of each outstanding share of our common stock. Purchasers of common stock in this offering will experience immediate and substantial dilution on a book value basis. The dilution per share in the net tangible book value per share of common stock will be $5.10 per share if the minimum number of shares are sold and $4.90 per share if the maximum number of shares are sold, based on an estimated $5.50 initial public offering price, which is the midpoint of the offering price range, and assuming, for purposes of the dilution calculations contained in this prospectus and the conversion of all of our outstanding 8% unsecured promissory notes into an aggregate of 3,749,557 shares of our common stock contemporaneously with the closing of this offering (exclusive of shares issuable for accrued interest under such notes). No holder of these notes will be permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock after such conversion. The number of shares set forth above assumes no such limitation on the conversion of the notes. If stock options and warrants to purchase shares of common stock are exercised, there would be further dilution. See “Dilution.”

 

Your ownership may be diluted if additional capital stock is issued to raise capital, to finance acquisitions or in connection with strategic transactions.

 

We intend to seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing equity or convertible debt securities in addition to the shares issued in this offering, which would reduce the percentage ownership of our existing stockholders. Our board of directors has the authority, without action or vote of the stockholders, to issue all or any part of our authorized but unissued shares of common or preferred stock. Prior to the effective date of the registration statement of which this prospectus is a part, our certificate of incorporation will be amended to authorize us to issue up to 75,000,000 shares of common stock and 5,000,000 shares of preferred stock. Future issuances of common or preferred stock would reduce your influence over matters on which stockholders vote and would be dilutive to earnings per share. In addition, any newly issued preferred stock could have rights, preferences and privileges senior to those of the common stock. Those rights, preferences and privileges could include, among other things, the establishment of dividends that must be paid prior to declaring or paying dividends or other distributions to holders of our common stock or providing for preferential liquidation rights. These rights, preferences and privileges could negatively affect the rights of holders of our common stock, and the right to convert such preferred stock into shares of our common stock at a rate or price that would have a dilutive effect on the outstanding shares of our common stock.

 

The concentration of our common stock ownership by our current management will limit your ability to influence corporate matters.

 

Upon completion of this offering, and assuming the conversion of all our outstanding 8% unsecured promissory notes contemporaneously with the closing of this offering, our directors and executive officers will beneficially own and will be able to vote in the aggregate approximately [*]% of our outstanding common stock if the minimum number of shares are sold and approximately [*]% of our outstanding common stock if the maximum number of shares offered are sold. As such, our directors and executive officers, as stockholders, will continue to have the ability to exert significant influence over all corporate activities, including the election or removal of directors and the outcome of tender offers, mergers, proxy contests or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then-prevailing market price for their shares of common stock. This concentrated control will limit your ability to influence corporate matters and, as a result, we may take actions that purchasers in this offering do not view as beneficial. In addition, such concentrated control could discourage others from initiating changes of control. In such cases, the perception of our prospects in the market may be adversely affected and the market price of our common stock may decline.

 

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Certain provisions in our organizational documents could enable our board of directors to prevent or delay a change of control.

 

Our organizational documents contain provisions that may have the effect of discouraging, delaying or preventing a change of control of, or unsolicited acquisition proposals, that a stockholder might consider favorable. These include provisions:

 

prohibiting the stockholders from acting by written by consent;

 

requiring advance notice of director nominations and of business to be brought before a meeting of stockholders;

 

requiring a majority vote of the outstanding shares of common stock to amend the bylaws; and

 

limiting the persons who may call special stockholders’ meetings.

 

Furthermore, our board of directors has the authority to issue shares of preferred stock in one or more series and to fix the rights and preferences of these shares without stockholder approval. Any series of preferred stock is likely to be senior to our common stock with respect to dividends, liquidation rights and, possibly, voting rights. The ability of our board of directors to issue preferred stock also could have the effect of discouraging unsolicited acquisition proposals, thus adversely affecting the market price of our common stock.

 

In addition, Delaware law makes it difficult for stockholders that recently have acquired a large interest in a corporation to cause the merger or acquisition of the corporation against the directors’ wishes. Under Section 203 of the Delaware General Corporation Law, a Delaware corporation may not engage in any merger or other business combination with an interested stockholder for a period of three years following the date that the stockholder became an interested stockholder except in limited circumstances, including by approval of the corporation’s board of directors.

 

We have no intention of declaring dividends in the foreseeable future.

 

The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend income on their investment, and investors will be dependent on the appreciation of our common stock to earn a return on their investment.

 

We will incur increased costs as a result of being a publicly-traded company.

 

As a company with publicly-traded securities, we will incur additional legal, accounting and other expenses not presently incurred. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules promulgated by the SEC and the national securities exchange on which we list, requires us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations will increase our legal and financial compliance costs.

 

We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.

 

Pursuant to Sarbanes-Oxley Act of 2002, our management will be required to report on, and our independent registered public accounting firm may in the future be required to attest to, the effectiveness of our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States of America, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

 

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Failure to continue improving our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

 

As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002, and the related rules and regulations of the SEC. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

 

We have implemented a system of internal controls over financial reporting and are preparing the documentation necessary to perform the evaluation needed to comply with Section 404(a) of the Sarbanes-Oxley Act. However, we may need to retain additional finance capabilities and build our financial infrastructure as a public company. Section 404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we have and intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We may continue to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

 

The protection provided by the federal securities laws relating to forward-looking statements does not apply to us. The lack of this protection could harm us in the event of an adverse outcome in a legal proceeding relating to forward-looking statements made by us.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to certain issuers, including issuers that do not have their equity traded on a recognized national securities exchange. Our common stock does not trade on any recognized national securities exchange. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. The lack of this protection in a contested proceeding could harm our financial condition.

 

As an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

 

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:

 

the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;

 

the last day of the fiscal year following the fifth anniversary of this offering;

 

the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or

 

the date on which we are deemed a “large accelerated issuer” as defined under the federal securities laws.

 

For so long as we remain an emerging growth company, we will not be required to:

 

have an auditor report on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis);

 

submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;

 

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include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934, as amended, and instead may provide a reduced level of disclosure concerning executive compensation;

 

may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A; and

 

are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.

 

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

 

Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.

 

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Further, under current SEC rules, we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second fiscal quarter.

 

We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find our common stock less attractive as a result of our election, we may have difficulty raising all of the proceeds we seek in this offering.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

We make forward-looking statements under the “Summary,” “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this prospectus. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “should,” “would,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described under “Risk Factors.”

 

While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this prospectus describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations, and we do not intend to do so.

 

24  

 

 

Forward-looking statements include, but are not limited to, statements about:

 

· our ability to obtain additional funding to develop our product candidates;

 

· the need to obtain regulatory approval of our product candidates;

 

· the success of our clinical trials through all phases of clinical development;

 

· compliance with obligations under intellectual property licenses with third parties;

 

· any delays in regulatory review and approval of product candidates in clinical development;

 

· our ability to commercialize our product candidates;

 

· market acceptance of our product candidates;

 

· competition from existing products or new products that may emerge;

 

· potential product liability claims;

 

· our dependency on third-party manufacturers to supply or manufacture our products;

 

· our ability to establish or maintain collaborations, licensing or other arrangements;

 

· our ability and third parties’ abilities to protect intellectual property rights;

 

· our ability to adequately support future growth; and

 

· our ability to attract and retain key personnel to manage our business effectively.

 

We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus in the case of forward-looking statements contained in this prospectus.

 

USE OF PROCEEDS

 

Based on an estimated initial public offering price of $5.50 per share, which is the midpoint of the offering price range, we estimate that the net proceeds from this offering, after deducting underwriting commissions and expenses payable by us and other offering expenses payable by us, will be approximately $6.7 million if we sell a minimum of 1,400,000 shares and approximately $9.7 million if we sell all 2,000,000 shares of our common stock in this offering. However, this is a best efforts offering and there is no assurance that we will sell any shares or receive any proceeds.

 

We intend to use the proceeds from this offering as follows:

 

    Assuming Minimum Offering     Assuming Maximum Offering  
Costs to prepare for filings with FDA in advance of our Annamycin clinical trial   $ 380,000 (6%)   $ 380,000 (4%)
Commence a Phase II clinical trial for Annamycin (including manufacturing of product candidate for use) (1)   $ 2,730,000 (41%)   $ 3,600,000 (37%)
License maintenance and IP prosecution costs   $ 800,000 (12%)   $ 1,100,000 (11%)
Research   $ 100,000 (1%)   $ 150,000 (2%)
Working capital (2)   $ 2,700,000 (40%)   $ 4,550,000 (47%)

 

(1)           If we complete the maximum offering, we estimate that we will have sufficient funds to complete the majority of the Phase II clinical trials for Annamycin. If we complete the minimum offering, we estimate that we will require additional financing of at least $1.1 million to complete the trial plus such additional working capital to fund our operations during the pendency of the trial. The timing and costs of clinical trials are difficult to predict and as such the foregoing estimates may prove to be inaccurate.

 

(2)           Includes approximately $1.1 million representing outstanding license fees and past due obligations to MD Anderson and other deferred obligations to certain vendors.

 

We believe the net proceeds of this offering, together with our and Moleculin’s cash and cash equivalents, including the remaining proceeds from our recent private placement of our 8% unsecured promissory notes, will be sufficient to meet our cash, operational and liquidity requirements for at least 12 months if we sell a minimum of 1,400,000 shares and for at least 16 months if we sell all 2,000,000 shares of our common stock in this offering.

 

As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. Accordingly, our management will have broad discretion in the application of these proceeds. Net offering proceeds not immediately applied to the uses summarized above will be invested in short-term investments such as money market funds, commercial paper, U.S. treasury bills and similar securities investments pending their use.

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments, provisions of applicable law and other factors the board deems relevant.

  

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2015 on:

 

· an actual basis; and

· a pro forma as adjusted basis after giving effect to: (1) (a) the sale of a minimum of 1,400,000 shares of our common stock in this offering at an estimated initial public offering price of $5.50 per share, which is the midpoint of the offering price range, and our receipt of the estimated $6.7 million in net proceeds from this offering, after deducting underwriting commissions and estimated offering expenses payable by us, and (b) the sale of all 2,000,000 shares of our common stock in this offering at an estimated initial public offering price of $5.50 per share, which is the midpoint of the offering price range, and our receipt of the estimated $9.7 million in net proceeds from this offering, after deducting underwriting commissions and estimated offering expenses payable by us; (2) the conversion of all of our outstanding 8% unsecured promissory notes in principal amount of $615,000 into 3,749,557 shares of our common stock contemporaneously with the closing of this offering (exclusive of shares issuable for accrued interest under such notes); (3) our planned acquisition of Moleculin; and (4) the issuance of 629,000 shares of common stock in connection with our agreement with HPI.

 

You should read this capitalization table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

 

    At December 31, 2015  
    Actual    

Pro Forma –

As adjusted

Minimum

   

Pro Forma –

As adjusted

Maximum

 
Cash and cash equivalents   $ 28,091     $ 6,830,184     $ 9,899,184  
                         
Notes payable   $ 450,000     $ 414,165     $ 414,165  
Stockholders’ equity (deficit):                        
Preferred stock, $0.001 par value: 5,000,000 shares authorized, no shares issued and outstanding     -       -       -  
Common stock, $0.001 par value: 75,000,000 shares authorized; 6,661,000 shares issued and outstanding, actual; 13,439,557 and 14,039,557 shares issued and outstanding, pro forma as adjusted – minimum and pro forma as adjusted – maximum, respectively (1)     6,661       13,440       14,040  
Additional paid-in capital     -       16,228,721       19,297,121  
Subscription receivable     (3,000 )     (3,000 )     (3,000 )
Accumulated deficit     (748,360 )     (4,207,860 )     (4,207,860 )
Total stockholders’ equity (deficit)     (744,699 )     12,031,301       15,100,301  
Total capitalization   $ 294,699     $ 12,445,466     $ 15,514,466  

 

(1) The number of shares of common stock to be outstanding after this offering includes (i) 1,000,000 shares of common stock to be issued to the members of Moleculin, LLC, (ii) the issuance of 629,000 shares of common stock in connection with our agreement HPI; and (iii) the issuance of 3,749,557 shares of common stock upon the conversion of $615,000 in principal amount of our outstanding bridge notes.

 

26  

 

 

The number of shares does not give effect to:

 

· 2,500,000 shares of common stock available for issuance under the Moleculin Biotech, Inc. 2015 Stock Plan; and

 

· between 98,000 shares (assuming the minimum offering is completed) and 140,000 shares (assuming the maximum offering is completed) of common stock issuable upon the exercise of the warrants issued to the representatives of the underwriters.

 

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DILUTION

 

Purchasers of our common stock in this offering will experience an immediate dilution of net tangible book value per share from the initial public offering price. Dilution in net tangible book value per share represents the difference between the amount per share paid by the purchasers of shares of common stock and the net tangible book value per share immediately after this offering.

 

As of December 31, 2015, our pro forma combined net tangible book value before the offering was $(1,273,830), or $(0.11) per share of common stock. Net tangible book value per share represents our total tangible assets, less our total liabilities, divided by the number of outstanding shares of our common stock.

 

Dilution represents the difference between the amount per share paid by purchasers in this offering and the pro forma net tangible book value per share of common stock after the offering. After giving effect to the sale of 1,400,000 shares of common stock (minimum) and 2,000,000 shares of common stock (maximum) in this offering at an estimated offering price of $5.50 per share, which is the midpoint of the offering price range, and after deducting underwriting commissions and estimated offering expenses payable by us, our pro forma net tangible book value would have been $0.40 (minimum) and $0.60 (maximum) per share. This represents an immediate increase in pro forma net tangible book value of $0.51 (minimum) and $0.71 (maximum) per share to our existing stockholders and immediate dilution of $5.10 (minimum) and $4.90 (maximum) per share to new investors purchasing shares at the proposed public offering price. The following table illustrates the dilution in pro forma net tangible book value per share to new investors as of December 31, 2015:

 

    Minimum     Maximum  
Assumed initial public offering price per share   $ 5.50     $ 5.50  
Net tangible book value per share at December 31, 2015*     (0.11 )     (0.11 )
Increase in net tangible book value per share to the existing stockholders attributable to this offering     0.51       0.71  
Adjusted net tangible book value per share after this offering     0.40       0.60  
Dilution in net tangible book value per share to new investors     5.10       4.90  

 

*Including adjustments for the acquisition of Moleculin, the conversion of our 8% convertible notes, and the issuance of 629,000 shares to HPI.

 

The following tables set forth, as of March 17, 2016, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by the existing holders of our common stock and the price to be paid by new investors at an estimated public offering price of $5.50 per share, which is the midpoint of the offering price range.

 

Minimum Offering

 

    Shares Purchased     Total Consideration     Average Price
Per Share
 
    Number     Percent     Amount     Percent      
Existing investors before this offering     6,784,833       82.9     $ 378,160       4.7     $ 0.06  
Investors purchasing shares in this offering     1,400,000     17.1     $ 7,700,000     95.3     $ 5.50  
                                         
Total     8,184,833     100     $ 8,078,160       100          

 

Maximum Offering

 

    Shares Purchased     Total Consideration     Average Price
Per Share
 
    Number     Percent     Amount     Percent      
Existing investors before this offering     6,784,833       77.2     $ 378,160       3.3     $ 0.06  
Investors purchasing shares in this offering     2,000,000     22.8     $ 11,000,000     96.7     $ 5.50  
                                         
Total     8,784,833     100       11,378,160       100          

 

28  

 

 

The number of shares of common stock set forth in the tables above under “Existing investors before this offering” includes (i) 1,000,000 shares of common stock to be issued to the members of Moleculin, LLC, (ii) the issuance of 629,000 shares of common stock in connection with our agreement HPI; and (iii) the issuance of 3,749,557 shares of common stock upon the conversion of $615,000 in principal amount of our outstanding bridge notes.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma combined financial information is based on the historical financial statements of Moleculin Biotech, Inc. after giving effect to our planned acquisition of Moleculin, LLC (“Moleculin”), our initial public offering and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial information.

 

The unaudited pro forma combined statement of operations for the year ended December 31, 2015 is presented as if our acquisition of Moleculin occurred on January 1, 2015 and were carried forward through to December 31, 2015. The unaudited pro forma combined balance sheet as of December 31, 2015 is presented as if the acquisition of Moleculin had occurred on December 31, 2015.

 

These pro forma combined financial statements include adjustments for our planned acquisition because we believe the acquisition is probable under the standards of Rule 3-05 of Regulations S-X. We have based the pro forma adjustments upon available information and certain assumptions that we believe are reasonable under the circumstances. We describe in greater detail the assumptions underlying the pro forma combined financial statements in the notes to the unaudited pro forma combined financial statements. In many cases, we based these assumptions on preliminary information and estimates. The actual adjustments to our pro forma combined financial statements will depend upon a number of factors and additional information that will be available on or after the closing date of this offering. Accordingly, the actual adjustments that will appear in our financial statements will differ from these pro forma adjustments, and those differences may be material.

 

We account for our proposed acquisitions of Moleculin using the acquisition method of accounting for business combinations under accounting principles generally accepted in the United States of America, with MBI being considered the acquiring entity. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, net of liabilities, based on their estimated fair values as of the acquisition date. We have not completed the acquisition of Moleculin, and therefore, the estimated purchase price and fair value of Moleculin’s assets to be acquired and liabilities assumed is preliminary. Once we complete our final valuation process for our planned acquisitions, we may report changes to the value of the assets acquired and liabilities assumed, as well as the amount of goodwill, and those changes could differ materially from what we present here.

 

The unaudited pro forma combined financial information is not intended to represent or be indicative of our consolidated results of operations or financial position that we would have reported had the Moleculin acquisition been completed as of the date presented, and should not be taken as a representation of our future consolidated results of operations or financial position. The unaudited pro forma combined financial information does not reflect any operating efficiencies and/or cost savings that we may achieve with respect to combining the companies.

 

The following unaudited financial information should be read with the accompanying notes, the financial statements of Moleculin and the notes thereto included elsewhere in this prospectus and the financial statements of MBI and the notes thereto included elsewhere in this prospectus.

 

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Moleculin Biotech, Inc.

Unaudited Pro Forma Combined Statement of Operations

For the year ended December 31, 2015

 

    Moleculin     MBI     Pro Forma
Adjustments
    Pro Forma
Combined
 
                         
Revenue   $ -     $ -     $ -     $ -  
                                 
Operating expenses:                                
Research and development     125,442       260,418       -       385,860  
General and administrative     328,570       477,810       -       806,380  
Depreciation and amortization     11,336       -       -  (a)     11,336  
Total operating expenses     465,348       738,228       -       1,203,576  
                                 
Net loss from operations     (465,348 )     (738,228 )     -       (1,203,576 )
                                 
Other income (expense):                                
Other income     549,180       -       -       549,180  
Interest expense     (449,643 )     (10,132 )     434,051  (b)     (25,724 )
Total other income (expense)     99,537       (10,132 )     434,051       523,456  
                                 
Net loss   $ (365,811 )   $ (748,360 )   $ 434,051  (c)   $ (680,120 )
                                 
Loss per common share - basic and diluted           $ (0.13 )           $ (0.06 )
Weighted average number of common shares outstanding - basic and diluted             5,691,803       5,378,557 (f)(g)(h)(j)(k)     11,070,360  

 

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Moleculin Biotech, Inc.

Unaudited Pro Forma Combined Balance Sheet

As of December 31, 2015

 

    Moleculin     MBI     Pro Forma
Adjustments
    Pro Forma
Combined
    Adjustments
for IPO
    Pro Forma
Combined As
Adjusted
 
                                     
ASSETS                                                
                                                 
Current Assets:                                                
Cash and cash equivalents   $ 31,867     $ 28,091     $ -     $ 59,958     $ 109,226 (g)   $ 6,830,184  
                                      6,661,000 (j)        
Prepaid expenses and other current assets     2,354       -       -       2,354       -       2,354  
Total Current Assets     34,221       28,091       -       62,312       6,770,226       6,832,538  
                                                 
Property and equipment, net of accumulated depreciation     11,259       -       -       11,259       -       11,259  
Intangibles     -       -       - (d)     -       -       -  
Goodwill     -       -       6,644,131 (e)     6,644,131       -       6,644,131  
                                                 
Total Assets   $ 45,480     $ 28,091     $ 6,644,131     $ 6,717,702     $ 6,770,226     $ 13,487,928  
                                                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                
                                                 
Current Liabilities:                                                
Accounts payable and accrued liabilities   $ 838,072     $ 322,790     $ (118,400 )(f)   $ 1,042,462     $ -     $ 1,042,462  
Accounts payable and accrued liabilities- related party     66,871       -       (66,871 )(f)     -       -       -  
Notes payable     469,939       -       -       469,939       (55,774 )(g)     414,165  
Convertible notes payable     1,020,064       450,000       (1,020,064 )(f)     450,000       (450,000 )(i)     -  
Convertible notes payable- related parties     483,864       -       (483,864 )(f)     -       -       -  
Total Liabilities     2,878,810       772,790       (1,689,199 )     1,962,401       (505,774 )     1,456,627  
                                                 
Stockholders’ Equity (Deficit):                                                
Preferred units     10,620,186       -       (10,620,186 )(h)     -       -       -  
Common units     750,000       -       (750,000 )(h)     -       -       -  
Common stock     -       6,661       294 (f)     7,661       825 (g)     13,440  
                      706 (h)             2,925 (i)        
                                      1,400 (j)        
                                      629 (k)        
Additional paid-in capital     -       -       1,616,706 (f)     5,499,000       164,175 (g)     16,228,721  
                      3,882,294 (h)             447,075 (i)        
                                      6,659,600 (j)        
                                      3,458,871 (k)        
Subscription receivable     -       (3,000 )     -       (3,000 )     -       (3,000 )
Accumulated deficit     (14,203,516 )     (748,360 )     14,206,516 (h)     (748,360 )     (3,459,500 )(k)     (4,207,860 )
Total Stockholders’ Equity (Deficit)     (2,833,330 )     (744,699 )     8,333,330       4,755,301       7,276,000       12,031,301  
                                                 
Total Liabilities and Stockholders’ Equity (Deficit)   $ 45,480     $ 28,091     $ 6,644,131     $ 6,717,702     $ 6,770,226     $ 13,487,928  

 

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Moleculin Biotech, Inc.

Notes to Unaudited Pro Forma Combined Financial Information

 

Note 1 – Basis of presentation

 

The unaudited pro forma combined balance sheet as of December 31, 2015, and the unaudited pro forma combined statement of operations for the year ended December 31, 2015 are based on the historical financial statements of Moleculin Biotech, Inc. and Moleculin, LLC after giving effect to our planned acquisition of Moleculin and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial information. The actual acquisition of Moleculin is to occur just prior to the date of effectiveness of the registration statement of which this prospectus forms a part.

 

We account for business combinations pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 805, Business Combinations . In accordance with ASC 805, MBI uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.

 

The fair values assigned to Moleculin’s tangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of these assets acquired and liabilities assumed are considered preliminary and are based on the information and the account balances that were available as of December 31, 2015. We believe that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. We expect to finalize the valuation of the net tangible and intangible assets as soon as practicable, but not later than one year from the acquisition date.

 

The unaudited pro forma combined financial information is not intended to represent or be indicative of our results of operations or financial position that would have been reported had the acquisition been completed as of the date presented, and should not be taken as a representation of our future consolidated results of operations or financial position. The unaudited pro forma combined financial information does not reflect any operating efficiencies and/or cost savings that we may achieve with respect to the combined companies.

 

For purposes of these unaudited combined pro forma statements of operations, the acquisition of Moleculin and the conversion of outstanding Moleculin convertible debt and equity units outstanding are assumed to have occurred on January 1, 2015. The pro forma statement of operations for the year ended December 31, 2015 combined the results of Moleculin for the year ended December 31, 2015 and our results for the period from inception (July 28, 2015) through December 31, 2015.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2015 is presented as if the Moleculin acquisition had occurred on December 31, 2015.

 

Note 2 - Preliminary purchase price allocation

 

The Company plans to acquire Moleculin immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part. Moleculin is the holder of the license agreement with MD Anderson covering the WP1066 Portfolio. Upon the acquisition, the Company will issue the following common shares to Moleculin’s security holders:

 

    Shares     Consideration paid  
To convertible note holders (1)     294,000     $ 1,617,000  
To Moleculin Preferred Unit holders     636,000       3,498,000  
To Moleculin Common Unit holders     70,000       385,000  
Total     1,000,000     $ 5,500,000  

 

(1) On an “as converted” basis. Holders of Moleculin’s convertible debt will convert their debt into Moleculin units prior to MBI’s acquisition of Moleculin.

 

The consideration paid was calculated based on an estimated offering price of $5.50 per share.

 

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The following table shows the preliminary allocation of the purchase price for Moleculin to the identifiable assets, liabilities assumed and pro forma goodwill:

 

    Amount  
Purchase price   $ 5,500,000  
         
Cash and cash equivalents     31,867  
Prepaid insurance expense     2,354  
Property and equipment     11,259  
Intangibles     [         ]  
Total identifiable assets     45,480  
         
Accounts payable and accrued liabilities     719,672  
Note payable     469,939  
Total liabilities assumed     1,189,611  
         
Net liabilities assumed     1,189,611  
         
Total pro forma goodwill   $ 6,644,131  

 

The unaudited pro forma combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Moleculin based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.

 

We plan to engage a third-party valuation specialist to assist us in valuing the assets acquired and liabilities assumed for acquisition. The assumptions will be updated on the consummation of the initial public offering.

 

The following table sets forth the preliminary components of identifiable intangible assets acquired and their estimated useful lives:

 

    Preliminary Fair
Value
    Useful Life
(years)
Agreements with MD Anderson   $ [     ]    
In-process research and development    

[     ]

    Indefinite
Total intangible assets   $ [     ]    

 

Agreements with MD Anderson represents the preliminary estimated fair value of Moleculin’s prior and current agreements Moleculin has regarding research and development efforts through and with MD Anderson.

 

In-process research and development represents the preliminary estimated fair value derived from the results of Moleculin’s research and development activities regarding WP1066 Portfolio conducted before the acquisition. The in-process research and development intangible has indefinite life and is not amortized.

 

The fair value of the intangible assets acquired will be estimated mainly using the income approach based on the discounted future net cash flows related to those intangible assets.

 

The purchase price and resulting goodwill will vary based on the initial offering price of MBI’s common shares upon consummation of this offering. In preparing the pro forma financial information, the Company estimates the expected purchase price based on an estimated initial offering price of $5.50 per share. The following schedule shows the impact to the goodwill value based on a range of our initial offering price:

 

    Purchase price     Goodwill  
As presented in the pro forma combined result     5,500,000     $ 6,644,131  
10% increase in initial offering price     6,050,000       7,194,131  
10% decrease in initial offering price     4,950,000       6,094,131  

 

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Note 3 — Pro forma adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

(a) Reflects the estimated amortization expense related to the acquired intangible assets discussed at Note 3(d). We based the estimated useful lives of acquired intangible assets on the amount and timing in which we expect to receive an economic benefit. We assigned these intangible assets a useful life of [ ] years based upon a number of factors, including contractual agreements and economic factors (including known technological advances, size and duration of the market for the product, time and costs to commercialize and market, and potential customers associated with the intangibles) pertaining to the combined companies.

 

The estimate of fair value and useful life could be impacted by a variety of factors including legal, regulatory, contractual, competitive, economic or other factors. Increased knowledge about these factors could result in a change to the estimated fair value of the intangible asset and/or the useful life from what we have assumed in these unaudited pro forma combined financial statements. In addition, the combined effect of any such changes could result in a significant increase or decrease to the related amortization expense estimates.

 

The amortization of intangible assets of our planned acquisition assumes that the asset was acquired on January 1, 2015 and amortized over the period associated with the statement of operations. For the year ended December 31, 2015, the pro forma adjustment for the amortization expenses related to the intangible assets acquired was $[ ].

 

  (b) Reflects the removal of interest expense accrued and the amortization of deferred financing cost and debt discount related to the convertible notes payable to third parties and related parties. For the years ended December 31, 2015, interest expense related to convertible notes payable to third parties and related parties was $434,051.

 

(c) We have not reflected any pro forma adjustments to reflect the tax impact of the pro forma adjustments, as we believe that the tax impact would not be material.

 

(d) Reflects the preliminary fair value adjustment of $[ ] for intangible assets.

 

(e) Reflects the preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of Moleculin’s identifiable assets acquired and liabilities assumed as shown in Note 2. The stock offering price is assumed to be $5.50 per share. A difference in our offering price would change the amount of goodwill created under the proposed transaction. If the offering price goes up, goodwill will increase and if the offering price goes down, goodwill will decrease. There are no other impacts to the pro forma financial statements.

 

  (f) Reflects the settlement of Moleculin’s convertible notes outstanding as of December 31, 2015 and associated accrued interest by issuing 294,000 shares of the Company’s common stock, which include 266,226 shares for the conversion of note principal and 27,774 shares for the accrued interest associated with the convertible notes.

 

  (g) Reflects the payment of a note with $55,774 cash upon the Company’s initial public offering and the receipt of $165,000 cash for notes issued subsequent to December 31, 2015. The $165,000 notes are automatically converted into the 825,000 common shares upon the IPO.

 

  (h) Reflects the issuance of 706,000 common shares of MBI at the price of our common stock to be sold in this offering (currently assumed at $5.50 per share) to the members of Moleculin. The adjustment also reflects the elimination of Moleculin’s members’ equity accounts.

 

  (i) Reflects issuance of 2,924,557 common shares for the conversion of $450,000 convertible notes and associated accrued interest upon the IPO. The adjustment does not include shares issuable for accrued interest owed to the noteholders on the date of our IPO.

 

  (j) Reflects net proceeds from the minimum offering.

 

  (k) Reflects the issuance of 629,000 common shares of MBI at the price of our common stock to be sold in this offering (currently assumed at $5.50 per share) to HPI according to a co-development agreement.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in “Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

 

Highlights

 

We are a preclinical and clinical-stage pharmaceutical development company organized as a Delaware corporation in July 2015 to focus on the development of anti-cancer drug candidates. We have three active drug development projects. Our lead drug candidate is liposomal Annamycin, which is referred to as Annamycin, an anthracyline intended for the treatment of relapsed or refractory acute myeloid leukemia, or AML. Annamycin has been in clinical trials pursuant to an investigational new drug application, or IND, that had been filed with the U.S. Food and Drug Administration, or FDA. Due to a lack of development activity by a prior drug developer, this IND was terminated, however we intend to apply for a new IND based on the same data that supported the original IND, updated for subsequent clinical data, and to commence a Phase II clinical trial for Annamycin.

 

We have two other active drug development projects in progress. One of them involves a collection of small molecules we refer to as the WP1066 Portfolio that will be obtained via our merger with Moleculin, LLC (“Moleculin”) and is focused on the modulation of key regulatory transcription factors involved in the progression of cancer. The other, which we call the WP1122 Portfolio, is a suite of molecules targeting the metabolic processes involved in cancer in general, and glioblastoma in particular that we acquired from IntertechBio Corporation. Both of these technologies are licensed on a worldwide exclusive basis from The University of Texas M.D. Anderson Cancer Center, or MD Anderson.

 

Overview

 

MBI was founded in 2015 in order to combine and consolidate the development efforts involving several MD Anderson anti-cancer technologies. This effort began with the acquisition of the Annamycin development project from AnnaMed, Inc., or AnnaMed, followed by the acquisition of the license rights to the WP1122 Portfolio from IntertechBio Corporation, or IntertechBio. Further, we began negotiations to create a co-development agreement with Houston Pharmaceuticals, Inc., or HPI, which will culminate with the merger of Moleculin and MBI coincident with this offering allowing us to gain control of the WP1066 Portfolio.

 

AnnaMed was formed in 2012 to take over the development of Annamycin from a prior drug development company, Callisto Pharmaceuticals, Inc., or Callisto. Callisto ceased development work on Annamycin leading to the termination of its IND by the FDA. In order to satisfy unmet license obligations, Callisto agreed to transfer all available Annamycin data to AnnaMed, which data we will now use to apply for a new IND.

 

IntertechBio was formed in 2009 to license and begin development on the WP1122 Portfolio. In August 2015, IntertechBio agreed to assign all license rights to us in exchange for our common stock.

 

Moleculin was formed in 2006 and has been working to develop the WP1066 Portfolio it licensed from MD Anderson. Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin will be merged with and into MBI. As a result of the merger, we will issue the holders of Moleculin, LLC equity interests an aggregate of 1,000,000 shares of our common stock.

 

Since Moleculin commenced operations in 2006, substantially all of its efforts have been focused on research, development and the advancement of the WP1066 Portfolio. Moleculin has not generated any revenue from product sales and, as a result, has incurred significant losses. Moleculin incurred a net loss of approximately $1.8 million for the year ended December 31, 2014 and a net loss of approximately $0.4 million for the year ended December 31, 2015. We anticipate these losses will increase as we continue our development of, seek regulatory approval for, and, if approved, begin to commercialize Annamycin, and as we develop other product candidates.

 

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Neither Moleculin nor MBI has manufacturing facilities and all manufacturing activities are contracted out to third parties. Additionally, Moleculin currently utilizes third-party clinical research organizations to carry out clinical trials. Neither Moleculin nor MBI have a sales organization.

 

JOBS Act and Recent Accounting Pronouncements

 

The recently enacted JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

 

We have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain .

 

Beneficial Conversion Feature

 

From time to time, we may issue convertible notes that have conversion prices that create an embedded beneficial conversion feature on the issuance date. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. We estimate the fair value of our common stock using the most recent selling price available. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

 

Research and Development Costs

 

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statement of operations. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties.

 

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. To date, there have been no material differences from our accrued expenses to actual expenses.

 

Income Taxes

 

Moleculin elected to be taxed as a partnership under the Internal Revenue Code. Moleculin pays no U.S. taxes on its earnings. Moleculin’s net earnings/losses are passed through to its members and, as such, it reports no income tax expense or liability.

 

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Impairment of Long-Lived Assets  

 

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.

 

Components of our Results of Operations and Financial Condition

 

Operating expenses

 

We classify our operating expenses into three categories: research and development, general and administrative and depreciation.

 

Research and development . Research and development expenses consist primarily of:

 

costs incurred to conduct research, such as the discovery and development of our product candidates;

costs related to production of clinical supplies, including fees paid to contract manufacturers;

fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as patient screening fees, laboratory work and statistical compilation and analysis; and

costs related to compliance with drug development regulatory requirements.

 

We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.

 

We expect our research and development expenses to increase in the future as we advance our product candidates into and through clinical trials and pursue regulatory approval of our product candidates in the United States and Europe. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the quality of our product candidates, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.

 

General and administrative. General and administrative expense consists of personnel related costs, which include salaries, as well as the costs of professional services, such as accounting and legal, facilities, information technology and other administrative expenses. We expect our general and administrative expense to increase following the completion of this offering due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations and other costs associated with becoming a public company.

 

Depreciation. Depreciation expense consists of depreciation on our property and equipment. We depreciate our assets over their estimated useful life. We estimate machinery and equipment to have a 5-year life and furniture and fixtures to have a 7-year life.

 

Other income (expense), net

 

Other income (expense), net consists of interest expense associated with our notes payable and interest income earned on our cash and investment balances.

 

Statement of Operations - MBI

 

The following table sets forth the components of MBI’s statement of operations for the period from July 28, 2015 (Inception) to December 31, 2015:

 

    From July 28, 2015
(Inception) to
December 31, 2015
 
       
Operating expenses:        
Research and development   $ 260,418  
General and administrative     477,810  
Total operating expenses     738,228  
         
Interest expense     (10,132 )
         
Net loss   $ (748,360 )

 

Research and Development Expense. Research and development expense was $260,418 for the period from July 28, 2015 (Inception) to December 31, 2015. The expense is mainly related to patent acquisition cost and travel expense of our research and development personnel.

 

General and Administrative Expense. General and administrative expense was $477,810 for the period from July 28, 2015 (Inception) to December 31, 2015. The expense mainly included professional fees to our consultants, attorney, accountants and our previous investment banker and financial advisor for services related to our initial public offering.

 

Interest expense. Interest expense included expense accrued on our convertible promissory notes issued in August, September and October 2015 bearing interest at the rate of 8% per annum.

 

  Statements of Operations - Moleculin

 

The following table sets forth the components of Moleculin’s audited statements of operations for the years ended December 31, 2015 and 2014.

 

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    Year Ended December 31,        
    2015     2014     Change  
                   
Operating expenses:                        
Research and development   $ 125,442     $ 798,785     $ (673,343 )
General and administrative     328,570       839,556       (510,986 )
Depreciation and amortization expense     11,336       11,005       331  
Total operating expenses     465,348       1,649,346       (1,183,998 )
                         
Other income (expense)     99,537       (159,740 )     (259,277 )
                         
Net loss   $ (365,811 )   $ (1,809,086 )   $ (1,443,275 )

 

Research and Development Expense. Research and development expense was approximately $125,000 for the year ended December 31, 2015 as compared to $799,000 for the prior year. This decrease of $673,000 was driven primarily by clinical trial costs reductions incurred during 2015 of approximately $250,000; a decrease of approximately $121,000 in manufacturing costs for clinical supplies; and a decrease in intellectual property costs of approximately $303,000 as compared to 2014.

 

General and Administrative Expense. General and administrative expense for the year ended December 31, 2015 was $329,000 as compared to $840,000 for the prior year. This $511,000 decrease in general and administrative expense related primarily to a reduction in payroll and related personnel costs of approximately $350,000, a reduction in professional services fees of $96,000, and a reduction of travel expenses of $35,000.

 

Depreciation Expense. Depreciation expense was $11,000 for each of the years ended December 31, 2015 and 2014. Depreciation is generated from our fixed assets.

 

Other Income (Expense). Other income for the year ended December 31, 2015 was approximately $100,000 as compared to other expense of $160,000 for the prior year. This decrease of $260,000 in expense related primarily to an increase of $289,000 in interest expense accrued on our convertible promissory notes issued late in 2014 and amortization of debt discount and deferred financing cost associated with those notes, offset by a gain on debt extinguishment of $549,000 recorded in fourth quarter of 2015 related to the forfeiture of units by MD Anderson Cancer Center in conjunction with the amendment of a license agreement.

 

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Liquidity and Capital Resources

 

Since Moleculin’s inception and through December 31, 2015, Moleculin has funded its operations primarily through the sale and issuance of convertible preferred units and convertible and non-convertible promissory notes. From May to November 2014, Moleculin issued various convertible notes to its creditors. The note proceeds were $1.5 million. These notes bear interest at 8% per annum and are due on the earlier of June 30, 2016 or the consummation of a liquidation event (which event will include the merger between MBI and Moleculin to be completed prior to the effective date of the registration statement of which this prospectus forms a part), unless these notes are converted.

 

As of December 31, 2015, Moleculin had approximately $32,000 in cash and MBI had approximately $28,000 in cash.

 

In August and September 2015, we issued two 8% convertible notes in an aggregate of $250,000 in principal amount of convertible notes to one investor, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.1299 per share. In October 2015, we issued two 8% convertible notes in an aggregate of $200,000 in principal amount of convertible notes to two investors, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.20 per share. At the time of such purchase in October 2015, the convertible note investors and we agreed that the investors would fund us up to the filing of our initial non-confidential registration statement an additional $165,000 on the same terms as in the October financing. Pursuant to such agreement, such amount was received in January 2016.

 

None of the foregoing convertible notes will be convertible by the holder of such notes to the extent (and only to the extent) that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock. For purposes of the limitation described in this paragraph, beneficial ownership and all determinations and calculations are determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.

 

As part of the acquisition process of Moleculin, LLC by MBI, we will provide operating loans to Moleculin in the estimated range of $300,000 to $310,000, which Moleculin will use to meet its license obligations with MD Anderson and maintain its current level of operations. These loans will be in the form of promissory notes payable with an interest rate of 8% from Moleculin to us that will be forgiven at the completion of the IPO. As of the date hereof, MBI has sold a total of $615,000 aggregate principal amount of convertible notes and estimates that the company will need approximately an additional $535,000 to $635,000 to complete the IPO process.

 

Subsequent to December 31, 2015, we sold 128,833 shares of our common stock at a purchase price per share of $3.00 in a private placement.

 

We believe that our and Moleculin’s existing cash and cash equivalents, our remaining proceeds from our recent private placement of 8% unsecured promissory notes and shares of common stock, together with the net proceeds from this offering, will be sufficient to fund our planned operations for approximately 16 months, assuming completion of the maximum offering, and 12 months, assuming completion of the minimum offering, including through preliminary data readout of our planned Phase II registration trial for Annamycin.

 

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We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.

 

The following table sets forth the primary sources and uses of cash for the periods indicated for Moleculin:

 

    Year ended December 31,        
    2015     2014     Change  
                   
Net Cash Used in Operating Activities   $ (724,910 )   $ (1,354,145 )   $ 629,235  
Net Cash Provided by Investing Activities     232,300       -       232,300  
Net Cash Provided by Financing Activities     -       1,525,256       (1,525,256 )
Net increase (decrease) in cash and cash equivalents   $ (492,610 )   $ 171,111     $ (663,721 )

 

Cash used in operating activities

 

Net cash used in operating activities was approximately $725,000 and $1,354,000 for the years ended December 31, 2015 and 2014, respectively. The $629,000 decrease in net cash used in operating activities was primarily due to a decrease in spending in research and development, specifically in sponsored research performed by MD Anderson, as well as decrease in payments made to professionals and employees.

 

Cash provided by investing activities

 

Net cash provided by investing activities was approximately $232,000 and $0 for the years ended December 31, 2015 and 2014, respectively. The increase was due to a collection of long-term receivable from Dermin, Sp. Zo. O. to whom the Company had provided funding assistance for Dermin’s efforts in developing and commercializing certain pharmaceutical products.

 

Cash provided by financing activities

 

Net cash provided by financing activities was approximately $0 and $1,525,000 for the years ended December 31, 2015 and 2014, respectively. Cash was provided by issuance of convertible notes payable in 2014 of approximately $1,525,000.

 

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BUSINESS

 

Overview

 

We are a preclinical and clinical-stage, pharmaceutical company focused on the development of anti-cancer drug candidates, many of which are based on license agreements with The University of Texas System on behalf of the M.D. Anderson Cancer Center, which we refer to as MD Anderson. Our lead drug candidate is liposomal Annamycin, which we refer to as Annamycin, an anthracycline intended for the treatment of relapsed or refractory acute myeloid leukemia, or AML. Annamycin has been in clinical trials pursuant to an Investigational New Drug application, or IND, that had been filed with the FDA. Due to a lack of development activity by a prior drug developer, this IND was terminated. However we intend to apply for a new IND based on the same data that supported the original IND, updated for subsequent clinical data and to commence a Phase II clinical trial for Annamycin with the proceeds from this offering. We have two other drug development projects in process, one involving a collection of small molecules, which we refer to as the WP1066 Portfolio, focused on the modulation of key regulatory transcription factors involved in the progression of cancer, and the WP1222 Portfolio, a suite of molecules targeting the metabolic processes involved in cancer in general and glioblastoma (the most common form of brain tumor) in particular. We also intend to sponsor ongoing research at MD Anderson in order to improve and expand our drug development pipeline.

 

We have been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to our WP1066 Portfolio and WP1122 Portfolio drug technologies, as these patent rights are owned by MD Anderson. The Annamycin drug substance is no longer covered by any existing patent protection. We intend to submit patent applications for formulation, synthetic process and reconstitution related to our Annamycin drug product candidate, although there is no assurance that we will be successful in obtaining such patent protection. Independently from potential patent protection, we believe Annamycin will qualify for Orphan Drug status, which would entitle us to market exclusivity of 7 and 10 years from the date of approval of a New Drug Application (NDA) and Marketing Authorization (MA), in the United States and the European Union (EU), respectively. Separately, the FDA may also grant market exclusivity of up to 5 years for newly approved new chemical entities (of which Annamycin would be one), but there can be no assurance that such exclusivity will be granted or, if granted, for how long.

 

Corporate History

 

We were founded in 2015 by Walter Klemp (our chairman and acting CEO), Dr. Don Picker (our President and Chief Operating Officer) and Dr. Waldemar Priebe of MD Anderson (Chairman of our Scientific Advisory Board) in order to combine and consolidate development efforts involving several MD Anderson anti-cancer technologies. This effort began with the acquisition of the Annamycin development project from AnnaMed, Inc., or AnnaMed, followed by the acquisition of the license rights to the WP1122 Portfolio from IntertechBio Corporation, or IntertechBio. Further, we began negotiations to create a co-development agreement with Houston Pharmaceuticals, Inc., or HPI, which will culminate with the merger of Moleculin and MBI coincident with this offering allowing us to gain control of the WP1066 Portfolio.

 

AnnaMed was formed in 2012 to take over the development of Annamycin from a prior drug development company, Callisto Pharmaceuticals, Inc., or Callisto. Callisto ceased development work on Annamycin, leading to the termination of its IND by the FDA. Callisto disclosed publicly in its Form 10-K filing for the year ended 2009 that the clinical data relating to acute leukemia patients “did not support further clinical evaluation of L-Annamycin as a single agent to treat relapsed or refractory adult acute leukemia patients.” In order to satisfy unmet license obligations, Callisto agreed to transfer all available Annamycin data to AnnaMed, which data we will use to apply for a new IND. As such, notwithstanding Callisto’s determination to terminate its development of Annamycin, we will be utilizing the clinical data from Callisto’s trials to apply for a new IND. The basis for our decision to proceed notwithstanding Callisto’s determination is that we believe the actual clinical data as reported by Dr. Robert Shepard, who was Callisto’s Chief Medical Officer at the time of the clinical trials, to the 2009 Annual Meeting of the American Society of Clinical Oncology, and as further reported by the Principal Investigators of the clinical trials in a peer-reviewed journal article (Clin Lymphoma Myeloma Leuk. 2013 August; 13(4): 430–434. doi:10.1016/j.clml.2013.03.015.), makes clear that the data does support further clinical evaluation. Specifically, the conclusion stated in the 2009 ASCO presentation was that “Nanomolecular Liposomal Annamycin was effective even in refractory ALL”. In addition, the conclusion published in the 2013 Clinical Lymphoma, Myeloma & Leukemia journal article was that “Single agent nanomolecular liposomal annamycin appears to be well-tolerated and evidence of clinical activity as a single agent in refractory adult ALL.” As reported in both the ASCO presentation and the 2013 journal article referenced, the definition of efficacy is based on the following Response Criteria: “Response criteria were achievement of CR defined as ≤5% blasts, granulocyte count of ≥1×109/L, and a platelet count of ≥100×109/L. Partial remission was defined the same as CR, except for the presence of 6% to 25% blasts. Hematologic improvement was defined as for CR but platelet count <100×109/L.” The summary of patient response from the 2013 journal article reads: “After determining the MTD, a 10-patient phase IIA was conducted. Eight of the patients completed one cycle of the three days of treatment at the MTD. Of these, five (62%) had an efficacy signal with complete clearing of circulating peripheral blasts. Three of these subjects also cleared bone marrow blasts with one subsequently proceeding onto successful stem cell transplantation. The other two developed tumor lysis syndrome and unfortunately expired prior to response assessment.” In the Company’s review of these trials, it confirmed that the “efficacy signal” in this summary corresponds with a “Partial remission” as described in the Response Criteria and that the three subjects who “cleared bone marrow blasts” correspond with “CR” (Complete Response).

 

In 2012, AnnaMed out-licensed development rights in a limited territory to a Polish special purpose drug development company called Dermin in exchange for Dermin’s development work based on its successful effort to obtain Polish government grant funding to assist in the development of Annamycin. Since that time, such grant funding has been used to produce Annamycin in preparation for future clinical trials. In August 2015, we entered into a rights transfer agreement with AnnaMed pursuant to which in exchange for 1,431,000 shares of our common stock AnnaMed agreed to transfer any and all data it had regarding the development of Annamycin and the Annamycin IND, including all trade secrets, know-how, confidential information and other intellectual property rights held by AnnaMed.

 

IntertechBio was formed in 2009 to license and begin development on the WP1122 Portfolio. The WP1122 Portfolio was also out-licensed to Dermin, which was awarded a Polish government grant to assist in drug development efforts. In August 2015, IntertechBio agreed to assign all license rights to us in exchange for our common stock.

 

Moleculin was formed in 2006 and has been working to develop the WP1066 Portfolio it licensed from MD Anderson. As a part of the formation of Moleculin, an agreement was reached with HPI to limit Moleculin’s development efforts to uses in dermatology only, leaving non-dermatology indications to HPI. From 2006 to 2014, Moleculin raised a total of approximately $11 million through the sale of equity and debt securities and an additional $2 million through an out-licensing agreement with a Japanese dermatology drug development company, Maruho, Ltd., or Maruho. Since 2012, Moleculin has conducted a series of clinical trials focused on the topical treatment of psoriasis. Although those trials have demonstrated drug activity, the results to date are not conclusive enough to warrant full commercialization as a topical dermatology drug. Additional study is required to determine optimal dosing and scheduling regimens for the topical treatment of psoriatic plaques. As a result of this additional complexity with regard to the potential treatment of psoriasis, Maruho did not elect to continue its funding of the psoriasis drug development effort and, therefore, forfeited their license rights to the WP1066 Portfolio that had been granted to it by Moleculin. Dermin is planning to clinically evaluate a candidate from the WP1066 Portfolio for the topical treatment of cutaneous T-cell lymphoma, or CTCL. Moleculin does not have control of the clinical plan or timeline for Dermin’s development effort.

 

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Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin will be merged with and into our company. As a result of the merger, we will issue the equity interests holders of Moleculin an aggregate of 1,000,000 shares of our common stock. The merger agreement contains mutual representations and warranties between the parties. Pursuant to the merger agreement, we will agree for a period of six years to indemnify and hold harmless each present and former director and/or officer of Moleculin whom Moleculin would have had the power to indemnify under Delaware that is made a party or threatened to be made a party to any threatened, pending or completed proceeding or claim by reason of the fact that he or she was a director or officer of the Moleculin prior to the effective time of the merger and arising out of actions or omissions of the indemnified party in any such capacity occurring at or prior to the effective time of the merger against any losses or damages reasonably incurred in connection with any claim. To our knowledge, no such proceeding or claim exists or has been threatened on the date hereof and Moleculin has made representations to this effect in the merger agreement. As additional consideration payable to the Moleculin unit holders, we will agree pursuant to the merger agreement that if drugs for dermatology indications are successfully developed by us (or our successors) using any of the Existing IP Assets, then the Moleculin unit holders, in the aggregate, will be entitled to receive a 2.5% royalty on the net revenues generated by such drugs. Any such net revenues would include a deduction for license fees or royalty obligations payable to MD Anderson for such Existing IP Assets. The merger agreement will define “Existing IP Assets” to mean all intellectual property, licensed by us and Moleculin as of the time of the merger, including, without limitation, the intellectual property licensed from MD Anderson under the Patent and Technology License Agreement entered into by and between IntertechBio Corporation and MD Anderson dated April 2, 2012, as amended, and the Patent and Technology License Agreement dated June 21, 2010, as amended, between MD Anderson and Moleculin, but excluding any intellectual property relating to Annamycin. The right to receive the contingent royalty payments described herein are for drugs developed only for dermatology indications, and do not include drugs developed for any other indications. We have no obligation of any nature to pursue the development of any drugs for dermatology indications.

 

From 2006 through 2015, HPI has been engaged in research related to the use of the WP1066 Portfolio for the treatment of non-dermatology cancers and has received grant awards totaling approximately $4.9 million toward this effort. Prior to the effective date of the registration statement of which this prospectus is a part, we will enter into a co-development agreement with HPI whereby HPI will continue its grant-funded research and make all resulting data available for our use in exchange for a development fee. We may buy HPI out of its co-development rights in the WP1066 Portfolio at our option. Please see the section “Business – License Agreements” for a description of our proposed agreement with HPI.

  

Neither our founders nor MBI have or will have any ownership stake in Dermin, our Polish grant-funded licensee. No Dermin-related grant money is expected to be paid directly to us, but rather the sublicense agreements require Dermin to share resulting data, which we believe will reduce or eliminate costs we might otherwise have to incur directly. There can be no assurance, however, that Dermin will continue to receive the funds they have been awarded or that such funds will be spent by Dermin in a manner that will benefit MBI. The sublicensed territories granted to Dermin for the WP1066 Portfolio are Poland, Ukraine, Czech Republic, Hungary, Romania, Slovakia, Belarus, Lithuania, Latvia and Estonia. For the WP1122 Portfolio, the territory expanded to include Russia and Kazakhstan. For Annamycin, the territory is further expanded to include Netherlands, Turkey, Belgium, Switzerland, Austria, Sweden, Greece, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg, Iceland, Uzbekistan, Georgia, Armenia, Azerbaijan and Germany. However, in the case of Germany, this territory may be reclaimed by us for a payment of $500,000 to Dermin.

 

The following summarizes the transactional history and common relationships among HPI, IntertechBio, Moleculin, MBI, Callisto, AnnaMed, MD Anderson, and our officers and major shareholders:

 

· Houston Pharmaceuticals, Inc. : Prior to the effective date of the registration statement of which this prospectus is a part, we will enter into a co-development agreement with HPI whereby HPI will continue its grant-funded research and make all resulting data available for our use in exchange for a development fee. Waldemar Priebe, chairman of our Scientific Advisory Board, and Don Picker, our president and chief operating officer, are shareholders of HPI, and Dr. Priebe has the voting and dispositive power over the shares held by HPI.

 

· IntertechBio Corporation : In August 2015, in exchange for the issuance of 630,000 shares of common stock, we acquired the rights to the license agreement with MD Anderson covering our WP1122 Portfolio held by IntertechBio Corporation. Waldemar Priebe, chairman of our Scientific Advisory Board, and Don Picker, our president and chief operating officer, are shareholders of IntertechBio and control the voting and dispositive power over the shares held by IntertechBio.

 

  · Moleculin, LLC : Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin will be merged with and into our company. Moleculin is the holder of the license agreement with MD Anderson covering our WP 1066 Portfolio. As a result of the merger, we will issue the equity interests holders of Moleculin an aggregate of 1,000,000 shares of our common stock. Waldemar Priebe, chairman of our Scientific Advisory Board, Walter Klemp, our chairman and acting chief executive officer, and Don Picker, our president and chief operating officer, are members of Moleculin and will receive 6,046 shares, 22,795 shares and 6,046 shares, respectively, of our common stock as a result of the merger. In addition, Walter Klemp and Don Picker are members of the board of Moleculin.

 

· AnnaMed, Inc. : In August 2015, in exchange for 1,431,000 shares of our common stock, we acquired the rights to the Annamycin data related to the original Annamycin IND and the development of Annamycin held by AnnaMed, Inc., a company controlled by Walter Klemp, our chairman and acting chief executive officer.

 

· Callisto Pharmaceuticals, Inc. : Our president and chief operating officer, Don Picker and our chief medical officer, Robert Shepard, were chief operating officer and chief medical officer, respectively, of Callisto. Since 2009, neither individual has had any relationship or ownership with Callisto.

 

· MD Anderson : Both Moleculin and IntertechBio have entered into license agreements with MD Anderson. See “Business – Our Licenses Agreements” below. Waldemar Priebe, chairman of our Scientific Advisory Board, is a Professor of Medicinal Chemistry, Department of Experimental Therapeutics, Division of Cancer Medicine, at the University of Texas MD Anderson Cancer Center.

 

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Our Drug Candidates

 

Annamycin

 

Our lead product candidate is Annamycin. We intend to use the proceeds from this offering to conduct a Phase II clinical trial for Annamycin as a monotherapy for the treatment of relapsed or refractory acute myeloid leukemia, or AML.

 

Market for Annamycin

 

Leukemia is a cancer of the white blood cells and acute forms of leukemia can manifest quickly and leave patients with limited treatment options. AML is the most common type of acute leukemia in adults. It occurs when a clone of leukemic progenitor white blood cells proliferates in the bone marrow, suppressing the production of normal blood cells. Currently, the only viable option for acute leukemia patients is a bone marrow transplant, which is successful in a significant number of patients. However, in order to qualify for a bone marrow transplant, the patient’s leukemia cells must be decreased to a sufficiently low level. This begins with a therapy of combining two chemotherapeutic drugs, which always includes an anthracycline, in inducing remission (a complete response, or CR), which therapy has not improved since it was first used in the 1970s and we estimate that this induction therapy has the same cure rate of about 20% as at that time. Unfortunately, the current clinically approved anthracyclines are cardiotoxic, which can result in damage to the heart and limit the dosage amount that may be administered to patients. Additionally, the tumor cells often present de novo or developed resistance to the first line anthracycline, often through what is called “multidrug resistance”, enabling them to purge themselves of the available anthracyclines. Consequently, there remains no effective therapy for these patients and unfortunately most will succumb quickly to their leukemia. If a patient’s leukemia reappears before they can be prepared for a bone marrow transplant, they are considered to have “relapsed”. If a patient fails to achieve a sufficient response from the induction therapy to qualify for a bone marrow transplant, they are considered to be “refractory” (resistant to therapy). Together, this group of relapsed and refractory AML patients constitutes our primary focus for treatment with Annamycin and our intent is to pursue FDA approval for Annamycin as a second-line induction therapy for adult relapsed and refractory AML patients.

 

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We believe that pursuing approval as a second line induction therapy for adult relapsed or refractory AML patients is the shortest path to regulatory approval, but we also believe that one of the most important potential uses of Annamycin is in the treatment of children with either AML or ALL (acute lymphoblastic leukemia, which is more common in children). Accordingly, we also intend to pursue approval for pediatric use when practicable.

 

Of the estimated 18,860 U.S. cases of acute myeloid leukemia diagnosed in 2014, an estimated 97% were adult and although exact numbers are not available, we estimate that 70% to 80% (approximately 13,000 to 14,000 patients) were expected to relapse or be resistant to first-line therapy.

 

Prior Clinical Trials for Annamycin

 

Annamycin is a liposome formulated anthracycline (also referred to in literature as “L-Annamycin”). It has been tested in 6 clinical trials and 114 patients without any reported cardiotoxicity and, in the two clinical trials focused on leukemia, with fewer dose-limiting toxicities than are normally expected with doxorubicin (one of the leading first-line anthracyclines used for induction therapy). Each of these trials was conducted by Callisto Pharmaceuticals, Inc., the previous holder of the intellectual property surrounding Annamycin, and not by our company. Annamycin demonstrated significant activity in 8 of 16 patients in a Phase I study in adult relapsed or refractory AML patients, with 6 of 14 patients completely clearing leukemic blasts. A 30 patient dose-ranging Phase I/II study in ALL demonstrated a similar level of activity, with 3 of 10 patients treated with the maximum tolerable dose clearing their leukemic blasts to a level sufficient to qualify for a bone marrow transplant. One of these patients went on to receive a successful curative bone marrow transplant. The other two of these three patients died of tumor lysis syndrome, a condition resulting from the overloading of their system with the debris from leukemic blast cells destroyed by the induction therapy. Armed with the knowledge of this potential, prophylactic pretreatment known to protect patients from the effects of tumor lysis syndrome will be deployed in future trials. Based on the results of the above clinical trials, we believe Annamycin is different from currently approved induction therapy drugs in four key ways: (i) it has demonstrated clinical activity in a patient population for whom there are currently no effective therapies, (ii) it appears to be capable of avoiding the “multi-drug resistance” mechanisms that often limit the effectiveness of currently approved anthracyclines; (iii) it has been shown to be non-cardiotoxic in animal models and no events of cardiotoxicity have been reported from the use of Annamycin in 114 patients; and (iv) in AML cell lines, it has been shown to be more potent than one of the leading approved drugs.

 

Lack of Cardiotoxicity

 

One of the key dose-limiting toxicities associated with currently available anthracyclines like doxorubicin is their propensity to induce life-threatening heart damage. This is especially problematic for pediatric leukemia patients whose life spans can be severely shortened by the very induction therapy designed to cure them of acute leukemia. In the animal model relied upon by the FDA as an indicator of human cardiotoxicity, the non-liposomal (free) form of Annamycin has been shown to be significantly less likely than doxorubicin to create heart lesions in mice and the liposomal formulation (L-Annamycin) has been shown in animal models to have reduced cardiotoxicity to the point where it is unlikely to cause harm to human patients. This lack of cardiotoxicity means L-Annamycin may be able to be used more aggressively in helping patients achieve remission without the potentially deadly long-term side effects of cardiotoxicity. This would be especially valuable in the case of pediatric acute leukemia (both AML and ALL) where long-term survival can be greatly impacted by cardiotoxicity.

 

Circumventing Multidrug Resistance

 

In addition to cardiotoxicity, the effectiveness of currently approved anthracyclines is limited by their propensity for succumbing to “multidrug resistance”, whereby transporters (one type of which is referred to as a “P-glycoprotein pump”) develop on the outer surface of cells to expel drugs like doxorubicin as a natural defense mechanism. The dosing of current therapies cannot be increased in an attempt to overcome multidrug resistance because of the likelihood of cardiotoxicity and other serious side effects. This limitation prevents adequate dosing of current anthracyclines to produce lasting remission. Annamycin appears to resist being expelled by P-glycoprotein pumps and other similar tested multidrug resistance transporters and thereby would seem to circumvent multidrug resistance. This characteristic has been shown in pre-clinical testing to allow for higher drug uptake in diseased cells, which we believe should allow for more effective induction therapy with less risk to the patient.

 

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In order for anthracyclines to provide effective induction therapy, they must be allowed to accumulate in leukemic cells sufficiently to enter the cell’s nucleus where they damage the cell’s DNA and induce apoptosis (cell death). As induction therapy progresses, however, the targeted cells can develop a natural defense mechanism to prevent the anthracycline activity. The graphic below provides a simplified depiction of the formation of a P-glycoprotein pump on the outer surface (membrane) of a leukemic cell. As typical anthracyclines enter the cell, they are attracted to such pumps and are expelled (referred to as “efflux”) before they can accumulate sufficiently to serve their purpose. In contrast, Annamycin avoids such pumps and is allowed to accumulate sufficiently to destroy the leukemia cell despite the presence of the multidrug resistance mechanisms.

 

 

Based on initial conversations with the FDA, because of the serious unmet medical need, we believe Annamycin may qualify for a “Special Protocol Assessment” providing for accelerated approval based on our planned Phase II clinical trial. In order to negotiate the Special Protocol Assessment with the FDA, the dose-ranging Phase I/II clinical trial discussed above, which was conducted by a previous holder of the intellectual property surrounding Annamycin, must be independently audited, which is an expensive and time consuming process. In addition, since the original IND was terminated for lack of development activity by the prior drug developer, we must apply for a new IND, based on the data that supported the original IND updated for subsequent clinical activity. The ultimate negotiation with the FDA will determine the size and efficacy endpoints for the registration trial. We can provide no assurance that the audit of the most recent clinical trial will confirm the results reported by the prior drug developer or that we will be successful in obtaining a new IND or in negotiating a Special Protocol Assessment with the FDA, and if we are successful, we estimate such process, including auditing the prior clinical trial results, will take approximately six months or more from the closing of this offering.

 

We also intend to pursue Orphan Drug status for Annamycin. The prevalence ceiling for qualifying rare diseases under the US Orphan Drug Act is 200,000 patients and proportionally similar guidelines exist in the EU. The most recently published prevalence statistics from the National Cancer Institute reported that an estimated 37,726 patients had acute myeloid leukemia in the United States as of January 1, 2011, and trend data since that publication would indicate that the prevalence today should still be well below the 200,000 patient limitation for Orphan Drugs, qualifying Annamycin for the treatment of acute myeloid leukemia to qualify for Orphan Drug status. Annamycin already qualified for Orphan Drug status with its prior developer and we intend to repeat that process. However, we can provide no assurance that we will be successful in obtaining Orphan Drug status for Annamycin.

 

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The WP1066 Portfolio

 

We have a license agreement with MD Anderson pursuant to which we have been granted a royalty-bearing, worldwide, exclusive license for the patent and technology rights related to our WP1066 Portfolio and its close analogs, molecules targeting the modulation of key oncogenic transcription factors.

 

Clinical Testing of WP1066 Portfolio

 

In vitro testing has shown a high level of activity for WP1066 against a wide range of solid tumors, and in vivo testing has shown significant activity against head and neck, pancreatic, stomach, and ovarian cancers, as well as metastatic melanoma and glioblastoma, among others. In vivo testing in mouse tumor models has shown that WP1066 inhibits tumor growth, blocks angiogenesis (a process that provides necessary blood supply to tumors) and increases survival.

 

With respect to our WP1066 Portfolio, we must complete pre-clinical toxicology testing, along with additional chemistry, manufacturing and control work to fully characterize the drug, establish the desired formulation and develop reference standards for future drug release, among others prior to submitting and application for IND. Clinicians at MD Anderson submitted an IND for this drug candidate in March, 2016.

 

An analog of WP1066, referred to as WP1220, was previously the subject of an IND (WP1220 was referred to as MOL4239 for purposes of this IND) related to use of the molecule in the topical treatment of psoriasis. Clinical trials were commenced on WP1220 in the US, but were terminated early due to limited efficacy in the topical treatment of psoriatic plaques. Notwithstanding its limitations in treating psoriasis, our pre-clinical research has shown WP1220 to be effective in inhibiting cutaneous T-cell lymphoma (CTCL) in multiple CTCL cell lines. Based on this encouraging data, we are collaborating with a Polish drug development company, Dermin, which has received Polish government grant money to begin a clinical trial in Poland for the topical treatment of early stage CTCL patients. CTCL is a potentially deadly form of skin cancer for which there are limited treatment options.

 

We also conducted a Phase II clinical trial for WP1066 for the topical treatment of psoriasis, however this trial was terminated early as a significant number of patients experienced a non-permanent worsening of their psoriatic plaques after extended use of the drug, suggesting that its use as a topical agent for non-life threatening diseases such as psoriasis will require further study to optimize dosing and scheduling regimens.

 

Scientific Rationale for WP1066 Portfolio

 

Cellular biology depends upon signaling mechanisms to regulate functions such as cell growth, death and adaptation. Signal “transduction” is such a mechanism that converts an upstream stimulus to a cell into a specific cellular response. Signal transduction starts with a signal to a receptor or via a compound capable of passing through the cell membrane and ends with a change in cell function. The end result of this signal is often the activation of “transcription”, whereby genetic information is expressed and, in the case of oncogenic transcription, disease processes are initiated or maintained.

 

Receptors span the cell membrane, with part of the receptor outside and part inside the cell. When a chemical signal represented by a specific protein binds to the outer portion of the receptor, it conveys another signal inside the cell. Often there is a cascade of signals within the cell, wherein an upstream inducer starts a chain of events that resembles a domino effect. Collectively, this sequence is referred to as a “signaling pathway.” Eventually, the signal creates a change in the cell function by changing the expression of specific genes and production of specific proteins within the cell, and again, in the case of tumor development, such expression results in unwanted oncogenic processes.

 

Importantly, while normal healthy cell function relies on signaling mechanisms, diseases are capable of co-opting these mechanisms with negative consequences. Oncogenic processes (including inflammation and proliferation) depend upon signaling pathways that are responsible for coordinating functions such as cell growth, survival and cell differentiation. A particular class of proteins referred to as Signal Transducers and Activators of Transcription (such proteins are “STATs”) regulates the process of disease cell survival and proliferation, angiogenesis and immune system function and is persistently activated in a large number of human inflammatory processes and in hyper-proliferating diseases. Because certain of these proteins are known to be co-opted by tumor cells, we refer to them as “oncogenic transcription factors,” of which certain STATs are a subset.

 

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Some STATs, such as STAT3, can be activated by any one of many different upstream inducers, making them very difficult to target by blocking just one or more of these upstream inducers. We believe that blocking a targeted STAT directly rather than via its multiple upstream inducers should result in greater efficacy with lower toxicity.

 

In the diagram shown below, any one of many different pathways (categorized as Growth Factor Receptors, Cytokine Receptors and Non-Receptor Tyrosine Kinases) triggers the activation of STAT3 proteins in a process called “phosphorylation”. In this process, phosphates attach to corresponding receptors on STAT3 and, eventually, two phosphorylated STAT3 proteins (“p-STAT3”) bind together in a pair referred to as a “dimer”. Once the dimer is formed, it enters the cell nucleus and triggers gene transcription. Conversely, if we reduce the presence of p-STAT3 before dimers can be formed, we can prevent the triggering of gene transcription and effectively inhibit the disease process.

 

 

The upstream effectors shown in the above diagram (SRC, JAK and ABL) are just some of those capable of activating STAT3 once they themselves are activated by a variety of signal compounds. The complexity and diversity of pathways capable of activating STAT3 make it very difficult to develop effective drugs that attempt to target the upstream effectors. Furthermore, many of these upstream pathways are necessary for normal healthy cell function, so blocking them indiscriminately can lead to unwanted toxicities.

 

Published research has identified STAT3 as a master regulator of a wide range of tumors and clearly links STAT3 activation with the progression of these tumors. For this reason, it is believed that direct inhibition of p-STAT3 should be an effective way to reduce or eliminate the progression of these diseases.

 

Many research efforts have been directed toward development of specific methods to control activation of STAT3, but most have focused on targeting the upstream effectors of these pathways like growth factors, cytokines, and specific kinases including Janus kinases (JAKs). However, we believe that the multifactorial nature of the activation of STAT3 limits the effectiveness of such upstream approaches. Since the activity of p-STAT3 is a final and determinative step in triggering unwanted transcription, we believe it is preferable to inhibit p-STAT3 more directly and independently from upstream effectors.

 

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We believe the WP1066 Portfolio represents a novel class of agents capable of hitting multiple targets, including p-STAT3, regardless of their upstream method of activation. By inhibiting the presence of p-STAT3, WP1066 directly attacks tumor cells, as has been demonstrated in numerous preclinical tests involving a wide range of tumor cells. We believe the effectiveness of WP1066 is not only the result of attacking tumors directly, but also indirectly by stimulating the immune system, increasing the patient’s natural ability to fight off tumor development. STAT1 is believed to stimulate T-cell activity and thereby the immune system responsible for fighting tumors. WP1066 has been shown to increase the activity of STAT1 at the same time it inhibits the activity of p-STAT3. We believe this dual activity makes WP1066 a uniquely promising anticancer drug candidate.

 

We believe the combination of the direct and indirect effects of WP1066 are to be credited with significant tumor suppression and increased survival in a number of in vivo cancer models. Below is one example showing a dramatic increase in survival by treating mice with metastatic melanoma with WP1066.

 

 

The WP1122 Portfolio

 

We have a license agreement with MD Anderson pursuant to which we have been granted a royalty-bearing, worldwide, exclusive license for the patent and technology rights related to our WP1122 Portfolio and similar molecules targeting the treatment of GBM and related CNS malignancies.

 

We believe this technology has the potential to target a wide variety of solid tumors, which eventually become resistant to all treatments, and thereby provide a large and important opportunity for novel drugs. Notwithstanding this potential, we are focused on the treatment of central nervous system malignancies and especially GBM. Although less prevalent than some larger categories of solid tumors, cancers of the central nervous system are particularly aggressive and resistant to treatment. The prognosis for such patients can be particularly grim and the treatment options available to their physicians are among the most limited of any cancer.

 

The American Cancer Society has estimated 23,770 new cases of brain and other nervous system cancers will occur in the United States in 2016, resulting in 16,050 deaths. Despite the severity and poor prognosis of these tumors, there are few FDA-approved drugs on the market.

 

We have proof of concept data for WP1122, including in vitro activity against cancer cell lines, as well as data on survival of animals subjected to xenografts of human brain tumors, including data regarding biodistribution and pharmacokinetics. In non-optimal doses and treatment regimes, WP1122 performed equal to or better than the current market leader, temozolomide and provided for superior survival for animals treated in combination with temozolomide.

 

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Scientific Rationale for WP1122

 

Science has recognized that many cancer cells have a unique metabolism, distinct from that of normal cells. Dubbed the “Warburg Effect” by its discoverer, tumors rely preferentially on glycolysis for the metabolism of glucose, even in the presence of abundant oxygen, for energy (adenosine triphosphate (ATP)) production. This alternative form of energy production makes cancer cells as much as 17 times more dependent on glucose than normal cells.

 

The fundamental mechanism for imaging actively growing tumors using positron emission tomography (PET scans) is the Warburg Effect. A radiolabeled glucose decoy called F18DG accumulates disproportionately in tumors because of their dramatically increased rate of glucose uptake and accumulation.

 

Researchers have theorized that if a tumor’s access to glucose could be blocked the tumor could be starved out of existence. Previous attempts at targeting the metabolism of tumor cells have failed due to the rapid metabolism and short half-life (minutes) of the drugs being investigated. Efforts to target tumor metabolism in the brain were further thwarted by the inability to get glycolytic inhibitors into the brain in sufficient/therapeutic amounts due to the presence of what is called the “blood brain barrier”.

 

We believe WP1122 has the potential for developing a technology platform for enabling increased cellular uptake, increased drug half-life and, importantly, an increased ability to cross the blood brain barrier, enabling greater uptake in the brain. Our approach was inspired by the same principle that distinguishes morphine from heroin. Heroin is chemically the diacetyl ester of morphine. While morphine has a limited ability to cross the blood brain barrier (making it a good candidate for pain killing without impairing mental function), its diacetyl form, heroin, has the ability to accumulate in the brain by 10 to 100 times more than morphine. Once across the blood brain barrier, the acetyl groups are cleaved off by natural enzyme esterases, leaving pure morphine to accumulate in the brain. Similarly, we believe, based on pre-clinical testing, that WP1122, the diacetyl form of a glucose analog and decoy known as “2-DG”, crosses the blood brain barrier where its acetyl groups are cleaved off, allowing the resulting 2-DG to accumulate in the brain at a much higher rate than free 2-DG can do by itself.

 

Adding to the difficulty in getting free 2-DG across the blood brain barrier in therapeutic quantities is the relatively short half-life of 2-DG. The free form of 2-DG is rapidly metabolized and rendered ineffective within minutes of entering the body. In contrast, WP1122 has a half-life of approximately 6 hours, making it much more feasible to deliver quantities adequate for a therapeutic effect. In addition, we believe WP1122 may represent an improvement to current PET scan diagnostics techniques because of its unique ability to cross the blood brain barrier.

 

Overview of the market for our anti-cancer drugs

 

Cancer is the second leading cause of death in the United States behind heart disease. In 2014, an estimated 14.5 million people in the United States were living with a past or current diagnosis of cancer and, in 2016, the National Institutes of Health estimates that nearly 1.7 million new cases will be diagnosed and almost 600,000 Americans will die from cancer.

 

 

  

Source: American Cancer Society - Cancer Facts & Figures 2016

 

Digestive, reproductive, breast and respiratory cancers comprise 65% of expected cancer diagnoses in 2016, while cancers like leukemia and brain tumors are considered “rare diseases”. Leukemia in particular, can be divided into acute, chronic and other, with acute lymphoblastic leukemia (ALL) and acute myeloid leukemia (AML) comprising 26,540 of the estimated 60,140 new cases expected in the United States this year.

 

The worldwide cancer drug business has been estimated to represent approximately $100 billion in annual sales. Our lead drug, Annamycin, is in a class of drugs referred to as anthracyclines, which are chemotherapy drugs designed to destroy the DNA of targeted cancer cells. The most common approved anthracyclines are daunorubicin and doxorubicin and, prior to the expansion of their generic equivalents, annual revenues generated from anthracyclines have been estimated in the range of $600 million. Acute leukemia is one of a number of cancers that are treated with anthracyclines. One industry report estimates that annual drug revenues generated from the demand for AML-related thereapies in the United States, United Kingdom, France, Germany, Italy and Spain were in the range of $151 million in 2012, and we believe that this number may increase if and when improved AML treatments are available.

 

Our other two active development projects have applications (among others) in the treatment of brain tumors, another rare disease for which there are few available treatments. The leading brain tumor drug is temozolomide, a drug introduced under the brand name Temodar. In 2012, one industry source reported annual revenues of approximately $882 million for Temodar before the expiration of its patent protection, at which point generic versions of the drug began to enter the market and reduce prices.

 

The Orphan Drug Act of 1983 and other legislative initiatives provide incentives and in some cases, accelerated approval pathways for companies that pursue the development of treatments for rare diseases and diseases for which there are few or no acceptable available treatment alternatives. Over the last 10 years, an increasing number of companies have begun using these designations to obtain new drug approvals for drugs where patent coverage has expired and/or where accelerated approval appears possible. An IMS Health report estimated that, in 2013, the sale of drugs with full or partial Orphan Drug status represented approximately $29 billion in revenue. We consider obtaining Orphan Drug status and accelerated approval pathways to be an important part of our development strategy for our drug candidates. Notwithstanding these potential opportunities, we can provide no assurance that our drugs will receive Orphan Drug status or any other special designation that could, among other things, provide for accelerated approval.

 

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Our License Agreements

 

We acquired the rights and obligations under the Patent and Technology License Agreement entered into by and between IntertechBio and MD Anderson dated April 2, 2012 (the “IntertechBio Agreement”). Pursuant to that license agreement, IntertechBio obtained a royalty-bearing, worldwide, exclusive license to intellectual property including patent rights related to our WP1122 Portfolio and to our drug product candidate, WP1122. In consideration, IntertechBio agreed to make payments to MD Anderson, including an up-front payment, license documentation fee, annual maintenance fee, milestone payments and minimum annual royalty payments for sales of products developed under the license agreement. Specifically, under the IntertechBio Agreement, IntertechBio agreed to pay a nonrefundable upfront documentation fee in the amount of $80,000; annual maintenance fee in the amount of $10,000 on the first anniversary of the effective date of the IntertechBio Agreement, $20,000 on the second anniversary of the effective date of the agreement, $40,000 on the third anniversary of the effective date of the agreement, $60,000 on the fourth anniversary of the effective date of the agreement, $80,000 on the fifth anniversary of the effective date of the agreement and $100,000 on the sixth anniversary of the effective date of the agreement, except that such payments will no longer be due upon the first sale of a licensed product. Under the IntertechBio Agreement, IntertechBio also agreed to make a minimum annual royalty in the amount of $200,000 for the first anniversary following the first sale of a licensed product, $400,000 for the second anniversary following the first sale of a licensed product, and $600,000 for the third year following the first sale of a licensed product. IntertechBio also agreed to make one-time milestone payments in the amount of $200,000 upon commencement of a Phase II study for a licensed product, $250,000 upon commencement of a Phase III study for a licensed product, $400,000 upon filing of a New Drug Application (“NDA”) for a licensed product and $500,000 upon receipt of market approval for sale of a licensed product. MD Anderson has the right to terminate the agreement upon advanced notice in the event of a default by IntertechBio. The agreement will also be terminated immediately upon IntertechBio’s insolvency. Additionally, per an October 2015 amendment to the IntertechBio Agreement, MD Anderson has the right to terminate the license agreement if (i) a preclinical toxicology program for a licensed product is not initiated within one year of the of effective date of the amendment, (ii) an investigational new drug application (IND) is not filed with the Food and Drug Administration (FDA) for a Phase I study for a licensed product within three years of the effective date of the amendment, or (iii) a Phase I study for a licensed product is not commenced within five years of the effective date of the amendment. The IntertechBio Agreement will expire upon the expiration of the licensed intellectual property. In August 2015, the IntertechBio Agreement and amendments thereto were assigned to MBI. Under the assignment, we have assumed the rights and obligations of IntertechBio including, without limitation, the right to manufacture, have manufactured, use, import, offer to sell and/or sell products worldwide for any indication under the licensed intellectual property with the right to sublicense. However, the rights obtained pursuant to the assignment of the IntertechBio Agreement are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government. All out-of-pocket expenses incurred by MD Anderson in filing, prosecuting and maintaining the licensed patents have been and shall continue to be assumed by us. We are not required to issue MD Anderson any equity in our company upon the completion of any milestones. On October 8, 2015, IntertechBio entered into a letter agreement with MD Anderson where MD Anderson agreed to receive past due maintenance fees and patent expenses of $98,108 owed by IntertechBio in four installments. The past due amount is related to certain metabolic inhibitor technology license that was assigned to us by IntertechBio and was owed by IntertechBio prior to our acquisition of the license. Pursuant to the letter, IntertechBio Corporation also agreed to pay $65,504 patent fees to a law firm. In order to have the license in good standing, the Company agreed to pay MD Anderson the $98,108 and the $65,504 to a law firm on behalf of IntertechBio Corporation. As of December 31, 2015, $45,000 of the past due amount to MD Anderson and $42,504 to a law firm were still outstanding and were included in accounts payable and accrued liabilities. On January 28, 2016, we entered into a letter agreement with MD Anderson where MD Anderson agreed to receive the remaining outstanding amount on or before the earlier of a) April 30, 2016 or b) four days after our IPO.

 

Upon completion of our acquisition of Moleculin, LLC, we will obtain a royalty-bearing, worldwide, exclusive license to intellectual property rights, including patent rights related to our WP1066 drug product candidate from MD Anderson. Moleculin entered into a June 2010 Patent and Technology License Agreement with MD Anderson (the “Moleculin Agreement”). Under the Moleculin Agreement, Moleculin obtained the right to manufacture, have manufactured, use, import, offer to sell and/or sell products worldwide for any indication under the licensed intellectual property with the right to sublicense. In consideration, Moleculin agreed to make payments to MD Anderson including an up-front payment, milestone payments and minimum annual royalty payments for sales of products developed under the license agreement. Specifically, under the Moleculin Agreement, Moleculin agreed to pay a nonrefundable upfront documentation fee in the amount of $223,585; annual maintenance fee in the amount of $20,000 on the first anniversary of the effective date of the Moleculin Agreement, which shall increase in $10,000 increments on an annual basis thereafter up to a maximum of $100,000, except that such payments will no longer be due upon marketing approval in any country of a licensed product. Under the Moleculin Agreement, Moleculin also agreed to make a minimum annual royalty payment to MD Anderson in the amount of $200,000 after the first sale of a licensed product. Moleculin also agreed to make one-time milestone payments in the amount of $150,000 upon commencement of the first Phase III study for a licensed product within the United States, Europe, China or Japan; $500,000 upon submission of the first NDA for a licensed product in the United States; and $600,000 upon receipt of the first marketing approval for sale of a licensed product in the United States. MD Anderson has the right to terminate the Moleculin Agreement upon advanced notice in the event of a default by Moleculin. Moleculin has the right to terminate the Moleculin Agreement for any reason upon advanced written notice to MD Anderson. The Moleculin Agreement will also be terminated immediately upon Moleculin’s insolvency. Per an October 2015 amendment to the Moleculin Agreement, MD Anderson relinquished any rights to any equity previously due MD Anderson in Moleculin. Upon completion of our acquisition of Moleculin, LLC, we will assume the rights and obligations of Moleculin, LLC including, without limitation, the right to manufacture, have manufactured, use, import, offer to sell and/or sell products worldwide for any indication under the licensed intellectual property with the right to sublicense. However, the rights we have obtained pursuant to the assignment of the Moleculin Agreement are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government. All out-of-pocket expenses incurred by MD Anderson in filing, prosecuting and maintaining the licensed patents have been and shall continue to be assumed by us. We are not required to issue MD Anderson any equity in our company upon the completion of any milestones.

 

On October 8, 2015, Moleculin entered into a letter agreement with MD Anderson for Moleculin’s past due fees to MD Anderson in the amount of $691,186 of which $300,000 has been paid prior to the letter agreement. Pursuant to the letter agreement, MD Anderson agreed to receive the remaining past due fee in three installments: a) $125,000 due on October 31, 2015; b) $175,000 due on January 31, 2016; and c) $91,186 due on April 30, 2016. Moleculin paid $125,000 to MD Anderson on November 2, 2015. On October 19, 2015, the agreement was amended for the milestone payments. The amended milestone payments are as follows: (i) commencement of Phase III Study for first licensed drug/product within the United States, Europe, China or Japan - $150,000; (ii) submission of the first NDA within the United States - $500,000; and (iii) receipt of first marketing approval for sale of a license product in the United States $600,000. On January 28, 2016, we and Moleculin entered into a letter agreement with MD Anderson where MD Anderson agreed to receive the remaining outstanding amount on or before the earlier of April 30, 2016 or four days after our IPO.

 

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Moleculin, LLC out-licensed certain intellectual property rights including rights covering the WP1066 drug product candidate to Dermin (“Moleculin Out-License Agreement”). The licensed intellectual property includes rights obtained by Moleculin pursuant to a license agreement with MD Anderson (“Moleculin-MD Anderson Agreement”). Under the Moleculin Out-License Agreement, Moleculin granted Dermin a royalty-bearing, exclusive license to manufacture, have manufactured, use, import, offer to sell and/or sell products in the field of human therapeutics under the licensed intellectual property in the countries of Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romani, Slovakia and Ukraine (“licensed territories”). Additionally, Moleculin agreed to develop and provide a dossier containing data related to the licensed subject matter to Dermin. In consideration, Dermin agreed to make payments to Moleculin, including upfront development fees, annual royalty payments, sublicense fee, and milestone payments. Specifically, under the Moleculin Out-License Agreement, Dermin agreed to make a nonrefundable upfront dossier development payment in the amount of $100,000; a service fee in the amount of $100,000 for assistance provided to Dermin in securing additional funding; and royalty payments on sales of any licensed product at a rate of no less than the royalty rate due to MD Anderson under the Moleculin-MD Anderson Agreement plus 1%. Dermin also agreed to provide a percentage of certain consideration Dermin receives pursuant to sublicense agreements in the amount of 25% prior to completion of a Phase IIb clinical study in a licensed territory and 10% on or after completion of a Phase IIb clinical study in a licensed territory, provided, however, if the sublicense fee is less than the sublicense fee due to MD Anderson under the Moleculin-MD Anderson Agreement, then Dermin shall be obligated to pay no less than the amount due to MD Anderson plus 5%. Also under the Moleculin Out-License Agreement, Dermin agreed to pay all out-of-pocket expenses incurred by Moleculin in filing, prosecuting and maintaining the licensed patents for which the license has been granted. The parties to the Moleculin Out-License Agreement each have the right to terminate the agreement upon advanced notice in the event of a default by the other party. Dermin has the right to terminate the agreement if (i) Moleculin fails to timely provide the dossier to Dermin after Moleculin’s filing of an NDA for a licensed product in the United States; or (ii) Moleculin does not cooperate in assisting Dermin to secure funds to develop the licensed subject matter. Upon completion of our acquisition of Moleculin, we will assume the rights and obligations of Moleculin under the Moleculin Out-License Agreement.

 

We acquired the rights and obligations to the Patent and Technology License Agreement entered into by and between IntertechBio and Dermin dated April 15, 2011 (the “IntertechBio Out-License Agreement”). Pursuant to that license agreement, IntertechBio out-licensed intellectual property rights, including rights covering the WP1122 drug product candidate obtained from MD Anderson pursuant to the IntertechBio Agreement to Dermin. Under the IntertechBio Out-License Agreement, IntertechBio granted Dermin a royalty-bearing, exclusive license to manufacture, have manufactured, use, import, offer to sell and/or sell products in the field of human therapeutics under the licensed intellectual property in the countries of Belarus, Russia, Kazakhstan, Uzbekistan, Turkmenistan, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Ukraine (“licensed territories”). Additionally, IntertechBio agreed to develop and provide a dossier containing data related to the licensed subject matter to Dermin. In consideration, Dermin agreed to make payments to IntertechBio, including upfront development fees, annual royalty payments, sublicense fees, and milestone payments. Specifically, under the IntertechBio Out-licensing Agreement, Dermin agreed to make a nonrefundable upfront dossier development fee in the amount of $35,000; a service fee in the amount of $40,000 for assistance provided to Dermin in securing additional funding; and royalty payments on sales of any licensed product at a rate of no less than the royalty rate due to MD Anderson under the IntertechBio Agreement plus 2%. Dermin also agreed to provide a percentage of certain consideration Dermin receives pursuant to sublicense agreements in the amount of 25% prior to completion of a Phase IIb clinical study in a licensed territory and 10% on or after completion of a Phase IIb clinical study in the licensed territories, provided, if the sublicense fee is less than the sublicense fee due to MD Anderson under the IntertechBio Agreement, then Dermin shall be obligated to pay not less than the amount due to MD Anderson plus 5%. Also under the IntertechBio Out-Licensing Agreement, Dermin agreed to pay all out-of-pocket expenses incurred by IntertechBio in filing, prosecution and maintaining the licensed patents for which the license has been granted. The parties to the IntertechBio Out-licensing Agreement each have the right to terminate the agreement upon advanced notice in the event of a default by the other party. Dermin has the right to terminate the agreement if (i) IntertechBio fails to timely provide the dossier to Dermin after IntertechBio’s filing of an NDA for a licensed product in the United States; or (ii) IntertechBio does not cooperate in assisting Dermin to secure funds to develop the licensed subject matter.

 

We will enter into an out-licensing agreement with HPI, pursuant to which we will grant HPI certain intellectual property rights, including rights covering the potential drug candidate, WP1066 (“HPI Out-Licensing Agreement”). Under the HPI Out-Licensing Agreement we will be required to make an upfront $100,000 payment and quarterly payments in the amount of $37,500 for the first four quarters following the effective date of the HPI Out-Licensing Agreement and $75,000 per quarter for the following eight quarters thereafter in consideration for the right to development data related to the development of licensed products. Notwithstanding our obligation to make the foregoing payments, the HPI Out-Licensing Agreement does not obligate HPI to conduct any specific research or to meet any milestones. Upon payment in the amount of $1,000,000 to HPI within three years of the effective date of the HPI Out-Licensing Agreement we will regain all rights to the licensed subject matter and rights to any and all development data and any regulatory submissions including any IND, NDA or ANDA related to the licensed subject matter. In the event that we do not exercise our right to regain our rights to the licensed subject matter within three years of the effective date of the HPI Out-Licensing Agreement the license granted to HPI shall convert to an exclusive license upon HPI’s written notice and we shall be obligated to transfer all existing data relating to licensed subject matter including any development data and any IND to HPI. The HPI Out-Licensing Agreement will be rendered void in its entirety if we are unable to raise gross proceeds of at least $7,000,000 in this offering no later than June 30, 2016.

 

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Competition

 

We operate in a highly competitive segment of the pharmaceutical market, which market is highly competitive as a whole. We face competition from numerous sources including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. Many of our competitors may have significantly greater financial, product development, manufacturing and marketing resources. Additionally, many universities and private and public research institutes are active in cancer research, and some may be in direct competition with us. We may also compete with these organizations to recruit scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

 

The unmet medical need for more effective cancer therapies is such that anticancer drugs are, by far, the leading class of drugs in development. These include a wide array of products against cancer targeting many of the same indications as our drug candidates. While the introduction of newer targeted agents may result in extended overall survival, induction therapy regimens are likely to remain a cornerstone of cancer treatment in the foreseeable future.

 

There are a number of established therapies that may be considered competitive for the cancer indications for which we intend to develop our lead product, Annamycin. A key consideration when treating AML patients is whether the patient is suitable for intensive therapy. The standard of care for the treatment of newly diagnosed AML patients who can tolerate intensive therapy is cytarabine in combination with an anthracycline (i.e., doxorubicin or daunorubicin) – for some patients, primarily those less than 60 years of age, a stem cell transplant could also be considered if the induction regimen is effective in attaining a CR (Complete Response). The regimen of cytarabine in combination with an anthracycline has been the standard of care for decades. A patient not suitable for intensive therapy may be offered the option for low-intensity therapy such as low-dose cytarabine, azacitidine or decitabine. It should be noted that, in the U.S., these are not approved by the FDA for the treatment of AML patients and there remains no effective therapy for these patients or for relapsed or refractory AML. The initial focus for Annamycin development is in patients for whom the standard induction regimen has failed. Also, several major pharmaceutical companies and biotechnology companies are aggressively pursuing new cancer development programs for the treatment of AML.

 

A number of attempts have been made or are under way to provide an improved treatment for AML. Drugs attempting to target a subset of AML patients who present with particular anomalies involving a gene referred to as FLT3 are currently in clinical trials. Other approaches to improve the effectiveness of induction therapy are in early stage clinical trials and, although they do not appear to address the underlying problems with anthracyclines, we can provide no assurance that such improvements, if achieved, would not adversely impact the need for improved anthracyclines. A modified version of doxorubicin designed to reduce cardiotoxicity is in clinical trials for the treatment of sarcoma and, although this drug does not appear to address multidrug resistance and is not currently intended for the treatment of acute leukemia, we can provide no assurance that it will not become a competitive alternative to Annamycin. Although we are not aware of any other single agent therapies in clinical trials that would directly compete against Annamycin in the treatment of relapsed and refractory AML, we can provide no assurance that such therapies are not in development, will not receive regulatory approval and will reach market before our drug candidate Annamycin. In addition, any such competing therapy may be more effective and / or cost-effective than ours.

 

Government Regulation

 

Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product candidates that we develop must be approved by the FDA before they may be legally marketed.

 

In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act, and implementing regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a non-biological pharmaceutical product may be marketed in the U.S. generally involves the following:

 

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· Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicable regulations;

 

· Submission to the FDA of an Investigational New Drug, or IND, which must become effective before human clinical studies may begin;

 

· Performance of adequate and well-controlled human clinical studies according to the FDA’s current good clinical practices (“GCP”), to establish the safety and efficacy of the proposed pharmaceutical product for its intended use;

 

· Submission to the FDA of an NDA for a new pharmaceutical product;

 

· Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the pharmaceutical product is produced to assess compliance with the cGMP, to assure that the facilities, methods and controls are adequate to preserve the pharmaceutical product’s identity, strength, quality and purity;

 

· Potential FDA audit of the preclinical and clinical study sites that generated the data in support of the NDA; and

 

· FDA review and approval of the NDA.

 

The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals are inherently uncertain.

 

Before testing any compounds with potential therapeutic value in humans, the pharmaceutical product candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the pharmaceutical product candidate. These early proof-of-principle studies are done using sound scientific procedures and thorough documentation. The conduct of the single and repeat dose toxicology and toxicokinetic studies in animals must comply with federal regulations and requirements including good laboratory practices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA has concerns and notifies the sponsor. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical study can begin. If resolution cannot be reached within the 30-day review period, either the FDA places the IND on clinical hold or the sponsor withdraws the application. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during clinical studies due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical studies to begin, or that, once begun, issues will not arise that suspend or terminate such clinical study.

 

Clinical studies involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical study sponsor’s control. Clinical studies are conducted under protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, how the results will be analyzed and presented and the parameters to be used to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND. Clinical studies must be conducted in accordance with GCP. Further, each clinical study must be reviewed and approved by an independent institutional review board (“IRB”) at, or servicing, each institution at which the clinical study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical study subject or his or her legal representative and must monitor the clinical study until completed.

 

Human clinical studies are typically conducted in three sequential phases that may overlap or be combined:

 

· Phase 1: The pharmaceutical product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients, with a goal of characterizing the safety profile of the drug and establishing a maximum tolerable dose (“MTD”). Our pharmaceutical products fall into this latter category because its products are intended to treat cancer and contain cytotoxic agents. Hence, our Phase 1 studies are conducted in late-stage cancer patients whose disease has progressed after treatment with other agents.

 

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· Phase 2: With the maximum tolerable dose established in a Phase 1 trial, the pharmaceutical product is evaluated in a limited patient population at the MTD to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases, to determine dosage tolerance, optimal dosage and dosing schedule and to identify patient populations with specific characteristics where the pharmaceutical product may be more effective.

 

· Phase 3: Clinical studies are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. The studies must be well controlled and usually include a control arm for comparison. One or two Phase 3 studies are usually required by the FDA for an NDA approval, depending on the disease severity and other available treatment options. In some instances, where a Special Protocol Assessment is granted by the FDA, an NDA approval may be obtained based on Phase 2 clinical data with the understanding that the approved drug can be sold subject to a confirmatory Phase 3 trial to be conducted post-approval.

 

Post-approval studies, or Phase 4 clinical studies, may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication. The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product.

 

Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical studies may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with the IRB’s requirements or if the pharmaceutical product has been associated with unexpected serious harm to patients.

 

Concurrent with clinical studies, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the pharmaceutical product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the pharmaceutical product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final pharmaceutical product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the pharmaceutical product candidate does not undergo unacceptable deterioration over its shelf life.

 

The results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the pharmaceutical product, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees. A waiver of such fees may be obtained under certain limited circumstances.

 

The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act (“PDUFA”), the FDA has 10 months after the 60-day filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six months after the 60-day filing date for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs.

 

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After the NDA submission is accepted for filing, the FDA reviews the NDA application to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel pharmaceutical products or pharmaceutical products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the pharmaceutical product approval process, the FDA also will determine whether a risk evaluation and mitigation strategy (“REMS”) is necessary to assure the safe use of the pharmaceutical product. If the FDA concludes that a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without a REMS, if required.

 

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites as well as the site where the pharmaceutical product is manufactured to assure compliance with GCP and cGMP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. In addition, the FDA will require the review and approval of product labeling.

 

The NDA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical studies are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application.

 

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical studies designed to further assess pharmaceutical product safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

 

Expedited Development and Review Programs

 

The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new pharmaceutical products that meet certain criteria. Specifically, new pharmaceutical products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Unique to a Fast Track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, if the FDA determines that the schedule is acceptable and if the sponsor pays any required user fees upon submission of the first section of the NDA.

 

Any product submitted to the FDA for market, including a Fast Track program, may also be eligible for other FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or if it offers a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new pharmaceutical product designated for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Pharmaceutical products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that the products may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a pharmaceutical product receiving accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could impact the timing of the commercial launch of the product. Fast Track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.

 

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Post-Approval Requirements

 

Any pharmaceutical products for which the Company receives FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, prohibitions on promoting pharmaceutical products for uses or in patient populations that are not described in the pharmaceutical product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities and promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, actions by the U.S. Department of Justice and/or U.S. Department of Health and Human Services’ Office of Inspector General, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although physicians may prescribe legally available pharmaceutical products for off-label uses, manufacturers may not directly or indirectly market or promote such off-label uses.

 

We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Pharmaceutical product manufacturers and other entities involved in the manufacture and distribution of approved pharmaceutical products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.

 

Patent Term Restoration and Marketing Exclusivity

 

Depending upon the timing, duration and specifics of the FDA approval of the use of our pharmaceutical product candidates, some of our products covered by U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved pharmaceutical product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent unless an extension is obtained. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and renders a decision on the application for any patent term extension or restoration. In the future, we may be able to apply for extension of patent term for one of our currently licensed patents or any future owned patents to add patent life beyond its current expiration date, depending upon the expected length of the clinical studies and other factors involved in the filing of the relevant NDA.

 

Market exclusivity provisions under the U.S. Food, Drug, and Cosmetic Act can also delay the submission or the approval of certain applications of other companies seeking to reference another company’s NDA. Currently seven years of reference product exclusivity are available to pharmaceutical products designated as Orphan Drugs, during which the FDA may not approve generic products relying upon the reference product’s data. Pediatric exclusivity is another type of regulatory market exclusivity in the U.S. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of pediatric clinical studies in accordance with an FDA-issued “Written Request” for such a clinical study.

 

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Pharmaceutical Coverage, Pricing and Reimbursement

 

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product candidates for which we obtain regulatory approval. In the United States and in markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part upon the availability of reimbursement from third-party payors. Third-party payors include government payors such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a pharmaceutical product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the pharmaceutical product. Third-party payors may limit coverage to specific pharmaceutical products on an approved list, or formulary, which might not, and frequently does not, include all of the FDA-approved pharmaceutical products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. A payor’s decision to provide coverage for a pharmaceutical product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, in the United States there is a growing emphasis on comparative effectiveness research, both by private payors and by government agencies. We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our pharmaceutical product candidates may not be considered medically necessary or cost-effective. To the extent other drugs or therapies are found to be more effective than our products, payors may elect to cover such therapies in lieu of our products and/or reimburse our products at a lower rate.

 

Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical studies that compare the cost-effectiveness of a particular pharmaceutical product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

 

The marketability of any pharmaceutical product candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect this will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

 

International Regulation

 

In addition to regulations in the United States, there are a variety of foreign regulations governing clinical studies and commercial sales and distribution of our current and future product candidates. Whether or not FDA approval is obtained for a product, approval of a product must be obtained by the comparable regulatory authorities of foreign countries, or jurisdictions such as the EU, before clinical studies or marketing of the product can commence in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from country to country. In addition, certain regulatory authorities may require us to repeat previously conducted preclinical and/or clinical studies under specific criteria for approval in their respective country or jurisdictions, which may delay and/or increase the cost of approval in certain markets targeted for approval by us.

 

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Employees

 

As of March 15, 2016, we had one full-time employee and two part-time employees, and accordingly, a high percentage of the work performed for our development projects is outsourced to qualified independent contractors.

 

Legal Proceedings

 

We are not subject to any litigation.

 

Properties

 

Our corporate and executive offices are in located in a leased facility in Houston, Texas. The current lease is month-to-month but is expected to be renegotiated in the next six months. We believe our facilities are sufficient to meet our current needs and that suitable space will be available as and when needed. We do not own any real property.

 

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MANAGEMENT

 

The following table sets forth certain information regarding our executive officers and directors as of March 15, 2016.

 

Name   Age   Position
Walter V. Klemp   56   Chairman and Acting Chief Executive Officer
Louis Ploth, Jr.   61   Chief Financial Officer
Donald Picker   70   President and Chief Operating Officer
Robert E. George   65   Director Nominee
Michael D. Cannon   70   Director Nominee
Jacqueline Northcut   54   Director Nominee

 

Set forth below is biographical information about each of the individuals named in the tables above:

 

Walter V. Klemp - Chairman of the Board and Acting Chief Executive Officer . Mr. Klemp is a co-founder of our company, and has served as our chairman and acting chief executive officer since July 2015. Since 2006, Mr. Klemp has served as the chairman, co-founder and part-time chief executive officer of Moleculin, LLC. Since November 2011, Mr. Klemp has also served as chief executive officer of Soliton, Inc., a medical device company focused on developing new technology for use in aesthetics. Mr. Klemp served as president and chief executive officer of Zeno Corporation from 2004 to April 2011, where he developed and marketed dermatology devices and drugs from concept through FDA approval and market launch. From 1987 to 2000, Mr. Klemp served as chief executive officer and chairman of Drypers Corporation, a publicly traded multinational consumer products company that was listed as #1 on the INC 500 List of America’s Fastest Growing Companies. We believe that Mr. Klemp’s history with our company and background, coupled with his extensive experience in the medical field, provide him with the qualifications to serve as a director. Mr. Klemp currently provides services as needed by us, which we estimate does not exceed 10 hours per week.

 

Louis Ploth, Jr. - Chief Financial Officer . Mr. Ploth has served as our chief financial officer since August 2015 and as our president from August 2015 until January 2016. From August 2011 until August 2015, Mr. Ploth worked as a financial and business development consultant at his own firm, Corporate Administrative Solutions, Inc. (“CAS”). Prior to starting CAS, Mr. Ploth worked as a consultant from February 2010 to August 2011. Mr. Ploth was previously employed by Repros Therapeutics Inc. from October 1993 through February 2010 where he served as chief financial officer, and secretary since January 2001 through August 2009 and vice president, business development from January 2001 through April 2009. Mr. Ploth has a B.S. degree from Montclair State University.

 

Donald Picker, PhD - President and Chief Operating Officer. Dr. Picker joined Moleculin in 2007 as its chief executive officer and has served as our chief operating officer since July 2015 and as our president since January 2016. In 2007, Dr. Picker became the chief executive officer of IntertechBio. From 2006 through 2007, Dr. Picker was the President of Tapestry Pharmaceuticals. From 1998 to 2003, Dr. Picker was CEO of Synergy Pharmaceuticals. Synergy was merged into Callisto Pharmaceuticals where he was vice present of research and development until 2006. Dr. Picker led the development of carboplatin and cisplatin from concept to FDA approval. These drugs were among the first metals based chemotherapy drugs every approved by the FDA. Dr. Picker received his BS degree from Brooklyn Polytechnic University and his PhD from SUNY Albany in 1975. Dr. Picker is currently devoting only part of his work time to us. Dr. Picker currently provide services as needed by us, which we estimate does not exceed 10 hours per week. Upon closing of this offering, Dr. Picker will become a full time officer of our company.

 

Robert E. George - Director Nominee . Mr. George has agreed to join our board of directors upon the date we are listed on the Nasdaq Capital Market. He was a partner with the international accounting firm of PricewaterhouseCoopers (PWC) for 27 years until 2010, where his client service sectors included healthcare, among others. Mr. George currently serves as Chairman of the Audit Committee for The University of Texas Health Science Center at Houston and, since June 2011, has been a member of The University of Texas at Austin, McCombs Graduate School of Business accounting faculty. Since January 2014, he also has been the Director of Energy Programs and Conferences for the Professional Development Institute. His past experience includes being an Editorial Advisor to the American Institute of Certified Public Accountants Journal of Accountancy and a contributing author for two accounting books. Mr. George graduated with accounting honors from the University of North Texas.

 

Michael D. Cannon - Director Nominee . Mr. Cannon has agreed to join our board of directors upon the date we are listed on the Nasdaq Capital Market. Between 1997 and 2004, Mr. Cannon was the Chief Science Officer, EVP and a Director of SICOR, Inc., a U.S. public pharmaceutical company, until its acquisition by Teva Pharmaceutical Industries, Inc. SICOR focused on generic finished dosage injectable pharmaceuticals, active pharmaceutical ingredients and generic biopharmaceuticals. While at SICOR, he oversaw the acquisition and development of the biological business, including initiation and management of international partnerships, as well as on the design, construction, and licensure of protein manufacturing facilities. From July 2005 to December 2009, Mr. Cannon was a member of the scientific advisory board of Trevi Health Ventures LP, a New York investment fund specializing in health care investments. From May 2005 until December 2011, Mr. Cannon was a partner in a private partnership formed to evaluate and perform preliminary development of intellectual property in the healthcare sector. Since 2005, Mr. Cannon has served as a board member for several private companies. Mr. Cannon currently serves on the board of directors of 4 privately held biotech companies, including 2 focused on cancer-related treatments, and has been a partner and advisor in several biotech venture firms. Mr. Cannon has a degree in chemistry from Fordham College.

 

Jacqueline Northcut - Director Nominee . Ms. Northcut has agreed to join our board of directors upon completion of our listing on the Nasdaq Capital Market. Ms. Northcut served as President and CEO of BioHouston from 2002 until 2015. BioHouston, Inc. is a non-profit organization founded by Houston, Texas area academic/research institutions to assist in the commercialization efforts of development stage life science and biotechnology companies. During this same period, Ms. Northcut became the founder and CEO of the Texas BioAlliance, an organization created to further assist with development efforts around the state. In these capacities she organized the Texas Life Science Forum and the Texas Life Science CEO Summit, helping connect Biotech CEOs with funding, technical, regulatory and political resources. She also created the Women in Science with Excellence program, honoring women in the Houston scientific community. Ms. Northcut was previously a Partner in the international accounting firm of Arthur Andersen & Co., where she worked from 1984 to 2002. Ms. Northcut received her BBS from Harding University in 1984.

 

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Director Independence

 

The rules of the Nasdaq Stock Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the Nasdaq Rules, a director will only qualify as an independent director if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that our board of directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we pay to the director and any affiliations with the company. 

 

Our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of our directors or director nominees, with the exception of Messrs. Klemp and [*], are independent as defined under the Nasdaq Rules. Our board of directors will appoint Mr. George, Mr. Cannon and Ms. Northcut to the audit committee and to our compensation committee, and such director nominees satisfy the independence standards for these committees established by the Securities and Exchange Commission, or SEC, and the Nasdaq Rules, as applicable. In addition, our board of directors will appoint Mr. George, Mr. Cannon and Ms. Northcut to our nominating and governance committee.

 

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Committees of the Board of Directors

 

Our board of directors will prior to this offering establish an audit committee, a compensation committee and a nominating and governance committee. Each of these committees will operate under a charter that will be approved by our board of directors prior to this offering.

 

Audit Committee. Our audit committee will consist of three independent directors. The members of the audit committee will be Mr. George, who will chair the committee, Mr. Cannon and Ms. Northcut. The audit committee consists exclusively of directors who are financially literate. In addition, Mr. George will be considered an “audit committee financial expert” as defined by the SEC’s rules and regulations.

 

The audit committee responsibilities include:

 

overseeing the compensation and work of and performance by our independent auditor and any other registered public accounting firm performing audit, review or attestation services for us;

 

engaging, retaining and terminating our independent auditor and determining the terms thereof;

 

assessing the qualifications, performance and independence of the independent auditor;

 

evaluating whether the provision of permitted non-audit services is compatible with maintaining the auditor’s independence;

 

reviewing and discussing the audit results, including any comments and recommendations of the independent auditor and the responses of management to such recommendations;

 

reviewing and discussing the annual and quarterly financial statements with management and the independent auditor;

 

producing a committee report for inclusion in applicable SEC filings;

 

reviewing the adequacy and effectiveness of internal controls and procedures;

 

establishing procedures regarding the receipt, retention and treatment of complaints received regarding the accounting, internal accounting controls, or auditing matters and conducting or authorizing investigations into any matters within the scope of the responsibility of the audit committee; and

 

reviewing transactions with related persons for potential conflict of interest situations.

 

Compensation Committee. Our compensation committee will consist of three independent directors. The members of the Compensation Committee are [*], who will chair the committee, [*] and [*]. The committee has primary responsibility for:

 

reviewing and recommending all elements and amounts of compensation for each executive officer, including any performance goals applicable to those executive officers;

 

reviewing and recommending for approval the adoption, any amendment and termination of all cash and equity-based incentive compensation plans;

 

once required by applicable law, causing to be prepared a committee report for inclusion in applicable SEC filings;

 

approving any employment agreements, severance agreements or change of control agreements that are entered into with the CEO and certain executive officers; and

 

reviewing and recommending the level and form of non-employee director compensation and benefits.

 

Nominating and Governance Committee. The Nominating and Governance Committee will consist of three independent directors. The members of the Nominating and Governance Committee are [*], who will chair the committee, [*] and [*]. The Nominating and Governance Committee’s responsibilities include:

 

recommending persons for election as directors by the stockholders;

 

recommending persons for appointment as directors to the extent necessary to fill any vacancies or newly created directorships;

 

reviewing annually the skills and characteristics required of directors and each incumbent director’s continued service on the board;

 

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reviewing any stockholder proposals and nominations for directors;

 

advising the board of directors on the appropriate structure and operations of the board and its committees;

 

reviewing and recommending standing board committee assignments;

 

developing and recommending to the board Corporate Governance Guidelines, a Code of Business Conduct and Ethics and other corporate governance policies and programs and reviewing such guidelines, code and any other policies and programs at least annually;

 

making recommendations to the board as to determinations of director independence; and

 

making recommendations to the board regarding corporate governance based upon developments, trends, and best practices.

 

The Nominating and Governance Committee will consider stockholder recommendations for candidates for the board of directors.

 

Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the stockholder’s nomination must be delivered to the Secretary of the company no later than 120 days prior to the one year anniversary date of the prior year’s annual meeting.

 

Code of Business Conduct and Ethics

 

Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following this offering, a copy of the code will be made available on the Corporate Governance section of our website, which is located at www. moleculin.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K filed with the SEC.

 

Compensation of Executive Officers

 

Summary Compensation Table

 

MBI was formed in July 2015. To provide you with a complete picture of the compensation paid to our executive officers for the fiscal years ended December 31, 2015 and 2014 when they acted in executive capacities for Moleculin and MBI, the following table and the related notes set forth information relating to the compensation paid to each of the named executive officers by Moleculin and us.

 

Name and Principal Position   Year     Salary($)     Option
Awards
($) (1)
    Total ($)  
Moleculin:                                
Walter V. Klemp, Chairman and Acting Chief Executive Officer     2014       162,600        ----       162,600  
      2015       40,650        ----       40,650  
Don Picker, President and Chief Operating Officer     2014       162,600        ----       162,600  
      2015       47,425        ----       47,425  
                                 
MBI:                                
Walter V. Klemp, Chairman and Acting Chief Executive Officer     2015       ----       ----       ----  
Don Picker, President and Chief Operating Officer     2015       ----       ----       ----  
Louis Ploth, Jr., Chief Financial Officer     2015       44,141 (2)       27,390       71,531  

 

(1)             Represents the full grant date fair value of the option grant was calculated in accordance with FASB ASC Topic 718. For a summary of the assumptions made in the valuation of these awards, please see Note 3 to our consolidated financial statements included elsewhere in this prospectus.

 

(2)             Includes $7,000 of consulting fees paid during the year.

 

Employment Agreements

 

None of our named executive officers are currently party to any employment agreements.

 

Upon the closing of this offering, we intend to enter into an employment agreement with Mr. Klemp to continue to serve as our acting chief executive officer for a three-year term with annual extensions by mutual agreement. The employment agreement will provide for an annual salary of $300,000 per year. To the extent we retain a full-time chief executive officer during the term of the employment agreement, the agreement will convert to a consulting agreement.

 

Equity Awards

 

The following table sets forth certain information concerning our outstanding options for our named executive officers at December 31, 2015.

 

Outstanding Equity Awards At Fiscal Year-End—2015

 

Name   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Option
Exercise Price
($)
    Option
Expiration Date
Louis Ploth     -       200,000 (1)     0.20     12/10/2025

 

(1) The unvested shares underlying the option vest in equal annual installments over a four-year period commencing December 2017, provided Mr. Ploth is employed on each vesting date.

 

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Director Compensation

 

We do not currently have any independent board members. Mr. Klemp does not receive any additional compensation for serving as a director.

 

Scientific Advisory Board

 

Our executive team is supported by our scientific advisory board, the members of which include scientists experienced in the fields in which we pursue. The members of our Scientific Advisory Board currently serve without compensation, but we intend to compensate the members in the future based on our utilization of their time.

 

Waldemar Priebe, PHD, Chair of Scientific Advisory Board (SAB) . Waldemar Priebe is a founder of and one of the founding scientists at Moleculin and serves as head of our Scientific Advisory Board. Dr. Priebe is also a Professor of Medicinal Chemistry at the Department of Experimental Therapeutics at The University of Texas MD Anderson Cancer Center. Dr. Priebe led the discovery of the molecules that form the basis for our lead drug candidates. As a founder or founding scientist at a number of successful biotechnology firms such as Aronex Pharmaceuticals, Houston Pharmaceuticals, Reata Pharmaceuticals, and IntertechBio, Dr. Priebe has been integral in advancing several drugs through the pipeline, three of which are currently in clinical development. He has also developed several new small molecule compounds that have been licensed as potential drugs.

 

Charles Conrad, MD, SAB Member . Charles Conrad is one of the founding scientists at Moleculin and has more than 15 years of industry experience and has served as a Principal Investigator (PI) or co-PI in numerous clinical trials. Dr. Conrad worked as a Professor of Neuro-Oncology and also held a joint appointment in the Department of Experimental Therapeutics at the University of Texas MD Anderson Cancer Center. He has been a founding scientist at a number of biotechnology firms, including Zeno Corporation and DNAtrix. Dr. Conrad recently joined Texas Oncology where he is the Director of New Drug Development for The Austin Brain Tumor Center.  

 

2015 Stock Plan

 

As of the date of this offering, we will have adopted a 2015 Stock Plan (the “Plan”). The Plan is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards and stock unit awards to key employees and non-employee directors. The purpose of the Plan is to recognize contributions made to our company and its subsidiaries by key employees and non-employee directors and to provide them with additional incentive to achieve the objectives of our company. The following is a summary of the Plan.

 

Administration .  The Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the Plan as the “Committee”). The Committee will have full authority to select the individuals who will receive awards under the Plan, determine the form and amount of each of the awards to be granted and establish the terms and conditions of awards.

 

Number of Shares of Common Stock.  The number of shares of the common stock that may be issued under the Plan is 2,500,000. Shares issuable under the Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award made under the Plan for any reason, the shares subject to the award will again be available for issuance. Any shares subject to an award that are delivered to us by a participant, or withheld by us on behalf of a participant, as payment for an award or payment of withholding taxes due in connection with an award will not again be available for issuance, and all such shares will count toward the number of shares issued under the Plan. The number of shares of common stock issuable under the Plan is subject to adjustment, in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the Plan. No award granted under the Plan may be transferred, except by will, the laws of descent and distribution.

 

Eligibility .  All employees designated as key employees for purposes of the Plan and all non-employee directors are eligible to receive awards under the Plan. On November 1, 2015, three key employees and all non-employee directors were eligible to participate in the Plan.

 

Awards to Participants .  The Plan provides for discretionary awards of stock options, stock awards and stock unit awards to participants. Each award made under the Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the Plan.

 

Stock Options The Committee has the discretion to grant non-qualified stock options or incentive stock options to participants and to set the terms and conditions applicable to the options, including the type of option, the number of shares subject to the option and the vesting schedule; provided that the exercise price of each stock option will be the closing price of the common stock on the date on which the option is granted (“fair market value”), each option will expire ten years from the date of grant and no dividend equivalents may be paid with respect to stock options. It is intended that stock options qualify as “performance-based compensation” under Section 162(m) of the Code and thus be fully deductible by us for federal income tax purposes, to the extent permitted by law.

 

In addition, an incentive stock option granted to a key employee is subject to the following rules: (i) the aggregate fair market value (determined at the time the option is granted) of the shares of common stock with respect to which incentive stock options are exercisable for the first time by a key employee during any calendar year (under all incentive stock option plans of the company and its subsidiaries) cannot exceed $100,000, and if this limitation is exceeded, that portion of the incentive stock option that does not exceed the applicable dollar limit will be an incentive stock option and the remainder will be a non-qualified stock option; (ii) if an incentive stock option is granted to a key employee who owns stock possessing more than 10% of the total combined voting power of all class of stock of the company, the exercise price of the incentive stock option will be 110% of the closing price of the common stock on the date of grant and the incentive stock option will expire no later than five years from the date of grant; and (iii) no incentive stock option can be granted after ten years from the date the Plan was adopted.

 

Stock Awards .  The Committee has the discretion to grant stock awards to participants. Stock awards will consist of shares of common stock granted without any consideration from the participant or shares sold to the participant for appropriate consideration as determined by the Board. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a shareholder with respect to the shares awarded to him or her and will have the rights of a shareholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by us and will be paid to the holder of the stock award only to the extent the restrictions on such stock award lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock awards until the restrictions on the stock award lapse.

 

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Stock Units.  The Committee has the discretion to grant stock unit awards to participants. Each stock unit entitles the participant to receive, on a specified date or event set forth in the award agreement, one share of common stock or cash equal to the fair market value of one share on such date or event, as provided in the award agreement. The number of stock units awarded to each participant, and the terms and conditions of the award, will be at the discretion of the Committee. Unless otherwise specified in the award agreement, a participant will not be a shareholder with respect to the stock units awarded to him prior to the date they are settled in shares of common stock. The award agreement may provide that until the restrictions on the stock units lapse, the participant will be paid an amount equal to the dividends that would have been paid had the stock units been actual shares; provided that dividend equivalents otherwise payable on any performance-based stock units will be held by us and paid only to the extent the restrictions lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock units until the restrictions on the stock units lapse.

 

Performance-Based Awards.  The Committee has the discretion to establish restrictions on the stock awards that qualify the awards as “performance-based compensation” under Section 162(m) of the Code so that they are fully deductible by us for federal income tax purposes. In such case, the Committee may establish performance goals for certain performance periods and targets for achievement of the performance goals, and the restrictions on the stock subject to the award will lapse if the performance goals and targets are achieved for the designated performance period. The performance goals will be based on one or more of the following criteria: (i) net earnings or net income (before or after taxes); (ii) earnings per share; (iii) net sales or revenue growth; (iv) net operating profit or income (including as a percentage of sales); (v) return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); (vi) cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); (vii) earnings before or after taxes, interest, depreciation, and/or amortization; (viii) gross or operating margins; and (ix) share price (including, but not limited to, growth measures and total shareholder return). Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee. The performance goals may be particular to one or more lines of business or subsidiaries or may be based on our performance as a whole. The performance goals may be identical for all participants for a given performance period or, at the discretion of the Committee, may differ among participants. In addition, performance goals may be adjusted for any events or occurrences (including acquisition expenses, extraordinary charges, losses from discontinued operations, restatements and accounting charges and restructuring expenses), as may be determined by the Committee.

 

Payment for Stock Options and Withholding Taxes .  The Committee may make one or more of the following methods available for payment of any award, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cash received from a broker-dealer to whom the holder has submitted an exercise notice together with irrevocable instructions to deliver promptly to us the amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding tax; (iii) by directing us to withhold shares of common stock otherwise issuable in connection with the award having a fair market value equal to the amount required to be withheld; and (iv) by delivery of previously acquired shares of common stock that are acceptable to the Committee and that have an aggregate fair market value on the date of exercise equal to the exercise price or withholding tax, or certification of ownership by attestation of such previously acquired shares.

 

Provisions Relating to a “Change in Control” of the Company .  Notwithstanding any other provision of the Plan or any award agreement, in the event of a “Change in Control” of the company, the Committee has the discretion to provide that all outstanding awards will become fully exercisable, all restrictions applicable to all awards will terminate or lapse, and performance goals applicable to any stock awards will be deemed satisfied at the highest target level. In addition, upon such Change in Control, the Committee has sole discretion to provide for the purchase of any outstanding stock option for cash equal to the difference between the exercise price and the then fair market value of the common stock subject to the option had the option been currently exercisable, make such adjustment to any award then outstanding as the Committee deems appropriate to reflect such Change in Control and cause any such award then outstanding to be assumed by the acquiring or surviving corporation after such Change in Control.

 

Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan .  The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule.

 

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The Board may terminate, suspend or amend the Plan, in whole or in part, from time to time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no amendment may adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed.

 

Notwithstanding the foregoing, neither the Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. (This prohibition on repricing without shareholder approval does not apply in case of an equitable adjustment to the awards to reflect changes in the capital structure of the company or similar events.)

 

No awards may be granted under the Plan on or after the tenth anniversary of the effective date of the Plan.

 

RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

We were incorporated in July 2015. In August 2015, in exchange for the issuance of 630,000 shares of common stock, we acquired the rights to the license agreement with MD Anderson covering our WP1122 Portfolio held by IntertechBio Corporation. Waldemar Priebe, chairman of our Scientific Advisory Board, and Don Picker, our president and chief operating officer, are shareholders of IntertechBio and control the voting and dispositive power over the shares held by IntertechBio.

 

In August 2015, in exchange for the issuance of 1,431,000 shares of common stock, we acquired the rights to the Annamycin data related to the original Annamycin IND and the development of Annamycin held by AnnaMed, Inc., a company controlled by Walter Klemp, our Chairman and acting chief executive officer.

 

Prior to the effective date of the registration statement of which this prospectus is a part, in exchange for the issuance of 629,000 shares of common stock, we will enter into an agreement with HPI whereby HPI will agree to terminate its option to sublicense certain rights to the WP1066 Portfolio and to enter into a co-development agreement with us, allowing us to benefit from HPI’s grant-funded development efforts currently under way. Waldemar Priebe and Don Picker are shareholders of HPI, and Dr. Priebe will have the voting and dispositive power over the shares held by HPI. For a detailed discussion of the HPI co-development agreement, see “Business – Our License Agreements.”

 

Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin, LLC, a Texas limited liability company, will be merged with and into our company. Moleculin is the holder of the license agreement with MD Anderson covering our WP 1066 Portfolio. As a result of the merger, we will issue the equity interests holders of Moleculin an aggregate of 1,000,000 shares of our common stock. Waldemar Priebe, Walter Klemp and Don Picker are members of Moleculin and will receive 6,046 shares, 22,795 shares and 6,046 shares, respectively, of our common stock as a result of the merger. In addition, Walter Klemp and Don Picker are members of the board of Moleculin.

 

As part of the acquisition process of Moleculin, LLC by MBI, we will provide operating loans for Moleculin in the estimated range of $300,000 to $310,000 for Moleculin to meet its license obligations with MD Anderson (all of which is expected to be utilized by April 30, 2016) and maintain its minimal operations. These loans will be in the form of promissory notes payable with an interest rate of 8% from Moleculin to us that will be forgiven at the completion of the IPO.

 

In August 2015, in Messrs. Klemp, Picker and Priebe purchased 1,100,000 shares, 500,000 shares and 3,000,000 shares of our common stock, respectively, at a purchase price of $0.001 per share.

 

On July 1, 2013, Moleculin agreed to reimburse HPI for laboratory space used by Moleculin from January 2010 through December 2013 in the amount of $31,764. Moleculin stopped using the space in 2014. On September 1, 2013, Moleculin agreed to reimburse HPI for laboratory equipment used by Moleculin for the period from January 2009 through December 2013 in the amount of $35,000. Moleculin stopped using the equipment in 2014. During the year ended December 31, 2013, Moleculin paid $100,000 for laboratory services provided by HPI for the five years prior to August 1, 2013. We do not intend to utilize HPI for such services in the future.

 

Policies and Procedures for Related Party Transactions

 

Our audit committee charter will provide that our audit committee will be responsible for reviewing and approving in advance any related party transaction. This will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. All of the transactions described in this section occurred prior to the creation of our audit committee and the adoption of this policy.

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information, as of March 15, 2016, regarding beneficial ownership of our common stock by:

 

  each of our directors;
  each of our executive officers;
  all directors and executive officers as a group; and
  each person, or group of affiliated persons, known by us to beneficially own more than five percent of our shares of common stock.

 

Beneficial ownership is determined according to the rules of the SEC, and generally means that person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power of that security, and includes options that are currently exercisable or exercisable within 60 days. Each director or officer, as the case may be, has furnished us with information with respect to beneficial ownership. Except as otherwise indicated, we believe that the beneficial owners of common stock listed below, based on the information each of them has given to us, have sole investment and voting power with respect to their shares, except where community property laws may apply. Except as otherwise noted below, the address for each person or entity listed in the table is c/o Moleculin Biotech, Inc., 2575 West Bellfort, Suite 333, Houston, Texas 77054.

 

    Shares beneficially
owned prior to
Offering (1)
    Percentage
owned prior to
Offering (1)
    Percentage beneficially owned
after Offering
 
                Minimum     Maximum  
Name and Address of Beneficial Owner                                
Directors and Executive Officers                                
Walter V. Klemp     2,525,126 (2)       30.0       25.7       24.2  
Donald Picker     1,121,435 (3)(4)       13.3       11.4       10.8  
Louis Ploth     -       -       -       -  
Directors and Executive Officers as a Group (3 persons)     3,646,561       45.3       37.2       35.0  
5% or greater shareholders                                
Waldemar Priebe     4,223,373 (3)(5)(6)       50.2       43.0       40.6  
AnnaMed, Inc.     1,431,000 (2)       17.0       14.6       13.7  
IntertechBio Corp.     630,000 (3)       7.5       6.4       6.0  
Houston Pharmaceuticals, Inc.     629,000 (6)       7.5       6.4       6.0  

 

* Less than 1%.

 

(1)        Assumes and gives effect to (i) the completion of the merger with Moleculin and the issuance of 1,000,000 shares in the aggregate to Moleculin’s equity holders, and (ii) the completion of the issuance of 629,000 shares of common stock to HPI in exchange for HPI’s agreement to terminate its option to sublicense certain rights to the WP1066 Portfolio and to enter into a co-development agreement with us.

 

(2)        The 1,431,000 shares held by AnnaMed, Inc. have been included in the amount for Mr. Klemp. Mr. Klemp has voting and dispositive power over the shares held by AnnaMed, Inc. Includes 23,726 shares issuable to Mr. Klemp upon the completion of the merger with Moleculin.

 

(3)        The 630,000 shares held by IntertechBio Corp. have been included in the amounts for Drs. Picker and Priebe. Drs. Picker and Priebe have voting and dispositive power over the shares held by IntertechBio Corp.

 

(4)        Includes 6,635 shares issuable to Dr. Picker upon the completion of the merger with Moleculin.

 

(5)        Includes 19,573 shares issuable to Dr. Priebe upon the completion of the merger with Moleculin.

 

(6)        The 629,000 shares held by HPI have been included in the amount for Dr. Priebe. Dr. Priebe has voting and dispositive power over the shares held by HPI.

 

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DESCRIPTION OF CAPITAL STOCK

 

The following summary is a description of the material terms of our capital stock and is not complete. You should also refer to the Moleculin Biotech, Inc. certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and the applicable provisions of the Delaware General Corporation Law.

 

Our amended and restated certificate of incorporation to be in effect prior to the completion of this offering will authorized us to issue up to 75,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, $0.001 par value per share. Our 8% unsecured promissory notes will be automatically converted into 3,749,557 shares of common stock contemporaneously with the closing of this offering (exclusive of shares issuable for accrued interest under such notes). No holder of these notes will be permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock after such conversion. The number of shares set forth above assumes no such limitation on the conversion of the notes. After giving effect to the conversion of our notes contemporaneously with the closing of this offering, we will have [*] shares of common stock outstanding (if the minimum number of shares are sold) and [*] shares of common stock outstanding (if the maximum number of shares are sold) immediately after the closing of this offering.

 

Common Stock

 

Shares of our common stock have the following rights, preferences and privileges:

 

Voting

 

Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Any action at a meeting at which a quorum is present will be decided by a majority of the voting power present in person or represented by proxy, except in the case of any election of directors, which will be decided by a plurality of votes cast. There is no cumulative voting.

 

Dividends

 

Holders of our common stock are entitled to receive dividends when, as and if declared by the our board of directors out of funds legally available for payment, subject to the rights of holders, if any, of any class of stock having preference over the common stock. Any decision to pay dividends on our common stock will be at the discretion of our board of directors. Our board of directors may or may not determine to declare dividends in the future. See “Dividend Policy.” The board’s determination to issue dividends will depend upon our profitability and financial condition any contractual restrictions, restrictions imposed by applicable law and the SEC, and other factors that our board of directors deems relevant.

 

Liquidation Rights

 

In the event of a voluntary or involuntary liquidation, dissolution or winding up of the company, the holders of our common stock will be entitled to share ratably on the basis of the number of shares held in any of the assets available for distribution after we have paid in full, or provided for payment of, all of our debts and after the holders of all outstanding series of any class of stock have preference over the common stock, if any, have received their liquidation preferences in full.

 

Other

 

Our issued and outstanding shares of common stock are fully paid and nonassessable. Holders of shares of our common stock are not entitled to preemptive rights. Shares of our common stock are not convertible into shares of any other class of capital stock, nor are they subject to any redemption or sinking fund provisions.

 

Preferred Stock

 

We are authorized to issue up to 5,000,000 shares of preferred stock. Our certificate of incorporation authorizes the board to issue these shares in one or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. Our board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and which could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock.

 

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Convertible Notes

 

In August and September 2015, we issued two 8% convertible notes in an aggregate of $250,000 in principal amount of convertible notes to one investor, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.1299 per share. In October 2015, we issued two 8% convertible notes in an aggregate of $200,000 in principal amount of convertible notes to two investors, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.20 per share. In January 2016, we issued additional two 8% convertible notes in an aggregate of $165,000 principal amount of convertible notes to two investors, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.20 per share. None of the foregoing convertible notes will be convertible by the holder of such notes to the extent (and only to the extent) that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock. For purposes of the limitation described in this paragraph, beneficial ownership and all determinations and calculations are determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.

 

The holders of our convertible notes have agreed to the following lock-up of the common stock issuable upon conversion of the notes:

 

· beginning 90 days after the initial closing of this offering and until the one-year anniversary of the initial closing of this offering, (a) a holder of our convertible notes will be able to sell 1% of the number of shares of common stock into which such note is converted at the closing of the offering on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume; (b) if our common stock price is over $7.00 per share for five consecutive trading days then the holder can sell up to 3% of the number of shares of common stock underlying the note on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume; (c) if our common stock price is over $10.00 per share for five consecutive trading days then the holder can sell up to an additional 5% of the number of shares of common stock underlying the note on a monthly basis, subject to a maximum sale on any trading day of 7% of the daily volume; and (d) if our common stock price is over $14.00 per share then the holder is not restricted from making any sales until such time as our common stock price falls back below $14.00 per share; and

 

· thereafter, until the two-year anniversary of the initial closing of this offering, the holder can sell on any trading day 10% of the daily volume; provided that if our common stock price is over $10.00 per share then the holder is not restricted from making any sales until such time as the common stock falls back below $10.00 per share.

 

Certificate of Incorporation and Bylaw Provisions

 

Our certificate of incorporation and bylaws include a number of anti-takeover provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include:

 

Advance Notice Requirements.  Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of stockholders. These procedures provide that notice of stockholder proposals must be timely and given in writing to our corporate Secretary. Generally, to be timely, notice must be received at our principal executive offices not fewer than 120 calendar days prior to the first anniversary date on which our notice of meeting and related proxy statement were mailed to stockholders in connection with the previous year’s annual meeting of stockholders. The notice must contain the information required by the bylaws, including information regarding the proposal and the proponent.

 

Special Meetings of Stockholders.  Our bylaws provides that special meetings of stockholders may be called at any time by only the Chairman of the Board, the Chief Executive Officer, the President or the board of directors, or in their absence or disability, by any vice president.

 

No Written Consent of Stockholders.  Our certificate of incorporation and bylaws provide that any action required or permitted to be taken by stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by such stockholders.

 

Exclusive Forum Provision. Our certificate of incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), or our certificate of incorporation or the bylaws, and (iv) any action asserting a claim against us governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, a court could find these provisions of our certificate of incorporation to be inapplicable or unenforceable in respect of one or more of the specified types of actions or proceedings, which may require us to incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

 

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Amendment of Bylaws.  Our stockholders may amend any provisions of our bylaws by obtaining the affirmative vote of the holders of a majority of each class of issued and outstanding shares of our voting securities, at a meeting called for the purpose of amending and/or restating our bylaws.

 

Preferred Stock . Our certificate of incorporation authorizes our board of directors to create and issue rights entitling our stockholders to purchase shares of our stock or other securities. The ability of our board to establish the rights and issue substantial amounts of preferred stock without the need for stockholder approval may delay or deter a change in control of us. See “Preferred Stock” above.

 

Delaware Takeover Statute

 

We are subject to Section 203 of the DGCL which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any “business combination” (as defined below) with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (1) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to this plan will be tendered in a tender or exchange offer; or (3) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66  2 3 % of the outstanding voting stock that is not owned by the interested stockholder.

 

Section 203 of the DGCL defines generally “business combination” to include: (1) any merger or consolidation involving the corporation and the interested stockholder; (2) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (3) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (4) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (5) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.

 

Limitations on Liability and Indemnification of Officers and Directors

 

Our certificate of incorporation and bylaws limit the liability of our officers and directors and provide that we will indemnify our officers and directors, in each case, to the fullest extent permitted by the Delaware General Corporation Law. We expect to obtain additional directors’ and officers’ liability insurance coverage prior to the completion of this offering.

 

Listing

 

We intend to apply to list our common stock on the Nasdaq Capital Market under the symbol “MBRX”.

 

Transfer Agent

 

The transfer agent for our common stock is VStock Transfer, LLC.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Future sales of substantial amounts of common stock in the public market after this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities. We are unable to estimate the number of shares of common stock that may be sold in the future.

 

After giving effect to the conversion of our notes contemporaneously with the closing of this offering, we will have [*] shares of common stock outstanding (if the minimum number of shares are sold) and [*] shares of common stock outstanding (if the maximum number of shares are sold) immediately after the closing of this offering. All of the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by one of our affiliates as that term is defined in Rule 144 under the Securities Act, which generally includes directors, officers or 10% stockholders. None of the holders of shares of our common stock or securities exercisable for or convertible into shares of our common stock have any registration rights.

 

Lock-Up

 

Management Lock-Up

 

Our executive officers, directors, and major stockholders, have agreed with the underwriters not to offer, sell, dispose of or hedge any shares of our common stock, subject to specified limited exceptions and extensions described elsewhere in this prospectus, during the period continuing through the date that is twelve months (subject to extension) after the date of this prospectus. After such twelve month period and until 24 months from the closing of this offering, such individuals and entities may sell their shares pursuant to the following criteria:

 

· if our common stock price is over $7.00 per share for five consecutive trading days then the holder can sell up to 3% of their holdings on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume;

 

· if our common stock price is over $10.00 per share for five consecutive trading days then the holder can sell up to an additional 5% of their holdings on a monthly basis, subject to a maximum sale on any trading day of 7% of the daily volume; and

 

· if our common stock price is over $14.00 per share then the holder is not restricted from making any sales until such time as our common stock price falls back below $14.00 per share.

 

From the end of the preceding 24 month period until the three-year anniversary of the initial closing of this offering, the holders can sell on any trading day 10% of the daily volume; provided that if our common stock price is over $10.00 per share then the holder is not restricted from making any sales until such time as the common stock falls back below $10.00 per share.

 

Moleculin, LLC Members Lock-Up

 

As a result of our planned merger with Moleculin, LLC, we will issue the holders of Moleculin, LLC equity interests an aggregate of 1,000,000 shares of our common stock. Subject to and except as described above under “-Management Lock-Up,” such holders will agree to the following lock-up on the shares of our common stock that they receive:

 

· no sales may be made for six months from the closing date of this offering;

 

· starting on the first day after the initial six-month period, the holders will be able to sell collectively 27,000 shares;

 

· starting on the first day after seven months from the closing date of this offering, the holders will be able to sell collectively an additional 68,000 shares;

 

· starting on the first day after eight months from the closing date of this offering, the holders will be able to sell collectively an additional 49,000 shares;

 

· starting on the first day after nine months from the closing date of this offering, the holders will be able to sell collectively an additional 87,000 shares;

 

· starting on the first day after ten months from the closing date of this offering, through the last day of the fifteenth month from the closing date of this offering, each holder may sell the lesser of 5,000 shares or 10% of their original holdings per month, subject to a cap of 3% of the previous day’s value; and

 

· starting on the first day after the sixteenth month from the closing date of this offering, each holder can sell on any trading day 10% of the daily volume; provided that if our common stock price is over $10.00 per share then the holder will not be restricted from making any sales until such time as the common stock falls back below $10.00 per share.

 

See Section “Description of Capital Stock - Convertible Notes” above for a discussion of the lock-up of the shares underlying such notes.

 

Rule 144

 

Shares of common stock held by any of our affiliates, as that term is defined in Rule 144 of the Securities Act, as well as shares held by our current stockholders, may be resold only pursuant to further registration under the Securities Act or in transactions that are exempt from registration under the Securities Act. In general, under Rule 144 as currently in effect, beginning 90 days after our Form S-1 Registration Statement becomes effective, any of our affiliates would be entitled to sell, without further registration, within any three-month period a number of shares that does not exceed the greater of:

 

1% of the number of shares of common stock then outstanding, which will equal approximately [*] shares immediately after this offering; or

 

the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to the sale.

 

Sales under Rule 144 by our affiliates will also be subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Stock Plan

 

We intend to file a registration statement on Form S-8 under the Securities Act of 1933, as amended, which will register 2,500,000 shares of common stock underlying stock options or restricted stock awards for issuance under our 2015 Stock Plan. Subject to any vesting requirements, these shares registered on Form S-8 will be eligible for resale in the public markets without restriction, subject to Rule 144 limitations applicable to affiliates.

 

71  

 

 

UNDERWRITING

 

We have entered into an underwriting agreement with Bonwick Capital Partners LLC, for itself and as sole representative (the “Representative”) of the underwriters named therein, with respect to the shares of our common stock in this offering. Under the terms and subject to the conditions contained in the underwriting agreement, we have agreed to issue and sell to the public through the underwriters, and the underwriters have agreed to offer and sell, up to 2,000,000 shares of our common stock, on a best efforts basis.

 

The underwriting agreement provides that the obligation of the underwriters to arrange for the offer and sale of the shares of our common stock, on a best efforts basis, is subject to certain conditions precedent, including but not limited to (i) receipt of a listing approval letter from the Nasdaq Capital Market, (ii) delivery of legal opinions and (iii) delivery of auditor comfort letters. The underwriters are under no obligation to purchase any shares of our common stock for their own account. As a “best efforts” offering, there can be no assurance that the offering contemplated hereby will ultimately be consummated, or even if consummated that we will in fact obtain a listing on the Nasdaq Capital Market. The underwriters may, but are not obligated to, retain other selected dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory Authority, Inc. The underwriters propose to offer the shares to investors at the public offering price, and will receive the underwriting commissions, set forth on the cover of this prospectus. The gross proceeds of this offering will be deposited at Signature Bank, New York, New York, in an escrow account established by us, until we have sold a minimum of 1,400,000 shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. Purchasers are to make payment for the shares they purchase by wire transfer to Signature Bank, ABA No. [*], 261 Madison Avenue, New York, New York 10016, for credit to Signature Bank, as Escrow Agent for Moleculin Biotech, Account No. [*].  The previous sentence notwithstanding, any checks received by the underwriter will be delivered to Signature Bank for deposit into the escrow account not later than 12:00 p.m. on the business day immediately following receipt. Unless sooner withdrawn or canceled by us or the Underwriters, the offering will continue until (i) not less than 1,400,000 shares of common stock have been sold, or (ii) close of business on [*], 2016 (60 days after the date of this Prospectus), unless extended by us and the Underwriters to not later than [*], 2016 (90 days after the date of this Prospectus). Once we satisfy the minimum stock sale and Nasdaq listing conditions, the funds will be released to us. Unless the offering is previously canceled or withdrawn, if we do not receive the minimum amount by [*], 2016 (60 days after the date of this prospectus) or [*], 2016, if extended, all funds will be returned to purchasers in this offering on the next business day after the offering’s termination, without charge, deduction or interest.

 

We anticipate the shares of our common stock will be listed on the Nasdaq Capital Market under the symbol “MBRX.” In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $4.0 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock. If the application is approved, trading of our shares on the Nasdaq Capital Market is expected to begin within five days after the date of initial issuance of the common stock.

 

The following table and the two succeeding paragraphs summarize the underwriting compensation and estimated expenses we will pay:

 

    Public Offering
Price
    Underwriting
Commissions
    Proceeds to Us,
Before Expenses
 
Per share   $       $       $    
Total minimum offering   $       $       $    
Total maximum offering   $       $       $    

 

We have agreed to reimburse the underwriters for expenses incurred relating to the offering, including all actual fees and expenses incurred by the underwriters in connection with, among other things, due diligence costs, the underwriters’ “road show” expenses, which shall not exceed $25,000, and the fees and expenses of the underwriters’ counsel. The fees and expenses of underwriters’ counsel shall not exceed $100,000. We estimate that the total expenses of this offering, excluding underwriting commissions described above, will be approximately $500,000. We have also agreed to pay the representative a financial advisory fee of $50,000 at the closing of this offering.

 

As additional compensation to the underwriters, upon consummation of this offering, we will issue to the underwriters or their designees warrants to purchase an aggregate number of shares of our common stock equal to 7% of the number of shares of common stock issued in this offering, at an exercise price per share equal to 125.0% of the initial public offering price (the “Underwriter Warrants”). The Underwriter Warrants and the underlying shares of common stock will not be exercised, sold, transferred, assigned, or hypothecated or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Underwriter Warrants by any person for a period of 180 days from the effective date of the registration statement for this offering in accordance with FINRA Rule 5110. The Underwriter Warrants will expire on the fifth anniversary of the effective date of the registration statement for this offering.

 

The underwriters have informed us that they may provide an allowance not in excess of $[*] per share to other dealers out of the underwriters’ commission of $[*] per share. No underwriters or selling group members will receive any fees or warrants in connection with the purchase by any of our officers or directors or their respective affiliates of shares of common stock in this offering. 

 

72  

 

 

A prospectus in electronic format may be made available on the websites maintained by the underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

 

We have agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of our company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of our company or such other securities, in cash or otherwise, in each case without the prior consent of the Representative for a period of twelve months after the date of this prospectus, other than (A) the shares of our common stock to be sold hereunder, (B) the issuance by us of shares of our common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this offering, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or employment or consulting agreements or arrangements of which the representative has been advised in writing or which have been filed with the Commission or (C) the issuance by us of stock options or shares of capital stock of our company under any currently existing or hereafter adopted equity compensation plan or employment/consulting agreements or arrangements of our company.

 

Our directors, executive officers and holders of 5% or more of our outstanding shares of common stock will enter into lock-up agreements with the representative prior to the commencement of this offering pursuant to which each of these persons or entities, will not, without the prior written consent of the Representative, (i) offer, sell, dispose of or hedge any shares of our common stock, during the period continuing through the date that is twelve months (subject to extension) after the date of this prospectus; (ii) after such twelve month period and until 24 months from the closing of this offering, such individuals and entities may sell their shares pursuant to the following criteria: (A) if our common stock price is over $7.00 per share for five consecutive trading days then the holder can sell up to 3% of such holder’s holdings on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume; (B) if our common stock price is over $10.00 per share for five consecutive trading days then the holder can sell up to an additional 5% of such holder’s holdings on a monthly basis, subject to a maximum sale on any trading day of 7% of the daily volume; and (C) if our common stock price is over $14.00 per share then the holder is not restricted from making any sales until such time as our common stock price falls back below $14.00 per share; (iii) from the end of the 24 month period referenced in clause (ii) above until the three-year anniversary of the initial closing of this offering, the holders can sell on any trading day 10% of the daily volume; provided that if our common stock price is over $10.00 per share then the holder is not restricted from making any sales until such time as the common stock falls back below $10.00 per share. Subject to and except as described in this paragraph, the holders of the Moleculin, LLC equity interests will agree to the lock-up of the shares of our common stock they receive as set forth under the caption “Shares Eligible for Future Sale – Moleculin, LLC Members Lock-up.” In addition, the holders of our convertible notes have agreed to the lock-up of the shares of our common stock issuable upon conversion of these notes as set forth under the caption “Description of Capital Stock – Convertible Notes.”

 

The underwriting agreement provides that we will indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments the underwriters may be required to make in respect thereof.

 

We have applied to have our common stock approved for listing on the Nasdaq Capital Market under the symbol “MBRX.” If the application is approved, trading of our common stock on the Nasdaq Capital Market is expected to begin within five days after the date of initial issuance of the common stock.  We will not consummate and close this offering without a listing approval letter from the Nasdaq Capital Market.  Our receipt of a listing approval letter is not the same as an actual listing on the Nasdaq Capital Market.  The listing approval letter will serve only to confirm that, if we sell a number of shares in this best efforts offering sufficient to satisfy applicable listing criteria, our common stock will in fact be listed.

 

Prior to this offering, there has been no public market for our common stock.  The initial public offering price has been determined by negotiations between us and the underwriters. In determining the initial public offering price, we and the underwriters have considered a number of factors including:

 

· the information set forth in this prospectus and otherwise available to the underwriters;
· our prospects and the history and prospects for the industry in which we compete;
· an assessment of our management;
· our prospects for future earnings;
· the general condition of the securities markets at the time of this offering;
· the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and
· other factors deemed relevant by the underwriters and us.

 

73  

 

 

Neither we nor the underwriters can assure investors that an active trading market will develop for shares of our common stock, or that the shares will trade in the public market at or above the initial public offering price.

 

VALIDITY OF COMMON STOCK

 

The validity of the securities offered hereby will be passed upon for us by Schiff Hardin LLP, Washington, DC. DLA Piper LLP (US), New York, New York is acting as counsel to the underwriters in connection with this offering.

 

EXPERTS

 

The financial statements of Moleculin Biotech, Inc. as of December 31, 2015 and for the period from July 28, 2015 (inception) to December 31, 2015 and the financial statements of Moleculin, LLC as of and for the years ended December 31, 2015 and 2014 included in this prospectus have been audited by GBH CPAs, PC, an independent registered public accounting firm, as stated in their reports appearing herein. Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act for the shares of common stock being offered by this prospectus. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement and the exhibits. For further information about us and the common stock offered by this prospectus, you should refer to the registration statement and its exhibits. References in this prospectus to any of our contracts or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may read and copy any document that we file at the SEC’s public reference room located at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. SEC filings are also available to the public at the SEC’s website at www.sec.gov .

 

We will be subject to the reporting and information requirements of the Exchange Act and, as a result, will file periodic and current reports, proxy statements and other information with the SEC. We expect to make our periodic reports and other information filed with or furnished to the SEC, available, free of charge, through our website as soon as reasonably practicable after those reports and other information are filed with or furnished to the SEC. Additionally, these periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above.

 

74  

 

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
Moleculin Biotech, Inc.
   
Audited Financial Statements  
   
Report of Independent Registered Public Accounting Firm F-2
   
Balance Sheet as of December 31, 2015 F-3
   
Statement of Operations for the Period from July 28, 2015 (Inception) to December 31, 2015 F-4
   
Statement of Changes in Stockholders’ Deficit for the Period from July 28, 2015 (Inception) to December 31, 2015 F-5
   
Statement of Cash Flows for the Period from July 28, 2015 (Inception) to December 31, 2015 F-6
   
Notes to Financial Statements F-7
   
Moleculin, LLC
   
Audited Financial Statements  
   
Report of Independent Registered Public Accounting Firm F-11
   
Statements of Financial Position as of December 31, 2015 and 2014 F-12
   
Statements of Operations for the Years Ended December 31, 2015 and 2014 F-13
   
Statements of Changes in Members’ Deficit for the Years Ended December 31, 2015 and 2014 F-14
   

Statements of Cash Flows for the Years Ended December 31, 2015 and 2014

F-15
   
Notes to Financial Statements F-16

 

  F- 1  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of
Moleculin Biotech, Inc.
Houston, Texas

 

We have audited the accompanying balance sheet of Moleculin Biotech, Inc. as of December 31, 2015 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the period from July 28, 2015 (Inception) to December 31, 2015. Moleculin Biotech, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Moleculin Biotech, Inc. as of December 31, 2015 and the results of its operations and cash flows for the period from July 28, 2015 (Inception) to December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that Moleculin Biotech, Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, Moleculin Biotech, Inc. incurred an accumulated loss and has not yet generated any revenue from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ GBH CPAs, PC

 

GBH CPAs, PC
www.gbhcpas.com
Houston, Texas

March 21, 2016

 

  F- 2  

 

 

Moleculin Biotech, Inc.

Balance Sheet

 

    December 31,  
2015
 
       
 ASSETS        
Current Assets:        
Cash and cash equivalents   $ 28,091  
Total Assets   $ 28,091  
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
Current Liabilities:        
Accounts payable and accrued liabilities   $ 322,790  
Notes payable     450,000  
Total Liabilities     772,790  
         
Commitments and contingencies        
         
Stockholders’ Deficit:        
Common stock, $0.001 par value; 20,000,000 shares authorized, 6,661,000 shares issued and outstanding     6,661  
Subscription receivable     (3,000 )
Accumulated deficit     (748,360 )
Total Stockholders’ Deficit     (744,699 )
         
Total Liabilities and Stockholders’ Deficit   $ 28,091  

 

See accompanying notes to financial statements.

 

  F- 3  

 

 

Moleculin Biotech, Inc.

Statement of Operations

 

    From July 28,
2015
(Inception) to
December 31,
2015
 
       
Revenue   $ -  
         
Operating expenses:        
Research and development     260,418  
General and administrative     477,810  
Total operating expenses     738,228  
         
Loss from operations     (738,228 )
         
Other expense:        
Interest expense     (10,132 )
Total other expense     (10,132 )
         
Net loss   $ (748,360 )
         
Loss per common share - basic and diluted   $ (0.13 )
Weighted average number of common shares outstanding - basic and diluted     5,691,803  

 

See accompanying notes to financial statements.

 

  F- 4  

 

 

Moleculin Biotech, Inc.

Statement of Changes in Stockholders’ Deficit

 

    Common Stock     Subscription     Accumulated        
    Shares     Amount     Receivable     Deficit     Total  
                               
Balance at July 28, 2015 (Inception)     -     $ -     $ -     $ -     $ -  
                                         
Issuance of shares for cash     4,600,000       4,600       (3,000 )     -       1,600  
                                         
Shares issued for licenses used for research and development     2,061,000       2,061       -       -       2,061  
                                         
Net loss     -       -       -       (748,360 )     (748,360 )
                                         
Balance at December 31, 2015     6,661,000     $ 6,661     $ (3,000 )   $ (748,360 )   $ (744,699 )

 

See accompanying notes to financial statements.

 

  F- 5  

 

 

Moleculin Biotech, Inc.

Statement of Cash Flows

 

    For the period
from July 28,
2015 (Inception)
to December 31,
2015
 
       
Cash Flows From Operating Activities:        
Net loss   $ (748,360 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Shares issued for licenses used for research and development     2,061  
Changes in operating assets and liabilities:        
Accounts payable and accrued liabilities     322,790  
Net Cash Used In Operating Activities     (423,509 )
         
Cash Flows From Financing Activities:        
Proceeds from stock issuance     1,600  
Proceeds from notes payable     450,000  
Net Cash Provided By Financing Activities     451,600  
         
Net change in cash and cash equivalents     28,091  
Cash and cash equivalent at beginning of period     -  
Cash and cash equivalent at end of period   $ 28,091  
         
Supplemental cash flows disclosures:        
Cash paid for interest   $ -  
Cash paid for income taxes   $ -  
         
Non-cash investing and financing activities:        
Shares subscribed   $ 3,000  

 

See accompanying notes to financial statements.

 

  F- 6  

 

 

Moleculin Biotech, Inc.

Notes to Financial Statements

 

Note 1 - Description of Business and Summary of Significant Accounting Policies

 

Nature of Business – Moleculin Biotech, Inc. (“MBI”, the “Company”) is a preclinical and clinical-stage pharmaceutical company organized as a Delaware corporation in July 2015 to focus on the development of anti-cancer drug candidates. The Company has two in-licensed drug development technologies.The lead drug candidate is Lipsosomal Annamycin, which is referred to as Annamycin, an anthracyline that targets the treatment of relapsed or refractory acute myeloid leukemia, or AML. In August 2015, the Company entered into a rights transfer agreement with AnnaMed, Inc. (“AnnaMed”), a company affiliated with certain members of our management and board of directors, pursuant to which, in exchange for 1,431,000 shares of our common stock, AnnaMed agreed to transfer any and all data it had regarding the development of Annamycin and the Annamycin IND, including all trade secrets, know-how, confidential information and other intellectual property rights held by AnnaMed. Annamycin has been in clinical trials pursuant to an investigational new drug application, or IND, that had been filed with the U.S. Food and Drug Administration, or FDA. This IND was terminated due to a lack of activity by a prior drug developer who was developing the drug for a different indication. We intend to apply for a new IND based on the same data that supported the original IND, updated for subsequent clinical data, and to commence a Phase II clinical trial for Annamycin.

 

The Company also has a second drug development technology, WP1122, a molecule targeting the treatment of glioblastoma through metabolic inhibition, which was developed at The University of Texas M.D. Anderson Cancer Center (“MD Anderson”).

 

On August 11, 2015, the Company entered into a rights transfer agreement with IntertechBio Corporation (“IntertechBio”), a company affiliated with certain members of our management and board of directors, whereby IntertechBio agreed to assign its license or sublicense its license to certain metabolic inhibitor technology owned by MD Anderson. In consideration, the Company issued 630,000 common shares to Intertech Bio. IntertechBio agreed to make payments to MD Anderson including an up-front payment, license documentation fee, annual maintenance fee, milestone payments and minimum annual royalty payments for sales of products developed under the license agreement. The Company has assumed the rights and obligations of IntertechBio under the license agreement with MD Anderson. All out-of-pocket expenses incurred by MD Anderson in filing, prosecuting and maintaining the licensed patents have been and shall continue to be assumed by the Company.

 

The Company intends to file a registration statement on Form S-1 with respect to the Company’s initial public offering of shares of its common stock (“IPO”) to fund the development of its technologies and also intends to acquire Moleculin, LLC, a Texas limited liability company. Moleculin, LLC is the holder of a license agreement with MD Anderson covering technology referred to as WP1066 Portfolio, which is focused on the modulation of key oncogenic transcription factors. Immediately prior to the declaration of effectiveness of the registration statement on Form S-1, Moleculin, LLC will be merged with and into MBI, which will survive the merger.

 

Use of Estimates in Financial Statement Presentation - The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Going Concern - These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As of December 31, 2015, the Company has incurred an accumulated loss of $748,360 since inception, had a working capital deficit of $744,699, and had not yet generated any revenue from operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company intends to fund its future operations through equity offerings.

 

Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less to be cash equivalents. At December 31, 2015, all of the Company’s cash was deposited in one bank. 

 

Beneficial Conversion Feature - From time to time, the Company may issue convertible notes that have conversion prices that create an embedded beneficial conversion feature on the issuance date. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. The Company estimates the fair value of its common stock using the most recent selling price available. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.   

 

Income Taxes - The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

  F- 7  

 

 

Stock-based Compensation - Stock-based compensation expense includes the estimated fair value of equity awards vested during the reporting period. The expense for equity awards vested during the reporting period is determined based upon the grant date fair value of the award and is recognized as expense over the applicable vesting period of the stock award using the straight-line method.

 

Earnings Per Share - Basic net earnings (loss) per common share are computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

 

Research and Development Costs - Research and development costs are expensed as incurred. Research and development reimbursements and grants are recorded by the Company as a reduction of research and development costs. 

 

Subsequent Events - The Company’s management reviewed all material events through the date these financial statements were issued for subsequent event disclosure consideration.

 

Recent Accounting Pronouncements - The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

 

Note 2 - Notes Payable

 

On August 31 and September 3, 2015, as amended on March 10, 2016, the Company entered into two unsecured convertible promissory notes with a third party, in the amount totaling $250,000. These notes bear interest at 8.0% per annum and mature on the earlier of June 30, 2016 or the completion of an IPO of the Company’s securities. However, if the completion of the IPO occurs prior to June 30, 2016, these notes shall be automatically converted according to its terms into shares of the Company’s common stock at a conversion price of $0.1299 per share upon the Company’s IPO.

 

On October 6, 2015, as amended on March 10, 2016, the Company entered into an unsecured promissory note with a third party in the amount of $150,000. The note bears interest at 8.0% per annum and matures on the earlier of June 30, 2016 or the completion of an IPO of the Company’s securities. However, if the completion of the IPO occurs prior to June 30, 2016, the note shall be automatically converted according to its terms into shares of the Company common stock at a conversion price equal to $0.20 per share upon the Company’s IPO.

 

On October 28, 2015, as amended on March 10, 2016, the Company entered into an unsecured promissory note with a third party in the amount of $50,000. The note bears interest at 8.0% per annum and matures on the earlier of June 30, 2016 or the completion of an IPO of the Company’s securities. However, if the completion of the IPO occurs prior to June 30, 2016, the note shall be automatically converted according to its terms into shares of the Company common stock at a conversion price equal to $0.20 per share upon the Company’s IPO.

 

Pursuant to the note agreements dated October 6, 2015 and October 28, 2015, the Company agreed, during the term of the notes, not to have greater than 8,171,000 shares of its common stock outstanding, excluding any shares underlying convertible notes that will convert into 3,750,000 shares of the Company’s common stock, and excluding options to purchase up to 300,000 shares of the Company’s common stock at an exercise price of no less than $0.75 per share that may be issued. The Company is currently in compliance with this covenant.

 

The convertible notes were analyzed for a beneficial conversion feature at which time it was concluded that a beneficial conversion feature did not exist.

 

Note 3 - Equity

 

Common Stock

 

In August 2015, the Company entered into an agreement to issue 4,600,000 shares of common stock to its director and officers for subscriptions of $4,600 cash to be received. As of December 31, 2015, the Company had not collected the proceeds for $3,000 of the subscriptions.

 

On August 11, 2015, the Company was granted an assignment of a license agreement between MD Anderson and IntertechBio in exchange for 630,000 shares of the Company’s common stock. The sublicense gives the Company rights to access certain metabolic inhibitor technology owned by MD Anderson that had been licensed to IntertechBio. The shares were valued at a total of $630 and the related expense included in research and development costs.

 

On August 21, 2015, the Company acquired the right to the intellectual property of AnnaMed in exchange for 1,431,000 shares of the Company’s common stock. The license gives the Company full ownership rights to the data package supporting the FDA IND Number 46869, allowing the Company to resubmit a request for IND to the FDA to begin development work on Annamycin. The shares were valued at a total of $1,431 and the related expense included in research and development costs.

 

Adoption of 2015 Stock Plan

 

On December 5, 2015, the Board of Directors of the Company approved the Company’s 2015 Stock Plan. The expiration date of the plan is December 5, 2025 and the total number of underlying shares of the Company’s common stock available for grant to employees, directors and consultants under the plan is 1,500,000 shares.

 

Stock Options

 

On December 10, 2015, the Board of Directors of the Company granted it Chief Financial Officer, Louis Ploth, options to purchase 200,000 shares of the Company’s common stock with exercise price of $0.20 per share and a term of 10 years. These options vest in four years. The grant date fair value of $27,390 was calculated using the Black-Scholes model. Variables used in the Black-Scholes model include: (1) discount rate of 2.24% (2) expected life of 6.25 years, (3) expected volatility of 74.2%, and (4) zero expected dividends. As of December 31, 2015, no option is exercisable.

 

  F- 8  

 

 

Note 4 - Income Taxes

 

The Company is subject to the United States federal income taxes at an approximate rate of 35%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

 

    From July 28,
2015
(Inception) to
December 31,
2015
 
Income tax benefit computed at the statutory rate   $ 261,926  
Change in valuation allowance     (261,926 )
Provision for income taxes   $ -  

 

Significant components of the Company’s deferred tax assets after applying enacted corporate income tax rates are as follows:

 

    As of
December 31,
2015
 
Deferred income tax assets        
Net operating losses   $ 261,926  
Less: valuation allowance     (261,926 )
Net deferred income tax assets   $ -  

 

The Company has an operating loss carry forward of approximately $748,000, which expires commencing in 2035.

 

Note 5 – Commitments and contingencies

 

Burnham Securities Inc.

 

On August 5, 2015, the Company entered into a letter agreement with Burnham Securities Inc. (“Burnham”) to engage Burnham as an exclusive financial advisor of the Company for 12 months. Pursuant to the agreement, the Company agreed to: a) pay success fees equal to 7% of the gross proceeds from any form of financing; b) issue warrants to purchase 7% of the Company’s equity securities sold with a cashless exercise provision, exercisable at a price per share of the equity securities paid by investors in the transaction. In addition, the Company agreed to reimburse Burnham for all of its reasonable out-of-pocket expenses. Upon execution of this agreement, the Company also paid Burnham a $50,000 advisory fee and agreed to pay an additional advisory fee of $50,000 upon completion of the Company’s IPO. For the period from inception to December 31, 2015, the Company incurred $31,500 success fees related to the notes issued to in August, September and October 2015. See Note 3. This agreement was terminated by mutual consent on January 22, 2016.

 

MD Anderson – IntertechBio Agreement

 

On August 11, 2015, the Company acquired the rights and obligations under the Patent and Technology License Agreement entered into between IntertechBio and MD Anderson dated April 2, 2012. Pursuant to the agreement, IntertechBio obtained a royalty-bearing, worldwide, exclusive license to intellectual property including patent rights related to the Company’s drug product candidate, WP1122. Under the agreement, IntertechBio agreed to pay annual maintenance fee in the amount of $10,000 on the first anniversary of the effective date of the agreement, $20,000 on the second anniversary of the effective date of the agreement, $40,000 on the third anniversary of the effective date of the agreement, $60,000 on the fourth anniversary of the effective date of the agreement, $80,000 on the fifth anniversary of the effective date of the agreement and $100,000 on the sixth anniversary of the effective date of the agreement, except that such payments will no longer be due upon the first sale of a licensed product. Under the agreement, IntertechBio also agreed to make a minimum annual royalty in the amount of $200,000 for the first anniversary following the first sale of a licensed product, $400,000 for the second anniversary following the first sale of a licensed product, and $600,000 for the third year following the first sale of a licensed product. IntertechBio also agreed to make certain milestone payments. On October 19, 2015, pursuant to an amendment, the Company will pay milestone payments as follows:

 

Phase   Amount  
Commencement of Phase II Study for a licensed product   $ 200,000  
Commencement of Phase III Study for a licensed product   $ 250,000  
Filing of a New Drug Application for a licensed product   $ 400,000  
Receipt of market approval for a licensed product   $ 500,000  

 

  F- 9  

 

 

MD Anderson has the right to terminate the agreement upon advanced notice in the event of a default by IntertechBio. The agreement will also be terminated immediately upon IntertechBio’s insolvency. Additionally, per the October 2015 amendment to the agreement, MD Anderson has the right to terminate the license agreement if (i) a preclinical toxicology program for a licensed product is not initiated within one year of the effective date of the amendment, (ii) an investigational new drug application is not filed with the Food and Drug Administration for a Phase I study for a licensed product within three years of the effective date of the amendment, or (iii) a Phase I study for a licensed product is not commenced within five years of the effective date of the amendment. The agreement will expire upon the expiration of the licensed intellectual property. The rights obtained by the Company pursuant to the agreement are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government. All out-of-pocket expenses incurred by MD Anderson in filing, prosecuting and maintaining the licensed patents have been and shall continue to be assumed by the Company.

 

On October 8, 2015, IntertechBio Corporation entered into a letter agreement with MD Anderson where MD Anderson agreed to receive past due maintenance fees and patent expenses of $98,108 owed by IntertechBio Corporation in four installments. The past due amount is related to certain metabolic inhibitor technology license that was assigned to the Company by IntertechBio Corporation and was owed by IntertechBio Corporation prior to the Company’s acquisition of the license. Pursuant to the letter, IntertechBio Corporation also agreed to pay $65,504 in patent fees to a law firm. In order to have the license in good standing, the Company agreed to pay MD Anderson the $98,108 and the $65,504 in patent fees to a patent law firm on behalf of IntertechBio Corporation. As of December 31, 2015, $45,000 of the past due amount to MD Anderson and $42,504 in patent fees to a patent law firm were still outstanding and were included in accounts payable and accrued liabilities. On January 28, 2016, the Company entered into a letter agreement with MD Anderson where MD Anderson agreed to receive the remaining outstanding amount on or before the earlier of a) April 30, 2016 or b) four days after the Company’s IPO.

 

MD Anderson – Option Agreement

 

On October 15, 2015, the Company entered into an exclusive option agreement with MD Anderson granting the Company a period of time to evaluate the potential of acquiring and to negotiate the purchase of an exclusive license in the field of cancer therapeutics. The option period extends from October 15, 2015 through May 11, 2016. MD Anderson shall not offer the license to any other third party during the option period. In consideration of the option granted, the Company paid $5,000 to MD Anderson.

 

Note 6 - Subsequent Events

 

On January 14, 2016, as amended March 10, 2016, the Company entered into an unsecured convertible promissory note with a third party in the amount of $82,500. The note bears interest at 8.0% per annum and matures on the earlier of June 30, 2016 or the completion of an IPO of the Company’s securities. However, if the completion of the IPO occurs prior to June 30, 2016, the note shall be converted according to its terms into shares of the Company common stock at a conversion price equal to $0.20 per share upon the Company’s IPO.

 

On January 19, 2016, as amended March 10, 2016, the Company entered into an unsecured convertible promissory note with a third party in the amount of $82,500. The note bears interest at 8.0% per annum and matures on the earlier of June 30, 2016 or the completion of an IPO of the Company’s securities. However, if the completion of the IPO occurs prior to June 30, 2016, the note shall be converted according to its terms into shares of the Company common stock at a conversion price equal to $0.20 per share upon the Company’s IPO.

 

On January 22, 2016, as amended on February 15, 2016, the Company entered into a letter agreement with Bonwick Capital Partners LLC. (“Bonwick”) to engage Bonwick as an exclusive financial advisor of the Company. Pursuant to the agreement, the Company agreed to: a) pay success fees equal to 7% of the gross proceeds from any form of financing; b) issue warrants to purchase 7% of the Company’s equity securities sold with a cashless exercise provision, exercisable at 125% of the price per share of the Company’s common stock paid by investors in the transaction. The warrants should have a term of 5 years. In addition, the Company agreed to reimburse Burnham for all of its out-of-pocket expenses incurred in connection with this offering, which shall not exceed $25,000, and fees and expenses of their counsel not to exceed $100,000. Upon completion of the Company’s IPO, the Company shall pay Bonwick a $50,000 advisory fee. The agreement will expire on the earlier of August 6, 2016 or the mutual written agreement of the Company and Bonwick. Bonwick shall be entitled to a success fee as set forth above if the Company complete a financing with parties introduced by Bonwick prior to the termination agreement during the 6 months period following the termination of the agreement.

 

On January 8, 2016, Moleculin, LLC issued a revolving line of credit promissory note to the Company where the Company agreed to loan up to $50,000 to Moleculin LLC. The note bears annual interest rate at 8% and has a late charge of 5% for amount overdue. Interest is payable monthly to the Company commencing on July 8, 2016 and all outstanding balance is payable on January 8, 2017. The Company has funded $25,000 to Moleculin, LLC subsequent to January 8, 2016.

 

Subsequent to December 31, 2015, the Company sold 128,833 shares for $386,499.

 

  F- 10  

 

 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of
Moleculin, LLC
Houston, Texas

 

We have audited the accompanying statements of financial position of Moleculin, LLC as of December 31, 2015 and 2014 and the related statements of operations, changes in members’ deficit, and cash flows for the years then ended. Moleculin. LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Moleculin, LLC as of December 31, 2015 and 2014 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that Moleculin, LLC will continue as a going concern. As discussed in Note 1 to the financial statements, Moleculin, LLC has suffered recurring losses from operations and has insufficient working capital that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ GBH CPAs, PC

 

GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
March 21, 2016

 

  F- 11  

 

 

Moleculin, LLC

Statements of Financial Position

As of December 31, 2015 and 2014

 

    December 31,     December 31,  
    2015     2014  
ASSETS                
                 
Current Assets:                
Cash and cash equivalents   $ 31,867     $ 524,477  
Prepaid expenses and other current assets     2,354       2,076  
Total Current Assets     34,221       526,553  
                 
Other receivables     -       232,300  
Property and equipment, net of accumulated depreciation     11,259       22,595  
                 
Total Assets   $ 45,480     $ 781,448  
                 
LIABILITIES AND MEMBERS’ DEFICIT                
                 
Current Liabilities:                
Accounts payable and accrued liabilities   $ 838,072     $ 1,047,455  
Accounts payable and accrued liabilities - related parties     66,871       25,744  
Common units payable     -       548,630  
Note payable     55,774       -  
Current portion of long-term note payable     414,165       -  
Convertible notes payable, net of $79,076 discount and $35,787 deferred financing costs     1,020,064       -  
Convertible notes payable- related parties, net of $30,215 discount     483,864       -  
Total Current Liabilities     2,878,810       1,621,829  
                 
Long-term note payable     -       414,165  
Convertible notes payable, net of $237,664 discount and $107,558 deferred financing costs     -       789,705  
Convertible notes payable - related parties, net of $90,811 discount     -       423,268  
Total Liabilities     2,878,810       3,248,967  
                 
Commitments and contingencies                
                 
Members’ Deficit:                
Preferred units, 16,321,558 units authorized, 13,515,820 units issued and outstanding     10,620,186       10,620,186  
Common units, 4,727,074 authorized, 4,178,444 units issued and outstanding     750,000       750,000  
Accumulated deficit     (14,203,516 )     (13,837,705 )
Total Members’ Deficit     (2,833,330 )     (2,467,519 )
                 
Total Liabilities and Members’ Deficit   $ 45,480     $ 781,448  

 

See accompanying notes to the financial statements.

 

  F- 12  

 

 

Moleculin, LLC

Statements of Operations

For the Years Ended December 31, 2015 and 2014

 

    2015     2014  
             
Revenue   $ -     $ -  
                 
Operating expenses:                
Research and development     125,442       798,785  
General and administrative     328,570       839,556  
Depreciation     11,336       11,005  
Total operating expenses     465,348       1,649,346  
                 
Loss from operations     (465,348 )     (1,649,346 )
                 
Other income (expense):                
Gain on extinguishment of liability     548,630       -  
Other income     550       800  
Interest expense     (449,643 )     (160,540 )
Total other income (expense)     99,537       (159,740 )
                 
Net loss   $ (365,811 )   $ (1,809,086 )

 

See accompanying notes to the financial statements.

 

  F- 13  

 

 

Moleculin, LLC

Statements of Changes in Members’ Deficit

For the Years Ended December 31, 2015 and 2014

 

    Preferred Units     Common Units     Accumulated        
    Units     Amount     Units     Amount     Deficit     Total  
                                     
Balance at December 31, 2013     13,515,820     $ 10,207,934       4,178,444     $ 750,000     $ (12,028,619 )   $ (1,070,685 )
                                                 
Beneficial conversion feature of convertible notes     -       412,252       -       -       -       412,252  
                                                 
Net loss     -       -       -       -       (1,809,086 )     (1,809,086 )
                                                 
Balance at December 31, 2014     13,515,820     $ 10,620,186       4,178,444     $ 750,000     $ (13,837,705 )   $ (2,467,519 )
                                                 
Net loss     -       -       -       -       (365,811 )     (365,811 )
                                                 
Balance at December 31, 2015     13,515,820     $ 10,620,186       4,178,444     $ 750,000     $ (14,203,516 )   $ (2,833,330 )

 

See accompanying notes to the financial statements.

 

  F- 14  

 

 

Moleculin, LLC

Statements of Cash Flows

For the Years Ended December 31, 2015 and 2014

 

    2015     2014  
             
Cash Flows From Operating Activities:                
Net loss   $ (365,811 )   $ (1,809,086 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation expense     11,336       11,005  
Amortization of debt discount     219,184       83,777  
Amortization of deferred financing costs     71,771       16,192  
Gain on extinguishment of liabilities     (548,630 )     -  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     (278 )     6,386  
Accounts payable and accrued liabilities     (153,609 )     317,673  
Accounts payable and accrued liabilities - related parties     41,127       19,908  
Net Cash Used In Operating Activities     (724,910 )     (1,354,145 )
                 
Cash Flows From Investing Activities:                
Collection from other receivables     232,300       -  
Net Cash Provided By Investing Activities     232,300       -  
                 
Cash Flows From Financing Activities:                
Proceeds from issuances of convertible notes payable     -       1,011,177  
Proceeds from issuances of convertible notes payable - related parties     -       514,079  
Net Cash Provided By Financing Activities     -       1,525,256  
                 
Net change in cash and cash equivalents     (492,610 )     171,111  
Cash and cash equivalents at beginning of year     524,477       353,366  
Cash and cash equivalents at end of year   $ 31,867     $ 524,477  
                 
Supplemental cash flow disclosures:                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
                 
Non-cash investing and financing activities:                
Long-term note payable issued to settle accounts payable   $ -     $ 414,165  
Note payable issued to settle accounts payable   $ 55,774     $ -  
Beneficial conversion feature of convertible notes   $ -     $ 412,252  

 

See accompanying notes to the financial statements.

 

  F- 15  

 

 

Moleculin, LLC

Notes to Financial Statements

 

Note 1 - Description of Business and Summary of Significant Accounting Policies

 

Nature of Business - Moleculin, LLC, a Texas limited liability company, (the “Company” or “Moleculin”) is an early-stage Houston-based pharmaceutical company formed in December 2006 to create novel therapies for skin disorders and the development of cancer related technology. Although the Company previously focused on the development of treatments for skin disorders, the Company’s current focus is on the development of drugs for cancer treatment.

 

Moleculin intends to be acquired by Moleculin Biotech, Inc. (“MBI”) by merging into MBI. The intended transaction is scheduled to occur immediately prior to the declaration of effectiveness of MBI’s registration statement on Form S-1 with respect to MBI’s initial public offering of its common stock.

   

Use of Estimates in Financial Statement Presentation - The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Going Concern - These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its members, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. The Company has suffered recurring losses from operating and has insufficient working capital. As of December 31, 2015, the Company has incurred accumulated deficit of $14,203,516 since inception, had a working capital deficit of $2,844,589, and has not yet generated any significant revenue from operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company intends to be acquired by MBI and to fund the operations through MBI’s equity offerings.

 

Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less to be cash equivalents. Balances held by the Company are typically in excess of Federal Deposit Insurance Corporation’s insured limits ($250,000 per depositor per bank). At December 31, 2015 and 2014, all of the Company’s cash was deposited in one bank.

 

Property and Equipment - Property and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives. Leasehold improvements are recorded at cost and depreciated on a straight-line basis over the shorter of the estimated useful life or the lease term. When assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income (loss) for the period. Expenditures for major additions which extend the useful lives of assets are capitalized. Minor replacements, maintenance and repairs, which do not improve or extend the life of such assets are charged to expense as incurred.

 

Impairment of Long-Lived Assets -  Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value. For the years ended December 31, 2015 and 2014, there were no impairments recorded.

 

Fair Value of Financial Instruments -  Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

  F- 16  

 

 

Income Taxes - The Company elected to be taxed as a partnership under the Internal Revenue Code. The Company pays no U.S. taxes on its earnings. The Company’s net earnings/losses are passed through to the Company’s members and, as such, reports no income tax expense or liability.

 

Revenue Recognition - The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the purchase price is fixed or determinable and collectability is reasonably assured. The Company may receive cost reimbursement-based grants. For these grants, revenues are based on costs incurred that are specifically covered under reimbursement arrangements. These revenues are recognized as grant-related expenses are incurred by the Company or its subcontractors.

 

Research and Development Costs - Research and development costs are expensed as incurred.

 

Subsequent Events - The Company’s management reviewed all material events through the date these financial statements were issued for subsequent event disclosure consideration.

 

Recent Accounting Pronouncements - In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 as of December 31, 2014.

 

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with the treatment of debt discounts. Amortization of debt issuance costs is to be reported as interest expense. The updated guidance is effective for reporting periods beginning after December 15, 2015, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2015-13 as of December 31, 2014.

 

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

 

Note 2 – Other Receivables

 

On October 27, 2010, the Company entered into a Patent and Technology Development and License Agreement with Dermin, Sp. Zo. O. (“Dermin”), a Polish limited liability company, to assist in the development and commercialization of certain pharmaceutical products within a described licensed territory in exchange for royalty payments. On December 19, 2011, the Company advanced $200,000 to Dermin providing funding assistance to Dermin’s efforts in developing and commercializing these pharmaceutical products in and around the Poland European region. Further, throughout the year 2012, the Company paid $32,300 of expenses on behalf of Dermin. As of December 31, 2014, the Company had $232,300 long-term note receivable from Dermin which was collected in August 2015.

 

Note 3 - Property and Equipment

 

Property and equipment consisted of the following at December 31, 2015 and 2014:

 

    Lives   December 31,
2015
    December 31,
2014
 
                 
Leasehold improvements   1 year   $ 81,602     $ 81,602  
Machinery and equipment   5 years     57,327       57,327  
Furniture and fixtures   7 years     7,955       7,955  
Less: accumulated depreciation         (135,625 )     (124,289 )
Property and equipment, net       $ 11,259     $ 22,595  

 

Depreciation expense for the years ended December 31, 2015 and 2014 were $11,336 and $11,005, respectively.

 

  F- 17  

 

 

Note 4 – Notes Payable

 

On September 8, 2015, the Company issued an unsecured promissory note to Hilltop Research in the amount of $55,774 to settle an outstanding payable. The note matures on June 30, 2016 and accrues interest at 6.0% per annum. In the event that the Company or a significant portion of the Company’s assets are acquired by MBI prior to the maturity date, the loan becomes due and payable upon closing of MBI’s initial public offering.

 

On September 16, 2014, the Company issued a promissory note in the amount of $414,165 to Davos Chemical Corporation to settle an outstanding accounts payable balance. The note bears interest at an annual rate of 6.0% and matures on the earlier of December 31, 2016 or the completion of one of the following prior to December 31, 2016:

 

  a) The Company (i) is awarded a grant from the Cancer Prevention and Research Institute of Texas (“CPRIT”) of at least $5,000,000, and (ii) is deemed by CPRIT to have received the 50% matching funds required by the CPRIT grant; or
  b) The Company concludes a privately placed sale of the Company’s Series A Preferred Units of at least $3,000,000.

 

At December 31, 2015 and 2014, accrued interest related these notes were $34,275 and $7,217, respectively.

 

Note 5 – Convertible Notes Payable

 

From May to November 2014, the Company issued various convertible notes to its creditors. Gross proceeds from third and related parties were $1,134,927 and $514,079, respectively. These notes bear interest at 8% per annum and are due on the earlier of June 30, 2016 or the consummation of a liquidation event, unless these notes are converted, pursuant to the following:

 

  a) Automatic conversion upon CPRIT qualified financing- When the Company is awarded a grant from the CPRIT of at least $3,500,000 and is deemed by CPRIT to have received the 50% matching funds required by the CPRIT grant. The conversion price is $0.80 per unit in the event of a CPRIT qualified financing.
  b) First tier automatic conversion - When the Company concludes a privately placed sale of the Company’s Series A Preferred Units of at least $3,000,000 and is at a pre-money valuation of not less than $20,000,000. The conversion price is 80% of the lowest per unit purchase price in the privately placed sale in the event of a first tier automatic conversion.
  c) Second tier automatic conversion - When the Company concludes a privately placed sale of the Company’s Series A Preferred Units of at least $2,000,000. The conversion price is 70% of the lowest per unit purchase price in the privately placed sale in the event of a second tier automatic conversion.
  d) Voluntary conversion - At any time after the earlier of June 30, 2016 or a liquidation event, the note holders can elect to convert the notes into the Company’s Preferred Units at $0.80 per unit.

 

A liquidation event means: a) the acquisition of the Company by another entity; b) a sale, exclusive license, lease or other conveyance of all or substantially all of the Company’s assets; c) any liquidation, dissolution of the Company; d) the acquisition of an aggregate of 50% or more of the Company’s voting power by a party; e) in a bankruptcy proceeding. Upon a liquidation event, the note holders is entitle to 150% of the then outstanding principal and unpaid interest.

 

These convertible notes were analyzed for a beneficial conversion feature at which time it was concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and was determined to be $283,732 for third party notes and $128,520 for related party notes.  This amount was recorded as a debt discount and is amortized to interest expense over the term of these notes. For the years ended December 31, 2015, amortization of debt discount for third and related parties were $158,588 and $60,596, respectively. For the years ended December 31, 2014, amortization of debt discount for third and related parties were $46,068 and $37,709, respectively.

 

On September 30, 2014, the Company entered into an agreement with Brompton Group NA, LLC (“Brompton”) for a non-exclusive arrangement to identify investors or lenders interested in providing financing for the Company. In exchange for their services, the Company agreed to pay Brompton 15% of the proceeds received from any financing provided by the investors introduced by Brompton. Brompton agreed to receive two-thirds of the fee, at their option, in either cash or in the form of the same securities offered in the financing being offered to the identified investors or lenders. The remaining fee should be paid in the form of the same securities offered in the financing. Of the $1,254,874 debt raised from third party investors during the fourth quarter of 2014, $825,000 was raised through investors introduced by Brompton. As such, $123,750 of finder’s fee was recorded as debt discount and amortized over the life of the notes. For the years ended December 31, 2015 and 2014, interest expense associated with the amortization of the finder’s fee was $71,771 and $16,192, respectively.

 

As of December 31, 2015, accrued interest for third party and related party notes were $118,400 and $66,871, respectively. As of December 31, 2014, accrued interest for third party and related party notes were $27,605 and $25,744, respectively.

 

  F- 18  

 

 

  Note 6 - Commitments and Contingencies

 

MD Anderson Agreements

 

On June 21, 2010, the Company entered into a patent and technology license agreement with the University of Texas M.D. Anderson Cancer Center (“MD Anderson”) under which the Company is obligated to make upfront and periodic progress payments. The agreement allows the Company to obtain from MD Anderson an exclusive, worldwide royalty-bearing license to research, develop, manufacture, have manufactured, use, import, offer to sell or sell products comprising or made through the use of certain patent and technology rights owned by MD Anderson. In consideration, the Company agreed to pay for all out-of-pocket expenses incurred by MD Anderson in filing, prosecuting and maintaining patent rights. Pursuant to the agreement, the Company also agreed to pay: a) an annual maintenance fee starting at $20,000 per year and increase by $10,000 each year up to a maximum of $100,000; b) royalties equal to 2.5% of net sales for licensed products approved for dermatological use; and c) royalties equal to 4.0% of net sales for licensed products approved for all other uses. The 2.5% and 4.0% royalties could be further reduced if certain criteria are met. Annual minimum royalties are $200,000 following the first sale after marketing approval is obtained from MD Anderson by the Company for any licensed products. In addition, the Company will be required to issue 3.5% of the total issued and outstanding common units of the Company on a fully diluted basis to MD Anderson at the time the Company commences its first phase II trial of a drug covered by the agreement. The Company is also required to pay certain milestone payments.

 

On October 8, 2015, the Company entered into a letter agreement with MD Anderson for the Company’s past due fees to MD Anderson in the amount of $691,186 of which $300,000 has been paid prior to the letter agreement. Pursuant to the letter agreement, MD Anderson agreed to receive the remaining past due fee in three installments: a) $125,000 due on October 31, 2015; b) $175,000 due on January 31, 2016; and c) $91,186 due on April 30, 2016. The Company paid $125,000 to MD Anderson on November 2, 2015.

 

On October 19, 2015, the agreement was amended for the milestone payments. The amended milestone payments are as follows:

 

Phase   Amount  
Commencement of Phase III Study for first licensed drug/product within the United States, Europe, China or Japan   $ 150,000  
Submission of the first NDA within the United States   $ 500,000  
Receipt of first marketing approval for sale of a license product in the United States   $ 600,000  

 

The amendment also removed the term regarding the issuance of 3.5% of the Company outstanding units.

 

On January 28, 2016, the Company entered into a letter agreement with MD Anderson where MD Anderson agreed to receive the remaining outstanding amount on or before the earlier of a) April 30, 2016 or b) four days after the Company’s IPO.

 

On October 15, 2015, the Company entered into a $5,000 exclusive option agreement with MD Anderson allowing the Company a period of time to evaluate the potential of acquiring and to negotiate the purchase of an exclusive license in the field of cancer therapeutics. The option period extends from October 15, 2015 through August 31, 2016. MD Anderson shall not offer a license to any third party during the option period. The $5,000 option fee was paid by MBI.

 

Dermin Agreement

 

On October 27, 2010, the Company entered into a Patent and Technology Development and License Agreement with Dermin. The agreement provided Dermin with sub-license rights to the Company’s technologies for use in limited territories in exchange for Dermin’s use of Polish government grant funding to pay for development costs the Company would otherwise have been required to fund. Dermin’s territories are primarily Poland and surrounding countries, but not including any of the major European markets (UK, Germany, France, Spain and Italy). Pursuant to the agreement, Dermin has to pay the Company a running royalty on sales of license products. As of December 31, 2015, no sales have occurred and no royalty paid to the Company by Dermin.

 

Lease Agreements

 

On July 31, 2007, the Company entered into a rental agreement for office space at 2575 West Belfort, Houston, Texas. The agreement was renewed on July 26, 2010 for one year. After July 2011, the lease continues on a month-to-month basis. Therefore, there are no future minimum obligations on the lease. Rent expense for the year ended December 31, 2015 and 2014 were $29,765 and $26,600, respectively, and are included in general and administrative expenses on the statements of operations.

 

  F- 19  

 

 

Note 7 - Equity

 

In March 2011, the Company amended its articles of incorporation to create two classes of interests referred to as ‘Series A Preferred Membership Interests’ and ‘Common Membership Interests’, with each interest issued being measured as Units (Series A Preferred Units and Common Units, respectively). The Series A Preferred Units are further broken down into 4 series including Series A-1, Series A-2, Series A-3 and Series A-4.

 

Pursuant to Moleculin, LLC's Company Agreement, the Board shall distribute net cash, as defined in the Company Agreement, to the members at such times and in such amounts as the Board may determine in the following order and priority:

 

  a) First, to the Series A Preferred members in proportion to each such members’ original capital contribution until such members receive net cash equal to 150% of their original capital contribution.
  b) Second, to the members in proportion to their percentage interests until Series A Preferred members have received net cash equal to 300% of their original capital contribution.
  c) Third, to the common members in proportion to each common member’s common units until the common members have receive aggregate distributions of net cash equal to the then total amount of distributions to all members for all company fiscal years multiplied by the common members’ aggregate percentage interests; and
  d) Fourth, to the members in accordance with their percentage interests.

 

As of December 31, 2015 and 2014, the Preferred Units are summarized as follows:

 

    Units Outstanding        
Series   December 31,
2015
    December 31,
2014
    Contribution  
Series A-1     283,604       283,604     $ 150,000  
Series A-2     1,595,552       1,595,552       600,000  
Series A-3     1,942,400       1,942,400       513,672  
Series A-4     9,694,264       9,694,264       9,356,514  
Total     13,515,820       13,515,820     $ 10,620,186  

 

During the first quarter of 2013, the Company commenced the first Phase II Study of a licensed product in the patent and technology license agreement between the Company and MD Anderson. Pursuant to the agreement, the Company was obligated to issue MD Anderson 548,630 common units, representing 3.5% of its issued and outstanding equity units. These common units were valued at their estimated fair value of $548,630, which was recorded as a research and development expense. In October 2015, MD Anderson agreed to forfeit its right to these units. The Company recorded a gain on liability extinguishment of $548,630 upon the forfeiture.

  

Note 8 - Subsequent Event

  

On January 2, 2016, the Company purchased 189,070 common units from one of the Company's unit holders for $100.

 

On January 8, 2016, the Company issued a revolving line of credit promissory note to MBI where MBI agreed to loan up to $50,000 to the Company. The note bears annual interest rate at 8% and has a late charge of 5% for amount overdue. Interest is payable monthly commencing on July 8, 2016 and all outstanding balance is payable on January 8, 2017. $25,000 under this note has been received subsequent to January 8, 2016.

 

  F- 20  

 

 

Up to 2,000,000 Shares

 

Moleculin Biotech, Inc.

 

Common Stock

 

 

 

Bonwick Capital Partners LLC

 

Network 1 Financial Securities, Inc.  

 

 

 

Through and including                     , 2016 (the 25 th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 

 

 

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 to be incurred in connection with the issuance and distribution of the securities of Moleculin Biotech, Inc. (the “Registrant”) which are registered under this Registration Statement on Form S-1 (this “Registration Statement”), other than underwriting discounts and commissions. All amounts are estimates except the Securities and Exchange Commission registration fee and the Financial Industry Regulatory Authority, Inc. filing fee.

 

The following expenses will be borne solely by the Registrant.

 

    Amount to be  
    Paid  
SEC Registration fee    $ 1,293  
Financial Industry Regulatory Authority, Inc. filing fee    $ 2,500  
Nasdaq Listing fees    $ 75,000  
Printing and engraving expenses    $ *  
Legal fees and expenses    $ *  
Accounting fees and expenses    $  *  
Transfer Agent’s fees    $ *  
Miscellaneous fees and expenses    $ *  
         
Total     *  

 

* To be provided by amendment.

 

Item 14. Indemnification of Directors and Officers.

 

Pursuant to Section 145 of the Delaware General Corporation Law (the “DGCL”), a corporation shall have the power to 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, whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation in such capacity for 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 in connection with such action, suit or proceeding, if 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 such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

 

The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

 

To the extent a present or former director or officer is successful in the defense of such an action, suit or proceeding referenced above, or in defense of any claim, issue or matter therein, a corporation is required by the DGCL to indemnify such person for actual and reasonable expenses incurred in connection therewith. Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon in the case of a current officer or director, receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined that such person is not entitled to be so indemnified.

  

The DGCL provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its bylaws, disinterested directors’ vote, stockholders’ vote and agreement or otherwise.

 

II- 1

 

 

Section 102(b)(7) of the DGCL enables a corporation, in its certificate of incorporation or an amendment thereto, to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the directors’ fiduciary duty, except (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. The Registrant’s certificate of incorporation provides for such limitations on liability for its directors.

 

The DGCL also provides corporations with the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation in a similar capacity for another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above. In connection with this offering, the Registrant will obtain liability insurance for its directors and officers. Such insurance would be available to its directors and officers in accordance with its terms.

 

The Registrant’s certificate of incorporation in requires the Registrant to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “covered person”) who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”) by reason of the fact that he or she is or was a director, officer or member of a committee of the Registrant, or, while a director or officer of the Registrant, is or was serving at the request of the Registrant as a director or officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees), judgment, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with a proceeding.

 

In addition, under the Registrant’s certificate of incorporation, in certain circumstances, the Registrant shall pay the expenses (including attorneys’ fees) incurred by a covered person in defending a proceeding in advance of the final disposition of such proceeding; provided, however, that the Registrant shall not be required to advance any expenses to a person against whom the Registrant directly brings an action, suit or proceeding alleging that such person (1) committed an act or omission not in good faith or (2) committed an act of intentional misconduct or a knowing violation of law. Additionally, an advancement of expenses incurred by a covered person shall be made only upon delivery to the Registrant of an undertaking, by or on behalf of such covered person, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal or otherwise in accordance with Delaware law that such covered person is not entitled to be indemnified for such expenses.

 

The foregoing statements are subject to the detailed provisions of Section 145 of the DGCL and the full text of the Registrant’s certificate of incorporation, which is filed as Exhibit 3.1 hereto. Reference is made to the form of underwriting agreement to be filed as Exhibit 1.1 hereto for provisions providing that the underwriters are obligated under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities under the Securities Act of 1933, as amended.

 

Item 15. Recent Sales of Unregistered Securities.

 

Except as set forth below, in the three years preceding the filing of this Registration Statement, the Registrant has not issued any securities that were not registered under the Securities Act:

 

In August 2015, Messrs. Klemp, Picker and Priebe purchased 1,000,000 shares, 500,000 shares and 3,000,000 shares of our common stock, respectively, at a purchase price of $0.001 per share.

 

In August 2015, in exchange for the issuance of 630,000 shares of common stock, we acquired the rights to the license agreement with MD Anderson covering our WP1122 Portfolio held by IntertechBio Corporation, a company affiliated with Messrs. Priebe and Picker. In August 2015, in exchange for the issuance of 1,431,000 shares of common stock, we acquired the rights to the Annamycin IND and all data related to the Annamycin IND or the development of Annamycin held by AnnaMed, Inc., a company affiliated with Mr. Klemp.

 

Prior to the effective date of the registration statement of which this prospectus is a part, Moleculin, LLC, a Texas limited liability company, will be merged with and into MBI, which will survive the merger. Moleculin, LLC is the holder of the license agreement with MD Anderson covering our WP 1066 Portfolio. As a result of the merger, we will issue the equity interests holders of Moleculin, LLC (including the convertible noteholders of Moleculin, LLC) an aggregate of 1,000,000 shares of our common stock. Messrs. Klemp, Picker and Priebe are members of Moleculin, LLC and will receive shares of our common stock as a result of the merger.

 

II- 2

 

 

In August and September 2015, the Registrant issued two 8% convertible notes in an aggregate of $250,000 in principal amount of convertible notes to one investor, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.1299 per share. In October 2015, the Registrant issued two 8% convertible notes in an aggregate of $200,000 in principal amount of convertible notes to two investors, which principal and accrued interest will automatically convert into shares of common stock upon the closing of this offering at a conversion rate of $0.20 per share. At the time of such purchase in October 2015, the convertible note investors and the Registrant agreed that the investors would fund the Registrant up to the filing of its initial non-confidential registration statement an additional $165,000 on the same terms as in the October financing. Pursuant to such agreement, such amounts were received in January 2016.

 

Subsequent to December 31, 2015, the Registrant sold 128,833 shares of common stock for a total purchase price of $386,499 to 11 investors.

 

None of these transactions involved any public offering. We believe that each of the above issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.

 

Item 16. Exhibits and Financial Statement Schedules.

 

(a) Exhibits : Reference is made to the Exhibit Index following the signature pages hereto, which Exhibit Index is hereby incorporated into this Item.

 

(b) Financial Statement Schedules : All schedules are omitted because the required information is inapplicable or the information is presented in the financial statements and the related notes.

 

Item 17. Undertakings

 

The undersigned hereby undertakes:

 

(a) The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered 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 of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

(c) The undersigned Registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

 

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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.

 

II- 3

 

 

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 Houston, Texas, on March 21, 2016.

 

  MOLECULIN BIOTECH, INC.
  (Registrant)
   
  By: /s/ Walter V. Klemp 
    Walter V. Klemp
    Director and Chief Executive Officer

  

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated:

 

SIGNATURE   TITLE   DATE
         
/s/ Walter V. Klemp      
Walter V. Klemp   Chief Executive Officer and Sole Director   March 21, 2016
     (Principal Executive Officer)    
         
/s/  Louis Ploth, Jr.        
 Louis Ploth, Jr.   Chief Financial Officer   March 21, 2016
     (Principal Financial Officer and Principal Accounting Officer)    
         
*        
Donald Picker   President and Chief Operating Officer   March 21, 2016

 

*By: /s/ Walter V. Klemp    
  Walter V. Klemp,    
  Attorney-in-fact    

 

 

 

 

EXHIBIT INDEX

 

Exhibit
Number
Description
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation to be filed prior to offering
3.2 Amended and Restated Bylaws of to be filed prior to offering
5 Opinion of Schiff Hardin LLP as to legality of the securities being registered*
10.1 Moleculin Biotech, Inc. 2015 Incentive Plan
10.2 Rights Transfer Agreement between Moleculin Biotech, Inc. and AnnaMed, Inc.
10.3 Patent and Technology License Agreement dated June 21, 2010 by and between The Board of Regents of the University of Texas System and Moleculin, LLC
10.4 Amendment No. 1 to the Patent and Technology License Agreement dated June 21, 2010 by and between The Board of Regents of the University of Texas System and Moleculin, LLC
10.5 Patent and Technology License Agreement dated April 2, 2012 by and between The Board of Regents of the University of Texas System and Intertech Bio Corporation
10.6 Amendment No. 1 to the Patent and Technology License Agreement dated June 21, 2010 by and between The Board of Regents of the University of Texas System and Intertech Bio Corporation
10.7 Amended and Restated Patent and Technology Development and License Agreement by and between Annamed, Inc. and Dermin Sp. z.o.o*
10.8 Patent and Technology Development and License Agreement dated April 15, 2011 by and between Intertech Bio Corporation and Dermin Sp. z.o.o
10.9 Patent and Technology Development and License Agreement dated October 27, 2010 by and between Moleculin, LLC and Dermin Sp. z.o.o
10.10 Rights Transfer Agreement dated between Moleculin Biotech, Inc. and Intertech Bio Corporation dated August 11, 2015
10.11 Agreement and Plan of Merger between Moleculin Biotech, Inc. and Moleculin LLC
10.12 Form of Escrow Deposit Agreement by and among Moleculin Biotech, Inc., Signature Bank and the Underwriters
21 Subsidiaries of the Registrant*
23.1 Consent of GBH CPAs, PC
23.2 Consent of Schiff Hardin LLP (included in Exhibit 5)*
99.1 Consent of Director Nominee Robert E. George (1)
99.2 Consent of Director Nominee Michael D. Cannon (1)
99.3 Consent of Director Nominee Jacqueline Northcut (1)

 

 
* To be filed by amendment.

 

(1) Previously filed.

 

 

 

 

Exhibit 1.1

 

Moleculin Biotech

 

UNDERWRITING AGREEMENT

 

dated [ · ], 2016

 

Bonwick Capital Partners, LLC

 

 

 

 

Underwriting Agreement

 

[ · ], 2016

 

Bonwick Capital Partners, LLC,

  As Representative of the Several Underwriters

40 West 57th Street, 28th Floor

New York, New York 10019

 

Ladies and Gentlemen:

 

Moleculin Biotech, Inc., a Delaware corporation (the “ Company ”), proposes to issue and sell an aggregate of up to 2,000,000 shares of the Company’s common stock, par value $0.001 per share (“ Common Stock ”), to investors deemed acceptable by the Company (the “ Investors ”). The shares of Common Stock to be sold by the Company are collectively called the “ Shares .” Bonwick Capital Partners, LLC (“ Bonwick ”) and Network 1 Financial Securities, Inc. (“ Network 1 ”) have agreed to act, severally and not jointly, on a best efforts basis, in connection with the offering and sale of the Shares. Bonwick has agreed to act as representative of the several underwriters (in such capacity, the “ Representative ”) and each of the other underwriters listed on Schedule A hereto (each, an “ Underwriter ” and collectively, the “ Underwriters ”). We understand that the Representative may engage one or more additional Underwriters or selected dealers for purposes of selling the Shares subject to the terms hereof.

 

The Company confirms its agreement with the Underwriters as follows:

 

Section 1. Representations and Warranties of the Company .

 

The Company represents, warrants and covenants to the Underwriters as follows with the understanding that the same may be relied upon by all dealers and Underwriters in this offering:

 

(a)           Filing of the Registration Statement . The Company has prepared and filed with the Securities and Exchange Commission (the “ Commission ”) a registration statement on Form S-1 (File No. 333-209323), which contains a form of prospectus to be used in connection with the public offering and sale of the Shares. Such registration statement, as amended, including the financial statements, exhibits and schedules thereto contained in the registration statement at the time such registration statement became effective, in the form in which it was declared effective by the Commission under the Securities Act of 1933, as amended (the “ Securities Act ”), and the rules and regulations promulgated thereunder (the “ Securities Act Regulations ”), and including any required information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A under the Securities Act, or pursuant to the Securities Exchange Act of 1934, as amended (collectively, the “ Exchange Act ”) and the rules and regulations promulgated thereunder (the “ Exchange Act Regulations ”), is called the “ Registration Statement .” Any registration statement filed by the Company pursuant to Rule 462(b) under the Securities Act is called the “ Rule 462(b) Registration Statement ,” and from and after the date and time of filing of the Rule 462(b) Registration Statement, the term “ Registration Statement ” shall include the Rule 462(b) Registration Statement. Such prospectus, in the form first filed pursuant to Rule 424(b) under the Securities Act after the date and time that this Agreement is executed and delivered by the parties hereto, or, if no filing pursuant to Rule 424(b) under the Securities Act is required, the form of final prospectus relating to the Shares included in the Registration Statement at the effective date of the Registration Statement, is called the “ Prospectus .” All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, the preliminary prospectus included in the Registration Statement (each, a “ preliminary prospectus ”), the Prospectus, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“ EDGAR ”). The preliminary prospectus dated [ · ], 2016, that was included in the Registration Statement immediately prior to the Applicable Time (as defined below) is hereinafter called the “ Pricing Prospectus .” Any reference to the “most recent preliminary prospectus” shall be deemed to refer to the latest preliminary prospectus included in the registration statement. Any reference herein to any preliminary prospectus or the Prospectus or any supplement or amendment to either thereof shall be deemed to refer to and include any documents incorporated by reference therein as of the date of such reference.

 

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(b)          “ Applicable Time ” means [ · ], Eastern time, on the date of this Agreement.

 

(c)           Compliance with Registration Requirements . The Registration Statement has been declared effective by the Commission under the Securities Act and the Securities Act Regulations. The Company has complied, to the Commission’s satisfaction, with all requests of the Commission for additional or supplemental information. No stop order preventing or suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission.

 

Each preliminary prospectus and the Prospectus when filed complied or will comply in all material respects with the Securities Act and, if filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act), was identical in content to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Shares, other than with respect to any artwork and graphics that were not filed. Each of the Registration Statement, any Rule 462(b) Registration Statement, and any post-effective amendment to either the Registration Statement or the Rule 462(b) Registration Statement, at the time it became effective and at all subsequent times until the expiration of the prospectus delivery period required under Section 4(3) of the Securities Act, complied and will comply in all material respects with the Securities Act and the Securities Act Regulations and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, as amended or supplemented, as of its date and at all subsequent times until the Underwriters have completed the placement of the offering of the Shares, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding sentences do not apply to statements in or omissions from the Registration Statement or any Rule 462(b) Registration Statement, or any post-effective amendment to either the Registration Statement or the Rule 462(b) Registration Statement, or in the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, made in reliance upon and in conformity with information relating to the Underwriters furnished to the Company in writing through the Representative expressly for use therein, it being understood and agreed that the only such information furnished on behalf of any of the Underwriters consists of the information described as such in Section 7 hereof. There are no contracts or other documents required to be described in the Pricing Prospectus or the Prospectus or to be filed as exhibits to the Registration Statement that have not been fairly and accurately described in all material respects or filed as required.

 

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(d)           Disclosure Package . The term “ Disclosure Package ” shall mean (i) the Pricing Prospectus, as amended or supplemented, (ii) each issuer free writing prospectus, as defined in Rule 433 under the Securities Act (each, an “ Issuer Free Writing Prospectus ”), if any, identified in Schedule B hereto, (iii) the pricing terms set forth in Schedule C to this Agreement, and (iv) any other free writing prospectus that the parties hereto shall hereafter expressly agree in writing to treat as part of the Disclosure Package. As of the Applicable Time, the Disclosure Package did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity with written information furnished to the Company by the any Underwriter through the Representative expressly for use therein, it being understood and agreed that the only such information furnished on behalf of any of the Underwriters (the “ Underwriters’ Information ”) consists of the information described as such in Section 7 hereof.

 

(e)           Company Not Ineligible Issuer . (i) At the time of filing the Registration Statement and (ii) as of the date of the execution and delivery of this Agreement (with such date being used as the determination date for purposes of this clause (ii)), the Company was not and is not an Ineligible Issuer (as defined in Rule 405 under the Securities Act), without taking account of any determination by the Commission pursuant to Rule 405 under the Securities Act that it is not necessary that the Company be considered an Ineligible Issuer.

 

(f)            Issuer Free Writing Prospectuses . No Issuer Free Writing Prospectus includes any information that conflicts with the information contained in the Registration Statement, including any document incorporated by reference therein that has not been superseded or modified. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by the Representative expressly for use therein, it being understood and agreed that the only such information furnished by the Representative consists of the information described as such in Section 7 hereof.

 

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(g)           Offering Materials Furnished to the Representative . The Company has delivered to the Representative conformed copies of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and each preliminary prospectus and the Prospectus, as amended or supplemented, in such quantities and at such places as the Representative has reasonably requested.

 

(h)           Distribution of Offering Material By the Company . The Company has not distributed and will not distribute, prior to the completion of the Underwriters’ placement of the Shares, any offering material in connection with the offering and sale of the Shares other than a preliminary prospectus, the Prospectus, any Issuer Free Writing Prospectus reviewed and consented to by the Representative, and the Registration Statement.

 

(i)            The Underwriting Agreement . This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.

 

(j)            Authorization of the Shares . The Shares to be sold by the Company through the Underwriters have been duly and validly authorized by all required corporate action and have been reserved for issuance and sale pursuant to this Agreement and, when so issued and delivered by the Company, will be validly issued, fully paid and non-assessable.

 

(k)           No Applicable Registration or Other Similar Rights . There are no persons with registration or other similar rights to have any securities of the Company registered for sale under the Registration Statement or included in the offering contemplated by this Agreement.

 

(l)            No Material Adverse Change . Except as otherwise disclosed in the Disclosure Package, subsequent to the respective dates as of which information is given in the Disclosure Package: (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations, whether or not arising from transactions in the ordinary course of business, of the Company (any such change, a “ Material Adverse Change ”); (ii) the Company has not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company in respect of its capital stock.

 

(m)          Independent Accountant . GBH CPAs, PC (the “ Accountant ”), which has expressed its opinions with respect to the audited financial statements (which term as used in this Agreement includes the related notes thereto) of the Company and of Moleculin LLC, respectively, filed with the Commission as a part of the Registration Statement and included in the Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Exchange Act.

 

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(n)           Preparation of the Financial Statements . Each of the historical financial statements of the Company and of Moleculin LLC, respectively, filed with the Commission as a part of the Registration Statement and included in the Disclosure Package and the Prospectus, presents fairly the information provided as of and at the dates and for the periods indicated. Such financial statements comply as to form with the applicable accounting requirements of the Securities Act and the Securities Act Regulations and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included or incorporated by reference in the Registration Statement. Each item of historical financial data relating to the operations, assets or liabilities of the Company and of Moleculin LLC set forth in summary form in each of the preliminary prospectuses and the Prospectus fairly presents such information on a basis consistent with that of the complete financial statements contained in the Registration Statement. The pro forma financial statements and the related notes thereto included in the Registration Statement, the Pricing Prospectus and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein.

 

(o)           Incorporation and Good Standing . The Company has been duly incorporated or formed and is validly existing as a corporation, in good standing under the laws of the jurisdiction of its incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required. As of the Closing, the Company does not own or control, directly or indirectly, any corporation, association or other entity.

 

(p)           Capitalization and Other Capital Stock Matters . The authorized, issued and outstanding capital stock of the Company is as set forth in each of the Disclosure Package and the Prospectus (other than for subsequent issuances, if any, pursuant to employee benefit plans described in each of the Disclosure Package and the Prospectus or upon exercise of outstanding options or warrants described in the Disclosure Package and Prospectus, as the case may be). The Common Stock conforms, and, when issued and delivered as provided in this Agreement, the Shares will conform, in all material respects to the description thereof contained in each of the Disclosure Package and Prospectus. All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and non-assessable and have been issued in compliance with federal and state securities laws. None of the outstanding shares of Common Stock was issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company other than those accurately described in the Disclosure Package and the Prospectus. The description of the Company’s stock option and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Disclosure Package and the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights.

 

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(q)           Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required . The Company is not in violation of its certificate of incorporation, or by-laws or in default (or, with the giving of notice or lapse of time, would be in default) (“ Default ”) under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which it is a party or by which it may be bound (including, without limitation, any agreement or contract filed as an exhibit to the Registration Statement or to which any of the property or assets of the Company are subject (each, an “ Existing Instrument ”)), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The Company’s execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Disclosure Package and the Prospectus (i) have been duly authorized by all necessary corporate action and will not result in any violation of the provisions of the certificate of incorporation or by-laws of the Company, (ii) will not conflict with or constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to, or require the consent of any other party to, any Existing Instrument and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Disclosure Package and the Prospectus, except the registration or qualification of the Shares under the Securities Act and applicable state securities or blue sky laws and from the Financial Industry Regulatory Authority (“ FINRA ”).

 

(r)            No Material Actions or Proceedings . Except as otherwise disclosed in the Disclosure Package and the Prospectus, there are no legal or governmental actions, suits or proceedings pending or, to the Company’s knowledge, threatened (i) against or affecting the Company, (ii) which have as the subject thereof any officer or director (in such capacities) of, or property owned or leased by, the Company or (iii) relating to environmental or discrimination matters, where in any such case (A) there is a reasonable possibility that such action, suit or proceeding might be determined adversely to the Company and (B) any such action, suit or proceeding, if so determined adversely, would reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement. No material labor dispute with the employees of the Company exists or, to the Company’s knowledge, is threatened or imminent.

 

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(s)           Intellectual Property Rights . The Company owns, possesses or licenses, and otherwise has legally enforceable rights to use all patents, patent applications, trademarks, trade names, copyrights, domain names, licenses, approvals and trade secrets (collectively, “ Intellectual Property Rights ”) reasonably necessary to conduct its business as now conducted or, otherwise, as disclosed in the Registration Statement, the Disclosure Package and the Prospectus; and the expected expiration of any of such Intellectual Property Rights would not be expected to result in a Material Adverse Change. The Company has not received any written notice of infringement or conflict with asserted Intellectual Property Rights of others. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Disclosure Package and the Prospectus and are not described in all material respects. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of their respective officers, directors or employees or otherwise in violation of the rights of any persons. The Company is not subject to any judgment, order, writ, injunction or decree of any court or any federal, state, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any arbitrator, nor has it entered into nor is it a party to any agreement made in settlement of any pending or threatened litigation, which materially restricts or impairs its use of any Intellectual Property Rights. The Company has taken reasonable and customary actions to protect its rights in confidential information and trade secrets and to protect any confidential information provided to it by any other person.

 

(t)            All Necessary Permits, etc . Except as otherwise disclosed in the Disclosure Package and the Prospectus, the Company possesses such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct its business, and the Company has not received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit.

 

(u)           Title to Properties . The Company has good and marketable title to all the properties and assets reflected as owned by it in the financial statements referred to in Section 1(n) above (or elsewhere in the Disclosure Package and the Prospectus), in each case free and clear of any security interest, mortgage, lien, encumbrance, equity, adverse claim or other defect, except such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company. The real property, improvements, equipment and personal property held under lease by the Company are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real property, improvements, equipment or personal property by the Company.

 

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(v)          Tax Law Compliance . The Company has filed all necessary federal, state and foreign income and franchise tax returns or has timely and properly filed requested extensions thereof and has paid all taxes required to be paid by it and, if due and payable, any related or similar assessment, fine or penalty levied against it. The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 1(n) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company has not been finally determined.

 

(w)          Company Not an “Investment Company.” The Company is not, and after giving effect to payment for the Shares and the application of the proceeds as contemplated under the caption “Use of Proceeds” in each of the Disclosure Package and the Prospectus will not be, required to register as an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “Investment Company Act”), and will conduct its business in a manner so that it will not become subject to registration under the Investment Company Act.

 

(x)           Insurance . The Company is insured by institutions believed to be recognized, financially sound and reputable, with policies in such amounts and with such deductibles and covering such risks as the Company reasonably believes are adequate and customary for its business including, but not limited to, policies covering real and personal property owned or leased by the Company against theft, damage, destruction and acts of vandalism. The Company reasonably believes that it will be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted. The Company has not been denied any insurance coverage which it has sought or for which it has applied.

 

(y)           No Price Stabilization or Manipulation . The Company has not taken and will not take, directly or indirectly, any action designed to, or that might be reasonably expected to cause or result in, stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Shares.

 

(z)           Related Party Transactions . There are no business relationships or related-party transactions involving the Company or any other person required to be described or filed in the Registration Statement, or described in the Disclosure Package or the Prospectus, that have not been described as required.

 

(aa)         Disclosure Controls and Procedures . The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Exchange Act Regulations), which (i) are designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and its principal financial officer by others within the Company, (ii) will be evaluated for effectiveness as of the end of each fiscal quarter and fiscal year of the Company and (iii) are effective in all material respects to perform the functions for which they were established. The Company is not aware of (a) any significant deficiency in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data or any material weaknesses in internal controls or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.

 

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(bb)        Company’s Accounting System . The Company maintains a system of accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (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 existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(cc)         Money Laundering Law Compliance . The operations of the Company are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any competent governmental agency (collectively, the “ Anti-Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(dd)         OFAC . (i) Neither the Company nor any director, officer, or employee of the Company, nor, to the Company’s knowledge, any agent, affiliate or underwriter of the Company, is an individual or entity (“ Person ”) that is, or is owned or controlled by a Person that is:

 

A.           the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control (“ OFAC ”), the United Nations Security Council (“ UNSC ”), the European Union (“ EU ”), Her Majesty’s Treasury (“ HMT ”), or other relevant sanctions authority (collectively, “Sanctions”), nor

 

B.           located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Burma/Myanmar, Cuba, Iran, Libya, North Korea, Sudan and Syria).

 

(ii)         The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:

 

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A.           to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or

 

B.           in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).

 

(iii)        For the past 5 years, the Company has not knowingly engaged in, and is not now knowingly engaged in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.

 

(ee)         ERISA Compliance . The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ ERISA ”)) established or maintained by the Company or its “ ERISA Affiliates ” (as defined below) are in compliance in all material respects with ERISA. “ ERISA Affiliate ” means, with respect to the Company, any member of any group of organizations described in Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “ Code ”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Section 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified, and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.

 

(ff)          Compliance with Sarbanes-Oxley Act of 2002 . The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance with any provision applicable to it of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) and the rules and regulations promulgated in connection therewith, including, without limitation, Section 402 related to loans and Sections 302 and 906 related to certifications of the Sarbanes-Oxley Act.

 

(gg)         Exchange Act Filing . The Company has filed with the Commission a registration statement on Form 8-A (File No 001-[__________]) providing for the registration under the Exchange Act of the Shares. The registration of the Shares under the Exchange Act has been declared effective by the Commission on the date hereof.

 

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Any certificate signed by an officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters set forth therein. The Company acknowledges that the Underwriters and, for purposes of the opinions to be delivered pursuant to Section 5 hereof, counsel to the Company, will rely upon the accuracy and truthfulness of the foregoing representations and hereby consents to such reliance.

 

Section 2. Purchase, Sale and Delivery of the Shares .

 

(a)           The Shares . Upon the terms herein set forth, the Company agrees to issue and sell the Shares, and on the basis of the representations, warranties and agreements herein contained, and upon the terms hereof, the Underwriters agree, severally and not jointly, to use their best efforts to arrange for the sale of the Shares to the Investors. The Underwriters are under no obligation to arrange for the sale of any minimum number or dollar amount of Shares. The purchase price per Share to be paid by the Investors shall be as set forth in Schedule C hereto.

 

(b)           The Closing Date . Delivery of the Shares to be purchased by the Investors and payment therefor shall be made at [10:00 a.m.] (Eastern time) on a date mutually agreed to between the Company and the Underwriters (the time and date of such closing are called the “ Closing Date ”).

 

(c)           Public Offering of the Shares . The Company hereby appoints Bonwick as representative of the Underwriters, and each Underwriter has agreed to such appointment. The Company hereby authorizes the Underwriters to act as its exclusive agents to solicit offers for the purchase of all or part of the Shares from the Company in connection with the proposed offering of the Shares. The Representative hereby advises the Company that the Underwriters intend, on a best efforts basis, to arrange for sale to the public, as described in the Disclosure Package and the Prospectus, of the Shares as soon after the Registration Statement has been declared effective and this Agreement has been executed by the Representative, as the Representative, in its sole judgment, has determined is advisable and practicable. The Company hereby acknowledges that the Underwriters have agreed, as agents of the Company, to use their reasonable best efforts to solicit offers to purchase the Shares from the Company on the terms and subject to the conditions set forth in the Disclosure Package and the Prospectus. The Underwriters shall use reasonable best efforts to assist the Company in obtaining performance by each Investor whose offer to purchase Shares has been solicited by the Underwriters and accepted by the Company, but the Underwriters shall not, except as otherwise provided herein, be obligated to disclose the identity of any potential investor not previously identified to the Company or have any liability to the Company in the event any investment is not consummated for any reason.

 

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(d)           Payment for the Shares . The Shares are being sold to the Investors at an aggregate initial public offering price per Share as set forth in Schedule C hereto. The purchase of Shares by each of the Investors shall be evidenced by the execution of a subscription agreement by each such Investor and the Company. In the event that the any of the Underwriters receives any payment from an Investor in connection with the purchase of any Shares by such Investor, such payment shall be promptly transmitted to and deposited into the escrow account (the “ Escrow Account ”) established by the Company in connection with this offering with Signature Bank, as escrow agent (the “ Escrow Agent ”). Among other things, the Underwriters shall forward any checks so received by the Underwriters to the Escrow Agent by noon of the next business day. The Underwriters and the Company shall instruct Investors to make wire transfer payments to Signature Bank, ABA No. 026013576, 261 Madison Avenue, New York, NY 10016, for credit to Signature Bank, as Escrow Agent for Moleculin Biotech, Inc., Account No. [ · ]], with the name and address of the Investor making payment. Payment by the Investors out of the Escrow Account for the Shares to be sold by the Company shall be made at the Closing Date to the Company in straight compliance with Rule 15c2-4 of the Commission.

 

(e)           Delivery of the Shares . Delivery of the Shares shall be made through the facilities of The Depository Trust Company unless the Underwriters shall otherwise instruct. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters.

 

(f)            Delivery of Prospectus to the Underwriters . Not later than 10:00 a.m. (Eastern time) on the second business day following the date the Shares are first released by the Company for sale to the public, the Company shall deliver or cause to be delivered, copies of the Prospectus in such quantities and at such places as the Underwriters shall request.

 

Section 3. Covenants of the Company .

 

The Company covenants and agrees with each of the Underwriters as follows:

 

(a)           Representative’s Review of Proposed Amendments and Supplements . During the period beginning at the Applicable Time and ending on the later of the Closing Date or such date as, in the opinion of counsel for the Underwriters, the Prospectus is no longer required by law to be delivered in connection with sales by the Underwriters or selected dealers, including under circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act (the “ Prospectus Delivery Period ”), prior to amending or supplementing the Registration Statement or the Prospectus, including any amendment or supplement through incorporation by reference of any report filed under the Exchange Act, the Company shall furnish to the Representative for review a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Representative reasonably objects.

 

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(b)           Securities Act Compliance . After the date of this Agreement, during the Prospectus Delivery Period, the Company shall promptly advise the Underwriters through the Representative in writing (i) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (ii) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to the Pricing Prospectus or the Prospectus, (iii) of the time and date that any post-effective amendment to the Registration Statement becomes effective and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of any order or notice preventing or suspending the use of the Registration Statement, the Pricing Prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. The Company shall use its best efforts to prevent the issuance of any such stop order or prevention or suspension of such use. If the Commission shall enter any such stop order or order or notice of prevention or suspension at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment, or will file a new registration statement and use its best efforts to have such new registration statement declared effective as soon as practicable. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b) and 430A, as applicable, under the Securities Act, including with respect to the timely filing of documents thereunder, and will confirm that any filings made by the Company under such Rule 424(b) were received in a timely manner by the Commission.

 

(c)           Exchange Act Compliance . During the Prospectus Delivery Period, the Company will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within the time periods required by the Exchange Act.

 

(d)           Amendments and Supplements to the Registration Statement, Prospectus and Other Securities Act Matters . If, during the Prospectus Delivery Period, any event or development shall occur or condition exist as a result of which the Disclosure Package or the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made, as the case may be, not misleading, or if it shall be necessary to amend or supplement the Disclosure Package or the Prospectus, in order to make the statements therein, in the light of the circumstances under which they were made, as the case may be, not misleading, or if in the opinion of the Representative it is otherwise necessary to amend or supplement the Registration Statement, the Disclosure Package or the Prospectus, or to file a new registration statement containing the Prospectus, in order to comply with law, including in connection with the delivery of the Prospectus, the Company agrees to (i) notify the Representative of any such event or condition (unless such event or condition was previously brought to the Company’s attention by the Representative during the Prospectus Delivery Period) and (ii) promptly prepare (subject to Section 3(a) and Section 3(e) hereof), file with the Commission (and use its best efforts to have any amendment to the Registration Statement or any new registration statement to be declared effective) and furnish at its own expense to the Underwriters and to dealers, amendments or supplements to the Registration Statement, the Disclosure Package or the Prospectus, or any new registration statement, necessary in order to make the statements in the Disclosure Package or the Prospectus as so amended or supplemented, in the light of the circumstances under which they were made, as the case may be, not misleading or so that the Registration Statement, the Disclosure Package or the Prospectus, as amended or supplemented, will comply with law.

 

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(e)           Permitted Free Writing Prospectuses . The Company represents that it has not made, and agrees that, unless it obtains the prior written consent of the Representative, it will not make, any offer relating to the Shares that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “ free writing prospectus ” (as defined in Rule 405 under the Securities Act) required to be filed by the Company with the Commission or retained by the Company under Rule 433 under the Securities Act; provided that the prior written consent of the Representative hereto shall be deemed to have been given in respect of each free writing prospectuses listed on Schedule B hereto. Any such free writing prospectus consented to by the Representative is hereinafter referred to as a “ Permitted Free Writing Prospectus .” The Company agrees that (i) it has treated and will treat, as the case may be, each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, and (ii) has complied and will comply, as the case may be, with the requirements of Rules 164 and 433 under the Securities Act applicable to any Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record keeping.

 

(f)            Copies of any Amendments and Supplements to the Prospectus . The Company agrees to furnish the Underwriters, without charge, during the Prospectus Delivery Period, as many copies of each of the preliminary prospectuses, the Prospectus and the Disclosure Package and any amendments and supplements thereto (including any documents incorporated or deemed incorporated by reference therein) as the Underwriters may reasonably request.

 

(g)           Blue Sky Compliance . The Company shall cooperate with the Representative and counsel for the Underwriters to qualify or register the Shares for sale under (or obtain exemptions from the application of) the state securities or blue sky laws of those jurisdictions designated by the Representative, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Shares. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise the Representative promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment.

 

(h)           Use of Proceeds . The Company shall apply the net proceeds from the sale of the Shares sold by it in the manner described under the caption “Use of Proceeds” in the Disclosure Package and the Prospectus.

 

(i)            Transfer Agent . The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Shares.

 

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(j)            Earnings Statement . As soon as practicable and in any event no later than 15 months after the effective date of the Registration Statement, the Company will make generally available to its security holders and to the Representative an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Registration Statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act.

 

(k)           Periodic Reporting Obligations . During the Prospectus Delivery Period, the Company shall file, on a timely basis, with the Commission all reports and documents required to be filed under the Exchange Act. Additionally, the Company shall report the use of proceeds from the issuance of the Shares as may be required under Rule 463 under the Securities Act.

 

(l)            Company to Provide Interim Financial Statements . Prior to the Closing Date, the Company will furnish to the Representative, as soon as they have been prepared by or are available to the Company, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Registration Statement and the Prospectus.

 

(m)          Exchange Listing . The Company will use its best efforts to include, commencing on the Closing Date or as soon thereafter as is practicable, subject to notice of issuance, the Shares on the NASDAQ Capital Market.

 

(n)           Future Reports to the Representative . During the period of five years hereafter, the Company will furnish, if not otherwise available on EDGAR, to the Representative at 40 West 57th Street, 28th Floor, New York, New York 10019, Attention: [ · ]: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders’ equity and cash flows for the year then ended and the opinion thereon of the Company’s independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its capital stock.

 

(o)           No Manipulation of Price . The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.

 

(p)           Existing Lock-Up Agreements . Except as described in the Registration Statement, the Disclosure Package and the Prospectus, there are no existing agreements between the Company and its security holders that prohibit the sale, transfer, assignment, pledge or hypothecation of any of the Company’s securities. The Company will direct the transfer agent to place stop transfer restrictions upon the securities of the Company that are bound by such “lock-up” agreements for the duration of the periods contemplated therein.

 

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(q)           Agreement Not to Offer or Sell Additional Shares . During the period commencing on and including the date hereof and ending on and including the [180 th ] - DISCUSS] day following the effective date of the Registration Statement (as the same may be extended as described below, the “ Lock-up Period ”), the Company will not, without the prior written consent of the Representative (which consent may be withheld at the Representative’s sole discretion), directly or indirectly, sell (including, without limitation, any short sale), offer, contract or grant any option to sell, pledge, transfer or establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act, except for a registration statement on Form S-8 relating to the Company’s employee benefit plans, in respect of, any shares of Common Stock, options, rights or warrants to acquire shares of Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stock (other than as contemplated by this Agreement with respect to the Shares) or publicly announce the intention to do any of the foregoing, other than (i) the issuance of restricted Common Stock, restricted stock units or options to acquire Common Stock pursuant to the Company’s employee benefit plans, qualified stock option plans or other equity incentive plans as such plans are in existence on the date hereof and, [if material], described in the Disclosure Package, (ii) issuances of Common Stock upon the exercise or settlement of options or warrants disclosed as outstanding in the Prospectus.

 

Section 4. Payment of Fees and Expenses .

 

(a)          Upon the Closing of the Offering and the listing of the Company’s Common Stock on the Nasdaq Capital Market, the Company shall pay Bonwick an advisory fee, payable in cash, of $50,000 (the “ Advisory Fee ”). In addition to and excluding the Advisory Fee, upon the closing of the Offering, the Company shall (x) pay the Representative, upon the closing of the sale of the Shares, a success fee, payable in cash, equal to seven percent (7%) of the aggregate gross proceeds to the Company from the sale of the Shares and (y) issue to the Representative a warrant, substantially in form of Exhibit A hereto, equal to seven percent (7%) of the aggregate gross proceeds to the Company from the offering and sale of the Shares (the “ Warrant ”). The foregoing cash success fee and Warrant shall be paid to Bonwick for the account of the several Underwriters and split among the Underwriters and any selected dealers in such amounts as agreed to among them.

 

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(b)          Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay all costs, fees and expenses incurred in connection with the transactions contemplated hereby, including without limitation (i) all of the reasonable and documented out-of-pocket expenses incurred by the Underwriters (excluding fees and expenses of its legal counsel but including travel expenses of the Underwriters to attend any due diligence or road show meetings) in an aggregate amount not to exceed $25,000, (ii) all expenses incident to the issuance and delivery of the Shares (including all printing and engraving costs, if any), (iii) all fees and expenses of the registrar and transfer agent of the Common Stock and the warrant agent, (iv) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Shares placed by the Underwriters, (v) all fees and expenses of the Company’s counsel, independent public or certified public accountants and other advisors, (vi) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), each Issuer Free Writing Prospectus, each preliminary prospectus and the Prospectus, and all amendments and supplements thereto, and this Agreement, (vii) all filing fees, attorneys’ fees and expenses incurred by the Company, or the Underwriters, in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Shares for offer and sale under the state securities or blue sky laws, and, if requested by the Representative, preparing and printing a “Blue Sky Survey” or memorandum, and any supplements thereto, advising the Underwriters of such qualifications, registrations and exemptions, (viii) the filing fees incident to the FINRA’s review and approval of the Underwriters’ participation in the offering and placement of the Shares and legal fees and expenses of counsel for the Underwriters and the Underwriters related thereto, (ix) all other reasonable fees, costs and expenses referred to in Item 13 of Part II of the Registration Statement; provided that the aggregate amount of expenses payable by the Company pursuant to clauses (viii) (exclusive of FINRA filing fees) and (ix) shall in no event exceed $100,000.

 

Section 5. Conditions of the Obligations of the Underwriters . The obligations of the Underwriters to arrange for the sale of the Shares as provided herein on the Closing Date shall be subject to (1) the accuracy of the representations and warranties on the part of the Company set forth in Section 1 hereof as of the date hereof and as of the Closing Date as though then made; (2) the timely performance by the Company of its covenants and other obligations hereunder; and (3) each of the following additional conditions:

 

(a)           Accountant’s Comfort Letter . On the date hereof, the Representative shall have received from the Accountant, a letter dated the date hereof addressed to the Underwriters, in form and substance satisfactory to the Representative, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to Underwriters, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the audited and unaudited financial statements and certain financial information contained in the Registration Statement and the Prospectus.

 

(b)           Effectiveness of Registration Statement; Compliance with Registration Requirements; No Stop Order . During the period from and after the execution of this Agreement to and including the Closing Date:

 

(i)          the Company shall have filed the Prospectus with the Commission (including the information required by Rule 430A under the Securities Act) in the manner and within the time period required by Rule 424(b) under the Securities Act; or the Company shall have filed a post-effective amendment to the Registration Statement containing the information required by such Rule 430A, and such post-effective amendment shall have become effective; and

 

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(ii)         no stop order suspending the effectiveness of the Registration Statement, or any post-effective amendment to the Registration Statement, shall be in effect and no proceedings for such purpose shall have been instituted or threatened by the Commission.

 

(c)           No Material Adverse Change . For the period from and after the date of this Agreement to and including the Closing Date, in the reasonable judgment of the Representative there shall not have occurred any Material Adverse Change.

 

(d)           Opinion of Counsel for the Company . On the Closing Date, the Representative shall have received the opinion of Schiff Hardin LLP, counsel for the Company, addressed to the Underwriters, dated as of the Closing Date, substantially in the form satisfactory to the Representative.

 

(e)           Officers’ Certificate . On the Closing Date, the Representative shall have received a written certificate executed by the Chairman of the Board and Acting Chief Executive Officer and the Chief Financial Officer of the Company, dated as of such Closing Date, to the effect that the signers of such certificate have reviewed the Registration Statement, the Disclosure Package and the Prospectus and any amendment or supplement thereto, each Issuer Free Writing Prospectus and this Agreement, to the effect that to the knowledge of such individuals:

 

(i)          for the period from and after the date of this Agreement to and including the Closing Date, there has not occurred any Material Adverse Change;

 

(ii)         the representations and warranties of the Company set forth in Section 1 and the covenants of the Company set forth in Section 3 of this Agreement are true and correct with the same force and effect as though expressly made on and as of such Closing Date; and

 

(iii)        the Company has complied with all the agreements hereunder and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date.

 

(f)            Bring-down Comfort Letter . On the Closing Date, the Underwriters shall have received from the Accountant, a letter dated such date, in form and substance satisfactory to the Representative, to the effect that the Accountant reaffirms the statements made in the letter furnished by it pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three business days prior to the Closing Date.

 

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(g)           Lock-Up Agreement from Certain Securityholders of the Company . On or prior to the date hereof, the Company shall have furnished to the Representative an agreement substantially in the form of Exhibit B hereto from each of the Company’s officers, directors, security holders of 5% or more of the Company’s Common Stock or securities convertible into or exercisable for shares of the Company’s Common Stock, as well as, to the extent not included above, from each purchaser of the Company’s securities in a private placement since January 1, 2015, and each such agreement shall be in full force and effect on the Closing Date.

 

(h)           Exchange Listing . The Shares to be delivered on the Closing Date shall have been approved for listing on the Nasdaq Capital Market, subject to official notice of issuance.

 

(i)            Additional Documents . On or before the Closing Date, the Underwriters and counsel for the Representative shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained.

 

If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Representative by notice to the Company at any time on or prior to the Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4 (with respect to the reimbursement of out-of-pocket accountable, bona fide expenses actually incurred by the Underwriters or person associated with the Underwriters) and Section 7 shall at all times be effective and shall survive such termination.

 

Section 6. Effectiveness of this Agreement . This Agreement shall not become effective until the later of (i) the execution of this Agreement by the parties hereto and (ii) notification (including by way of oral notification from the reviewer at the Commission) by the Commission to the Company of the effectiveness of the Registration Statement under the Securities Act; provided that Sections 4, 9 and 10 shall at all times be effective.

 

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Section 7. Indemnification .

 

(a)           Indemnification by the Company . The Company shall indemnify and hold harmless each of the Underwriters, their respective affiliates and each of their respective directors, officers, members, employees and agents and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act of or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each a “Underwriter Indemnified Party”) against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), to which such Underwriter Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (A) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Securities Act Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, (B) the omission or alleged omission to state in any preliminary prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Securities Act Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading or (C) any breach of the representations and warranties of the Company contained herein or failure of the Company to perform its obligations hereunder or pursuant to any law, any act or failure to act, or any alleged act or failure to act, by any of the Underwriters in connection with, or relating in any manner to, this Agreement, the Securities or the Offering, and which is included as part of or referred to in any loss, claim, damage, expense, liability, action, investigation or proceeding arising out of or based upon matters covered by subclause (A), (B) or (C) above of this Section 7(a) (provided that the Company shall not be liable in the case of any matter covered by this subclause (C) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, expense or liability resulted directly from any such act or failure to act undertaken or omitted to be taken by the Underwriters through their gross negligence or willful misconduct), and shall reimburse the Underwriter Indemnified Party promptly upon demand for any legal fees or other expenses reasonably incurred by that Underwriter Indemnified Party in connection with investigating, or preparing to defend, or defending against, or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding, as such fees and expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, expense or liability arises out of or is based upon an untrue statement in, or omission from any preliminary prospectus, any Registration Statement or the Prospectus, or any such amendment or supplement thereto, or any Issuer Free Writing Prospectus made in reliance upon and in conformity with written information furnished to the Company through the Representative expressly for use therein, which information the parties hereto agree is limited to the Underwriters’ Information. This indemnity agreement is not exclusive and will be in addition to any liability, which the Company might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Underwriter Indemnified Party.

 

(b)           Indemnification by the Underwriters . The Underwriters shall indemnify and hold harmless the Company and the Company’s directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Company Indemnified Parties” and each a “Company Indemnified Party”) against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), to which such Company Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (i) any untrue statement of a material fact contained in any preliminary prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Securities Act Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission to state in any preliminary prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Securities Act Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company through the Representative expressly for use therein, which information the parties hereto agree is limited to the Underwriters’ Information and shall reimburse the Company for any legal or other expenses reasonably incurred by such party in connection with investigating or preparing to defend or defending against or appearing as third party witness in connection with any such loss, claim, damage, liability, action, investigation or proceeding, as such fees and expenses are incurred. Notwithstanding the provisions of this Section 7(b), in no event shall any indemnity by the Underwriters under this Section 7(b) exceed the total discount and commission received by the Underwriters in connection with the Offering.

 

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(c)           Procedure . Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under this Section 7, notify such indemnifying party in writing of the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent it has been materially adversely prejudiced by such failure; and, provided, further, that the failure to notify an indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 7. If any such action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party (which counsel shall not, except with the written consent of the indemnified party, be counsel to the indemnifying party). After notice from the indemnifying party to the indemnified party of its election to assume the defense of such action, except as provided herein, the indemnifying party shall not be liable to the indemnified party under Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense of such action other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense of such action but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized in writing by the Company in the case of a claim for indemnification under 7(a), (ii) such indemnified party shall have been advised by its counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party within a reasonable period of time after notice of the commencement of the action or the indemnifying party does not diligently defend the action after assumption of the defense, 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 of (or, in the case of a failure to diligently defend the action after assumption of the defense, to continue to defend) such action on behalf of such indemnified party and the indemnifying party shall be responsible for legal or other expenses subsequently incurred by such indemnified party in connection with the defense of such action; provided, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time any such indemnified party (in addition to any local counsel), which firm shall be designated in writing by the Underwriters if the indemnified party under this Section 7 is an Underwriter Indemnified Party or by the Company if an indemnified party under this Section 7 is a Company Indemnified Party. Subject to this Section 7(b), the amount payable by an indemnifying party under Section 7 shall include, but not be limited to, (x) reasonable legal fees and expenses of counsel to the indemnified party and any other expenses in investigating, or preparing to defend or defending against, or appearing as a third party witness in respect of, or otherwise incurred in connection with, any action, investigation, proceeding or claim, and (y) all amounts paid in settlement of any of the foregoing. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of judgment with respect to any pending or threatened action or any claim whatsoever, in respect of which indemnification or contribution could be sought under this Section 7 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party in form and substance reasonably satisfactory to such indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Subject to the provisions of the following sentence, no indemnifying party shall be liable for settlement of any pending or threatened action or any claim whatsoever that is effected without its written consent (which consent shall not be unreasonably withheld or delayed), but if settled with its written consent, if its consent has been unreasonably withheld or delayed or if there be a judgment for the plaintiff in any such matter, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, if at any time an indemnified party shall have requested that an indemnifying party reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated herein effected without its written consent if (i) such settlement is entered into more than forty-five (45) days after receipt by such indemnifying party of the request for reimbursement, (ii) such indemnifying party shall have received notice of the terms of such settlement at least thirty (30) days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.

 

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(d)           Contribution . If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under Section 7(a), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid, payable or otherwise incurred by such indemnified party as a result of such loss, claim, damage, expense or liability (or any action, investigation or proceeding in respect thereof), as incurred, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) of this Section 7(d) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) of this Section 7(d) but also the relative fault of the Company on the one hand and the Underwriters on the other with respect to the statements, omissions, acts or failures to act which resulted in such loss, claim, damage, expense or liability (or any action, investigation or proceeding in respect thereof) as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total proceeds from the offering of the Shares purchased by investors as contemplated by this Agreement (before deducting expenses) received by the Company bear to the total underwriting commissions received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company by the Representative for use in any preliminary prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriters’ Information. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(d) be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, investigation or proceeding referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 7(d), the Underwriters shall not be required to contribute any amount in excess of the total commission received in cash by the Underwriters in connection with the Offering less the amount of any damages that the Underwriters have otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

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Section 8. Termination of this Agreement . Prior to the Closing Date, whether before or after notification by the Commission to the Company of the effectiveness of the Registration Statement under the Securities Act, this Agreement may be terminated by the Representative by notice given to the Company if at any time (i) trading or quotation in any of the Company’s securities shall have been suspended or limited by the Commission or by the NASDAQ Capital Market; (ii) a general banking moratorium shall have been declared by any of federal, New York or Delaware authorities; or (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States’ or international political, financial or economic conditions that, in the reasonable judgment of the Representative, is material and adverse and makes it impracticable to market the Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities. Any termination pursuant to this Section 8 shall be without liability on the part of (a) the Company to any of the Underwriters, except that the Company shall be obligated to reimburse the expenses of the Underwriters as provided for herein, (b) the Underwriters to the Company, or (c) of any party hereto to any other party except that the provisions of Section 4 (with respect to the reimbursement of out-of-pocket accountable, bona fide expenses actually incurred by the Underwriters or person associated with the Underwriters) and Section 7 shall at all times be effective and shall survive such termination.

 

Section 9. No Advisory or Fiduciary Responsibility . The Company acknowledges and agrees that: (i) the purchase and sale of the Shares pursuant to this Agreement, including the determination of the public offering price of the Shares and any related discounts and commissions, is an arm’s-length commercial transaction between the Company and the Investors; (ii) in connection with each transaction contemplated hereby and the process leading to such transaction the Underwriters are and have been acting solely as placement agents on a best efforts basis and are not a financial advisor or fiduciary of the Company or its affiliates, stockholders, creditors or employees or any other party; (iii) the Underwriters have not assumed and will not assume an advisory or fiduciary responsibility in favor of the Company with respect to any of the transactions contemplated hereby or the process leading thereto (irrespective of whether any Underwriter has advised or is currently advising the Company on other matters) and the Underwriters have no obligation to the Company with respect to the offering contemplated hereby except the obligations expressly set forth in this Agreement; (iv) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company; and (v) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering contemplated hereby and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

 

This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Underwriters, solely with respect to the offering contemplated by this Agreement. For elimination of doubt, nothing in this Agreement or contemplated hereby, including without limitation the immediately previous sentence, shall supersede, curtail, limit, terminate, eliminate or invalidate any provision of the Engagement Letter not related to the transactions contemplated by the Registration Statement and the Prospectus, each of which provisions shall remain in full force and effect.

 

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Section 10. Representations and Indemnities to Survive Delivery; Third Party Beneficiaries . The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriters or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Shares sold hereunder and any termination of this Agreement. Each Investor shall be a third party beneficiary with respect to the representations, warranties, covenants and agreements of the Company set forth herein.

 

Section 11. Notices . All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows:

 

If to the Representative:

 

Bonwick Capital Partners, LLC

  As Representative of the Several Underwriters

40 West 57th Street, 28th Floor

New York, New York 10019

Facsimile: [ · ]

Attn: Daniel J. McClory, Managing Director

 

with a copy (which shall not constitute notice) to:

 

DLA Piper LLP (US)

1251 Avenue of the Americas

New York, New York

Facsimile: (212) 884-8645

Attn: Jack I. Kantrowitz, Esq.

 

If to the Company:

 

Moleculin Biotech, Inc.

2575 West Bellfort, Suite 333

Houston, Texas 77054

Facsimile: [ · ]

Attn: Walter Klemp, Chairman of the Board & Acting Chief Executive Officer

 

with a copy (which shall not constitute notice) to:

 

Schiff Hardin

100 North 18 th Street, Suite 300

Philadelphia, PA 19103

Facsimile: (202) 778-6460

Attn: Cavas S. Pavri, Esq.

 

Any party hereto may change the address for receipt of communications by giving written notice to the others.

 

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Section 12. Successors . This Agreement will inure to the benefit of and be binding upon the parties hereto and to the benefit of the employees, officers and directors and controlling persons referred to in Section 7, and in each case their respective successors, and no other person will have any right or obligation hereunder. The term “ successors ” shall not include any purchaser of the Shares as such merely by reason of such purchase.

 

Section 13. Partial Unenforceability . The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

 

Section 14. Governing Law Provisions . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.

 

Section 15. General Provisions . This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the offering contemplated by this Agreement. For elimination of doubt, nothing in this Agreement or contemplated hereby, including without limitation the immediately previous sentence, shall supersede, curtail, limit, terminate, eliminate or invalidate any provision of the Engagement Letter not related to the transactions contemplated by the Registration Statement and the Prospectus, each of which provisions shall remain in full force and effect. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. The section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.

 

Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification and contribution provisions of Section 7, and is fully informed regarding said provisions. Each of the parties hereto further acknowledges that the provisions of Section 7 hereto fairly allocate the risks in light of the ability of the parties to investigate the Company, its affairs and its business in order to assure that adequate disclosure has been made in the Registration Statement, any preliminary prospectus and the Prospectus (and any amendments and supplements thereto), as required by the Securities Act and the Exchange Act.

 

The respective indemnities, contribution agreements, representations, warranties and other statements of the Company and the Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Underwriters, the officers or employees of the Underwriters, any person controlling any of the Underwriters, the Company, the officers or employees of the Company, or any person controlling the Company, (ii) acceptance of the Shares and payment for them as contemplated hereby and (iii) termination of this Agreement.

 

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Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriters, the Underwriters’ officers and employees, any controlling persons referred to herein, the Company’s directors and the Company’s officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term “ successors and assigns ” shall not include a purchaser of any of the Shares from the Underwriters merely because of such purchase.

 

  26  

 

 

If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.

 

  Very truly yours,
   
  MOLECULIN BIOTECH, Inc.
     
  By:  
    Name:
    Title:

 

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The foregoing Underwriting Agreement is hereby confirmed and accepted by the Representative as of the date first above written.

 

For itself and on behalf of the several  
  Underwriters listed on Schedule A hereto  
   
BONWICK CAPITAL PARTNERS, LLC  
     
By:    
  Name:  
  Title:  

 

  28  

 

 

SCHEDULE A

 

Underwriters    

Shares Sold
through the
Underwriters

 
Bonwick Capital Partners, LLC     [ · ]  
Network 1 Financial Securities, Inc.    

[ · ]

 
         
         
         
Total    

[ · ]

 

 

  29  

 

 

SCHEDULE B

 

Issuer Free Writing Prospectus(es)

 

FWP filed February 19, 2016

 

  30  

 

 

SCHEDULE C

 

Pricing Terms

 

Price per Share to public: $[ · ]

 

Underwriters’ Commission per Share: $[ · ]

 

  31  

 

 

EXHIBIT A

 

Form of Warrant

 

Form of Underwriter’s Warrant Agreement

 

The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not for a period of one hundred eighty (180) days following the Effective Date (as defined below) of the Registration Statement: (a) sell, transfer, assign, pledge or hypothecate this Purchase WarranT to anyone other than officers or partners of Bonwick, each of whom shall have agreed to the restrictions contained herein, in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2).

 

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [●], 20[__] [DATE THAT IS 180 DAYS FROM THE EFFECTIVE DATE OF THE OFFERING]. VOID AFTER 5:00 P.M., EASTERN TIME, [●], 20[__] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING].

 

COMMON STOCK PURCHASE WARRANT

 

For the Purchase of [●] Shares of Common Stock

 

of
MOLECULIN BIOTECH , Inc.

 

1.            Purchase Warrant . THIS CERTIFIES THAT, pursuant to that certain Underwriting Agreement by and between., Moleculin Biotech, Inc., a Delaware corporation (the “ Company ”) and Bonwick Capital Partners, LLC (“ Bonwick ”), as Representative of the several underwriters, dated [●], 2015 (the “ Underwriting Agreement ”), Bonwick (in such capacity with its permitted successors or assigns, the “ Holder ”), as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from [●], 20[__] (the “ Exercise Date ”) [THE DATE THAT IS 180 DAYS AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT], and at or before 5:00 p.m., Eastern time, [●], 20[ ] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING] (the “ Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [●] shares of common stock of the Company, par value $[●] per share (the “ Shares ”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $[●] per Share (125.0% of the price of the Shares sold in the Offering); provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context. Any term not defined herein shall have the meaning ascribed thereto in the Underwriting Agreement.

 

  A- 1  

 

 

 

2.            Exercise .

 

2.1           Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A (the “ Exercise Form ”) must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check to the order of the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

 

2.2           Cashless Exercise . In lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the Exercise Form, in which event the Company shall issue to Holder, Shares in accordance with the following formula:

 

X         = Y(A – B)
A

  

Where, X   =    The number of Shares to be issued to Holder;

Y   =    The number of Shares for which the Purchase Warrant is being exercised;

A   =    The fair market value of one Share; and

B   =    The Exercise Price.

 

For purposes of this Section 2.2 , the fair market value of a Share is defined as follows:

 

(i)          if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of this Purchase Warrant; or

 

(ii)         if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.

 

  A- 2  

 

  

2.3           Legend . Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “ Act ”):

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), or applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law which, in the opinion of counsel to the Company, is available.”

 

3.            Transfer .

 

3.1           General Restrictions . The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not for a period of one hundred eighty (180) days following the Effective Date of the Registration Statement: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant to anyone other than: (i) Bonwick or an underwriter or a selected dealer participating in the offering (the “ Offering ”) contemplated by the Underwriting Agreement, or (ii) officers or partners of Bonwick, each of whom shall have agreed to the restrictions contained herein, in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). On and after that date that is one hundred eighty (180) days after the Effective Date of the Registration Statement, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed, together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) Business Days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

 

3.2           Restrictions Imposed by the Act . The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company, (ii) a Registration Statement relating to the offer and sale of such securities that includes a current prospectus with respect to which the Holder has exercised its registration rights pursuant to Section 4.2 herein, has been filed and declared effective by the Securities and Exchange Commission (the “ Commission ”) and compliance with applicable state securities law has been established.

 

  A- 3  

 

   

4.            Registration Rights .

 

4.1           Demand Registration .

 

4.1.1        Grant of Right . The Company, upon written demand (a “ Demand Notice ”) of the Holder(s) of at least 51% of the Purchase Warrants and/or the underlying shares (“ Majority Holders ”), agrees to register, on one occasion, all or any portion of the shares underlying the Purchase Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided , however , that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time during a period of four (4) years beginning on the Exercise Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.

 

4.1.2        Terms . The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided , however , that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the effectiveness of the registration statement in accordance with FINRA 5110(f)(2)(G)(iv).

 

  A- 4  

 

  

4.2          Reserved.

 

4.3           General Terms .

 

4.3.1        Indemnification . The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.

 

4.3.2        Exercise of Purchase Warrants . Nothing contained in this Purchase Warrant shall be construed as requiring the Holder(s) to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.

 

4.3.3        Documents Delivered to Holders . If the registration statement includes an underwritten public offering, the Company shall furnish to each underwriter of any such offering, a signed counterpart, addressed to such underwriter, of: (i) an opinion of counsel to the Company, dated as of the date on which the Registrable Securities are delivered to the underwriter for sale pursuant to such registration, and (ii) a “cold comfort” letter dated the effective date of such registration statement and the date of the closing under the underwriting agreement signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriter(s) in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter(s) to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.

 

  A- 5  

 

  

4.3.4        Underwriting Agreement . The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4 , which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing Underwriter, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such Underwriter(s) shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the Underwriter(s) except as they may relate to such Holders, their Shares and their intended methods of distribution.

 

4.3.5        Documents to be Delivered by Holder(s) . Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.

 

4.3.6        Damages . Should the registration or the effectiveness thereof required by Section 4.3 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.

 

4.3.7        Rule 144 Registration . The provisions of this Section 4 shall be inapplicable to the extent the Registrable Securities become eligible for sale by the Holder upon a cashless exercise of this Purchase Warrant as set forth in Section 2.2 hereof without the need for current pubic information or other restriction pursuant to Rule 144 under the Act.

 

5.            New Purchase Warrants to be Issued .

 

5.1           Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereof, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

 

  A- 6  

 

  

5.2           Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

 

6.            Adjustments .

 

6.1           Adjustments to Exercise Price and Number of Shares . The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

 

6.1.1        Share Dividends; Split Ups . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding shares, and the Exercise Price shall be proportionately decreased.

 

6.1.2        Aggregation of Shares . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares, and the Exercise Price shall be proportionately increased.

 

6.1.3        Replacement of Shares upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or Section 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or Section 6.1.2 , then such adjustment shall be made pursuant to Section 6.1.1 , Section 6.1.2 and this Section 6.1.3 . The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

 

  A- 7  

 

  

6.1.4        Changes in Form of Purchase Warrant . This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1 , and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the date hereof or the computation thereof.

 

6.2           Substitute Purchase Warrant . In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6 . The above provision of this Section 6 shall similarly apply to successive consolidations or share reconstructions or amalgamations.

 

6.3           Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

 

7.            Reservation and Listing . The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise of this Purchase Warrant and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as this Purchase Warrant shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of this Purchase Warrant to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

 

  A- 8  

 

   

8.            Certain Notice Requirements .

 

8.1           Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen days prior to the date fixed as a record date or the date of closing the transfer books (the “ Notice Date ”) for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.

 

8.2           Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

 

8.3           Notice of Change in Exercise Price . The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.

 

8.4           Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made (1) when hand delivered, (2) when mailed by express mail or private courier service or (3) when the event requiring notice is disclosed in all material respects and filed in a current report on Form 8-K or in a definitive proxy statement on Schedule 14A prior to the Notice Date: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:

 

  A- 9  

 

  

If to the Holder:

 

Bonwick Capital Management, Inc.

40 West 57th Street, 28th Floor 

New York, New York 10019

Facsimile: [•]

Attn: Daniel J. McClory, Managing Director

 

With a copy (which shall not constitute notice) to:

 

DLA Piper LLP (US)

1251 Avenue of the Americas, 27th Floor

New York, New York 10020-1104

Facsimile: (212) 884-8645

Attn: Jack I. Kantrowitz, Esq.

 

If to the Company:

 

Moleculin Biotech, Inc.

2575 West Bellfort, Suite 333

Houston, Texas 77054

Facsimile: [•]

Attn: Walter Klemp, Chairman of the Board and Acting Chief Executive Officer

 

With a copy (which shall not constitute notice) to:

 

Schiff Hardin

100 North 18 th Street, Suite 300

Philadelphia, PA 19103

Facsimile: (202) 778-6460

Attn: Cavas S. Pavri, Esq.

 

9.            Miscellaneous .

 

9.1           Amendments . The Company and Bonwick may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Bonwick may deem necessary or desirable and that the Company and Bonwick deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

 

9.2           Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

 

  A- 10  

 

  

9.3           Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

9.4           Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees and respective successors and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

 

9.5           Governing Law; Submission to Jurisdiction . This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York located in the Borough of Manhattan in the City of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.

 

9.6           Waiver, etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

 

9.7           Exchange Agreement . As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Bonwick enter into an agreement (“ Exchange Agreement ”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

 

  A- 11  

 

  

9.8           Execution in Counterparts . This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

 

[Remainder of page intentionally left blank.]

 

  A- 12  

 

 

IN WITNESS WHEREOF , the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2016.

 

MOLECULIN BIOTECH, Inc.  
     
By:    
  Name:  
  Title:  

 

  A- 13  

 

 

EXHIBIT A

 

Form to be used to exercise Purchase Warrant:

 

Date: __________, 20___

 

The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ Shares of Moleculin Biotech, Inc., a Delaware corporation (the “ Company ”) and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

 

or

 

The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:

 

X = Y(A-B)
    A

 

Where, X   =   The number of Shares to be issued to Holder;

Y   =   The number of Shares for which the Purchase Warrant is being exercised;

A   =   The fair market value of one Share which is equal to $_____; and

B   =   The Exercise Price which is equal to $______ per share

 

The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

 

Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

 

Signature

 

Signature Guaranteed

 

  A- 14  

 

 

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

 

Name:

 

(Print in Block Letters)

 

Address:

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

 

  A- 15  

 

 

EXHIBIT B

 

Form to be used to assign Purchase Warrant:

 

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

 

FOR VALUE RECEIVED,                                                                       does hereby sell, assign and transfer unto the right to purchase shares of Moleculin Biotech, Inc., a Delaware corporation (the “ Company ”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.

 

Dated:  ____________, 20__

 

Signature

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever.

 

 

 

 

Exhibit B

 

Form of Lock-Up Agreement

 

[•], 2016

 

Bonwick Capital Partners, LLC,

   As Representative of the several Underwriters

40 West 57th Street, 28th Floor

New York, New York 10019

 

Ladies and Gentlemen:

 

The undersigned, a holder, in the aggregate, (except as otherwise set forth in the second paragraph immediately following this paragraph below) of shares of common stock and/or securities convertible into or exercisable for 5% of the outstanding shares of common stock, and/or an officer and/or a director, of Moleculin Biotech, Inc., a Delaware corporation (the “ Company ”), understands that Bonwick Capital Partners, LLC (the “ Representative ”), for itself and on behalf of each of the other underwriters listed on Schedule A to the Underwriting Agreement (the “ Underwriting Agreement ”), proposes to enter into the Underwriting Agreement with the Company, providing for the public offering (the “ Public Offering ”) of shares of common stock, par value $0.001 per share, of the Company (the “ Shares ”).

 

To induce the Representative to continue its efforts in connection with the Public Offering and in recognition of the benefit that the Public Offering will confer on the undersigned as a stockholder and/or director and/or officer of the Company, and for other good and valuable consideration, the sufficiency of which are hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the effective date of the registration statement (the “ Registration Statement ”) relating to the Public Offering and ending twelve months (subject to extension) after such date (the “ Lock-Up Period ”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our securities or any securities convertible into or exercisable or exchangeable for the Shares whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “ Lock-Up Securities ”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of the offer and sale of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), shall be required or shall be voluntarily made in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; or (d) if the undersigned, directly or indirectly, controls a corporation, partnership, limited liability company or other business entity, any transfers of Lock-Up Securities to any shareholder, partner or member of, or owner of similar equity interests in, the undersigned, as the case may be; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) or (d), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Representative a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.

 

  B- 1  

 

  

After such twelve month period and until 24 months from the closing of this offering, such individuals and entities may sell their shares pursuant to the following criteria:

 

if the price of the Company’s common stock is over $7.00 per share for five consecutive trading days then the holder can sell up to 3% of its holdings on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume;

 

if the price of the Company’s common stock is over $10.00 per share for five consecutive trading days then the holder can sell up to an additional 5% of its holdings on a monthly basis, subject to a maximum sale on any trading day of 7% of the daily volume; and

 

if the price of the Company’s common stock is over $14.00 per share then the holder is not restricted from making any sales until such time as its common stock falls back below $14.00 per share.

 

From the end of the preceding 24 month period until the three-year anniversary of the initial closing of this offering, the holders can sell on any trading day 10% of the daily volume; provided that if our common stock price is over $10.00 per share then the holder is not restricted from making any sales until such time as the common stock falls back below $10.00 per share.

 

If (i) during the last 17 days of the Lock-Up Period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or (ii) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by this lock-up agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of such material news or material event, as applicable, unless the Representative waives, in writing, such extension.

 

  B- 2  

 

  

The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date hereof to and including the 34 th day following the expiration of the initial Lock-Up Period, the undersigned will give notice thereof to the Company and will not consummate any such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period (as may have been extended pursuant to the previous paragraph) has expired.

 

If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” Shares that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.

 

No provision in this lock-up agreement shall be deemed to restrict or prohibit the exercise, exchange or conversion by the undersigned of any securities exercisable or exchangeable for or convertible into Shares, as applicable; provided that the undersigned does not transfer the Shares acquired on such exercise, exchange or conversion during the Lock-Up Period, unless otherwise permitted pursuant to the terms of this lock-up agreement. In addition, no provision herein shall be deemed to restrict or prohibit the entry into or modification of a so-called “10b5-1” plan at any time (other than the entry into or modification of such a plan in such a manner as to cause the sale of any Lock-Up Securities within the Lock-Up Period) or a sale or exchange of 100% of the Company’s outstanding Shares.

 

The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal underwriters, successors and assigns.

 

The undersigned understands that, if the Underwriting Agreement is not executed by May 15, 2016, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares then this lock-up agreement shall be void and of no further force or effect.

 

Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Representative.

 

  B- 3  

 

  

  Very truly yours,
   
   
  (Name – Please Print)
   
   
  (Signature)
   
   
  (Name of Signatory, in the case of entities – Please Print)
   
   
  (Title of Signatory, in the case of entities – Please Print)

 

  Address:  
     
     

 

  B- 4  

 

Exhibit 3.1

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

MOLECULIN BIOTECH, INC.

__________________________________

 

Moleculin Biotech, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), certifies that:

 

A. The name of the Corporation is Moleculin Biotech, Inc.

 

B. The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 28, 2015.

 

C. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware and by written consent of the stockholders of the Corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware, and restates, integrates and further amends the provisions of the Corporation’s Certificate of Incorporation, as amended.

 

D. The text of the Corporation’s Certificate of Incorporation, as amended and restated, is hereby amended, integrated and restated to read in its entirety as set forth in EXHIBIT A attached hereto.

 

E. This Amended and Restated Certificate of Incorporation shall be effective as of 5:00 p.m. Eastern Time on [              ], 2016.

 

IN WITNESS WHEREOF, Moleculin Biotech, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by Walter Klemp, a duly authorized officer of the Corporation, on [              ], 2016.

 

   
  Walter Klemp, Acting Chief Executive Officer

 

 

 

 

Exhibit A

 

Article 1.          NAME

 

The name of the corporation is “Moleculin Biotech, Inc.” (the “ Corporation ” or “ Company ”).

 

Article 2.          REGISTERED OFFICE AND AGENT

 

The address of the registered office of the Corporation in the State of Delaware is 1521 Concord Pike, Suite 301, Wilmington, New Castle County, Delaware 19803 . The registered agent of the Corporation at such address is United States Corporation Agents, Inc .

 

Article 3.          PURPOSE

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the “ DGCL ”).

 

Article 4.          CAPITAL STOCK

 

4.1.     Authorized Shares

 

The Corporation is authorized to issue two classes of stock to be designated, respectively, “ Common Stock ” and “ Preferred Stock .” The total number of shares of all classes of stock that the Corporation shall have the authority to issue is Eighty Million (80,000,000), of which Seventy-Five Million (75,000,000) shares shall be Common Stock, having a par value of $0.001 per share, and, Five Million (5,000,000) of such shares shall be Preferred Stock, having a par value of $0.001 per share.

 

4.2.     Common Stock

 

4.2.1. Relative Rights

 

The Common Stock shall be subject to all of the rights, privileges, preferences and priorities of the Preferred Stock as set forth in the certificate of designations, preferences and relative rights filed with the State of Delaware to establish the respective series of Preferred Stock. Each share of Common Stock shall have the same relative rights as and be identical in all respects to all the other shares of Common Stock.

 

4.2.2. Dividends

 

Whenever there shall have been paid, or declared and set aside for payment, to the holders of shares of any class of stock having preference over the Common Stock as to the payment of dividends, the full amount of dividends and of sinking fund or retirement payments, if any, to which such holders are respectively entitled in preference to the Common Stock, then dividends may be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends thereon, but only when and as declared by the Board of Directors of the Corporation.

 

 

 

 

4.2.3. Dissolution, Liquidation, Winding Up

 

In the event of any dissolution, liquidation, or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock, and holders of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets in such event, shall become entitled to participate in the distribution of any assets of the Corporation remaining after the Corporation shall have paid, or provided for payment of, all debts and liabilities of the Corporation and after the Corporation shall have paid, or set aside for payment, to the holders of any class of stock having preference over the Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts (if any) to which they are entitled.

 

4.2.4. Voting Rights

 

Each holder of shares of Common Stock shall be entitled to attend all special and annual meetings of the stockholders of the Corporation and, share for share and without regard to class, together with the holders of all other classes of stock entitled to attend such meetings and to vote (except any class or series of stock having special voting rights), to cast one vote for each outstanding share of Common Stock so held upon any matter or thing (including, without limitation, the election of one or more directors) properly considered and acted upon by the stockholders.

 

4.3.      Preferred Stock

 

The Board of Directors of the Corporation is authorized, subject to limitations prescribed by the DGCL and the provisions of this certificate of incorporation, to provide, by resolution or resolutions from time to time and by filing a certificate of designations pursuant to the DGCL, for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, to fix the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and to fix the qualifications, limitations or restrictions thereof. The powers, preferences and relative, participating, optional and other special rights of each class or series of Preferred Stock, and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other classes or series at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereof shall be cumulative. The Board may increase the number of shares of the Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued shares of the Preferred Stock not designated for any other class or series. The Board may decrease the number of shares of Preferred Stock designated for any existing class or series by a resolution subtracting from such class or series unissued shares of the Preferred Stock designated for such class or series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock.

 

Article 5.           BOARD OF DIRECTORS

 

5.1      Number; Term; Election

 

The number of directors of the Corporation shall be such number as from time to time shall be fixed by, or in the manner provided in, the bylaws of the Corporation. Unless and except to the extent that the bylaws of the Corporation shall otherwise require, the election of directors of the Corporation need not be by written ballot. Except as otherwise provided in this certificate of incorporation, each director of the Corporation shall be entitled to one vote per director on all matters voted or acted upon by the Board of Directors.

 

 

 

 

Directors need not be residents of the state of incorporation or stockholders of the Corporation. Each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the terms of any incumbent director.

 

The Board of Directors shall have the power to adopt, amend or repeal the bylaws.

 

5.2     Management of Business and Affairs of the Corporation

 

The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

 

Article 6.           Indemnification and Advancement of Expenses

 

6.1      Mandatory Indemnification.

 

Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (a “Required Indemnitee”), whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent allowed under the DGCL, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnities in connection therewith, if he acted in good faith and in a manner he 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. A Required Indemnitee shall be indemnified and held harmless by the Corporation to the fullest extent permitted under DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnities in connection therewith.

 

6.2      Permissive Indemnification.

 

In addition to the indemnification provided pursuant to Article 6.1 above, the Corporation is authorized and empowered, but not required, to indemnify and or to agree to indemnify, to the fullest extent permitted by Delaware law, any person that is or was an agent or employee of the Corporation and who was or is made a party or is threatened to be made a party to or is otherwise involved in any Proceeding, by reason of the fact that he or she is or was an agent or employee of the Corporation (a “ Permitted Indemnitee ,” and any Permitted Indemnitee or Required Indemnitee may be referred to as an “ Indemnitee ”), whether the basis of such Proceeding is alleged action in an official capacity or in any other capacity while serving as an employee or agent if he acted in good faith and in a manner he 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.

 

 

 

 

6.3     Good Faith.

 

The termination of any Proceeding by judgment order, settlement, conviction, or plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and further with respect to any criminal action proceeding, that the person had reasonable cause to believe that his conduct was unlawful.

 

6.4     Right to Advancement of Expenses.

 

The Corporation is authorized and empowered, but not required, to advance Costs (as defined below), or to agree to advance Costs to any person (an Advancee ) who is or was an officer, director, agent or employee of the Corporation and who was or is made a party or is threatened to be made a party to or is otherwise involved in any Proceeding, by reason of the fact that he or she is or was a director, officer, agent or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent. Any such advancement of Costs may be referred to as an Advancement of Expenses . For purposes of this Article 6.4, Costs shall mean the expenses (including attorneys fees) incurred in defending any such Proceeding in advance of its final disposition to the extent permitted under the DGCL, provided, however, that, if the DGCL requires, Costs incurred by any person in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Advancee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal, that such Advancee is not entitled to be indemnified for such expenses under this Article 6 or otherwise.

 

6.5     Advancement of Expenses by Contract.

 

To the extent authorized from time to time by the Board of Directors, the Corporation may enter into contracts providing for indemnification and Advancement of Expenses, or otherwise grant rights to indemnification and Advancement of Expenses to any employee or agent of the Corporation to the fullest extent permitted under Delaware law.

 

6.6     Rights to Indemnification and Advancement of Expenses Are Contract Rights.

 

The rights to indemnification and Advancement of Expenses conferred in, or pursuant to, Article 6 shall be contract rights and such rights shall continue as to an Indemnitee or Advancee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person’s heirs, executors and administrators.

 

6.7     Non-Exclusivity of Rights.

 

The rights to indemnification and to the Advancement of Expenses conferred in this Article 6 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this certificate of incorporation, the bylaws, an agreement, a vote of the stockholders or of the disinterested directors or otherwise.

 

 

 

 

6.8     Insurance.

 

The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

 

Article 7.           LIMITATION OF LIABILITY

 

No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (a) for any breach of the director’s duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the DGCL; or (d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article 7 shall be prospective only and shall not adversely affect any right or protection of, or any limitation of the liability of, a director of the Corporation existing at, or arising out of facts or incidents occurring prior to, the effective date of such repeal or modification.

 

Article 8.          AMENDMENT OF CERTIFICATE

 

The Corporation reserves the right to amend, alter or repeal any provision contained in this certificate of incorporation in the manner prescribed by the DGCL and all rights conferred upon stockholders are granted subject to this reservation. Notwithstanding any other provision of this certificate of incorporation, and in addition to any other vote that may be required by law or the terms of any series of Preferred Stock, the affirmative vote of the holders of at least two-thirds of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision as part of this certificate of incorporation inconsistent with the purpose and intent of Articles 5, 6, 7, 8, 9 or 10.

 

Article 9.           BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS

 

The Corporation elects to be governed by the provisions of Section 203 of the DGCL regarding business combinations with interested shareholders.

 

Article 10.         No stockholder Action by written consent

 

The stockholders of the Corporation may not take action by written consent without a meeting, and must take any actions at a duly called annual or special meeting. Meetings of stockholders may be called in such manner as the Corporation’s bylaws may provide.

 

 

 

 

Article 11.         COURT OF CHANCERY OF THE STATE OF DELAWARE EXCLUSIVE FORUM

 

The Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or this certificate of incorporation or the bylaws, and (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine.

 

Article 12.          SURVIVAL

 

If any Article of this certificate of incorporation or any portion thereof is found to be void or unenforceable by a court of competent jurisdiction, the remaining Articles or portion of any affected Article, as the case may be, shall nevertheless remain in full force and effect as though the void or unenforceable part had been severed and deleted.

 

 

 

 

Exhibit 3.2

 

AMENDED AND RESTATED BYLAWS
OF

MOLECULIN BIOTECH, INC.

 

ARTICLE I—OFFICES

 

Section 1.01      Registered Office. The corporation shall maintain in the State of Delaware a registered office and a registered agent whose business office is identical with such registered office.

 

Section 1.02      Locations of Offices. The corporation may also have offices at such other places both within and without the state of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

 

ARTICLE II—STOCKHOLDERS

 

Section 2.01      Annual Meeting. The annual meeting of the stockholders shall be held on such date and at such time as is designated by the board of directors and as is provided for in the notice of the meeting. If the election of directors shall not be held on the day designated herein for the annual meeting of the stockholders, or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as may be convenient.

 

Section 2.02      Special Meetings. Special meetings of the stockholders may be called at any time by the chairman of the board, the chief executive officer, the president, or by the board of directors, or in their absence or disability, by any vice president.

 

Section 2.03      Place of Meetings. The board of directors may designate any place, either within or without the state of incorporation, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without state of incorporation, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be at the principal office of the corporation.

 

Section 2.04      Notice of Meetings. The secretary or assistant secretary, if any, shall cause notice of the time, place, and purpose or purposes of all meetings of the stockholders (whether annual or special), to be mailed at least ten (10) but not more than sixty (60) days prior to the meeting, to each stockholder of record entitled to vote.

 

Section 2.05      Waiver of Notice. Any stockholder may waive notice of any meeting of stockholders (however called or noticed, whether or not called or noticed and whether before, during, or after the meeting), signing a written waiver of notice or a consent to the holding of such meeting, or an approval of the minutes thereof. Attendance at a meeting, in person or by proxy, shall constitute waiver of all defects of notice regardless of whether a waiver of notice, consent to the holding of such meeting, or any approval of the minutes thereof is signed or any objections are made, unless attendance is solely for the purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. All such waivers, consents, or approvals shall be made a part of the minutes of the meeting.

 

Section 2.06      Fixing Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect to any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty (60) days and, in case, of a meeting of stockholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting, the day preceding the date on which notice of the meeting is mailed shall be the record date. For any other purpose, the record date shall be the close of business on the date on which the resolution of the board of directors pertaining thereto is adopted. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. Failure to comply with this section shall not affect the validity of any action taken at a meeting of stockholders.

 

 

 

 

Section 2.07      Voting Lists. The officers of the corporation shall cause to be prepared from the stock ledger at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting, during the whole time thereof, and may be inspected by any stockholder who is present. The original stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section, or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.

 

Section 2.08      Quorum. A majority of the shares of each class, and series of each class, to the extent applicable (unless more than one class and or series votes as a class, in which case a majority of the shares voting as a class) of stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders, entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time without notice (other than the announcement at the meeting) until a date and time that a quorum shall be present. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

Section 2.09      Vote Required. When a quorum is present at any meeting, the vote of the holders of stock having a majority of the voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one on which by express provision of the statutes of the state of Delaware or of the certificate of incorporation or as otherwise specifically required by these bylaws a different vote is required, in which case such express provision shall govern and control the decision of such question.

 

Section 2.10      Voting of Stock. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, subject to the modification of such voting rights of any class or classes of the corporation’s capital stock by the certificate of incorporation. There is no cumulative voting. If and to the extent allowed by the laws of the State of Delaware and of the United States, stockholders may vote electronically.

 

Section 2.11      Proxies. At each meeting of the stockholders, each stockholder entitled to vote shall be entitled to vote in person or by proxy, provided however, that the right to vote by proxy shall exist only in case the instrument authorizing such proxy to act shall have been executed in writing by the registered holder or holders of such stock, as the case may be, as shown on the stock ledger of the corporation or by his attorney thereunto duly authorized in writing. Such instrument authorizing a proxy to act shall be delivered at the beginning of such meeting to the secretary of the corporation or to such other officer or person who may, in the absence of the secretary, be acting as secretary of the meeting. In the event that any such instrument shall designate two or more persons to act as proxy, a majority of such persons present at the meeting, or if only one be present, that one shall (unless the instrument shall otherwise provide) have all of the powers confirmed by the instrument on all persons so designated. Persons holding stock in a fiduciary capacity, shall be entitled to vote the stock so held and the persons whose shares are pledged shall be entitled to vote, unless, the transfer by the pledgor in the books and records of the corporation shall have expressly empowered the pledgee to vote thereon, in which case the pledgee, or his proxy, may represent such stock and vote thereon. No proxy shall be voted or acted on after three years from its date, unless the proxy provides for a longer period. If and to the extent allowed by the laws of the State of Delaware and of the United States, stockholders may provide proxies electronically.

 

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Section 2.12      No Stockholder Action by Written Consent Without a Meeting. Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, must be taken at an annual or special meeting of stockholders of the corporation, with prior notice and with a vote, and may not be taken by a consent in writing.

 

Section 2.13      Business at Annual Meeting. At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the board of directors or (b) by any shareholder of record of the corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this section. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholders notice shall be received at the principal executive offices of the corporation not less than 120 calendar days in advance of the date in the current fiscal year that corresponds to the date in the preceding fiscal year on which the corporation’s notice of meeting and related proxy statement were released to stockholders in connection with the previous year’s annual meeting of stockholders, except that if no meeting was held in the immediately preceding year or if the date of the annual meeting in the current year varies by more than 30 calendar days’ from the corresponding date of such meeting in the preceding fiscal year, such notice by the shareholder proposing business to be brought before the meeting of the stockholders must be received not less than 30 days prior to the date of the current year’s annual meeting; provided, that in the event that less than 40 days notice of the date of the meeting is given to stockholders, to be timely, a stockholders notice of business to be brought before the meeting shall be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed. A stockholder’s notice to the secretary shall set forth as to each matter such shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation’s books, of the shareholder of record proposing such business, (c) the class and number of shares of the corporation’s capital stock that are beneficially owned by such shareholder, and (d) any material interest of such shareholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this section. The officer of the corporation or the person presiding at the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions, and if such presiding officer should so determine and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions and if such presiding officer should so determine, such presiding officer shall so declare to the meeting, and any such business so determined to be not properly brought before the meeting shall not be transacted.

 

Section 2.14      Notification of Nominations. Nominations for the election of directors may be made by the board of directors or by any shareholder who both is entitled to vote for the election of directors and who complies with the notice procedures set forth in this section and in the corporation’s certificate of incorporation. Any shareholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such shareholder’s intention to make such nomination is delivered or mailed to and received by the Secretary of the corporation, at the principal executive offices of the corporation not later than 120 calendar days in advance of the date in the current fiscal year that corresponds to the date in the preceding fiscal year on which the corporation’s notice of meeting and related proxy statement were released to stockholders in connection with the previous years annual meeting of stockholders, except that (i) with respect to an election to be held at an annual meeting of stockholders, if no annual meeting was held in the immediately preceding year or if the date of the annual meeting in the current fiscal year has been changed by more than 30 calendar days from the corresponding date of such meeting in the preceding fiscal year, such notice by the shareholder must be received not less than 30 days prior to the date of the current year’s annual meeting; provided further, that in the event that less than 40 days notice of the date of the meeting is given or made to stockholders, to be timely, a stockholders notice shall be so received not later than the close of business on the 10th day, following the day on which such notice of the date of the annual meeting was mailed, and (ii) with respect to an election to be hold at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall be signed and verified by the issuing stockholder under penalties of perjury, and shall set forth:

 

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(a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated;

 

(b) a representation that such shareholder is a holder of record of stock of the corporation entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to nominate the person or person specified in the notice;

 

(c) a description of all arrangements or understandings between such shareholder and each nominee, and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder; and

 

(d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules promulgated pursuant to the Securities Exchange Act of 1934, as amended, had each nominee been nominated, or proposed to be nominated by the board of directors.

 

Each such notice must be accompanied by an original signed written consent of each nominee, if elected, to serve as a director of the corporation.

 

The chairman and/or secretary of a meeting of the shareholders may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

 

ARTICLE III—DIRECTORS

 

Section 3.01      Number, Term, and Qualifications. The board of directors shall consist of one or more members, each of whom shall be a natural person. The number of directors which shall constitute the whole board shall be fixed from time to time by a majority vote of the directors then in office even though less than a quorum, or by a sole remaining director, and not by the stockholders. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires. At each annual meeting of stockholders or special meeting in lieu thereof, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the succeeding annual meeting of the stockholders or special meeting in lieu thereof until their successors are duly elected and qualified. Directors need neither be residents of the state of incorporation nor stockholders of the corporation.

 

Section 3.02      Vacancies and Newly Created Directorships. Vacancies resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office even though less than a quorum, or by a sole remaining director, and not by the stockholders. In the event of any increase or decrease in the authorized number of directors, each director then serving as such shall nevertheless continue as a director until the expiration of his or her current term or his or her prior death, retirement, removal or resignation. In the event of a vacancy in the board of directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full board of directors until the vacancy is filled. Notwithstanding the foregoing, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute.

 

Section 3.03      General Powers. The business of the corporation shall be managed under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders.

 

Section 3.04      Regular Meetings. A regular meeting of board of directors shall be held without notice immediately following and at the same place as the annual meeting of stockholders. The board of directors may provide by resolution, the time and place, either within or without the state of incorporation, for the holding of additional regular meetings without other notice than such resolution.

 

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Section 3.05      Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the chief executive officer, the president, or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the state of incorporation, as the place for holding any special meeting of the board of directors called by them.

 

Section 3.06      Meetings by Telephone Conference Call. Members of the board of directors may participate in a meeting of the board of directors or a committee of the board of directors by means of conference telephone or similar communications media provided that all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting.

 

Section 3.07      Notice. Notice of any special meeting shall be delivered personally or by telephone or by facsimile or by email to each director or sent by first-class mail, charges prepaid, addressed to each director at that director’s address, phone number, facsimile number, or email (as the case may be) as shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by facsimile or by email, it shall be delivered at least twenty-four (24) hours before the time of the holding of the meeting Any director may waive notice of any meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting solely for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

 

Section 3.08      Quorum. A majority of the number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than a majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.

 

Section 3.09      Manner of Acting. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the question is one on which by express provision of the statutes of the state of Delaware or of the certificate of incorporation or as otherwise specifically required by these bylaws a different vote is required, in which case such express provision shall govern and control the decision of such question, and individual directors shall have no power as such.

 

Section 3.10      Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

 

Section 3.11      Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

 

Section 3.12      Resignations. A director may resign at any time by delivering a written resignation to the chief executive officer, the president, a vice president, the secretary or assistant secretary, if any. The resignation shall become effective upon delivery unless otherwise stated therein.

 

Section 3.13      Written Consent to Action by Directors. Any action required to be taken at a meeting of the directors of the corporation or any other action which may be taken at a meeting of the directors or of a committee, may be taken without a meeting, if a consent in writing, setting forth the action so taken, shall be signed by all of the directors, or all of the members of the committee, as the case may be. Such consent shall have the same legal effect as a unanimous vote of all the directors or members of the committee.

 

Section 3.14      Removal. At a meeting expressly called for that purpose, one or more directors may be removed by a vote of seventy percent (70%) of the shares of outstanding stock of the corporation entitled to vote at an election of directors, provided that such removal has been recommended and approved by resolution duly adopted by the Board of Directors, at a meeting called for that purpose, in advance of the stockholder action.

 

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ARTICLE IV—OFFICERS

 

Section 4.01      Number. The officers of the corporation shall include a president and a secretary and may include a chairman, a chief executive officer, a chief financial officer, a treasurer, and such vice presidents, assistant secretaries and assistant treasurers as the board of directors may choose. Except as provided in Article VIII, election or appointment as an officer shall not in and of itself create contract rights.

 

Section 4.02      Election Term of Office, and Qualifications. The officers shall be chosen by the board of directors annually at its annual meeting. In the event of failure to choose officers at an annual meeting of the board of directors, officers may be chosen at any regular or special meeting of the board of directors. Each such officer (whether chosen to fill a vacancy or otherwise) shall hold his office until the next ensuing annual meeting of the board of directors and until his successor shall have been chosen and qualified, or until his death or until his resignation or removal in the manner provided in these bylaws. Any one person may hold any two or more of such offices, except that neither the chief executive officer nor the president shall also be the secretary. No person holding two or more offices shall act in or execute any instrument in the capacity of more than one office. The chairman of the board, if any, shall be and remain director of the corporation during the term of his office. No other officer need be a director.

 

Section 4.03      Subordinate Officers, Etc. The board of directors from time to time may appoint such other officers or agents as it may, deem advisable, each of whom shall have such title, hold office for such period, have such authority, and perform such duties as the board of directors from time to time may determine. The board of directors from time to time may, delegate to any officer or agent the power to appoint any such subordinate officer or agents and to prescribe their respective titles, terms of office, authorities, and duties.

 

Section 4.04      Resignations. Any officer may resign at any time by delivering a written resignation to the board of directors, the chief executive officer, the president, or the secretary. Unless otherwise specified therein, such resignation shall take effect on delivery.

 

Section 4.05      Removal. Any officer may be removed from office at any special meeting of the board of directors called for that purpose or at a regular meeting, by the vote of a majority of the directors, with or without cause. Any officer or agent appointed in accordance with the provisions of section 4.03 hereof may also be removed, either with or with cause, by any officer on whom such power of removal shall have been conferred by the board of directors.

 

Section 4.06      Vacancies and Newly Created Offices. If any vacancy shall occur in any office by reason of death, resignation, removal, disqualification, or any other cause, or if a new office shall be created, then such vacancies or newly created officers may be filled by the board of directors at any regular or special meeting.

 

Section 4.07      Chairman of the Board. The chairman of the board, if there be such an officer, shall have the following powers and duties:

 

(a) He shall preside at all meetings of the stockholders;

 

(b) He shall preside at all meetings of the board of directors; and

 

(c) He shall be a member of the executive committee, if any.

 

Section 4.08     The Chief Executive Officer. The chief executive officer, if there be such an officer, shall have the following powers and duties:

 

(a) He shall have general authority and supervision over the management and direction of the affairs of the corporation, and supervision of all departments and of all officers of the corporation.

 

(b) He shall, subject to the other provisions of these bylaws, have such other powers and perform such other duties as usually devolve upon the chief executive officer of a corporation or as may be prescribed by the board of directors, and shall, in the absence of the chairman or if no chairman has been chosen, preside at meetings of the stockholders and board of directors.

 

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(c) He may vote all securities which the corporation is entitled to vote except as to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors.

 

(d) Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors, he may execute any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized and may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation’s business in its ordinary course requires, and may accomplish such execution in each case either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument.

 

(e) He shall be a member of the executive committee, if any.

 

In case of the absence, disability, death, resignation or removal from office of the chief executive officer, or if a chief executive officer is not chosen, the power and duties of the chief executive officer shall devolve upon and be exercised by the president, unless otherwise ordered by the board of directors.

 

Section 4.09     The President. The president shall have the following powers and duties:

 

(a) He shall be the chief operating officer of the corporation and shall have such general authority and supervision over the management and direction of the affairs of the corporation, subject to the authority of the board of directors, as shall usually devolve upon a chief operating officer of a corporation.

 

(b) He shall, subject to the other provisions of these bylaws, have such other powers and perform such other duties as usually devolved upon the president of a corporation, and such further duties as may be proscribed for the president by the board of directors. Without limiting the generality of the foregoing, he shall see that the resolutions and directions of the board of directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the board of directors.

 

(c) Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors, he may execute certificates representing shares of stock of the corporation, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized and may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation’s business in its ordinary course requires, and may accomplish such execution in each case either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument.

 

(d) In the absence of the chief executive officer, the president may vote all securities which the corporation is entitled to vote except as to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. In case of the absence, disability, death, resignation or removal from the office of the president, the powers and duties of the president shall devolve upon and be exercised by the chief executive officer, if there be such an officer, and in case of the absence, disability, death, resignation or removal from office of both the chief executive officer and the president, the powers and duties of the president shall devolve upon and be exercised by such other officer so appointed by the board of directors.

 

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Section 4.10      The Vice Presidents. The board of directors may, from time to time, designate and elect one or more vice presidents, one of whom may be designated to serve as executive vice president. Each vice president shall have such powers and perform such duties as from time to time may be assigned to him by the board of directors or the president. At the request or in the absence or disability of the president, the executive vice president or, in the absence or disability of the executive vice president, the vice president designated by the board of directors or (in the absence of such designation by the board of directors) by the president as senior vice president may perform all the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions on, the president.

 

Section 4.11      The Secretary. The secretary shall have the following powers and duties:

 

(a) He shall keep or cause to be kept a record of all of the proceedings of the meetings of the stockholders and of the board of directors, in books provided for that purpose;

 

(b) He shall cause all notices to be duly given in accordance with the provisions of these bylaws and as required by statute;

 

(c) He shall be the custodian of the records and of the seal of the corporation, and shall cause such seal (or a facsimile thereof) to be affixed to all certificates representing stock of the corporation prior to the issuance thereof and to all instruments, the execution of which on behalf of the corporation under its seal shall have been duly authorized in accordance with these bylaws, and when so affixed, he may attest the same;

 

(d) He shall see that the books, reports, statements, certificates, and other documents and records required by statute are properly kept and filed;

 

(e) He shall have charge of the stock ledger and books of the corporation and cause such books to be kept in such manner as to show at any time the amount of the stock of the corporation of each class issued and outstanding, the manner in which and the time when such stock was paid for, the names alphabetically arranged and the addresses of the holders of record thereof, the amount of stock held by each holder and time when each became such holder of record; and he shall exhibit at all reasonable times to any director, on application, the original or duplicate stock ledger. He shall cause the, stock ledger referred to in Section 6.04 hereof to be kept and exhibited at the principal office of the corporation, or at such other place as the board of directors shall determine, in the manner and for the purpose provided in such section;

 

(f) He shall be empowered to sign certificates representing stock of the corporation, the issuance of which shall have been authorized by the board of directors; and

 

(g) He shall perform in general all duties incident to the office of secretary and such other duties as are given to him by these bylaws or as from time to time may be assigned to him by the board of directors or the president.

 

Section 4.12      The Treasurer. The treasurer, if there be such an officer, shall have the following powers and duties:

 

(a) He shall have charge and supervision over and be responsible for the monies, securities, receipts, and disbursements of the corporation;

 

(b) He shall cause the monies and other valuable effects of the corporation to be deposited in the name and to the credit of the corporation in such banks or trust companies or with such banks or other depositories as shall be selected in accordance with section 5.03 hereof,

 

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(c) He shall cause the monies of the corporation to be disbursed by checks or drafts (signed as provided in section 5.04 hereof) drawn on the authorized depositories of the corporation, and cause to be taken and preserved properly vouchers for all monies disbursed;

 

(d) He shall render to the board of directors or the president, whenever requested, a statement of the financial condition of the corporation and of all of his transactions as treasurer, and render a full financial report at the annual meeting of the stockholders, if called on to do so;

 

(e) He shall cause to be kept correct books of account of all the business and transactions of the corporation and exhibit such books to any directors on request during business hours;

 

(f) He shall be empowered from time to time to require from all officers or agents of the corporation reports or statements giving such information as he may desire with respect to any and all financial transactions of the corporation; and

 

(g) He shall perform in general all duties incident to the office of treasurer and such other duties as are given to him by these bylaws or as from time to time may be assigned to him by the board of directors or the president.

 

In case of the absence, disability, death, resignation or removal from office of the treasurer, or if a treasurer is not chosen, the power and duties of the treasurer shall devolve upon and be exercised by the secretary, unless otherwise ordered by the board of directors.

 

Section 4.13      The Chief Financial Officer. The chief financial officer, if there be such an officer, shall, under the direction of the president, be responsible for all financial and accounting matters and for the direction of the office of treasurer. The chief financial officer shall have such other powers and perform such other duties as the board of directors, the president, or these bylaws may, from time to time, prescribe.

 

Section 4.14      Assistant Treasurers And Assistant Secretaries. The assistant treasurers and assistant secretaries, if there be any such officers, shall perform such duties as shall be assigned to them by the treasurer, in the case of assistant treasurers, or the secretary, in the case of assistant secretaries, or by the board of directors or president in either case. Each assistant secretary may sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of stock of the corporation (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation’s business in its ordinary course requires, in each case according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine.

 

Section 4.15      Salaries. The salaries or other compensation of the officers of the corporation shall be fixed from time to time by the board of directors, except that the board of directors may delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate officers or agents appointed in accordance with the provisions of section 4.03 hereof. No officer shall be prevented from receiving any such salary or compensation by reason of the fact that he is also a director of the corporation.

 

Section 4.16      Surety Bonds. In case the board of directors shall so require, any officer or agent of the corporation shall execute to the corporation a bond in such sums and with such surety or sureties as the board of directors may direct, conditioned on the faithful performance of his duties to the corporation, including responsibility for negligence and for the accounting of all property, monies, or securities of the corporation which may come into his hands.

 

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ARTICLE V—EXECUTION OF INSTRUMENTS,
BORROWING OF MONEY, AND DEPOSIT OF CORPORATE FUNDS

 

Section 5.01      Execution of Instruments. Subject to any limitation contained in the certificate of incorporation or these bylaws, but without prejudice to the powers vested in the officers under Article IV of these bylaws, the chief executive officer, the president or any vice president may, in the name and on behalf of the corporation, execute and deliver any contract or other instrument authorized in writing by the board of directors. The board of directors may, subject to any limitation contained in the certificate of incorporation or in these bylaws, authorize in writing any officer or agent to execute and deliver any contract or other instrument in the name and on behalf of the corporation; any such authorization may be general or confined to specific instances.

 

Section 5.02      Loans. No loan or advance shall be contracted on behalf of the corporation, no negotiable paper or other evidence of its obligation under any loan or advance shall be issued in its name, and no property of the corporation shall be mortgaged, pledged, hypothecated, transferred, or conveyed as security for the payment of any loan, advance, indebtedness, or liability of the corporation, unless and except as authorized by the board of directors. Any such authorization may be general or confined to specific instances.

 

Section 5.03      Deposits. All monies of the corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositories as the board of directors may select, or as from time to time may be selected by any officer or agent authorized to do so by the board of directors.

 

Section 5.04      Checks, Drafts. Etc. All notes, drafts, acceptances, checks, endorsements, and, subject to the provisions of these bylaws, evidences of indebtedness of the corporation shall be signed by such officer or officers or such agent or agents of the corporation and in such manner as the board of directors from time to time may determine. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositories shall be in such manner as the board of directors from time to time may determine.

 

Section 5.05      Bonds and Debentures. Every bond or debenture issued by the corporation shall be evidenced by an appropriate instrument which shall be signed by the chief executive officer or the president or a vice president and by the secretary and sealed with the seal of the corporation. The seal may be a facsimile, engraved or printed. Where such bond or debenture is authenticated with the manual signature of an authorized officer of the corporation or other trustee designated by the indenture of trust or other agreement under which such security is issued, the signature of any of the corporation’s officers named thereon may be a facsimile. In case any officer who signed, or whose facsimile signature has been used on any such bond or debenture, shall cease to be an officer of the corporation for any reason before the same has been delivered by the corporation, such bond or debenture may nevertheless be adopted by the corporation and issued and delivered as through the person who signed it or whose facsimile signature has been used thereon had not ceased to be such officer.

 

Section 5.06      Sale, Transfer, Etc. of Securities. Sales, transfers, endorsements, and assignments of stocks, bonds, and other securities owned by or standing the name of the corporation, and the execution and delivery on behalf of the corporation of any all instruments in writing incident to any such sale, transfer, endorsement, or assignment, shall be effected by the chief executive officer, the president, or by any vice president, together with the secretary, or by any officer or agent thereunto authorized by the board of directors.

 

Section 5.07      Proxies. Proxies to vote with respect to stock of other corporations owned by or standing in the name of the corporation shall be executed and delivered on behalf of the corporation by the chief executive officer, the president or any vice president and the secretary or assistant secretary of the corporation, or by any officer or agent thereunder authorized by the board of directors.

 

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ARTICLE VI—CAPITAL STOCK

 

Section 6.01      Stock Certificates . The shares of the corporation shall be evidenced by certificates in such form as the board of directors of the corporation may from time to time prescribe; provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of stock of the corporation shall be uncertificated shares. Notwithstanding the foregoing, each holder of uncertificated shares shall be entitled, upon request, to a certificate representing such shares. Shares represented by certificates shall be numbered and registered in a share register as they are issued. Share certificates shall exhibit the name of the registered holder and the number and class of shares and the series, if any, represented thereby and the par value of each share or a statement that such shares are without par value, as the case may be. Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificated shares of the same class and series shall be identical.

 

Each certificate shall be signed by the chairman or president or vice-president and treasurer or assistant treasurer or the secretary or assistant secretary or such other officers designated by the board of directors from time to time as permitted by law, and shall bear the seal of the corporation. The corporate seal and any or all of the signatures or corporation officers may be in facsimile if the stock certificate is manually counter-signed by an authorized person on behalf of a transfer agent or registrar other than the corporation or its employee. If an officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on, a certificate shall have ceased to be such before the certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the time of its issue.

 

Section 6.02      Transfer of Stock. Transfers of stock of the corporation shall be made on the books of the corporation by the holder of record thereof, or by his attorney thereunto duly authorized by a power of attorney duly executed in writing and filed with the secretary of the corporation or any of its transfer agents, and on surrender of the certificate or certificates, properly endorsed or accompanied by proper instruments of transfer, representing such stock. Except as provided by law, the corporation and transfer agents and registrars, if any, shall be entitled to treat the holder of record of any stock as the absolute owner thereof for all purposes, and accordingly shall not be bound to recognize any legal, equitable, or other claim to or interest in such stock on the part of any other person whether or not it or they shall have express or other notice thereof.

 

Section 6.03      Regulations. Subject to any provisions contained in the certificate of incorporation, the board of directors may make such rules and regulations as they may deem expedient concerning the issuance, transfer, redemption, and registration of certificates for stock of the corporation.

 

Section 6.04      Maintenance of Stock Ledger at Principal Place of Business. A stock ledger (or ledgers where more than one kind, class, or series of stock is outstanding) shall be kept at the principal place of business of the corporation, or at such other place the board of directors shall determine, containing the names alphabetically arranged of original holders of the corporation, their addresses, their interest, the amount paid on their shares, and all transfers thereof and the number and class of stock held by each. Such stock ledgers shall at all reasonable hours by subject to inspection by persons entitled by law to inspect the same.

 

Section 6.05      Transfer Agents and Registrars. The board of directors may appoint one or more transfer agents and one or more registrars with respect to the certificates representing stock of the corporation, and may require all such certificates to bear the signature of either or both. The board of directors may from time to time define the respective duties of such transfer agents and registrars. No certificate for stock shall be valid until countersigned by a transfer agent, if at the date appearing thereon the corporation had a transfer agent for such stock, and until registered by a registrar, if at such date the corporation had a registrar for such stock.

 

Section 6.06      Closing of Transfer Books and Fixing of Record Date .

 

(a) The board of directors shall have power to close the stock ledgers of the corporation for a period of not to exceed sixty (60) days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights or capital stock, or a date in connection with obtaining the approval of stockholders for any purpose.

 

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(b) In lieu of closing the stock ledgers as aforesaid, the board of directors may fix in advance a date not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining any such consent, as a date for the determination of the stockholders entitled to a notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent.

 

(c) If the stock ledgers shall be closed or a record date set for the purpose of determining stockholders entitled to notice or to vote at a meeting of stockholders, such books shall be closed for or such record date shaft be at least ten days immediately preceding such meeting.

 

Section 6.07      Lost or Damaged Certificates. The corporation may issue a new certificate for stock of the corporation in place of any certificate theretofore issued by it alleged to have been lost or destroyed, and the board of directors may, in its discretion, require the owner of the lost or destroyed certificate or his legal representatives, to give the corporation a bond in such form and amount as the board of directors may direct, and with such surety or sureties as may be satisfactory to the board of directors, to indemnify the corporation and its transfer agents and registrars, if any, against any claims that may be made against it or any such transfer agent or registrar on account of the issuance of such new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the board of directors, it is appropriate to do so.

 

ARTICLE VII—COMMITTEES

 

Section 7.01      How Constituted. The board of directors may designate an executive committee, audit committee, governance and nominating committee, compensation committee and such other committees as the board of directors may deem appropriate, each of which committees shall consist of one or more directors. Members of the committees shall be designated annually at the annual meeting of the board of directors; provided however, that at any time the board of directors may abolish or reconstitute any committee. Each member of each committee shall hold office until his successor shall have been designated or until his resignation or removal in the manner provided in these bylaws.

 

Section 7.02      Powers. During the intervals between meetings of the board of directors, the executive committee (if one is established) shall have and may exercise all powers of the board of directors in the management of the business and affairs of the corporation, except for the power to fill vacancies in the board of directors or to amend these bylaws, and except for such powers as by law may not be delegated by the board of directors to an executive committee.

 

Section 7.03      Proceedings. Each committee may fix its own presiding and recording officer or officers, and may meet at such place or places, at such time or times and on such notice (or without notice) as it shall determine from time to time. It will keep record of its proceedings and shall report such proceedings to the board of directors at the meeting of board of directors next following.

 

Section 7.04      Quorum and Manner of Acting. At all meetings of the committees as may be designated hereunder by the board of directors, the presence of members constituting a majority of the total authorized membership of the committee shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at, any meeting at which a quorum is preset shall be the act of such committee. The members of such committees, as may be designated hereunder by the board of directors, shall act only as a committee, and the individual members thereof shall have no powers as such.

 

Section 7.05      Resignations. Any member of a committee may resign at any time by delivering a written resignation to the chief executive officer, the president, the secretary, or assistant secretary, or to the presiding officer of the committee of which he is a member, if any shall have been appointed and shall be in office. Unless otherwise specified therein, such resignation shall take effect on delivery.

 

Section 7.06     Removal. The board of directors may at any time remove any member of the executive committee or of any other committee designated by it hereunder either for or without cause.

 

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Section 7.07      Vacancies. If any vacancy shall occur in any committee by reason of disqualification, death, resignation, removal, or removal, or otherwise, the remaining members shall, until the filling of such vacancy, constitute the then total authorized membership of the committee and continued to act, unless such committee consisted of more than one member prior to the vacancy or vacancies and is left with only one member as a result thereof. Such vacancy may be filled at any meeting of the board of directors.

 

Section 7.08      Compensation. The board of directors may compensate any member of a duly designated committee who is not an active salaried employee of the corporation for attendance at each meeting of the said committee (and may reimburse his or her expenses of attendance).

 

ARTICLE VIII—INDEMNIFICATION, INSURANCE AND
OFFICER AND DIRECTOR CONTRACTS

 

Section 8.01      Indemnification. The corporation shall indemnify and make advancement of expenses to the extent and as required (and in the discretion of the board of directors, as allowed) in the certificate of incorporation.

 

ARTICLE IX—FISCAL YEAR

 

The fiscal year of the corporation shall be fixed by resolution of the board of directors.

 

ARTICLE X—DIVIDENDS

 

The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding stock in the manner and on the terms and conditions provided by the certificate of incorporation and by laws.

 

ARTICLE XI—AMENDMENTS

 

Any amendment of these bylaws shall require the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the directors comprising the board of directors, at a meeting called for the purpose of amending and/or restating these bylaws. Absent affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the directors comprising the board of directors, at a meeting called for the purpose of amending and/or restating these bylaws, the stockholders of the corporation may amend these bylaws by an affirmative vote of a majority of each class of issued and outstanding shares of voting securities of the corporation, at a meeting called for the purpose of amending and/or restating these bylaws.

 

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CERTIFICATE OF THE SECRETARY

 

The undersigned does hereby certify that he is the secretary of Moleculin Biotech, Inc., a corporation duly organized and existing under and by virtue of the laws of the state of Delaware; that the above and foregoing bylaws of said corporation were duly and regularly adopted as such by the board of directors of said corporation on __________, 2016 and that the above and foregoing bylaws are now in full force and effect and supersede and replace any prior bylaws of the corporation.

 

DATED this ____ day of ______, 2016.

 

   
  ________,  Secretary

 

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Exhibit 10.1

 

 

MOLECULIN BIOTECH, INC.
2015 STOCK PLAN

 

 

 

Section 1.          Purpose.

 

The purpose of the Moleculin Biotech, Inc. 2015 Stock Plan (the “Plan”) is to attract and retain outstanding individuals as Key Employees and Directors of the Company and its Subsidiaries, to recognize the contributions made to the Company and its Subsidiaries by Key Employees and Directors, and to provide such Key Employees and Directors with additional incentive to expand and improve the profits and achieve the objectives of the Company and its Subsidiaries, by providing such Key Employees and Directors with the opportunity to acquire or increase their proprietary interest in the Company through receipt of Awards.

 

Section 2.          Definitions.

 

As used in the Plan, the following terms shall have the meanings set forth below:

 

2.1           “ Award ” means any award or benefit granted under the Plan, which shall be a Stock Option, a Stock Award or a Stock Unit Award.

 

2.2           “ Award Agreement ” means, as applicable, a Stock Option Agreement, Stock Award Agreement or Stock Unit Award Agreement evidencing an Award granted under the Plan.

 

2.3           “ Board ” means the Board of Directors of the Company.

 

2.4           “ Change in Control ” has the meaning set forth in Section 8.2 of the Plan.

 

2.5           “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

2.6           “ Committee ” means the Compensation Committee of the Board or such other committee as may be designated by the Board from time to time to administer the Plan, or, if no such committee has been designated at the time of any grants, it shall mean the Board.

 

2.7           “ Common Stock ” means the Common Stock, par value $0.001 per share, of the Company.

 

2.8           “ Company ” means Moleculin Biotech, Inc., a Delaware corporation.

 

2.9           “ Director ” means a director of the Company who is not an employee of the Company or a Subsidiary.

 

2.10         “ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

 

2.11         “ Fair Market Value ” means the closing price of the Common Stock on the national securities exchange on which the Common Stock is listed, or, if the Common Stock is not listed on a national securities exchange, the over-the-counter market on which the Common Stock trades, or, if the Common Stock is not listed on a national securities exchange or an over-the-counter market, as determined by the Board.

 

2.12         “ Incentive Stock Option ” or “ ISO ” means a Stock Option granted under Section 5 of the Plan that meets the requirements of Section 422(b) of the Code or any successor provision.

 

2.13         “ Key Employee ” means an employee of the Company or any Subsidiary selected to participate in the Plan in accordance with Section 3. A Key Employee may also include a person who is granted an Award (other than an Incentive Stock Option) in connection with the hiring of the person prior to the date the person becomes an employee of the Company or any Subsidiary, provided that such Award shall not vest prior to the commencement of employment.

 

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2.14         “ Non-Qualified Stock Option ” or “ NSO ” means a Stock Option granted under Section 5 of the Plan that is not an Incentive Stock Option.

 

2.15         “ Participant ” means a Key Employee or Director selected to receive an Award under the Plan.

 

2.16         “ Plan ” means the Moleculin Biotech, Inc. 2015 Stock Plan.

 

2.17         “ Stock Award ” means a grant of shares of Common Stock under Section 6 of the Plan.

 

2.18         “ Stock Option ” means an Incentive Stock Option or a Non-Qualified Stock Option granted under Section 5 of the Plan.

 

2.19         “ Stock Unit Award ” means a grant of a right to receive shares of Common Stock or cash under Section 7 of the Plan.

 

2.20         “ Subsidiary ” means an entity of which the Company is the direct or indirect beneficial owner of not less than 50% of all issued and outstanding equity interest of such entity.

 

Section 3.          Administration.

 

3.1            The Board .

 

The Plan shall be administered by the Board; provided, however, that the Committee shall administer the Plan so long as the Committee is comprised of at least two members of the Board who satisfy the “non-employee director” definition set forth in Rule 16b-3 under the Exchange Act and the “outside director” definition under Section 162(m) of the Code and the regulations thereunder, unless the Board otherwise determines. For purposes of the Plan, the term “Board” shall refer to the Board or, to the extent the Committee is administering the Plan, and other than for purposes of Section 12.1, the Committee.

 

3.2            Authority of the Board .

 

(a)          The Board, in its sole discretion, shall determine the Key Employees and Directors to whom, and the time or times at which Awards will be granted, the form and amount of each Award, the expiration date of each Award, the time or times within which the Awards may be exercised, the cancellation of the Awards and the other limitations, restrictions, terms and conditions applicable to the grant of the Awards. The terms and conditions of the Awards need not be the same with respect to each Participant or with respect to each Award.

 

(b)          To the extent permitted by applicable law, regulation, and rules of a stock exchange on which the Common Stock is listed or traded, the Board may delegate its authority to grant Awards to Key Employees and to determine the terms and conditions thereof to such officer of the Company as it may determine in its discretion, on such terms and conditions as it may impose, except with respect to Awards to officers subject to Section 16 of the Exchange Act or officers who are or may be “covered employees” as defined in Section 162(m) of the Code.

 

(c)          The Board may, subject to the provisions of the Plan, establish such rules and regulations as it deems necessary or advisable for the proper administration of the Plan, and may make determinations and may take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each determination or other action made or taken pursuant to the Plan, including interpretation of the Plan and the specific terms and conditions of the Awards granted hereunder, shall be final and conclusive for all purposes and upon all persons.

 

(d)          No member of the Board or the Committee shall be liable for any action taken or determination made hereunder in good faith. Service on the Committee shall constitute service as a Director so that the members of the Committee shall be entitled to indemnification and reimbursement as Directors of the Company pursuant to the Company’s Certificate of Incorporation and By-Laws.

 

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3.3            Performance Goals.

 

(a)          The Board may, in its discretion, provide that any Award granted under the Plan shall be subject to performance goals, including those that qualify the Award as “performance-based compensation” within the meaning of Section 162(m) of the Code.

 

(b)          Performance goals may be based on one or more business criteria, including, but not limited to: (i) net earnings or net income (before or after taxes); (ii) earnings per share; (iii) net sales or revenue growth; (iv) net operating profit or income (including as a percentage of sales); (v) return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); (vi) cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); (vii) earnings before or after taxes, interest, depreciation, and/or amortization; (viii) gross or operating margins; (ix) productivity ratios; (x) share price (including, but not limited to, growth measures and total shareholder return); (xi) cost control; (xii) margins; (xiii) operating efficiency; (xiv) market share; (xv) customer satisfaction or employee satisfaction; (xvi) working capital; (xvii) economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of capital); (xviii) taxes; (xix) depreciation and amortization; (xx) total shareholder return; (xxi) low cost region labor as a percent of total labor; and (xxii) top customer concentration as a percent of sales. Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Board. In addition, performance goals may be adjusted for any events or occurrences (including acquisition expenses, extraordinary charges, losses from discontinued operations, restatements and accounting charges and restructuring expenses), as may be determined by the Board. Performance goals may be particular to one or more lines of business or Subsidiaries or may be based on the performance of the Company and its Subsidiaries as a whole.

 

(c)          With respect to each performance period, the Board shall establish such performance goals relating to one or more of the business criteria identified above and shall establish targets for Participants for achievement of performance goals. Following the completion of each performance period, the Board shall determine the extent to which performance goals for that performance period have been achieved and the related performance-based restrictions shall lapse in accordance with the terms of the applicable Award Agreement.

 

3.4            Award Agreements .

 

Each Award shall be evidenced by a written Award Agreement specifying the terms and conditions of the Award. In the sole discretion of the Board, the Award Agreement may condition the grant of an Award upon the Participant’s entering into one or more of the following agreements with the Company: (a) an agreement not to compete with the Company and its Subsidiaries which shall become effective as of the date of the grant of the Award and remain in effect for a specified period of time following termination of the Participant’s employment with the Company; (b) an agreement to cancel any employment agreement, fringe benefit or compensation arrangement in effect between the Company and the Participant; and (c) an agreement to retain the confidentiality of certain information. Such agreements may contain such other terms and conditions as the Board shall determine. If the Participant shall fail to enter into any such agreement at the request of the Board, then the Award granted or to be granted to such Participant shall be forfeited and cancelled.

 

Section 4.          Shares of Common Stock Subject to Plan.

 

4.1            Total Number of Shares .

 

(a)          The total number of shares of Common Stock that may be issued under the Plan shall be 1,500,000. Such shares may be either authorized but unissued shares or treasury shares, and shall be adjusted in accordance with the provisions of Section 4.3 of the Plan.

 

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(b)          The number of shares of Common Stock delivered by a Participant or withheld by the Company on behalf of any such Participant as full or partial payment of an Award, including the exercise price of a Stock Option or of any required withholding taxes, shall not again be available for issuance pursuant to subsequent Awards, and shall count towards the aggregate number of shares of Common Stock that may be issued under the Plan. If there is a lapse, forfeiture, expiration, termination or cancellation of any Award for any reason (including for reasons described in Section 3.3), or if shares of Common Stock are issued under such Award and thereafter are reacquired by the Company pursuant to rights reserved by the Company upon issuance thereof, the shares of Common Stock subject to such Award or reacquired by the Company shall again be available for issuance pursuant to subsequent Awards, and shall not count towards the aggregate number of shares of Common Stock that may be issued under the Plan.

 

4.2            Shares Under Awards .

 

Of the shares of Common Stock authorized for issuance under the Plan pursuant to Section 4.1:

 

(a)          The maximum number of shares of Common Stock as to which a Key Employee may receive Stock Options in any calendar year is 500,000, except that the maximum number of shares of Common Stock as to which a Key Employee may receive Stock Options in the calendar year in which such Key Employee begins employment with the Company or its Subsidiaries is 500,000.

 

(b)          The maximum number of shares of Common Stock that may be subject to Stock Options (ISOs and/or NSOs) is 1,500,000.

 

(c)          The maximum number of shares of Common Stock that may be used for Stock Awards and/or Stock Unit Awards that are intended to qualify as “performance-based” in accordance with Section 162(m) of the Code that may be granted to any Key Employee in any calendar year is 500,000, or, in the event the Award is settled in cash, an amount equal to the Fair Market Value of such number of shares on the date on which the Award is settled.

 

(d)          The maximum number of shares of Common Stock that may be used for Stock Awards and/or Stock Unit Awards is 500,000.

 

The numbers of shares described herein shall be as adjusted in accordance with Section 4.3 of the Plan.

 

4.3            Adjustment .

 

In the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Company or any similar corporate transaction, the Board shall make such adjustments as it deems appropriate, in its sole discretion, to preserve the benefits or intended benefits of the Plan and Awards granted under the Plan. Such adjustments may include: (a) adjustment in the number and kind of shares reserved for issuance under the Plan; (b) adjustment in the number and kind of shares covered by outstanding Awards; (c) adjustment in the exercise price of outstanding Stock Options or the price of Stock Awards or Stock Unit Awards under the Plan; (d) adjustments to any of the shares limitations set forth in Section 4.1 or 4.2 of the Plan; and (e) any other changes that the Board determines to be equitable under the circumstances.

 

Section 5.          Grants of Stock Options.

 

5.1            Grant .

 

Subject to the terms of the Plan, the Board may from time to time grant Stock Options to Participants. Unless otherwise expressly provided at the time of the grant, Stock Options granted under the Plan to Key Employees will be NSOs. Stock Options granted under the Plan to Directors who are not employees of the Company or any Subsidiary will be NSOs.

 

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5.2            Stock Option Agreement .

 

The grant of each Stock Option shall be evidenced by a written Stock Option Agreement specifying the type of Stock Option granted, the exercise period, the exercise price, the terms for payment of the exercise price, the expiration date of the Stock Option, the number of shares of Common Stock to be subject to each Stock Option and such other terms and conditions established by the Board, in its sole discretion, not inconsistent with the Plan; provided, however, that no Stock Option shall be credited with any amounts equal to dividends and other distributions that a Participant would have received had he held the shares of Common Stock subject to an unexercised Stock Option.

 

5.3            Exercise Price and Exercise Period .

 

With respect to each Stock Option granted to a Participant:

 

(a)          The per share exercise price of each Stock Option shall be the Fair Market Value of the Common Stock subject to the Stock Option on the date on which the Stock Option is granted.

 

(b)          Each Stock Option shall become exercisable as provided in the Stock Option Agreement; provided that the Board shall have the discretion to accelerate the date as of which any Stock Option shall become exercisable in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Board in its sole discretion).

 

(c)          Each Stock Option shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, on the date ten years after the date of grant.

 

5.4            Required Terms and Conditions of ISOs .

 

In addition to the foregoing, each ISO granted to a Key Employee shall be subject to the following specific rules:

 

(a)          The aggregate Fair Market Value (determined with respect to each ISO at the time such Option is granted) of the shares of Common Stock with respect to which ISOs are exercisable for the first time by a Key Employee during any calendar year (under all incentive stock option plans of the Company and its Subsidiaries) shall not exceed $100,000. If the aggregate Fair Market Value (determined at the time of grant) of the Common Stock subject to an ISO which first becomes exercisable in any calendar year exceeds the limitation of this Section 5.4(a), so much of the ISO that does not exceed the applicable dollar limit shall be an ISO and the remainder shall be a NSO; but in all other respects, the original Stock Option Agreement shall remain in full force and effect.

   

(b)          Notwithstanding anything herein to the contrary, if an ISO is granted to a Key Employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or its parent or subsidiaries within the meaning of Section 422(b)(6) of the Code): (i) the purchase price of each share of Common Stock subject to the ISO shall be not less than 110% of the Fair Market Value of the Common Stock on the date the ISO is granted; and (ii) the ISO shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, no later than the fifth anniversary of the date the ISO was granted.

 

(c)          No ISOs shall be granted under the Plan after ten years from the earlier of the date the Plan is adopted or approved by shareholders of the Company.

 

5.5            Exercise of Stock Options .

 

(a)          A Participant entitled to exercise a Stock Option may do so by delivering written notice to that effect specifying the number of shares of Common Stock with respect to which the Stock Option is being exercised and any other information the Board may prescribe. All notices or requests provided for herein shall be delivered to the Chief Financial Officer of the Company.

 

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(b)          The Board in its sole discretion may make available one or more of the following alternatives for the payment of the Stock Option exercise price:

 

(i)           in cash;

 

(ii)          in cash received from a broker-dealer to whom the Participant has submitted an exercise notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the Stock Option to pay the exercise price;

 

(iii)         by directing the Company to withhold such number of shares of Common Stock otherwise issuable in connection with the exercise of the Stock Option having an aggregate Fair Market Value equal to the exercise price;

 

(iv)         by delivering previously acquired shares of Common Stock that are acceptable to the Board and that have an aggregate Fair Market Value on the date of exercise equal to the Stock Option exercise price; or

 

(v)          by certifying to ownership by attestation of such previously acquired shares of Common Stock.

 

The Board shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the Stock Option exercise price.

 

(c)          The Company shall issue, in the name of the Participant, stock certificates representing the total number of shares of Common Stock issuable pursuant to the exercise of any Stock Option as soon as reasonably practicable after such exercise; provided that any shares of Common Stock purchased by a Participant through a broker-dealer pursuant to Section 5.5(b)(ii) or Section 9(b) shall be delivered to such broker-dealer in accordance with 12 C.F.R. §220.3(e)(4) or other applicable provision of law. Notwithstanding the foregoing, the Company, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non–certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent; provided however, that the Company, upon written request of the Participant, shall issue, in the name of the Participant, stock certificates representing such shares.

 

Section 6.          Stock Awards.

 

6.1            Grant .

 

The Board may, in its discretion, (a) grant shares of Common Stock under the Plan to any Participant without consideration from such Participant or (b) sell shares of Common Stock under the Plan to any Participant for such amount of cash, Common Stock or other consideration as the Board deems appropriate.

 

6.2            Stock Award Agreement .

 

Each share of Common Stock granted or sold hereunder shall be subject to such restrictions, conditions and other terms as the Board may determine at the time of grant or sale, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Award Agreement, and the following specific rules:

 

(a)          Shares of Common Stock issued to a Participant under the Plan shall be evidenced by a Stock Award Agreement, which shall specify whether the shares of Common Stock are granted or sold to the Participant and such other provisions, not inconsistent with the terms and conditions of the Plan, as the Board shall determine.

 

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(b)          The restrictions to which the shares of Common Stock awarded hereunder are subject shall lapse as provided in Stock Award Agreement; provided that the Board shall have the discretion to accelerate the date as of which the restrictions lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Board in its sole discretion).

 

(c)          Except as provided in this subsection (c) and unless otherwise set forth in the related Stock Award Agreement, the Participant receiving a grant of or purchasing Common Stock shall thereupon be a shareholder with respect to such shares and shall have the rights of a shareholder with respect to such shares, including the right to vote such shares and to receive dividends and other distributions paid with respect to such shares; provided that (i) in the case of a performance-based Stock Award as described in Section 3.3, any dividends or other distributions payable with respect to the Stock Award shall be accumulated and held by the Company and paid to the Participant only upon, and to the extent, the performance-based restrictions lapse in accordance with the terms of the applicable Stock Award Agreement and (ii) in the case of all other Stock Awards, the Board shall have the discretion to have the Company accumulate and hold such dividends or distributions. In either case, any such dividends or other distributions held by the Company attributable to the portion of a Stock Award that is forfeited shall also be forfeited.

 

(d)          The Company shall issue, in the name of the Participant, stock certificates representing the total number of shares of Common Stock granted or sold to the Participant, as soon as may be reasonably practicable after such grant or sale, which shall be held by the Secretary of the Company until such time as the Common Stock is forfeited, resold to the Company, or the restrictions lapse. Notwithstanding the foregoing, the Company, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non–certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent; provided, however that following the lapse of all restrictions with respect to the shares granted or sold to a Participant, the Company, upon the written request of the Participant, shall issue, in the name of the Participant, stock certificates representing such shares.

 

Section 7.          Stock Unit Awards.

 

7.1            Grant .

 

The Board may, in its discretion, grant Stock Unit Awards to any Participant. Each Stock Unit subject to the Award shall entitle the Participant to receive, on the date or the occurrence of an event (including the attainment of performance goals) as described in the Stock Unit Award Agreement, a share of Common Stock or cash equal to the Fair Market Value of a share of Common Stock on the date of such event as provided in the Stock Unit Award Agreement.

 

7.2            Stock Unit Agreement .

 

Each Stock Unit Award shall be subject to such restrictions, conditions and other terms as the Board may determine at the time of grant, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Unit Award Agreement and the following specific rules:

 

(a)          Shares of Common Stock issued to a Participant under the Plan shall be evidenced by a Stock Unit Agreement, which shall specify such provisions, not inconsistent with the terms and conditions of the Plan, as the Board shall determine.

 

(b)          The restrictions to which the shares of Stock Units awarded hereunder are subject shall lapse as provided in Stock Unit Agreement; provided that the Board shall have the discretion to accelerate the date as of which the restrictions lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Board in its sole discretion).

 

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(c)          Except as provided in this subsection (c) and unless otherwise set forth in the Stock Unit Agreement, the Participant receiving a Stock Unit Award shall have no rights of a shareholder, including voting or dividends or other distributions rights, with respect to any Stock Units prior to the date they are settled in shares of Common Stock; provided that a Stock Unit Award Agreement may provide that until the Stock Units are settled in shares or cash, the Participant shall receive on each dividend or distribution payment date applicable to the Common Stock an amount equal to the dividends or other distributions that the Participant would have received had the Stock Units held by the Participant as of the related record date been actual shares of Common Stock. In the case of a performance-based Stock Unit Award as described in Section 3.3 above, such amounts shall be accumulated and held by the Company and paid to the Participant only upon, and to the extent, the performance-based restrictions lapse in accordance with the terms of the applicable Stock Unit Award Agreement and in the case of all other Stock Unit Awards, the Board shall have the discretion to have the Company accumulate and hold such amounts. In either case, such amounts held by the Company attributable to the portion of the Stock Unit Award that is forfeited shall also be forfeited.

 

(d)          Upon settlement of Stock Units into Common Stock, the Company shall issue, in the name of the Participant, stock certificates representing a number of shares of Common Stock equal to the number of Stock Units being settled. Notwithstanding the foregoing, the Company, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non-certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent; provided, however that the Company, upon the written request of the Participant, shall issue in the name of the Participant, stock certificates representing such shares.

 

Section 8.          Change in Control.

 

8.1            Effect of a Change in Control .

 

(a)          Notwithstanding any of the provisions of the Plan or any outstanding Award Agreement, upon a Change in Control of the Company (as defined in Section 8.2), the Board is authorized and has sole discretion to provide that (i) all outstanding Awards shall become fully exercisable, (ii) all restrictions applicable to all Awards shall terminate or lapse and (iii) performance goals applicable to any Awards shall be deemed satisfied at the highest target level, as applicable, in order that Participants may fully realize the benefits thereunder.

 

(b)          In addition to the Board’s authority set forth in Section 3, upon such Change in Control of the Company, the Board is authorized and has sole discretion as to any Award, either at the time such Award is granted hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any outstanding Stock Option, for an amount of cash equal to the difference between the exercise price and the then Fair Market Value of the Common Stock covered thereby had such Stock Option been currently exercisable; (ii) make such adjustment to any such Award then outstanding as the Board deems appropriate to reflect such Change in Control; and (iii) cause any such Award then outstanding to be assumed by the acquiring or surviving corporation after such Change in Control.

 

8.2            Definition of Change in Control .

 

“Change in Control” of the Company shall be deemed to have occurred if at any time during the term of an Award granted under the Plan any of the following events occurs:

 

(a)          any Person (other than the Company, a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of shares of Common Stock of the Company) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors (“Person” and “Beneficial Owner” being defined in Rule 13d-3 of the General Rules and Regulations of the Exchange Act);

 

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(b)          the Company is party to a merger, consolidation, reorganization or other similar transaction with another corporation or other Person unless, following such transaction, more than 50% of the combined voting power of the outstanding securities of the surviving, resulting or acquiring corporation or Person or its parent entity entitled to vote generally in the election of directors (or Persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding securities entitled to vote generally in the election of directors immediately prior to such transaction, in substantially the same proportions as their ownership, immediately prior to such transaction, of the Company’s outstanding securities entitled to vote generally in the election of directors;

 

(c)          the election to the Board, without the recommendation or approval of two-thirds of the incumbent Board, of the lesser of: (i) three Directors; or (ii) Directors constituting a majority of the number of Directors of the Company then in office; provided, however, that Directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Directors of the Company will not be considered as incumbent members of the Board for purposes of this Section; or

 

(d)          there is a complete liquidation or dissolution of the Company, or the Company sells all or substantially all of its business and/or assets to another corporation or other Person unless, following such sale, more than 50% of the combined voting power of the outstanding securities of the acquiring corporation or Person or its parent entity entitled to vote generally in the election of directors (or Persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding securities entitled to vote generally in the election of directors immediately prior to such sale, in substantially the same proportions as their ownership, immediately prior to such sale, of the Company’s outstanding securities entitled to vote generally in the election of directors.

 

In no event, however, shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is part of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (a) passive ownership of less than 3% of the shares of the purchasing company; or (b) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors).

 

Section 9.          Payment of Taxes.

 

In connection with any Award, and as a condition to the issuance or delivery of any shares of Common Stock to the Participant in connection therewith, the Company may require the Participant to pay the Company an amount equal to the minimum amount of the tax the Company or any Subsidiary may be required to withhold to obtain a deduction for federal, state or local income tax purposes as a result of such Award or to comply with applicable law. The Board in its sole discretion may make available one or more of the following alternatives for the payment of such taxes:

 

(a)          in cash;

 

(b)          in cash received from a broker-dealer to whom the Participant has submitted notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the Award to pay the withholding taxes;

 

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(c)          by directing the Company to withhold such number of shares of Common Stock otherwise issuable in connection with the Award having an aggregate Fair Market Value equal to the minimum amount of tax required to be withheld;

 

(d)          by delivering previously acquired shares of Common Stock of the Company that are acceptable to the Board that have an aggregate Fair Market Value equal to the amount required to be withheld; or

 

(e)          by certifying to ownership by attestation of such previously acquired shares of Common Stock.

 

The Board shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the required withholding taxes.

 

Section 10.         Postponement.

 

The Board may postpone any grant or settlement of an Award or exercise of a Stock Option for such time as the Board in its sole discretion may deem necessary in order to permit the Company:

 

(a)          to effect, amend or maintain any necessary registration of the Plan or the shares of Common Stock issuable pursuant to an Award, including upon the exercise of an Option, under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction;

 

(b)          to permit any action to be taken in order to (i) list such shares of Common Stock on a stock exchange if shares of Common Stock are then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for its shares of Common Stock, including any rules or regulations of any stock exchange on which the shares of Common Stock are listed; or

 

(c)          to determine that such shares of Common Stock and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Award or any provision of the Plan to sell or issue shares of Common Stock in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof.

 

Any such postponement shall not extend the term of an Award and neither the Company nor its Directors or officers shall have any obligation or liability to a Participant, the Participant’s successor or any other person with respect to any shares of Common Stock as to which the Award shall lapse because of such postponement.

 

Section 11.         Nontransferability.

 

Awards granted under the Plan, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, or be subject to execution, attachment or similar process, by operation of law or otherwise, other than by will or by the laws of descent and distribution.

 

Section 12.         Termination or Amendment of Plan and Award Agreements.

 

12.1          Termination or Amendment of Plan .

 

(a)          Except as described in Section 12.3 below, the Board may terminate, suspend, or amend the Plan, in whole or in part, from time to time, without the approval of the shareholders of the Company, unless such approval is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. No amendment or termination of the Plan shall adversely affect the right of any Participant under any outstanding Award in any material way without the written consent of the Participant, unless such amendment or termination is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. Subject to the foregoing, the Board may correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any Award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the Plan.

 

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(b)          The Board shall have the authority to amend the Plan to the extent necessary or appropriate to comply with applicable law, regulation or accounting rules in order to permit Participants who are located outside of the United States to participate in the Plan.

 

12.2          Amendment of Award Agreements .

 

The Board shall have the authority to amend any Award Agreement at any time; provided however, that no such amendment shall adversely affect the right of any Participant under any outstanding Award Agreement in any material way without the written consent of the Participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed.

 

12.3          No Repricing of Stock Options .

 

Notwithstanding the foregoing, and except as described in Section 4.3, there shall be no amendment to the Plan or any outstanding Stock Option Agreement that results in the repricing of Stock Options without shareholder approval. For this purpose repricing includes a reduction in the exercise price of the Stock Option or the cancellation of a Stock Option in exchange for cash, Stock Options with an exercise price less than the exercise price of the cancelled Options, Stock Awards or any other consideration provided by the Company.

 

Section 13.         No Contract of Employment.

 

Neither the adoption of the Plan nor the grant of any Award under the Plan shall be deemed to obligate the Company or any Subsidiary to continue the employment of any Participant for any particular period, nor shall the granting of an Award constitute a request or consent to postpone the retirement date of any Participant.

 

Section 14.         Applicable Law.

 

All questions pertaining to the validity, construction and administration of the Plan and all Awards granted under the Plan shall be determined in conformity with the laws of the State of Delaware, without regard to the conflict of law provisions of any state, and, in the case of Incentive Stock Options, Section 422 of the Code and regulations issued thereunder.

 

Section 15.         Effective Date and Term of Plan.

 

15.1          Effective Date .

 

(a)          The Plan has been adopted by the Board, and is effective, as of December 1, 2015, subject to the approval of the Plan by the shareholders of the Company.

 

(b)          In the event the Plan is not approved by shareholders of the Company within 12 months of the date hereof, (i) the Plan shall have no effect, and (ii) any Awards granted on or after December 1, 2015 shall be cancelled.

 

15.2          Term of Plan .

 

Notwithstanding anything to the contrary contained herein, no Awards shall be granted on or after the 10 th anniversary of the Plan’s effective date set forth in Section 15.1(a) above.

 

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Exhibit 10.2

 

AnnaMed Rights Transfer Agreement

 

This Rights Transfer Agreement (the “Agreement”) is made between Moleculin Biotech, Inc. (“MBI”), a Delaware Corporation, whose address is 1973 W Clay St, Houston, Texas 77019 and AnnaMed, Inc. (“AnnaMed”), a Delaware Corporation whose address is 1973 W Clay St, Houston, Texas 77019, on August 21, 2015 (“Effective Date”).

 

Recitals

WHEREAS, AnnaMed has the ownership rights to, and is the party responsible for, FDA IND Number 46869 (the “Annamycin IND”); and

 

WHEREAS, AnnaMed has data files relating to the development of Annamycin; and

 

WHEREAS, MBI wishes to begin development work on Annamycin;

 

NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and other valuable consideration, the sufficiency of which is hereby acknowledged, MBI and AnnaMed hereby agree as follows:

 

Transfer of IND

Subject to the other terms and conditions of this Agreement, AnnaMed hereby agrees to file such documents as may be required to effect the transfer of the Annamycin IND to MBI no later than September 30, 2015.

 

Transfer of Data

Upon the request of MBI, AnnaMed agrees to transfer any and all data it may have regarding the Annamycin IND and the development of Annamycin (collectively, the “Annamycin Information”). Specifically, AnnaMed,with the full consent of AnnaMed’s Board of Directors and stockholders, does hereby grant, set over, bargain, convey, assign, transfer and deliver to MBI, MBI’s successors and assigns, as of the Effective Date, all of AnnaMed’s right, title and interest in and to the Annamycin IND and the Annamycin Information, including, without limitation and with respect to all such intangible assets as are included therein, all trade secrets, know-how, confidential information, and all other intellectual property rights of AnnaMed in the Annamycin Information or Annamycin IND.

 

Issuance of MBI Shares

In exchange for the forgoing Transfer of IND and current and future transfers of the Annamycin Information, MBI agrees to issue to AnnaMed 1,431,000 shares (the “Shares”) of MBI Common Stock. AnnaMed shall take all actions reasonably necessary or desirable in connection with the consummation of any initial public offering of MBI as requested by MBI (including the execution of customary lock-up agreements on terms no less favorable than the terms relating to the directors and executive officers of MBI).

 

Expenses Relating to Transfers

MBI agrees to pay the reasonable costs incurred by AnnaMed to file with the FDA the request for transfer of IND and for the storage and/or transportation of data records.

 

Representations and Warranties of AnnaMed

AnnaMed hereby represents and warrants that it is the sole and rightful designee of the Annamycin IND and the sole and rightful owner of the Annamycin Information, that it has the legal right to transfer the Annamycin IND and the Annamycin Information and that it has filed reports required by the FDA in this regard with the exception of Annual Reports for 2012, 2013 and 2014.

 

AnnaMed further represents and warrants that no human testing of Annamycin has taken place and that it is not aware of any adverse events relating to Annamycin during the time it has been responsible for the IND.

 

AnnaMed further represents and warrants that it is an "accredited investor" as defined in Section 2(15) of the Securities Act of 1933, as amended and in Rule 501 promulgated thereunder. AnnaMed represents and warrants that it is acquiring the Shares for its own account for investment purposes and not with a view to or for sale in connection with the distribution of the Shares, nor with any present intention of selling or otherwise disposing of all or any part of the Shares.

 

 

 

  

AnnaMed acknowledges that there is no assurance that MBI will be able to successfully complete an initial public offering of its securities, and that the transfers pursuant to this Agreement are not contingent on the completion of an initial public offering or any other event.

 

Miscellaneous

This Agreement will bind and inure to the benefit of the administrators, subsidiaries, legal representatives, successors and permitted assigns of the parties hereto.

 

The interpretation of this Agreement shall be governed by the internal substantive laws of the State of Texas, without giving effect to the conflicts of laws principles thereof. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent and only for the duration of such prohibition or enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

 

This Agreement may be executed by the parties hereto in one or more counterparts, each of which shall be considered original for all purposes, but all of which together shall constitute one and the same Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter herein and neither this Agreement nor any of its provisions may be changed, waived or terminated except as herein expressly provided, or in a written instrument signed by both of the parties hereto. Nothing herein expressed or implied is intended or should be construed to confer upon or give to any other person or entity, other than the parties to this Agreement, any rights or remedies under or by reason of this Agreement. 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date by their duly authorized representatives.

 

MOLECULIN BIOTECH, INC.  
     
By:  /s/ Louis Ploth  
     
Louis Ploth, President & CFO  
     
AnnaMed, Inc.  
     
By:  /s/ Walter V. Klemp  
     
Walter V. Klemp, Chairman & CEO and Sole Shareholder  

 

 

 

Exhibit 10.3

 

PATENT AND TECHNOLOGY LICENSE AGREEMENT

 

This AGREEMENT (“AGREEMENT”) is made on this 21 st day of June , 2010, by and between THE BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (“UTMDACC”), a component institution of SYSTEM, and Moleculin, LLC, a limited liability company organized and existing under the laws of the state of Texas, having a principal place of business located at 1973 West Clay, Houston, Texas 77019 (“LICENSEE”).

 

RECITALS

 

A. BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED SUBJECT MATTER developed at UTMDACC.

 

B. BOARD, through UIMDACC, desires to have the LICENSED SUBJECT MATTER developed in the LICENSED FIELD and used for the benefit of LICENSEE, BOARD, SYSTEM, UTMDACC, the inventor(s), and the public as outlined in BOARD’s Intellectual Property Policy.

 

C. LICENSEE wishes to obtain a license from BOARD to practice LICENSED SUBJECT MATTER.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

 

I.           EFFECTIVE DATE

 

1.1 This AGREEMENT is effective as of the date written above (“EFFECTIVE DATE”).

 

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II.          DEFINITIONS

 

As used in this AGREEMENT, the following terms have the meanings indicated:

 

2.1 AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business entity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE.

 

2.2 GENERIC PRODUCT means any pharmaceutical product that: (a) competes directly with a LICENSED PRODUCT in the country of SALE; (b) contains an active ingredient that is covered by the TECHNOLOGY RIGHTS and/or PATENT RIGHTS and such active ingredient in the pharmaceutical product is the same active ingredient contained in the LICENSED PRODUCT; (c) has obtained marketing approval on an expedited or abbreviated basis in connection with the MARKETING APPROVAL of the LICENSED PRODUCT; and (d) is SOLD in the same country as the LICENSED PRODUCT by a third party that is not a sublicensee of LICENSEE or its AFFILIATES and who did not purchase such pharmaceutical product in a chain of distribution that included any of LICENSEE, its AFFILIATES or sublicensees.

 

2.3 IND means the application submitted to the United States Food and Drug Administration (“FDA”) for approval to conduct a clinical investigation with an investigational new drug, as more specifically defined by 21 C F R §312 et seq, or any future revisions or substitutes thereof, or an equivalent foreign filing in any jurisdiction other than the United States.

 

2.4 LICENSED FIELD means all fields of use.

 

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2.5 LICENSED PRODUCT means any product or service sold by LICENSEE or its AFFILIATES or sublicensees comprising, using or made through the use of LICENSED SUBJECT MAT TER pursuant to this AGREEMENT.

 

2.6 LICENSED SUBJECT MATTER means PATENT RIGHTS and/or TECHNOLOGY RIGHTS within LICENSED FIELD.

 

2.7 LICENSED TERRITORY means worldwide.

 

2.8 MARKETING APPROVAL means the regulatory approval necessary to market and sell a LICENSED PRODUCT in a country.

 

2.9 NDA means the application submitted to the FDA for approval to market a new drug, as more specifically defined in 21 C.F.R. § 314 et seq., or any future revisions or substitutes thereof, or an equivalent foreign filing in any jurisdiction other than the United States.

 

2.10 NET SALES means the gross revenues received by LICENSEE or its AFFILIATES or sublicensees from a SALE less: (a) cash, trade or quantity discounts, credits or allowances actually granted; (b) sales and/or use taxes actually paid; (c) import and/or export duties actually paid; (d) outbound transportation (including insurance) actually prepaid or allowed; (e) amounts actually allowed, credited, refunded or rebated due to returns, rejections or recalls (not exceeding the original billing or invoice amount); (f) retroactive price reductions that are actually allowed or granted; (g) payments or rebates legally owed and paid in connection with sales of LICENSED PRODUCT to any governmental or regulatory authority in respect of any state or federal Medicare, Medicaid or similar programs; and (h) amounts written off as uncollectible bad debt, all as recorded by LICENSEE or its AFFILIATES or sublicensees in their official books and records in accordance with generally accepted accounting practices and consistent with their published financial statements and/or regulatory filings with the United States Securities and Exchange Commission, if applicable.

 

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2.11 OTHER SUBLICENSEE CONSIDERATION shall mean any and all consideration, other than royalties for NET SALES (provided that UTMDACC has been paid the royalty specified in Section 4.1(d) for such NET SALES), debt, research and development funds, and EXCLUDED AMOUNTS, as defined below, received by LICENSEE from any sublicensee pursuant to Sections 3.3 and 3.4 as consideration for the sublicense, including, but not limited to, up-front, marketing, distribution, franchise, and option payments, license and documentation fees, and bonus and milestone payments.. Notwithstanding the foregoing, if LICENSEE receives a bona fide milestone payment from a sublicensee for achieving one of the milestones specified in Section 4.1(f), then for purposes of calculating OTHER SUBLICENSEE CONSIDERATION, LICENSEE may deduct the amount actually paid to UTMDACC by LICENSEE for achieving such milestone from the amount received by LICENSEE from the sublicensee for achieving the milestone. In addition, if LICENSEE receives a payment from a sublicense as a bona fide reimbursement for patent prosecution expenses for PATENT RIGHTS, then for purposes of calculating OTHER SUBLICENSEE CONSIDERATION, LICENSEE may deduct the amount actually paid to UTMDACC by LICENSEE as reimbursement for patent prosecution expenses from the amounts received by LICENSEE from the sublicensee as reimbursement of patent prosecution expenses.

 

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For purposes of clarification, consideration received by LICENSEE from a sublicensee for equity securities of LICENSEE shall not be considered OTHER SUBLICENSEE CONSIDERATION, except that premiums paid by a sublicensee for equity securities of LICENSEE over the fair market value of such securities shall be considered OTHER SUBLICENSEE CONSIDERATION As used herein, “EXCLUDED AMOUNTS” shall mean: (1) any payment received by or on behalf of LICENSEE from a sublicensee for the supply of goods and/or services (including LICENSED PRODUCTS) to such sublicensee, provided that the sublicensee is not the end user of such goods or services, and provided further that UTMDACC has been paid the royalty specified in Section 4.1(d) for NET SALES upon SALE of the LICENSED PRODUCT to the end user; and (2) payment received by LICENSEE from a sublicensee for providing LICENSED PRODUCT to said sublicensee for use in a clinical study or other research necessary or useful to obtain MARKETING APPROVAL of a LICENSED PRODUCT, provided that such payment does not exceed LICENSEE’s actual cost for providing such LICENSED PRODUCT to said sublicensee

 

2.12 PATENT RIGHTS means BOARD’s rights in the information and discoveries described in invention disclosures, or claimed in any patents and/or patent applications, whether domestic or foreign, as identified in Exhibit I attached hereto, and all divisionals, continuations, continuations-in-part (to the extent the claims of such continuations-in-part are entitled to claim priority to the aforesaid patents and/or patent applications identified in Exhibit I), reissues, reexaminations, or extensions of the patents and/or patent applications identified in Exhibit I, any foreign equivalents of the foregoing, and any letters patent, domestic or foreign that issue thereon.

 

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2.13 PHASE I STUDY means: (a) that portion of the FDA submission and approval process which provides for the first introduction into humans of a product with the purpose of determining human toxicity, metabolism, absorption, elimination and other pharmacological action as more specifically defined in 21 C.F.R. § 312.21(a) or any future revisions or substitutes thereof; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

2.14 PHASE II STUDY means: (a) that portion of the FDA submission and approval process which provides for early controlled clinical studies conducted to obtain preliminary data on the effectiveness of a product for a particular indication, as more specifically defined by the rules and regulations of the FDA, including 21 C.F.R § 312.21(b) or any future revisions or substitutes thereof; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

2.15 PHASE III STUDY means: (a) that portion of the FDA submission and approval process in which expanded clinical studies are conducted to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of a product, as more specifically defined by the rules and regulations of the FDA, including 21 C.F.R § 312.21(c) or any future revisions or substitutes thereof; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

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2.16 SALE or SOLD means the transfer or disposition of a LICENSED PRODUCT for value to a party other than LICENSEE, an AFFILIATE, a sublicensee (provided that the transfer to the sublicensee is not for end use by the sublicensee for purposes other than research or development) or a ROYALTY-FREE PRACTITIONER As used herein, “ROYALTY-FREE PRACTITIONER” means UTMDACC and the following individuals: Charles Conrad, Jr., M.D., M Talpaz, M.D., A. Heimberger, M.D., and Jeffrey N. Myers, M.D, Ph.D (“PHYSICIAN INVENTORS”), and any partner or associate who practices medicine with one or more of the PHYSICIAN INVENTORS, but with respect to such partner or associate, only for such time as he/she is engaged in a bona fide medical practice with one or more of the PHYSICIAN INVENTORS.

 

2.17 TECHNOLOGY RIGHTS means BOARD’s rights in any and all technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data created by the inventor(s) listed in Exhibit I at UTMDACC before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS.

 

2.18 VALID CLAIM means a claim of: (i) an issued and unexpired patent included within the PATENT RIGHTS, unless: the claim has been held unenforceable or invalid by the final, un-reversed decision of a court or other government body of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal; the claim has been irretrievably abandoned or disclaimed; or the claim has been otherwise finally admitted or determined to be invalid, un-patentable or unenforceable, whether through reissue, reexamination, disclaimer or otherwise; or (ii) a pending patent application within the PATENT RIGHTS to the extent the claim continues to be prosecuted in good faith and has not been pending for more than seven (7) years from its priority date.

 

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III.           LICENSE

 

3.1 BOARD, through UTMDACC, hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to research, develop, manufacture, have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD This grant is subject to Sections 14.2, 14.3, 14.5 and 14.6 hereinbelow, the timely payment by LICENSEE to UTMDACC of all consideration as provided herein (subject to the thirty (30) calendar day cure period provided in Section 13.3(b), if applicable), the timely payment of all amounts due under any related sponsored research agreement between UTMDACC and LICENSEE in effect during this AGREEMENT (subject to any cure period provided in such sponsored research agreement), and is further subject to the following rights retained by BOARD and UTMDACC to:

 

(a) Publish the general scientific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of ARTICLE XI–Confidential Information and Publication; and

 

(b) Use LICENSED SUBJECT MATTER for patient care at UIMDACC facilities, and for non-commercial research, teaching and other academically-related purposes. For purposes of clarification, and not by way of limitation, the rights retained by the BOARD and UIMDACC pursuant to this Section 3.1 do not include the right to engage in research sponsored by a commercial, for-profit entity.

 

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3.2 LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE. LICENSEE agrees to deliver such written consent to UTMDACC within thirty (30) calendar days following execution thereof.

 

3.3 LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its sublicensees relevant to this AGREEMENT, and for diligently collecting all amounts due LICENSEE from sublicensees. If a sublicensee pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use commercially reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

 

3.4 LICENSEE must deliver to UTMDACC a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof, within thirty (30) calendar days after execution, modification, or termination.

 

3.5 If this AGREEMENT is terminated pursuant to ARTICLE XIII - Term and Termination, BOARD and UTMDACC agree to accept as successors to LICENSEE, existing sublicensees in good standing at the date of termination provided that each such sublicensee consents in writing to be bound by all applicable terms and conditions of this AGREEMENT.

 

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IV.          CONSIDERATION, PAYMENTS AND REPORTS

 

4.1 In consideration of rights granted by BOARD to LICENSEE under this AGREEMENT, LICENSEE agrees to pay UTMDACC the following:

 

(a) All out-of-pocket expenses incurred by UTMDACC in filing, prosecuting, and maintaining PATENT RIGHTS after February 15, 2010 and prior to the EFFECTIVE DATE, and all such future expenses incurred by UTMDACC, for so long as, and in such countries as this AGREEMENT remains in effect. UTMDACC will invoice LICENSEE sixty (60) days after the AGREEMENT has been fully executed by all parties for expenses incurred after February 15, 2010 and prior to the EFFECTIVE DATE, and will invoice LICENSEE on a quarterly basis thereafter for expenses incurred on or after the EFFECTIVE DATE. Together with each such invoice, UTMDACC will provide reasonable documentation of such expenses, including copies of the original invoices from the corresponding law firm The invoiced amounts will be due and payable by LICENSEE within thirty (30) calendar days of the receipt of the invoice; and

 

(b) A nonrefundable license documentation fee in the amount of $223,585.25, which includes estimated patent expenses incurred on or prior to February 15, 2010 This fee will not reduce the amount of any other payment provided for in this ARTICLE IV, and is due and payable within sixty (60) calendar days after the AGREEMENT has been fully executed by all parties or by August 15, 2010 (provided that this AGREEMENT has been executed by all PARTIES by August 10, 2010), whichever is earlier This license documentation fee is not subject to the thirty (30) calendar day cure period set forth in Section 13.3(b); and

 

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(c) The following nonrefundable annual maintenance fees (“Annual Maintenance Fee(s)”) due and payable (without invoice) within thirty (30) calendar days of the applicable anniversary of the EFFECTIVE DATE until the first SALE following MARKETING APPROVAL in any country of any LICENSED PRODUCT as follows:

 

(i)          $20,000.00 due and payable within thirty (30) calendar days of the first anniversary of the EFFECTIVE DATE; and

 

(ii)         Thereafter, the Annual Maintenance Fee shall be due and payable within thirty (30) calendar days of each subsequent anniversary of the EFFECTIVE DATE, and shall increase by $10,000.00 per year up to a maximum of $100,000.00 until the first SALE following MARKETING APPROVAL in any country of any LICENSED PRODUCT (i.e., $30,000.00 shall be due and payable within thirty (30) calendar days of the second anniversary of the EFFECTIVE DATE, $40,000.00 shall be due and payable within thirty (30) calendar days of the third anniversary of the EFFECTIVE DATE, $50,000.00 shall be due and payable within thirty (30) calendar days of the fourth anniversary of the EFFECTIVE DATE, etc.). The Annual Maintenance Fee will not reduce the amount of any other payment provided for in this ARTICLE IV; and

 

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(d) A running royalty due and payable quarterly as set forth in Section 4.4, calculated as follows:

 

(i) FOR LICENSED PRODUCTS APPROVED FOR DERMATOLOGICAL USE: a running royalty of two and one half percent (2.5%) of NET SALES, whether made by LICENSEE, a sublicensee or AFFILIATE; and

 

(ii) FOR ALL OTHER LICENSED PRODUCTS: a running royalty of four percent (4.0%) of NET SALES whether made by LICENSEE, a sublicensee or AFFILIATE.

 

In the event that a LICENSED PRODUCT is not covered by a VALID CLAIM in the country of SALE at the time of SALE, and LICENSEE is not taking any deductions under Section 4.2 or 4.3, below, then LICENSEE may reduce the running royalties specified in this Section 4.1 (d)(i) and (ii) for NET SALES of such LICENSED PRODUCT to fifty percent (50%) of the original amount, i.e., to one and one quarter percent (1.25%) and two percent (2%), respectively, in the country of such SALE. In addition, if a LICENSED PRODUCT is not covered by a VALID CLAIM in the country of SALE, LICENSEE is not taking any deductions under Section 4.2 or 4.3, below, and a GENERIC PRODUCT that competes with such LICENSED PRODUCT is being SOLD in that country, then LICENSEE may reduce the running royalties specified in this Section 4.1 (d)(i) and (ii) for NET SALES of those LICENSED PRODUCTS with which the GENERIC PRODUCT competes (1) to twenty-five percent (25%) of the original amount for NET SALES by LICENSEE or its AFFILIATES, i.e., to six hundred twenty five divided by one thousand percent (0.625%) and one percent (1%), respectively, in the country of such SALE, and (2) to twenty-five percent (25%) of the royalties received by LICENSEE from a sublicensee for NET SALES by sublicensee. Notwithstanding anything to the contrary in this AGREEMENT, LICENSEE’s royalty obligation with respect to NET SALES by any sublicensee shall not exceed the royalties received by LICENSEE from such sublicensee for such NET SALES. Beginning on the fifteenth anniversary of the EFFECTIVE DATE, LICENSEE shall not be obligated to pay running royalties pursuant to this Section 4.1(d) for NET SALES of LICENSED PRODUCTS if the LICENSED PRODUCT is no longer covered by a VALID CLAIM in the country of SALE; and

 

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(e) Following the first SALE after MARKETING APPROVAL has been obtained in any country for any LICENSED PRODUCT, minimum annual royalties (“Minimum Annual Royalties”) of $200,000.00, due and payable (without invoice) within thirty (30) calendar days of the first and subsequent anniversaries of the EFFECTIVE DATE which follow the first SALE to occur after MARKETING APPROVAL has been obtained in any country for any LICENSED PRODUCT. Running royalties accrued under Section 4.1(d) and actually paid to UTMDACC for NET SALES made during the twelve month period preceding an anniversary of the EFFECTIVE DATE may be credited against the Minimum Annual Royalties due on that anniversary date Notwithstanding the foregoing, beginning on the fifteenth anniversary of the EFFECTIVE DATE, LICENSEE’s obligation to pay a Minimum Annual Royalty pursuant to this Section 4.1(e) shall cease if there are no VALID CLAIMS in any country covering any LICENSED PRODUCT being sold by LICENSEE, its sublicensees or AFFILIATES; and

 

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(f) The following one-time milestone payments, regardless of whether the milestone is achieved by LICENSEE, a sublicensee or AFFILIATE:

 

(1) Commencement of the first PHASE III STUDY for a LICENSED PRODUCT within the United States, Europe, China or Japan: $100,000.00;

 

(2) Submission of the first NDA for a LICENSED PRODUCT within the United States: $500,000.00; and

 

(3) Receipt of the first MARKETING APPROVAL of a LICENSED PRODUCT in the United States: $600,000.00.

 

Each of the foregoing milestone payments shall be made by LICENSEE to UTMDACC (without invoice) within thirty (30) calendar days of achieving the milestone event and shall not reduce the amount of any other payment provided for in this ARTICLE IV, except as provided Section 2.11. Each of the foregoing milestone payments shall be paid only once regardless of the number of different LICENSED PRODUCTS that achieve such milestone; and

 

(g) The following percentages of OTHER SUBLICENSEE CONSIDERATION, as defined above:

 

(1) Twenty percent (20%) of all OTHER SUBLICENSEE CONSIDERATION received prior to the Commencement of the first PHASE II STUDY of a LICENSED PRODUCT; and

 

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(2) Ten percent (10%) of all OTHER SUBLICENSEE CONSIDERATION received on or after the Commencement of the first PHASE II STUDY of a LICENSED PRODUCT; and

 

(h) An Assignment Fee of $25,000.00 (in consideration for UTMDACC allowing the assignment), due and payable prior to any assignment of this AGREEMENT that requires UTMDACC’s consent pursuant to Section 12.1 below; and

 

(i) In the event of a liquidation event that is above $20 Million in value, a payment of $250,000.00 due within thirty (30) calendar days of such liquidation event. This Section 4.1(i) shall not reduce the amount of any other payment provided for in this ARTICLE IV, except that no Assignment Fee shall be due under Section 4.1(h) if the $250,000.00 payment provided in this Section 4.1(i) is timely paid to UTMDACC

 

As used in this Section 4.1, “Commencement” shall be deemed to occur upon first administration of a LICENSED PRODUCT or placebo to any patient enrolled in the applicable study.

 

4.2 If LICENSEE or its AFFILIATE or sublicensee is obligated to pay running royalties to a third party in order to SELL a LICENSED PRODUCT to avoid infringing such third party’s rights which dominate BOARD’S PATENT RIGHTS (the basis for such obligation to be communicated to BOARD, orally or in writing, at LICENSEE’s discretion, by an independent, qualified patent attorney in a manner that preserves the content of such communication as confidential and attorney-client privileged), then the running royalty rate due UTMDACC under Section 4.1(d)(i) or 4.1(d)(ii) (whichever is applicable) shall be reduced by the running royalty rate actually being paid to such third party, provided, however, the running royalty rate due UTMDACC under Section 4.1(d)(i) or 4.1(d)(ii) will not be reduced by more than one-half the rates stated above.

 

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4.3 In the event that a LICENSED PRODUCT is sold in combination with one or more other functional components for which no royalty would be due hereunder if sold separately (“Combination Product(s)”) and no deduction is being made pursuant to Section 4.2, then the running royalty due for NET SALES of the Combination Product will be calculated by multiplying the royalty rate set forth in Section 4.1(d)(i) or 4.1(d)(ii) above (whichever is applicable) by the total NET SALES received for the Combination Product, and then multiplying the resulting product by the fraction, A/(A+B), where A is the average sale price of the LICENSED PRODUCT when sold by LICENSEE separately, and B is the average sale price of all other functional component(s) included in the Combination Product when sold by LICENSEE separately. In the event either the component that is a LICENSED PRODUCT or the other functional component(s) included in the Combination Product are not sold separately, then the running royalty due for NET SALES of the LICENSED PRODUCT sold as part of a Combination Product will be calculated by multiplying the royalty rate set forth in 4.1(d)(i) or 4.1(d)(ii) above (whichever is applicable) by the NET SALES received for the Combination Product, and then multiplying the resulting product by the fraction, F/(F+G) where F is the fair market value of the component that is a LICENSED PRODUCT, and G is the fair market value for each of the other functional component(s) included in the Combination Product, such fair market values to be mutually agreed in good faith by LICENSEE and UTMDACC prior to sales of such Combination Products.. LICENSEE will not sell LICENSED PRODUCTS as a Combination Product until the applicable fair market values have been resolved Notwithstanding the foregoing, in no event shall the running royalty payment due to UTMDACC for the sale of a Combination Product be less than one half of the rates specified in 4.1(d)(i) or 4.1(d)(ii) above (whichever is applicable).

 

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4.4 Unless otherwise provided, all such payments are payable within sixty (60) calendar days after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to UTMDACC a true and accurate report, giving such particulars of the business conducted by LICENSEE, its AFFILIATES and its sublicensees, if any exist, during the preceding three (3) calendar months under this AGREEMENT as necessary for UTMDACC to account for LICENSEE’s payments hereunder. This report will include pertinent data, including, but not limited to:

 

(a) the accounting methodologies used to account for and calculate the items included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and

 

(b) a list of LICENSED PRODUCTS SOLD in the three (3) preceding calendar months categorized by (i) the technology it relates to under PATENT RIGHTS; (ii) whether such LICENSED PRODUCTS have been approved for dermatological use, and (iii) whether such LICENSED PRODUCTS were SOLD by (1) LICENSEE or its AFFILIATES or (2) LICENSEE’s sublicensees; and

 

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(c) the total quantities of LICENSED PRODUCTS SOLD by the categories listed in Section 4.4(b); and

 

(d) the total SALES by the categories listed in Section 4.4(b); and

 

(e) the calculation of NET SALES by the categories listed in Section 4.4(b); and

 

(f) the royalties so computed and due UTMDACC by the categories listed in Section 4.4(b) and/or minimum royalties; and

 

(g) all consideration received from each sublicensee and a calculation of the payments due UTMDACC; and

 

(h) all other amounts due UTMDACC herein.

 

Simultaneously with the delivery of each such report, LICENSEE agrees to pay UTMDACC the amount due, if any, for the period of such report. These reports are required even if no payments are due.

 

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4.5 During the term of this AGREEMENT and for one (1) year thereafter, LICENSEE agrees to keep complete and accurate records of its and its AFFILIATES’ and sublicensees’ SALES and NET SALES and amounts received from its sublicensees hereunder, each in sufficient detail to enable the royalties and other payments due hereunder to be determined LICENSEE agrees to permit UTMDACC or its representatives, at UTMDACC’s expense, to periodically examine, no more than once per calendar year, LICENSEE’s books, ledgers, and records during regular business hours for the purpose of and to the extent necessary to verify any report required under this AGREEMENT, provided, however, that any reexamination of books, ledgers or records previously examined for verification of a report pursuant to this Section 4.5 shall be solely for the purposes of comparing such previously examined books, ledgers or records with those other books, ledgers or records that have not yet been examined, and such reexamination shall not include any verification of any report covered by such previously examined books, ledgers, or records. If any amounts due UTMDACC are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination, the past due amount and accrued interest at the lesser rate of either: (1) the prime rate as published in the Wall Street Journal plus two percent (2%); or (2) the highest rate allowed by law, provided, however, that LICENSEE will not owe any accrued interest upon any amounts that should have been paid five (5) or more years before the date of the examination.

 

4.6 Within thirty (30) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to UTMDACC a true and accurate, signed, written progress report that summarizes: (i) LICENSEE’s efforts and accomplishments during the prior year to diligently commercialize LICENSED PRODUCTS; and (ii) LICENSEE’s development and commercialization plans with respect to LICENSED PRODUCTS for the next year. The report shall also cover such activities by AFFILIATES and sublicensees. The report shall contain the following information to the extent relevant to the activities under the AGREEMENT:

 

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(a) The name of the LICENSEE, the names of any AFFILIATES and sublicensees, and the products and services being developed and/or commercialized;

 

(b) The progress toward completing and the plans for completing the applicable milestone events specified in Sections 4.1(f) and 13.2(b); and

 

(c) The research and development activities, including status and plans for obtaining any necessary MARKETING APPROVALS, performed during the past year, and the plans for research and development activities for the next year.

 

4.7 All amounts payable hereunder by LICENSEE will be paid in United States funds without deductions for taxes, assessments, fees, or charges of any kind; provided, however, that if LICENSEE has used good faith, diligent efforts to seek all available exemptions from or reductions in withholding taxes to which BOARD and/or UTMDACC are entitled, then LICENSEE may deduct those withholding taxes LICENSEE is required by law to withhold from the amounts payable to UTMDACC. Checks are to be made payable to “The University of Texas M. D. Anderson Cancer Center,” and sent by United States mail to Box 4390, Houston, Texas, 77210-4390, or by wire transfer to:

 

JPMorgan Chase Bank, N.A

910 Travis

Houston, Texas 77002

SWIFT: CHASUS33 (for international wires only)

ABA ROUTING NO:

ACCOUNT NAME: Univ. of Texas M. D. Anderson Cancer Center

ACCOUNT NO.: 1

 

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REFERENCE: include title and EFFECTIVE DATE of AGREEMENT and type of payment (e.g., license documentation fee, milestone payment, royalty [including applicable patent/application identified by MDA reference number and patent number or application serial number], or maintenance fee, etc.)

 

4.8 No payments due or royalty rates owed under this AGREEMENT will be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by BOARD and another party, including, but not limited to, LICENSEE.

 

4.9 In addition to the License Consideration, as set forth in Section 4.1, as compensation for UTMDACC’s investment in LICENSEE (including, but not limited to, indirect cash investments for licensing expenses), UTMDACC shall receive INVESTMENT EQUITY, as defined below INVESTMENT EQUITY as used in this Section 4.9, shall mean the amount of common stock (or the equivalent amount of equity if LICENSEE is a limited liability company or other legal structure) of LICENSEE equal to three and one half percent (3.5%) of the total issued and outstanding common stock of LICENSEE on a fully diluted basis (assuming conversion of all preferred stock and convertible debt and the exercise of any options, but not assuming any exercise of outstanding warrants) at the time LICENSEE commences the first PHASE II STUDY for any LICENSED PRODUCT LICENSEE shall issue INVESTMENT EQUITY to the BOARD, on behalf of UTMDACC (or their designee) on or before the earlier of (a) fifty (50) days after the commencement of such PHASE II STUDY; or (b) a merger or acquisition of LICENSEE. If requested by LICENSEE, to the extent authorized by the laws and the Constitution of the state of Texas, UTMDACC and/or BOARD shall execute one or more stockholders agreements, and/or similar agreements, reasonably acceptable to the parties, which may include rights of first refusal and other restrictions on transfer, substantially similar to that executed by the purchasers of LICENSEE’s common stock.

 

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V.          SPONSORED RESEARCH

 

5.1 If LICENSEE desires to sponsor research for or related to the LICENSED SUBJECT MATTER, LICENSEE will notify UTMDACC, and the parties will negotiate in good faith the terms of such sponsored research.

 

VI.          PATENTS AND INVENTIONS

 

6.1 If after consultation with LICENSEE both parties agree that a new patent application should be filed for LICENSED SUBJECT MATTER, UTMDACC will prepare and file appropriate patent applications, and LICENSEE will pay the cost of searching, preparing, filing, prosecuting and maintaining same. If LICENSEE notifies UTMDACC that it does not intend to pay the cost of a patent application in a specific country, or if LICENSEE does not respond or make an effort to agree with UTMDACC on the disposition of rights of the subject invention in such country, then UTMDACC may, but is not obligated to, file such patent application at its own expense and such patent application in such country shall cease to be included in the PATENT RIGHTS under this AGREEMENT. UTMDACC will consult with and keep LICENSEE fully informed of the status of any patent application or patent directed to the PATENT RIGHTS, and will provide LICENSEE with a copy of any patent applications for which LICENSEE has paid the cost of filing, as well as copies of any material documents received or filed during prosecution thereof, such as patent applications, office actions, and responses. UTMDACC will request that copies of all documents prepared by prosecution counsel for submission to governmental patent offices be provided to LICENSEE for review and comment prior to filing, to the extent practicable under the circumstances. UTMDACC shall consider comments made by LICENSEE regarding prosecution of the PATENT RIGHTS in good faith, but shall not be required to implement them UTMDACC will not knowingly abandon any patent application or patent for which LICENSEE is paying the costs of prosecution without reasonable notice to LICENSEE. If LICENSEE is not in default on any of its obligations under this AGREEMENT, UTMDACC shall consider in good faith any requests made by LICENSEE to continue prosecution, but the final decision to continue or abandon shall be in UTMDACC’s sole discretion The parties agree that they share a common legal interest to get valid enforceable patents and that each party will maintain as privileged all information received pursuant to this Section 6.1 In addition, such information shall be considered to fall within the definition of “Confidential Information” as set forth in Section 11.1, last paragraph, whether or not marked “confidential”.

 

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VII.           INFRINGEMENT BY THIRD PARTIES

 

7.1 LICENSEE, at its expense, shall have the first right to enforce any patent exclusively licensed hereunder against infringement by third parties and is entitled to retain recovery from such enforcement, which right may be granted by LICENSEE to its AFFILIATE or sublicensee. After reimbursement of reasonable legal costs and expenses related to such recovery incurred by LICENSEE, its AFFILIATE or sublicensee, LICENSEE agrees to pay UTMDACC either: (a) the applicable royalty detailed in Section 4.1(d) for any monetary recovery that is for sales of LICENSED PRODUCTS lost due to the infringement and fifty percent (50%) of related punitive damages received by LICENSEE or its AFFILIATE; or (b) fifty percent (50%) of reasonable royalties awarded and received by LICENSEE or its AFFILIATE, and fifty percent (50%) of related punitive damages received by LICENSEE or its AFFILIATE in any monetary recovery in which the award is for reasonable royalties. If either LICENSEE or UTMDACC’s Office of Technology Commercialization becomes aware of any infringement or potential infringement of the PATENT RIGHTS, each shall promptly notify the other of such in writing. If LICENSEE does not file suit against a substantial infringer or take alternative action reasonably acceptable to UTMDACC to end such infringement, within twelve (12) months of knowledge thereof, then, provided that such infringement is still on going, BOARD or UTMDACC may, at its sole discretion, enforce any patent licensed hereunder on behalf of itself and LICENSEE, with UTMDACC retaining all recoveries from such enforcement. In addition, as part of the resolution of such infringement, BOARD and UTMDACC may grant non-exclusive license rights to the alleged infringer notwithstanding LICENSEE’s exclusive license rights.
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7.2 In any suit or dispute involving an infringer, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.

 

VIII.          PATENT MARKING

 

8.1 LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and, when possible, actual LICENSED PRODUCT(S) sold by LICENSEE, AFFILIATES, and/or sublicensees of LICENSEE will be permanently and legibly marked with the number of any applicable patent(s) licensed hereunder in accordance with each country’s patent laws, including Title 35, United States Code, to the extent such marking is necessary or required to fully preserve PATENT RIGHTS in each such country.

 

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IX.          INDEMNIFICATION AND INSURANCE

 

9.1 LICENSEE agrees to hold harmless, defend and indemnify BOARD, SYSTEM, UTMDACC, their Regents, officers, employees, students and agents (“Indemnified Parties”) from and against any liabilities, damages, causes of action, suits, judgments, liens, penalties, fines, losses, costs and expenses (including, without limitation, reasonable attorneys’ fees and other expenses of litigation) (collectively “Liabilities”) resulting from claims or demands brought by third parties against an Indemnified Party on account of any injury or death of persons, damage to property, or any other damage or loss arising out of or in connection with this AGREEMENT or the exercise or practice of the rights granted hereunder by or under authority of LICENSEE, its AFFILIATES, or their sublicensees, or third party wholesalers or distributors, or physicians, hospitals or other healthcare providers who purchase a LICENSED PRODUCT, provided however, that the following is excluded from LICENSEE’s obligation to indemnify and hold harmless:

 

(a) the negligent failure of UTMDACC or SYSTEM to substantially comply with any applicable governmental requirements; and

 

(b) the negligence or willful malfeasance by a Regent, officer, agent or employee of UTMDACC or SYSTEM.

 

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9.2 In no event shall BOARD, SYSTEM or UTMDACC be liable for any indirect, special, consequential, incidental, exemplary, or punitive damages (including, without limitation, damages for loss of profits or revenue) arising out of or in connection with the AGREEMENT or its subject matter, regardless of whether any such party knows or should know of the possibility of such damages. Other than for claims against LICENSEE for indemnification (Section 9.1) or for misuse or misappropriation or infringement of BOARD and/or UTMDACC’s intellectual property rights, LICENSEE will not be liable to BOARD and/or UTMDACC for any indirect, special, consequential or punitive damages (including, without limitation, damages for loss of profits or revenue) arising out of or in connection with the AGREEMENT or its subject matter, regardless of whether LICENSEE knows or should have known of the possibility of such damages.

 

9.3 Beginning at the time when any LICENSED PRODUCT is being distributed or sold (including for the purpose of obtaining regulatory approvals) by LICENSEE, an AFFILIATE, or by a sublicensee, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000.00 per incident and $2,000,000.00 annual aggregate, and LICENSEE shall use reasonable efforts to have the BOARD, SYSTEM, UTMDACC, their Regents, officers, employees, students and agents named as additional insureds Such commercial general liability insurance shall provide: (i) product liability coverage; (ii) broad form contractual liability coverage for LICENSEE’s indemnification under this AGREEMENT; and (iii) coverage for litigation costs The minimum amounts of insurance coverage required herein shall not be construed to create a limit of LICENSEE’s liability with respect to its indemnification under this AGREEMENT.

 

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9.4 LICENSEE shall provide UTMDACC with written evidence of such insurance within thirty (30) calendar days of its procurement. Additionally, LICENSEE shall provide UTMDACC with written notice of at least fifteen (15) calendar days prior to the cancellation, non-renewal or material change in such insurance.

 

9.5 LICENSEE shall maintain such commercial general liability insurance beyond the expiration or termination of this AGREEMENT during: (i) the period that any LICENSED PRODUCT developed pursuant to this AGREEMENT is being commercially distributed or sold by LICENSEE, an AFFILIATE or by a sublicensee or agent of LICENSEE; and (ii) the five (5) year period immediately after such period.

 

X.           USE OF BOARD AND UTMDACC’S NAME

 

10.1 LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of BOARD secured through:

 

The University of Texas

M. D. Anderson Cancer Center

Legal Services, Unit 0537

P. O. Box 301439

Houston, TX 77230-1439

ATTENTION: Lori D. Stiffler

Email: ldstiffl@mdanderson.org

 

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Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD to disclose the existence or status of this AGREEMENT in routine business correspondence, as needed in appropriate regulatory submissions, or as required by law, in each case without express written consent.

 

XI.          CONFIDENTIAL INFORMATION AND PUBLICATION

 

11.1 UTMDACC and LICENSEE each agree that Confidential Information of the other party, as defined below in this Section 11.1, which is disclosed to it by the other party pursuant to this AGREEMENT: (i) shall be received in strict confidence, (ii) shall be used only for the purposes of this AGREEMENT, and (iii) will not be disclosed by the recipient party (except as required by law, court order or regulation), its agents or employees without the prior written consent of the disclosing party, except to the extent that the recipient party can establish by competent written proof that such information:

 

(a) was in the public domain at the time of disclosure; or

 

(b) later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or

 

(c) was lawfully disclosed to the recipient party by a third party having the right to disclose it; or

 

(d) was already known by the recipient party at the time of disclosure; or

 

(e) was independently developed by the recipient party without use of the disclosing party’s Confidential Information; or

 

(f) is required by law, court order or regulation to be disclosed, provided that such party shall promptly notify the other party of such requirement and provide the other party an opportunity to challenge or limit the disclosure requirement and to seek confidential treatment or protection order, and that the Confidential Information so disclosed shall remain otherwise subject to the confidentiality and non-use obligations set forth above in this Section 11.1.

 

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“Confidential Information” of a party shall mean: (1) all information contained in documents marked “confidential” and disclosed by such party to the other party pursuant to this AGREEMENT; (2) orally disclosed information which is disclosed by such party to the other party pursuant to this AGREEMENT, summarized in writing, identified as “confidential” and delivered to recipient party; and (3) any confidential information disclosed by such party to the other party pursuant to the One-Way Confidential Disclosure Agreement dated March 6, 2008 between the parties (the “Existing CDA”) or the Option Agreement dated July 30, 2009 between the parties, as amended (the “Option Agreement”)

 

11.2 Subject to full compliance with Section 11.3, LICENSEE may disclose UTMDACC’s Confidential Information in confidence to its employees, consultants, AFFILIATES and potential or actual sublicensees, investors or other commercial partners, and in connection with the procurement of MARKETING APPROVAL for LICENSED PRODUCTS.

 

11.3 Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the disclosing party’s Confidential Information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This obligation will exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

 

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11.4 UTMDACC reserves the right to publish the general scientific findings from research related to LICENSED SUBJECT MATTER, with due regard to the protection of LICENSEE’s Confidential Information UTMDACC will submit the manuscript of any proposed publication to LICENSEE at least thirty (30) calendar days before publication, and LICENSEE shall have the right to review and comment upon the publication in order to protect LICENSEE’s Confidential Information. Upon LICENSEE’s request, publication may be delayed up to sixty (60) additional calendar days to enable LICENSEE to secure adequate intellectual property protection of LICENSEE’s Confidential Information that would otherwise be affected by the publication.

 

XII.         ASSIGNMENT

 

12.1 Except to an AFFILIATE or in connection with the merger or acquisition of LICENSEE by a third party, or the sale of all or substantially all of LICENSEE’s assets to which this AGREEMENT relates to a third party, this AGREEMENT may not be assigned by LICENSEE without the prior written consent of UTMDACC, which will not be unreasonably withheld. For any assignment to be effective: (a) the LICENSEE must timely pay UTMDACC the Assignment Fee specified in Section 4.1(h), if applicable; and (b) the assignee must assume in writing (a copy of which writing will be provided to UTMDACC) all of LICENSEE’s interests, rights, duties, and obligations under the AGREEMENT and agree to comply with all terms and conditions of the AGREEMENT as if the assignee were the original party (i.e., the LICENSEE) to the AGREEMENT.

 

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XIII.         TERM AND TERMINATION

 

13.1 Subject to Sections 13.3 and 13.4 hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE until the later of: (1) full end of the term or terms for which PATENT RIGHTS have not expired; or (2) if only TECHNOLOGY RIGHTS are licensed and no PATENT RIGHTS are applicable, for a term of fifteen (15) years Beginning on the fifteenth anniversary of the EFFECTIVE DATE, LICENSEE’s obligation to pay running royalties for NET SALES and Minimum Annual Royalties shall be governed by Section 4.1

 

13.2 (a) LICENSEE, directly or through its AFFILIATES and sublicensees, will use diligent efforts to make LICENSED PRODUCTS commercially available in the LICENSED FIELD within the LICENSED TERRITORY Without limiting the foregoing, LICENSEE, directly or through its AFFILIATES and sublicensees, will maintain a bona fide, funded, ongoing and active research, development, manufacturing, regulatory, marketing or sales program (all as commercially reasonable) to make LICENSED PRODUCTS commercially available to the public as soon as commercially practicable. LICENSEE shall promptly provide the annual progress reports specified in Section 4.6. If LICENSEE materially fails to fulfill these obligations, UTMDACC may treat such failure as a breach and terminate in accordance with Section 13.3.

 

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(b) In addition, UTMDACC shall have the right to terminate this AGREEMENT if LICENSEE fails to achieve either of the following two milestones:

 

(1) beginning on or after the EFFECTIVE DATE, LICENSEE must raise an additional $1,500,000.00 in COMPANY FUNDING within twenty-four (24) months of the EFFECTIVE DATE. As used herein, “COMPANY FUNDING” shall mean that LICENSEE has received, during the time period specified, an aggregate of $1,500,000.00 in cash from any combination of the following: (i) net proceeds from the sale of equity securities; (ii) grant proceeds with no repayment requirement; (iii) debt or research funding proceeds; and/or (iv) net revenues from the sales of goods or services.

 

(2) LICENSEE must file an IND for a PHASE I STUDY in the United States, any major country in Europe (i.e. France, Germany, Italy, Span or the United Kingdom) or China fox a LICENSED PRODUCT within thirty-six (36) months of the EFFECTIVE DATE, provided that such date may be extended as follows: LICENSEE may purchase a first twelve (12) month extension if LICENSEE pays UTMDACC the sum of $50,000.00 no later than thirty months after the EFFECTIVE DATE (“First Extension Fee”); and LICENSEE may purchase a second twelve (12) month extension (if licensee has timely paid the First Extension Fee) by paying an additional $200,000.00 to UTMDACC no later than forty-two (42) months after the EFFECTIVE DATE (“Second Extension Fee”). It is understood that time is of the essence with respect to the First and Second Extension Fees, and they are not subject to the thirty (30) calendar day cure period specified in Section 13.3(b).

 

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13.3 Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety:

 

(a) automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver or trustee, whether by voluntary act of LICENSEE or otherwise; or

 

(b) upon thirty (30) calendar days written notice from UTMDACC, if LICENSEE materially breaches or defaults on the payment or report obligations of ARTICLE IV (excluding the license documentation fee specified in Section 4.1(b)), or use of name obligations of ARTICLE X, unless, before the end of the such thirty (30) calendar day notice period, LICENSEE has cured the material default or breach to UTMDACC’s reasonable satisfaction, and so notifies UTMDACC, stating the manner of the cure; or

 

(c) upon ninety (90) calendar days written notice from UTMDACC if LICENSEE materially breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of the such ninety (90) calendar-day notice period, LICENSEE has cured the material default or breach to UIMDACC’s reasonable satisfaction and so notifies UTMDACC, stating the manner of the cure; or

 

(d) at any time by mutual written agreement between LICENSEE and UTMDACC upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or

 

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(e) immediately, upon written notice from UTMDACC, if Section 13.2 or 15.9 is invoiced, or if LICENSEE is in breach of any representation or warranty set forth in Section 14.5; or

 

(f) immediately, upon written notice from UTMDACC, if LICENSEE fails to timely pay the license documentation fee specified in Section 4.1(b); or

 

(g) If LICENSEE has defaulted or been late on its payment obligations pursuant to this AGREEMENT on any two (2) occasions in a twelve (12)-month period. Notwithstanding the foregoing, LICENSEE may avoid termination under this Section 13.3(g), if LICENSEE pays all past due amounts and a default waiver fee of $50,000.00 within thirty (30) calendar days following the receipt of written notice from UTMDACC identifying the second payment default in the twelve (12) month period LICENSEE may avoid termination as provided in the foregoing sentence (by payment of all past due amounts and default waiver fee) a maximum of three (3) times during the term of this AGREEMENT. For purposes of clarification, a separate default waiver fee of $50,000.00 shall be due each time LICENSEE seeks to avoid termination under this provision. It is understood that time is of the essence with respect to the default waiver fees, and these fees are not subject to the thirty (30) day cure period specified in Section 13.3(b); or

 

(h) for any reason upon thirty (30) calendar days written notice from LICENSEE to UTMDACC, provided that LICENSEE is not in default on or in breach of any of its obligations under this AGREEMENT.

 

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13.4 Upon termination of this AGREEMENT:

 

(a) nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and

 

(b) The parties agree that the provisions of ARTICLES IX (Indemnification and Insurance), X (Use of Board and UTMDACC’s Name) and XI (Confidential Information and Publication) of this AGREEMENT shall survive termination of this AGREEMENT; and

 

(c) LICENSEE, its AFFILIATES and sublicensees may, for a period of one year after the effective date of the termination, sell all LICENSED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to ARTICLE IV of this AGREEMENT; and

 

(d) Subject to Section 13.4(c), LICENSEE agrees to cease and desist any use and all SALE of the LICENSED SUBJECT MATTER and LICENSED PRODUCTS upon termination of this AGREEMENT; and

 

(e) LICENSEE grants to BOARD and UTMDACC a nonexclusive royalty bearing license with the right to sublicense others with respect to improvements made by LICENSEE (including improvements licensed by LICENSEE from third parties) in the LICENSED SUBJECT MATTER, but only to the extent licensable or sublicensable by LICENSEE. LICENSEE and UTMDACC agree to negotiate in good faith the royalty rate for the nonexclusive license. BOARD’s and UTMDACC’s right to sublicense others hereunder is solely for the purpose of permitting others to develop and commercialize the entire technology package.

 

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XIV. WARRANTY: SUPERIOR-RIGHTS

 

14.1 Except for the rights, if any, of the Government of the United States of America as set forth below and except as set forth in Sections 14.5 and 14.6, below, BOARD represents and warrants its belief that (a) it is the owner of the entire right, title, and interest in and to LICENSED SUBJECT MATTER, (b) it has the sole right to grant licenses thereunder, and (c) it has not knowingly granted licenses thereunder to any other entity that would restrict rights granted hereunder except as stated herein.
     
  14.2 LICENSEE understands that the LICENSED SUBJECT MATTER may have been developed under a funding agreement with the Government of the United States of America (“Government”) and, if so, that the Government may have certain rights relative thereto. This AGREEMENT is explicitly made subject to the Government’s rights under any such agreement and any applicable law or regulation. To the extent that there is a conflict between any such agreement, applicable law or regulation and this AGREEMENT, the terms of such Government agreement, applicable law or regulation shall prevail. LICENSEE agrees that LICENSED PRODUCTS used or SOLD in the United States, to the extent such LICENSED PRODUCTS were developed under a funding agreement with the Government, will be manufactured substantially in the United States, unless a written waiver is obtained in advance from the GOVERNMENT. LICENSEE will promptly advise UTMDACC if such a written waiver is requested and/or obtained. If LICENSEE can establish that, under the circumstances, domestic manufacture is not commercially feasible, then upon LICENSEE’s request and at LICENSEE’s expense, UTMDACC will assist LICENSEE as reasonably necessary to obtain such a waiver.

 

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14.3 LICENSEE understands and agrees that BOARD and UTMDACC, by this AGREEMENT, make no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER. BOARD and UTMDACC, by this AGREEMENT, also make no representation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by BOARD or UTMDACC in the LICENSED FIELD, nor do BOARD and UTMDACC make any representation that the inventions contained in PATENT RIGHTS do not infringe any other patents now held or that will be held by others or by BOARD.
     
  14.4 LICENSEE, by execution hereof, acknowledges, covenants and agrees that LICENSEE has not been induced in any way by BOARD, SYSTEM, UTMDACC or employees thereof to enter into this AGREEMENT, and further warrants and represents that (a) LICENSEE is entering into this AGREEMENT voluntarily; (b) LICENSEE has conducted sufficient due diligence with respect to all items and issues pertaining to this AGREEMENT; and (c) LICENSEE has adequate knowledge and expertise, or has used knowledgeable and expert consultants, to adequately conduct such due diligence, and agrees to accept all risks inherent herein.

 

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14.5 UTMDACC previously entered into a Sponsored Laboratory Study Agreement dated April 19, 2007 (“SLSA”) with “Moleculin, Inc,” which addresses intellectual property rights and other rights between the parties under the SLSA. LICENSEE represents and warrants that LICENSEE (i.e., Moleculin, LLC, a limited liability company organized under the laws of the state of Texas) is the party that entered into the SLSA with UTMDACC, that the use of the term “Moleculin, Inc.” references in the SLSA was a typographical error and such term was intended to and did refer to Moleculin, LLC and, and as such, LICENSEE (Moleculin, LLC) holds and is entitled to exercise all rights that Moleculin, Inc. may have under the SLSA and that no other person or entity is entitled to exercise such rights. LICENSEE understands and agrees that if this representation is not true, then this AGREEMENT (including but not limited to, the license and all other rights granted under this AGREEMENT to LICENSEE) may be declared, at UTMDACC’s sole option, to be null and void. In addition, UTMDACC shall have the right, as provided in Section 13.3(e) to immediately terminate this AGREEMENT LICENSEE shall indemnify and hold BOARD, SYSTEM and UTMDACC harmless as provided in ARTICLE IX in the event of any breach by LICENSEE of the representations and warranties set forth in this Section 14.5.
     

14.6 Notwithstanding any provision herein to the contrary, LICENSEE understands and acknowledges that Dr. Bogdan Lesyng, of Warsaw, Poland, has asserted that he is a co-inventor of MDA03-123 and that, if appropriate, UTMDACC will add Dr. Lesyng as an inventor on any patent application or patents relating to MDA03-123. UTMDACC will promptly notify LICENSEE if Dr. Lesyng is added as an inventor. Dr. Lesyng is not an employee of nor was he an employee of BOARD or UTMDACC at the time MDA03-123 was created. If Dr. Lesyng is added as an inventor, LICENSEE understands and agrees that Dr. Lesyng will have an independent right to assign or to grant licenses under his interest in the patent or patent applications relating to MDA03-123. If Dr. Lesyng is added as an inventor, the license and any and all rights granted to LICENSEE under this AGREEMENT with respect to MDA03-123 (including all related patent applications, patents, PATENT RIGHTS and/or TECHNOLOGY RIGHTS), shall thereafter become an exclusive license with respect to BOARD’s interest only in such related patent applications or patents, and will thus no longer be an exclusive license with respect to such patent applications or patents. In the event LICENSEE’s rights to MDA03-123 become exclusive only with respect to BOARD’s interest, and are effectively reduced to non-exclusive as a result of Lesyng’s joint inventorship and/or ownership, LICENSEE shall have the tight to amend this AGREEMENT to delete MDA03-123 from EXHIBIT I. In either event, LICENSEE shall not be entitled to a refund or a reduction of any amounts due under ARTICLE IV.

 

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XV. GENERAL

 

15.1 This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and, as of the EFFECTIVE DATE, all other prior negotiations, representations, agreements and understandings are superseded hereby, including, but not limited to, the Existing CDA and the Option Agreement referenced in Section 11.1 and the SLSA referenced in Section 14.5. No agreements altering or supplementing the terms hereof will be made except by a written document signed by both parties. Notwithstanding the foregoing, it is understood and agreed that the Agreement Consenting to Execution of MTA and Transfer of Corresponding Materials dated January 10, 2010 between UTMDACC and LICENSEE shall remain in full force and effect, and shall not be superseded by this AGREEMENT.

 

15.2 Any notice required by this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of UTMDACC to:

 

The University of Texas M. D. Anderson Cancer Center

Office of Technology Commercialization

7515 S. Main, Suite 490, Unit 0510

Houston, Texas 77030

ATTENTION: Christopher C. Capelli, M. D.

 

or in the case of LICENSEE to:

 

Moleculin, LLC

1973 West Clay

Houston, Texas 77019

ATTENTION: Walter V. Klemp, Executive Chairman and Managing Member or other addresses as may be given from time to time under the terms of this notice provision.

 

15.3 LICENSEE must comply with all applicable federal, state and local laws and regulations in connection with its activities pursuant to this AGREEMENT. LICENSEE acknowledges that the LICENSED SUBJECT MATTER is subject to U. S. export control jurisdiction. LICENSEE agrees to comply with all applicable international and national laws that apply to the LICENSED SUBJECT MATTER, including U.S. Export Administration Regulations, as well as end-user, end-use, and destination restrictions applied by the United States.
     
  15.4 This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, without regard to its conflict of law provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction and venue of such courts and hereby explicitly waives the tights to any other venue to which it might be entitled by cause of action, domicile or otherwise. Nothing in this AGREEMENT shall be deemed as a waiver by BOARD, SYSTEM or UTMDACC of its sovereign immunity.

 

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15.5 Any dispute or controversy arising out of or relating to this AGREEMENT, its construction or its actual or alleged breach will be decided by mediation. If the mediation does not result in a resolution of such dispute or controversy, it will be finally decided by an appropriate method of alternate dispute resolution, including without limitation, arbitration, conducted in the city of Houston, Harris County, Texas, in accordance with the applicable, then-current procedures of the American Arbitration Association. The arbitration panel will include members knowledgeable in the evaluation of the LICENSED SUBJECT MATTER. Judgment upon the award rendered may be entered in the highest court or forum having jurisdiction, state or federal. The provisions of this Section 15.5 will not apply to decisions on the validity of patent claims or to any dispute or controversy as to which any treaty or law prohibits such arbitration. The decision of the arbitration must be sanctioned by a court of law having jurisdiction to be binding upon and enforceable by the parties.

 

15.6 Failure of BOARD, UTMDACC or LICENSEE to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved.

 

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  15.7 Headings included herein are for convenience only and will not be used to construe this AGREEMENT.
     
  15.8 If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable.
     
15.9 In the event that LICENSEE brings an action before any court, agency or tribunal seeking to invalidate or otherwise challenge the enforceability of or BOARD’s ownership of any patent included in the PATENT RIGHTS, then UTMDACC may immediately terminate this AGREEMENT upon written notice to LICENSEE. Any dispute regarding the validity, enforceability or ownership of any patent included in the PATENT RIGHTS shall be litigated in the courts located in Houston, Texas, and LICENSEE agrees not to challenge personal jurisdiction in that forum. To the extent that LICENSEE unsuccessfully challenges the validity or enforceability of any patent included in the PATENT RIGHTS, LICENSEE agrees to reimburse UTMDACC and BOARD for all costs and fees (including attorney’s fees) paid by UTMDACC and BOARD in defending against such challenge LICENSEE understands and agrees that, in the event LICENSEE successfully challenges the validity or enforceability of any patent included in the PATENT RIGHTS, all payments or other consideration made or otherwise provided by LICENSEE to UTMDACC prior to a final, non-appealable adjudication of invalidity and/or unenforceability shall be non-refundable. The obligations of this Section shall survive the expiration or termination of this AGREEMENT.

 

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IN WITNESS WHEREOF , the parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

 

BOARD OF REGENTS OF THE   MOLECULIN, LLC
UNIVERSITY OF TEXAS SYSTEM      
         
By /s/ John Mendelsohn   By /s/ Walter V. Klemp
  John Mendelsohn, M.D.     Walter V. Klemp
  President     Executive Chairman and Managing
  The University of Texas     Member
  M. D. Anderson Cancer Center      
         
Date: 6/21/10   Date: 6.15.10
         
THE UNIVERSITY OF TEXAS      
M. D. ANDERSON CANCER CENTER      
         
By /s/ Leon Leach      
  Leon Leach      
  Executive Vice President      
  The University of Texas      
  M. D. Anderson Cancer Center      
         
Date: 6/21/10      
         
Approved as to Content:    
       
By /s/ Christopher C. Capelli      
  Christopher C. Capelli, M.D.    
  Vice President, Technology Based Ventures Office of Technology Commercialization M. D. Anderson Cancer Center    

 

         
Date: 6.16.10      

 

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Exhibit 10.4 

 

AMENDMENT NO. 1 TO THE

PATENT AND TECHNOLOGY LICENSE AGREEMENT

 

This AMENDMENT NO. 1 effective this 19 th day of October, 2015 (“AMENDMENT NO. 1 EFFECTIVE DATE”), to the Patent and Technology License Agreement between the Parties dated June 21, 2010 (“ORIGINAL LICENSE”), is made by and between the BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7 th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (hereinafter “UTMDACC”), a member institution of SYSTEM, and MOLECULIN, LLC, a limited liability company organized and existing under the laws of the state of Texas, having a principal place of business located at 1973 West Clay, Houston, Texas 77019 (“LICENSEE”). BOARD and LICENSEE may be referred to hereafter collectively as the “PARTIES.”

 

RECITALS

 

A. BOARD and LICENSEE desire to amend the ORIGINAL LICENSE.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the sufficiency of which is hereby acknowledged, the PARTIES hereby agree to the following:

 

AMENDED TERMS

 

1. Section 4.1(f) of the ORIGINAL LICENSE is deleted in its entirety and new Section 4.1(f) shall be substituted in its place, as follows:

 

4.1(f) The following one-time milestone payments, regardless of whether the milestone is achieved by LICENSEE, a sublicensee or AFFILIATE:

 

(1) Commencement of the first PHASE III STUDY for a LICENSED PRODUCT within the United States, Europe, China or Japan: $150,000.00;
(2) Submission of the first NDA for a LICENSED PRODUCT within the United States: $500,000.00; and
(3) Receipt of the first MARKETING APPROVAL of a LICENSED PRODUCT in the United States: $600,000.00.

 

2. Section 4.7 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 4.7 shall be substituted in its place, as follows:

 

4.7 All amounts payable hereunder by LICENSEE will be paid in United States funds without deductions for taxes, assessments, fees, or charges of any kind; provided, however, that if LICENSEE has used good faith, diligent efforts to seek all available exemptions from or reductions in withholding taxes to which BOARD and/or UTMDACC are entitled, then LICENSEE may deduct those withholding taxes LICENSEE is required by law to withhold from the amounts payable to UTMDACC. Payments shall be made by checks made payable to The University of Texas M. D. Anderson Cancer Center, and sent by United States mail to Box 4390, Houston, Texas 77210-4390, or by wire transfer to:

 

1  

 

 

JPMorgan Chase Bank, N.A.

707 Travis

Houston, Texas 77002

SWIFT: _______________________ (for international wires only)

ABA ROUTING NO: _______________________ (for domestic wires)

ABA ROUTING NO: _______________________ (used for domestic ACH)

ACCOUNT NAME: Univ. of Texas M. D. Anderson Cancer Center Tech Commercialization

ACCOUNT NO.: _______________________

REFERENCE: include title and EFFECTIVE DATE of AGREEMENT and type of payment (e.g., license documentation fee, milestone payment, royalty [including applicable patent/application identified by MDA reference number and patent number or application serial number], or maintenance fee, etc.).

 

3. Section 4.9 of the ORIGINAL LICENSE is deleted in its entirety.

 

4. Section 6.1 of the ORIGINAL LICENSE is amended by inserting the following additional text at the end of Section 6.1:

 

Provided that (a) LICENSEE is not in breach or default of its obligations under this AGREEMENT, and (b) LICENSEE has made advance payment of anticipated patent expenses when requested by UTMDACC, then with respect to any patent application or patent under PATENT RIGHTS:

 

(i)        UTMDACC and LICENSEE shall confer in good faith regarding the filing of new applications, the prosecution of pending applications, and the maintenance and post-grant activities of issued patents;

 

(ii)        UTMDACC shall not abandon a patent application or patent under PATENT RIGHTS that is timely funded by LICENSEE so long as there is a bona fide basis, consistent with applicable laws, rules, and regulations, for continuing prosecution of the respective patent application or maintaining the respective patent, but the foregoing shall not prohibit UTMDACC from abandoning a patent application in favor of further prosecution via a related continuation or continuation in part application claiming priority to such abandoned application or from seeking reissue of a patent via a reissue proceeding for an issued patent; and

 

(iii)        UTMDACC shall not refuse to file a patent application under PATENT RIGHTS that is timely funded and timely requested in writing by LICENSEE so long as there is a bona fide basis, consistent with applicable laws, rules, and regulations, for such filing.

 

5. Section 10.1 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 10.1 is hereby substituted in its place, as follows:

 

10.1 LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of BOARD secured through:

 

2  

 

 

The University of Texas

M. D. Anderson Cancer Center

Legal Services, Unit 1674

P.O. Box 301407

Houston, TX 77230-1407

 

Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

 

6. Section 15.2 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 15.2 shall be substituted in its place, as follows :

 

15.2 Any notice required by this AGREEMENT must be given by prepaid, first class mail, and addressed in the case of UTMDACC to:

 

The University of Texas M. D. Anderson Cancer Center

Office of Technology Commercialization,

Unit 1669
PO Box 301407

Houston, Texas 77230-1407
ATTENTION: Ferran Prat, J.D., Ph.D.

 

or in the case of LICENSEE to:

 

Moleculin, LLC

1973 West Clay

Houston, Texas 77019

ATTENTION: Walter V. Klemp, Executive Chairman and Managing Member

 

or other addresses as may be given from time to time under the terms of this notice provision.

 

7. This AMENDMENT NO. 1 is an integral part of the ORIGINAL LICENSE and shall become effective as of the AMENDMENT NO. 1 EFFECTIVE DATE, and the ORIGINAL LICENSE shall be amended as set forth herein. The PARTIES acknowledge and agree that, except as set forth in this AMENDMENT NO. 1, the terms and conditions of the ORIGINAL LICENSE shall remain in full force and effect.

 

3  

 

 

IN WITNESS WHEREOF, the PARTIES hereto have caused their duly authorized representatives to execute this AMENDMENT NO. 1.

 

BOARD OF REGENTS OF THE   MOLECULIN, LLC
UNIVERSITY OF TEXAS SYSTEM, on
behalf of
   
THE UNIVERSITY OF TEXAS M. D.
ANDERSON CANCER CENTER
   
     
By /s/ Dan Fontaine   By  /s/ Walter Klemp
  Dan Fontaine    
  Executive VP, Administration   Printed Name:  Walter Klemp
  The University of Texas    
  M. D. Anderson Cancer Center   Title: Manager Member of CEO
     
    Date: 10/12/15
Date: 10/19/2015    
     
Approved as to Content:    
     
By /s/ Ferran Prat    
  Ferran Prat, J.D., Ph.D.    
  Vice President, Strategic Industry Ventures    
  M. D. Anderson Cancer Center    
     
Date: 10/16/2015    

 

4  

 

Exhibit 10.5

 

PATENT AND TECHNOLOGY LICENSE AGREEMENT

 

This AGREEMENT (“AGREEMENT”) is made on this 2nd day of April, 2012, by and between THE BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (“UTMDACC”), a member institution of SYSTEM, and INTERTECH BIO CORPORATION, a Texas corporation having a principal place of business located at 3910 Cypress Creek Parkway, Suite 100, Houston, Texas 77068 (“LICENSEE”).

 

RECITALS

 

A. BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS, as defined below, related to LICENSED SUBJECT MATTER, developed at UTMDACC.

 

B. BOARD, through UTMDACC, desires to have BOARD’s rights in the LICENSED SUBJECT MATTER developed in the LICENSED FIELD and used for the benefit of LICENSEE, BOARD, SYSTEM, UTMDACC, the inventor(s), and the public as outlined in BOARD’s Intellectual Property Policy.

 

C. LICENSEE wishes to obtain a license from BOARD under BOARD’s rights to practice the LICENSED SUBJECT MATTER.

 

D. LICENSEE understands that the University of Miami and/or Theodore Lampidis claims or may claim an ownership interest in the technologies listed in Exhibit II as a result of co-inventorship by Theodore Lampidis, an employee of University of Miami. LICENSEE understands and agrees that BOARD does not represent the University of Miami or Theodore Lampidis, and that the license granted pursuant to this AGREEMENT is strictly limited to the BOARD’s rights in the LICENSED SUBJECT MATTER and does not include the rights of University of Miami or Theodore Lampidis, if any.

 

  1  

 

  

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

 

I.       EFFECTIVE DATE

 

1.1 This AGREEMENT is effective as of the date written above, which is the date the AGREEMENT is fully executed by all parties (“EFFECTIVE DATE”).

 

II.       DEFINITIONS

 

As used in this AGREEMENT, the following terms have the meanings indicated:

 

2.1 AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business entity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE.

 

2.2 INVESTIGATIONAL NEW DRUG APPLICATION means (a) the submission made to the FDA to receive approval to conduct a clinical investigation with an investigational new drug that is subject to 21 C.F.R. § 312 or any future revisions or substitutes thereof; or (b) a similar submission to the applicable regulatory agency in any national jurisdiction other than the United States.

 

2.3 LICENSED FIELD means all fields of use.

 

  2  

 

  

2.4 LICENSED PRODUCTS means any product or service sold by LICENSEE, its AFFILIATES, or their sublicensees comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT.

 

2.5 LICENSED SUBJECT MATTER means inventions and discoveries covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within LICENSED FIELD.

 

2.6 LICENSED TERRITORY means worldwide.

 

2.7 MARKET APPROVAL means the regulatory approval necessary to market and sell a LICENSED PRODUCT in a country.

 

2.8 NET SALES means the gross revenues received by LICENSEE, its AFFILIATES, or their sublicensees from a SALE less sales discounts actually granted, sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation actually prepaid or allowed, and amounts actually allowed or credited due to returns (not exceeding the original billing or invoice amount), all as recorded by LICENSEE, its AFFILIATES, or their sublicensees in their official books and records in accordance with generally accepted accounting practices and consistent with their published financial statements and/or regulatory filings with the United States Securities and Exchange Commission.

 

2.9 PATENT RIGHTS means BOARD’s rights in the information or discoveries described in invention disclosures, or claimed in any patents and/or patent applications, whether domestic or foreign, as identified in Exhibits I and II attached hereto, and all divisionals, continuations, continuations-in-part (to the extent the claims of such continuations-in-part are entitled to claim priority to the aforesaid patents and/or patent applications identified in Exhibits I and II), reissues, reexaminations or extensions of the patents and/or patent applications identified in Exhibits I and II, and any letters patent, domestic or foreign that issue thereon. It is understood and agreed that PATENT RIGHTS are limited to BOARD’S rights only and do not include the rights, if any, that the University of Miami and/or Theodore Lampidis may have in the technologies listed in Exhibit II.

 

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2.10 PHASE I STUDY means: (a) that portion of the FDA submission and approval process which provides for the first introduction into humans of a product with the purpose of determining human toxicity, metabolism, absorption, elimination and other pharmacological action as more fully defined in 21 C.F.R. § 312.21(a) or equivalent in a foreign country; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

2.11 PHASE II STUDY means: (a) that portion of the FDA submission and approval process which provides for early controlled clinical studies conducted to obtain preliminary data on the effectiveness of a product for a particular indication, as more specifically defined by the rules and regulations of the FDA, including 21 C.F.R. § 312.21 or any future revisions or substitutes thereof; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

2.12 PHASE III STUDY means: (a) that portion of the FDA submission and approval process in which expanded clinical trials are conducted to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of a product, as more specifically defined by the rules and regulations of the FDA, including 21 C.F.R. § 312.21 or any future revisions or substitutes thereof; or (b) a similar clinical trial in any national jurisdiction other than the United States.

 

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2.13 NEW DRUG APPLICATION means: (a) the submission made to the FDA to receive MARKET APPROVAL, as more fully defined by 21 C.F.R. § 314.50 or any future revisions or substitutes thereof; or (b) a similar submission to the applicable regulatory agency in any national jurisdiction other than the United States.

 

2.14 SALE or SOLD means the transfer or disposition of a LICENSED PRODUCT for value to a party other than LICENSEE, an AFFILIATE or a ROYALTY-FREE PRACTITIONER. As used herein, “ROYALTY-FREE PRACTITIONER” means UTMDACC and the following individuals: Charles Conrad Jr., M.D. and Sigmund H. Hsu, M.D. (“PHYSICIAN INVENTORS”), and any partner or associate who practices medicine with one or more of the PHYSICIAN INVENTORS, but with respect to such partner or associate, only for such time as he/she is engaged in a bona fide medical practice with one or more of the PHYSICIAN INVENTORS.

 

2.15 TECHNOLOGY RIGHTS means the BOARD’s rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data created by the inventor(s) listed in Exhibits I and II (excluding Theodore Lampidis) at UTMDACC before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS. It is understood and agreed that TECHNOLOGY RIGHTS are limited to BOARD’s rights only and do not include the rights, if any, that the University of Miami and/or Theodore Lampidis may have in the technologies listed in Exhibit II.

 

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III.       LICENSE

 

3.1 BOARD, through UTMDACC, hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to the BOARD’s undivided interest in the PATENT RIGHTS and TECHNOLOGY RIGHTS to manufacture, have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD. This grant is subject to Sections 14.1, 14.2, 14.3 and 14.4 hereinbelow, the payment by LICENSEE to UTMDACC of all consideration as provided herein, the timely payment of all amounts due under any related sponsored research agreement between UTMDACC and LICENSEE in effect during this AGREEMENT, and is further subject to the following rights retained by BOARD and UTMDACC to:

 

(a) Publish the general scientific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of ARTICLE XI—Confidential Information and Publication; and

 

(b) Use LICENSED SUBJECT MATTER for research, teaching, patient care, and other academically-related purposes; and

 

(c) Transfer LICENSED SUBJECT MATTER to academic or research institutions for non-commercial research use.

 

3.2 LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE. LICENSEE agrees to deliver such contract to UTMDACC within thirty (30) calendar days following execution thereof

 

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3.3 LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its sublicensees relevant to this AGREEMENT, and for diligently collecting all amounts due LICENSEE from sublicensees. If a sublicensee pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its best reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

 

3.4 LICENSEE must deliver to UTMDACC a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof, within thirty (30) calendar days after execution, modification, or termination.

 

3.5 If this AGREEMENT is terminated pursuant to ARTICLE XIII-Term and Termination, BOARD and UTMDACC agree to accept as successors to LICENSEE, existing sublicensees in good standing at the date of termination provided that each such sublicensee consents in writing to be bound by all of the terms and conditions of this AGREEMENT.

 

IV.       CONSIDERATION, PAYMENTS AND REPORTS

 

4.1 In consideration of rights granted by BOARD to LICENSEE under this AGREEMENT, LICENSEE agrees to pay UTMDACC the following:

 

(a) All out-of-pocket expenses incurred by UTMDACC in filing, prosecuting, enforcing and maintaining PATENT RIGHTS, and all such future expenses incurred by UTMDACC, for so long as, and in such countries as this AGREEMENT remains in effect. UTMDACC will invoice LICENSEE after the AGREEMENT has been fully executed by all parties for expenses incurred as of that time and on a quarterly basis thereafter. The invoiced amounts will be due and payable by LICENSEE within thirty (30) calendar clays of invoice; and

 

  7  

 

  

(b) A nonrefundable license documentation fee in the amount of $80,000. This fee will not reduce the amount of any other payment provided for in this ARTICLE IV, and is due and payable to UTMDACC as follows: (a) $50,000 within thirty (30) calendar days after the AGREEMENT has been fully executed by all parties and LICENSEE has received an invoice for the amount from UTMDACC; and (b) $30,000 within six (6) months after the AGREEMENT has been fully executed by all parties; and

 

(c) A nonrefundable annual maintenance fee (“Annual Maintenance Fee”) due and payable (without invoice) within thirty (30) calendar days of each anniversary of the EFFECTIVE DATE. The amount of the Annual Maintenance Fee shall be calculated as set out below.

 

(1)         LICENSEE shall pay UTMDACC $10,000 within thirty (30) calendar days of the first anniversary of the EFFECTIVE DATE.

 

(2)         LICENSEE shall pay UTMDACC $20,000 within thirty (30) calendar days of the second anniversary of the EFFECTIVE DATE.

 

(3)         LICENSEE shall pay UTMDACC $40,000 within thirty (30) calendar days of the third anniversary of the EFFECTIVE DATE.

 

  8  

 

  

(4)         LICENSEE shall pay UTMDACC $60,000 within thirty (30) calendar days of the fourth anniversary of the EFFECTIVE DATE.

 

(5)         LICENSEE shall pay UTMDACC $80,000 within thirty (30) calendar days of the fifth anniversary of the EFFECTIVE DATE.

 

(6)         LICENSEE shall pay UTMDACC $100,000 within thirty (30) calendar days of the sixth anniversary and each and every anniversary thereafter of the EFFECTIVE DATE.

 

(7)         The Annual Maintenance Fee no longer shall be due following the first SALE of a LICENSED PRODUCT.

 

The Annual Maintenance Fee will not reduce the amount of any other payment provided for in this ARTICLE IV; and

 

(d) A running royalty for NET SALES calculated as follows:

 

(1)         Three percent (3%) of NET SALES up to and including $100,000,000 of NET SALES annually, whether made by LICENSEE, an AFFILIATE, or a sublicensee; and

 

(2)         Four percent (4%) of NET SALES in excess of $100,000,000 annually, whether made by LICENSEE, an AFFILIATE, or a sublicensee; and

 

(e) After the first SALE, minimum annual royalties (“Minimum Annual Royalties”) due and payable, without invoice, within thirty (30) calendar days of the first and subsequent anniversaries of the EFFECTIVE DATE which follows the first SALE and in the amount of:

 

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(1)         $200,000 Minimum Annual Royalties due within thirty (30) calendar days of the first anniversary of the EFFECTIVE DATE following the first SALE of a LICENSED PRODUCT;

 

(2)         $400,000 Minimum Annual Royalties due within thirty (30) calendar days of the second anniversary of the EFFECTIVE DATE following the first SALE of a LICENSED PRODUCT; and

 

(3)         $600,000 Minimum Annual Royalties due within thirty (30) calendar days of the third anniversary of the EFFECTIVE DATE following the first SALE of a LICENSED PRODUCT, and every such anniversary occurring thereafter.

 

The running royalty shall be creditable against the Minimum Annual Royalty as follows: no Minimum Annual royalty payment shall be due for a particular year if the running royalties due and paid for the one year period preceding said applicable anniversary of the EFFECTIVE DATE exceeds the applicable amount. However, if the Minimum Annual Royalty due for a particular year exceeds the running royalties due and paid for the one year period preceding said applicable anniversary of the EFFECTIVE DATE (such additional amount being the “Incremental Amount”), LICENSEE will pay the Incremental Amount by the due date of the Minimum Annual Royalty.

 

(f) The following one-time milestone payments, regardless of whether the milestone is achieved by LICENSEE, a sublicense or AFFILIATE:

 

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(1)         Commencement of a PHASE II STUDY for a LICENSED PRODUCT: $100,000;

 

(2)         Commencement of a PHASE III STUDY for a LICENSED PRODUCT: $250,000;

 

(3)         Filing a NEW DRUG APPLICATION for a LICENSED PRODUCT: $400,000; and

 

(4)         Receipt of MARKET APPROVAL of a LICENSED PRODUCT: $500,000.

 

Each of the foregoing milestone payments shall be made by LICENSEE to UTMDACC (without invoice) within thirty (30) calendar days of achieving the milestone event and shall not reduce the amount of any other payment provided for in this ARTICLE IV. For purposes of this Section 4.1(f), “commencement” of a PHASE II or PHASE II STUDY shall be deemed to occur upon the administration of a LICENSED PRODUCT or placebo to the first patient enrolled in the PHASE II STUDY or PHASE III STUDY; and

 

(g) a SUBLICENSE FEE of twenty-five percent (25%) of all consideration, other than research and development money and royalties, received by LICENSEE from any sublicensee pursuant to Sections 3.3 and 3.4 hereinabove, including but not limited to, up-front payments, marketing, distribution, franchise, option, license, or documentation fees, bonus and milestone payments and equity securities; provided, however, that such SUBLICENSE FEE shall be reduced to 10% after commencement of a PHASE II STUDY for a LICENSED PRODUCT.

 

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4.2 Unless otherwise provided, all such payments are payable within thirty (30) calendar days after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to UTMDACC a true and accurate report, giving such particulars of the business conducted by LICENSEE, its AFFILIATES and its sublicensees, if any exist, during the preceding three (3) calendar months under this AGREEMENT as necessary for UTMDACC to account for LICENSEE’s payments hereunder. This report will include pertinent data, including, but not limited to:

 

(a) the accounting methodologies used to account for and calculate the items included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and

 

(b) a list of LICENSED PRODUCTS produced for the three (3) preceding calendar months categorized by the technology it relates to under PATENT RIGHTS, including an indication as to whether the product is covered by the technologies listed on Exhibit I, Exhibit II, or both; and

 

(c) the total quantities of LICENSED PRODUCTS produced by the categories listed in Section 4.2(b); and

 

(d) the total SALES by the categories listed in Section 4.2(b); and

 

(e) the calculation of NET SALES by the categories listed in Section 4.2(b); and

 

(f) the royalties so computed and due UTMDACC by the categories listed in Section 4.2(b) and/or minimum royalties; and

 

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(g) all consideration received from each sublicensee or assignee and payments due UTMDACC; and

 

(h) all other amounts due UTMDACC herein.

 

Simultaneously with the delivery of each such report, LICENSEE shall pay UTMDACC the amount due, if any, for the period of such report. LICENSEE shall deliver such reports even is no payments are due.

 

4.3 During the term of this AGREEMENT and for one (1) year thereafter, LICENSEE agrees to keep complete and accurate records of its, its AFFILIATES’ and its sublicensees’ SALES and NET SALES in sufficient detail to enable the royalties and other payments due hereunder to be determined. LICENSEE agrees to permit UTMDACC or its representatives, at UTMDACC’s expense, to periodically examine LICENSEE’s books, ledgers, and records during regular business hours for the purpose of and to the extent necessary to verify any report required under this AGREEMENT. If any amounts due UTMDACC are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination plus accrued interest at the highest allowable rate.

 

4.4 Within thirty (30) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to UTMDACC a written progress report as to LICENSEE’s (and any sublicensee’s) efforts and accomplishments during the preceding year in diligently commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and LICENSEE’s (and sublicensees’) commercialization plans for the upcoming year.

 

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4.5 All amounts payable hereunder by LICENSEE will be paid in United States dollars without deductions for taxes, assessments, fees, or charges of any kind. Checks are to be made payable to The University of Texas M. D. Anderson Cancer Center and sent by United States mail to Box 4390, Houston, Texas 77210, Attention: Grants and Contracts. Payments made by wire transfer shall be sent to:

 

JPMorgan Chase Bank, N.A.

910 Travis

Houston, Texas 77002

SWIFT: CHASUS33 (for international wires only)

ABA ROUTING NO:

ACCOUNT NAME: Univ. of Texas M. D. Anderson Cancer Center

ACCOUNT NO.:

REFERENCE: include title and EFFECTIVE DATE of AGREEMENT and type of payment (e.g., license documentation fee, milestone payment, royalty [including applicable patent/application identified by MDA reference number and patent number or application serial number], or maintenance fee, etc.).

 

4.6 No payments due or royalty rates owed under this AGREEMENT will be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by BOARD and another party, including, but not limited to, LICENSEE.

 

4.7 In addition to the other consideration listed above, in consideration of the grant of rights to the technologies listed in Exhibit I, LICENSEE shall cause BOARD (or UTMDACC’s designees), on behalf of UTMDACC, to receive 500,000 shares of Common Stock of LICENSEE, par value $ 0.0001 per share (the “COMMON STOCK”), representing two and one-half percent (2.5%) of the COMMON STOCK of LICENSEE on a fully-diluted basis after issuance of such shares, taking into account any shares reserved for issuance under a proposed or outstanding stock option plan, as of the EFFECTIVE DATE. Such shares shall be caused to be delivered by LICENSEE to BOARD promptly following execution of this AGREEMENT by all parties, and in any event, not later than one hundred twenty (120) calendar days after the EFFECTIVE DATE. Additionally, COMMON STOCK shall be registered in the name of BOARD on the books of LICENSEE at the time of receipt or 6 months thereafter. In the event of the sale of all or substantially all of LICENSEE’s assets to a third party, this AGREEMENT may be assigned in accordance with Section 12.1, subject to the transfer to BOARD (or UTMDACC’s designees), on behalf of UTMDACC, of an additional 500,000 shares of COMMON STOCK.

 

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4.8 In the event that this AGREEMENT is terminated pursuant to Sections 13.2 or 13.3 prior to its expiration date, or in the event LICENSEE shall terminate this AGREEMENT prior to its expiration date for any reason other than a material breach of this AGREEMENT by BOARD and/or UTMDACC, LICENSEE shall pay UTMDACC a Termination Fee in the amount of $50,000.

 

V.       SPONSORED RESEARCH

 

5.1 If LICENSEE desires to sponsor research for or related to the LICENSED SUBJECT MATTER, and particularly where LICENSEE receives payments for sponsored research pursuant to a sublicense under this AGREEMENT, LICENSEE (a) will notify UTMDACC in writing of all opportunities to conduct this sponsored research (including clinical trials, if applicable), (b) will solicit research and/or clinical proposals from UTMDACC for this purpose, and (c) will give good faith consideration to funding the proposals at UTMDACC.

 

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VI.       PATENTS AND INVENTIONS

 

6.1 If after consultation with LICENSEE both parties agree that a new patent application should be filed for LICENSED SUBJECT MATTER, UTMDACC will prepare and file appropriate patent applications, and LICENSEE will pay the cost of searching, preparing, filing, prosecuting and maintaining same. If LICENSEE notifies UTMDACC that it does not intend to pay the cost of an application, or if LICENSEE does not respond or make an effort to agree with UTMDACC on the disposition of rights of the subject invention, then UTMDACC may file such application at its own expense and LICENSEE’s rights to such invention under this AGREEMENT shall terminate in their entirety. UTMDACC will provide LICENSEE with a copy of the application for which LICENSEE has paid the cost of filing, as well as copies of any documents received or filed during prosecution thereof. The parties agree that they share a common legal interest to get valid enforceable patents and that LICENSEE will keep all privileged information received pursuant to this Section confidential.

 

VII.       INFRINGEMENT BY THIRD PARTIES

 

7.1 LICENSEE, at its expense, must enforce any patent exclusively licensed hereunder against infringement by third parties and is entitled to retain recovery from such enforcement. After reimbursement of LICENSEE’s reasonable legal costs and expenses related to such recovery, LICENSEE agrees to pay UTMDACC either: (a) the royalty detailed in Section 4.1(d) for any monetary recovery that is for sales of LICENSED PRODUCTS lost due to the infringement and fifty percent (50%) of related punitive damages; or (b) fifty percent (50%) of reasonable royalties awarded and related punitive damages in any monetary recovery in which the award is for reasonable royalties. LICENSEE must notify UTMDACC in writing of any potential infringement within thirty (30) calendar days of knowledge thereof. If LICENSEE does not file suit against a substantial infringer within six (6) months of knowledge thereof, then BOARD or UTMDACC may, at its sole discretion, enforce any patent licensed hereunder on behalf of itself and LICENSEE, with UTMDACC retaining all recoveries from such enforcement, and/or reduce the license granted hereunder to non-exclusive.

 

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7.2 In any suit or dispute involving an infringer, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.

 

VIII.       PATENT MARKING

 

8.1 LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and, when possible, actual LICENSED PRODUCT(S) sold by LICENSEE, AFFILIATES, and/or sublicensees of LICENSEE will be permanently and legibly marked with the number of any applicable patent(s) licensed hereunder in accordance with each country’s patent laws, including Title 35, United States Code, to the extent such marking is necessary or required to fully preserve PATENT RIGHTS in each such country.

 

IX.       INDEMNIFICATION AND INSURANCE

 

9.1 LICENSEE agrees to hold harmless and indemnify BOARD, SYSTEM, UTMDACC, their Regents, officers, employees, students and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including without limitation, those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of, or resulting from, the exercise or practice of the rights granted hereunder by LICENSEE, its officers, its AFFILIATES or their officers, employees, agents or representatives.

 

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9.2 In no event shall BOARD, SYSTEM or UTMDACC be liable for any indirect, special, consequential or punitive damages (including, without limitation, damages for loss of profits or expected savings or other economic losses, or for injury to persons or property) arising out of, or in connection with, this AGREEMENT or its subject matter, regardless of whether BOARD, SYSTEM or UTMDACC knows or should know of the possibility of such damages.

 

9.3 Beginning at the time when any LICENSED SUBJECT MATTER is being distributed or sold (including for the purpose of obtaining regulatory approvals) by LICENSEE, an AFFILIATE, or by a sublicensee, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate, and LICENSEE shall use reasonable efforts to have the BOARD, SYSTEM, UTMDACC, their Regents, officers, employees, students and agents named as additional insureds. Such commercial general liability insurance shall provide: (i) product liability coverage; (ii) broad form contractual liability coverage for LICENSEE’s indemnification under this AGREEMENT; and (iii) coverage for litigation costs. The minimum amounts of insurance coverage required herein shall not be construed to create a limit of LICENSEE’s liability with respect to its indemnification under this AGREEMENT.

 

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9.4 LICENSEE shall provide UTMDACC with written evidence of such insurance within thirty (30) calendar days of its procurement. Additionally, LICENSEE shall provide UTMDACC with written notice of at least fifteen (15) calendar days prior to the cancellation, non-renewal or material change in such insurance.

 

9.5 LICENSEE shall maintain such commercial general liability insurance beyond the expiration or termination of this AGREEMENT during: (i) the period that any LICENSED SUBJECT MATTER developed pursuant to this AGREEMENT is being commercially distributed or sold by LICENSEE, an AFFILIATE or by a sublicensee or agent of LICENSEE; and (ii) the five (5) year period immediately after such period.

 

X.       USE OF BOARD AND UTMDACC’S NAME

 

10.1 LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of BOARD secured through:

 

The University of Texas

M. D. Anderson Cancer Center

Legal Services, Unit 0537

P.O. Box 301439

Houston, TX 77230-1439

ATTENTION: Lori D. Stiffler

Email: ldstiffl@mdanderson.org

 

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Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

 

XI.       CONFIDENTIAL INFORMATION AND PUBLICATION

 

11.1 UTMDACC and LICENSEE each agree that all information contained in documents marked “confidential” and forwarded to one by the other (i) are to be received in strict confidence, (ii) are to be used only for the purposes of this AGREEMENT, and (iii) will not be disclosed by the recipient party (except as required by law or court order), its agents or employees without the prior written consent of the disclosing party, except to the extent that the recipient party can establish by competent written proof that such information:

 

(a) was in the public domain at the time of disclosure; or

 

(b) later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or

 

(c) was lawfully disclosed to the recipient party by a third party having the right to disclose it; or

 

(d) was already known by the recipient party at the time of disclosure; or

 

(e) was independently developed by the recipient party without use of the disclosing party’s confidential information; or

 

(f) is required by law or regulation to be disclosed.

 

11.2 Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the disclosing party’s confidential information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This obligation will exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

 

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11.3 UTMDACC reserves the right to publish the general scientific findings from research related to LICENSED SUBJECT MATTER, with due regard to the protection of LICENSEE’s confidential information. UTMDACC will submit the manuscript of any proposed publication to LICENSEE at least thirty (30) calendar clays before publication, and LICENSEE shall have the right to review and comment upon the publication in order to protect LICENSEE’s confidential information. Upon LICENSEE’s request, publication may be delayed up to sixty (60) additional calendar days to enable LICENSEE to secure adequate intellectual property protection of LICENSEE’s confidential information that would otherwise be affected by the publication.

 

XII.       ASSIGNMENT

 

12.1 Except in connection with the sale of all of LICENSEE’s assets to a third party, this AGREEMENT may not be assigned by LICENSEE without the prior written consent of UTMDACC, which will not be unreasonably withheld. As a condition precedent to any assignment, LICENSEE shall first transfer UTMDACC all equity consideration in accordance with Section 4.7.

 

XIII.       TERM AND TERMINATION

 

13.1 Subject to Sections 13.3 and 13.4 hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE to the full end of the term or terms for which PATENT RIGHTS have not expired, or if only TECHNOLOGY RIGHTS are licensed and no PATENT RIGHTS are applicable, for a term of fifteen (15) years.

 

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13.2 BOARD or UTMDACC have the right to terminate this license if LICENSEE or its sublicensee(s) fail to achieve any of the following:

 

(a) within one (1) year of the EFFECTIVE DATE, initiate a preclinical toxicology program for a LICENSED PRODUCT. As used in this Section 13.2(a), a preclinical toxicology program means an in vivo study designed and conducted to determine toxicity, metabolism, absorption, elimination and other pharmacological action and to support an INVESTIGATIONAL NEW DRUG APPLICATION and/or a NEW DRUG APPLICATION;

 

(b) within three (3) years of the EFFECTIVE DATE, file an INVESTIGATIONAL NEW DRUG APPLICATION with the FDA for a PHASE I STUDY for a LICENSED PRODUCT; and

 

(c) within five (5) years of the EFFECTIVE DATE, commence a PHASE I STUDY for a LICENSED PRODUCT. As used in this Section 13.2(c), a PHASE I STUDY shall be deemed to commence upon the administration of a LICENSED PRODUCT or placebo to the first patient enrolled in the PHASE I STUDY.

 

13.3 Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety:

 

(a) automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver, assignee, or trustee, whether by voluntary act of LICENSEE or otherwise; or

 

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(b) upon thirty (30) calendar days written notice from UTMDACC, if LICENSEE breaches or defaults on the payment or report obligations of ARTICLE IV, or use of name obligations of ARTICLE X, unless, before the end of the such thirty (30)-calendar day notice period, LICENSEE has cured the default or breach to UTMDACC’s satisfaction, and so notifies UTMDACC, stating the manner of the cure; or

 

(c) upon ninety (90) calendar days written notice from UTMDACC if LICENSEE breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of the such ninety (90) calendar-day notice period, LICENSEE has cured the default or breach to UTMDACC’s satisfaction and so notifies UTMDACC, stating the manner of the cure; or

 

(d) at any time by mutual written agreement between LICENSEE and UTMDACC upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or

 

(e) if Section 13.2 or 15.9 is invoked; or

 

(f) if LICENSEE has defaulted or been late on its payment obligations pursuant to the terms of this AGREEMENT on any two (2) occasions in a twelve (12) month period.

 

13.4 Upon termination of this AGREEMENT:

 

(a) nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and

 

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(b) LICENSEE covenants and agrees to be bound by the provisions of ARTICLES IX (Indemnification and Insurance), X (Use of Board and UTMDACC’s Name) and XI (Confidential Information and Publication) of this AGREEMENT; and

 

(c) LICENSEE may, for a period of one year after the effective date of the termination, sell all LICENSED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to ARTICLE IV of this AGREEMENT; and

 

(d) Subject to Section 13.4(c), LICENSEE agrees to cease and desist any use and all SALE of the LICENSED SUBJECT MATTER and LICENSED PRODUCTS upon termination of this AGREEMENT; and

 

(e) LICENSEE grants to BOARD and UTMDACC a nonexclusive royalty bearing license with the right to sublicense others with respect to improvements made by LICENSEE (including improvements licensed by LICENSEE from third parties) in the LICENSED SUBJECT MATTER. LICENSEE and UTMDACC agree to negotiate in good faith the royalty rate for the nonexclusive license. BOARD’s and UTMDACC’s right to sublicense others hereunder is solely for the purpose of permitting others to develop and commercialize the entire technology package.

 

XIV.       WARRANTY: SUPERIOR-RIGHTS

 

14.1 LICENSEE understands that one of the inventors listed on Exhibit II, Theodore Lampidis, was an employee of University of Miami. LICENSEE further understands that, to the extent Theodore Lampidis is an inventor on the claims of any patent applications or patents relating to the technologies listed on Exhibit II, that University of Miami and/or Theodore Lampidis may claim an ownership interest in said patent applications and/or patents.

 

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14.2 Except for the rights, if any, of the Government of the United States of America as set forth below, BOARD represents its belief, with respect to the technologies listed on Exhibit I, that: (a) it is the owner of the entire right, title, and interest in and to the LICENSED SUBJECT MATTER, (b) it has the right to grant licenses thereunder, and (c) it has not knowingly granted licenses thereunder to any other entity that would restrict rights granted hereunder except as stated herein. BOARD makes no representation or warranty regarding the rights, if any, of the University of Miami and/or Theodore Lampidis in and to the technologies set forth in Exhibit II. BOARD does not represent or warrant that LICENSEE shall have the exclusive rights to practice the LICENSED SUBJECT MATTER with respect to the technologies listed on Exhibit II as a result of the license granted herein.

 

14.3 LICENSEE understands that the LICENSED SUBJECT MATTER may have been developed under a funding agreement with the Government of the United States of America (“Government”) and, if so, that the Government may have certain rights relative thereto. This AGREEMENT is explicitly made subject to the Government’s rights under any such agreement and any applicable law or regulation. To the extent that there is a conflict between any such agreement, applicable law or regulation and this AGREEMENT, the terms of such Government agreement, applicable law or regulation shall prevail. LICENSEE agrees that LICENSED PRODUCTS used or SOLD in the United States will be manufactured substantially in the United States, unless a written waiver is obtained in advance from the GOVERNMENT. LICENSEE will promptly advise UTMDACC if such a written waiver is requested and/or obtained.

 

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14.4 LICENSEE understands and agrees that BOARD and UTMDACC, by this AGREEMENT, make no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER. BOARD and UTMDACC, by this AGREEMENT, also make no representation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by BOARD or UTMDACC in the LICENSED FIELD, nor do BOARD and UTMDACC make any representation that the inventions contained in PATENT RIGHTS do not infringe any other patents now held or that will be held by others or by BOARD. BOARD and UTMDACC, by this AGREEMENT, also make no representation, with respect to the technologies listed on Exhibit II, as to whether or not the University of Miami and/or Theodore Lampidis has a joint ownership interest in any patent, patent application or technology covered by the PATENT RIGHTS and TECHNOLOGY RIGHTS.

 

14.5 LICENSEE, by execution hereof, acknowledges, covenants and agrees that LICENSEE has not been induced in any way by BOARD, SYSTEM, UTMDACC or employees thereof to enter into this AGREEMENT, and further warrants and represents that (a) LICENSEE is entering into this AGREEMENT voluntarily; (b) LICENSEE has conducted sufficient due diligence with respect to all items and issues pertaining to this AGREEMENT, including, but not limited to, the interest of University of Miami and/or Theodore Lampidis in the technologies listed in Exhibit II, if any; and (c) LICENSEE has adequate knowledge and expertise, or has used knowledgeable and expert consultants, to adequately conduct such due diligence, and agrees to accept all risks inherent herein.

 

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XV.       GENERAL

 

15.1 This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements and understandings are superseded hereby. No agreements altering or supplementing the terms hereof will be made except by a written document signed by both parties.

 

15.2 Any notice required by this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of UTMDACC to:

 

The University of Texas M. D. Anderson Cancer Center

Office of Technology Commercialization

7515 S. Main, Suite 490, Unit 0510

Houston, Texas 77030

ATTENTION: Christopher C. Capelli, M.D.

 

or in the case of LICENSEE to:

 

Intertech Bio Corporation

3910 Cypress Creek Parkway

Suite 100

Houston, TX 77068

ATTENTION: Donald Picker, Chief Executive Officer

 

or other addresses as may be given from time to time under the terms of this notice provision.

 

15.3 LICENSEE must comply with all applicable federal, state and local laws and regulations in connection with its activities pursuant to this AGREEMENT. LICENSEE acknowledges that the LICENSED SUBJECT MATTER is subject to U. S. export control jurisdiction. LICENSEE agrees to comply with all applicable international and national laws that apply to the LICENSED SUBJECT MATTER, including U.S. Export Administration Regulations, as well as end-user, end-use, and destination restrictions applied by the United States.

 

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15.4 This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, without regard to its conflict of law provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction and venue of such courts and hereby explicitly waives the rights to any other venue to which it might be entitled by cause of action, domicile or otherwise. Nothing in this AGREEMENT shall be deemed as a waiver by BOARD, SYSTEM or UTMDACC of its sovereign immunity.

 

15.5 Any dispute or controversy arising out of or relating to this AGREEMENT, its construction or its actual or alleged breach will be decided by mediation. If the mediation does not result in a resolution of such dispute or controversy, it will be finally decided by an appropriate method of alternate dispute resolution, including without limitation, arbitration, conducted in the city of Houston, Harris County, Texas, in accordance with the applicable, then-current procedures of the American Arbitration Association. The arbitration panel will include members knowledgeable in the evaluation of the LICENSED SUBJECT MATTER. Judgment upon the award rendered may be entered in the highest court or forum having jurisdiction, state or federal. The provisions of this Section 15.5 will not apply to decisions on the validity of patent claims or to any dispute or controversy as to which any treaty or law prohibits such arbitration. The decision of the arbitration must be sanctioned by a court of law having jurisdiction to be binding upon and enforceable by the parties.

 

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15.6 Failure of BOARD or UTMDACC to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved.

 

15.7 Headings included herein are for convenience only and will not be used to construe this AGREEMENT.

 

15.8 If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable.

 

15.9 In the event that LICENSEE brings an action before any court, agency or tribunal seeking to invalidate or otherwise challenge the enforceability of or BOARD’s ownership of any patent included in the PATENT RIGHTS, then UTMDACC may immediately terminate this AGREEMENT upon written notice to LICENSEE. Additionally, LICENSEE will provide written notice to UTMDACC at least three (3) months prior to seeking to invalidate or challenge any patent under the PATENT RIGHTS. LICENSEE will include with such written notice an identification of all prior art it believes invalidates any claim of a patent under the PATENT RIGHTS and will promptly update such disclosure as LICENSEE becomes aware of additional prior art. Any dispute regarding the validity, enforceability or ownership of any patent included in the PATENT RIGHTS shall be litigated in the courts located in Houston, Texas, and LICENSEE agrees not to challenge personal jurisdiction in that forum. To the extent that LICENSEE unsuccessfully challenges the validity or enforceability of any patent included in the PATENT RIGHTS, LICENSEE agrees to reimburse UTMDACC and BOARD for all costs and fees (including attorney’s fees) paid by UTMDACC and BOARD in defending against such challenge. LICENSEE understands and agrees that, in the event LICENSEE successfully challenges the validity or enforceability of any patent included in the PATENT RIGHTS, all payments or other consideration made or otherwise provided by LICENSEE to UTMDACC prior to a final, non-appealable adjudication of invalidity and/or unenforceability shall be non-refundable. The obligations of this Section shall survive the expiration or termination of this AGREEMENT.

 

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IN WITNESS WHEREOF , the parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

 

BOARD OF REGENTS OF THE   INTERTECH BIO CORPORATION
UNIVERSITY OF TEXAS SYSTEM    
     
By /s/ Ronald DePinho   By /s/ Donald Picker
  Ronald DePinho, M.D.   Printed Name: Donald Picker
  President   Title: CEO
  The University of Texas    
  M. D. Anderson Cancer Center    
       
Date: 3/4/12   Date: 1/18/2012

 

THE UNIVERSITY OF TEXAS    
M. D. ANDERSON CANCER CENTER    
     
By /s/ Leon Leach    
  Leon Leach    
  Executive Vice President    
  The University of Texas    
  M. D. Anderson Cancer Center    
       
Date: 4/2/12    

 

Approved as to Content:    
     
By /s/ Christopher C. Capelli    
  Christopher C. Capelli, M.D.    
  Vice President, Technology Based Ventures    
  Office of Technology Commercialization    
  M. D. Anderson Cancer Center    
       
Date: 1.24.12    

 

  30  

 

 

 

Exhibit 10.6

 

AMENDMENT NO. 1 TO THE

PATENT AND TECHNOLOGY LICENSE AGREEMENT

 

This AMENDMENT NO. 1 effective this 19 th day of October, 2015 (“AMENDMENT NO. 1 EFFECTIVE DATE”), to the Patent and Technology License Agreement between the Parties dated April 2, 2012 (“ORIGINAL LICENSE”), is made by and between the BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (hereinafter “UTMDACC”), a member institution of SYSTEM, and INTERTECH BIO CORPORATION, a Texas corporation having a principal place of business located at 3910 Cypress Creek Parkway, Suite 100, Houston, Texas 77068 (“LICENSEE”). BOARD and LICENSEE may be referred to hereafter collectively as the “PARTIES.”

 

RECITALS

 

A. BOARD and LICENSEE desire to amend the ORIGINAL LICENSE.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the sufficiency of which is hereby acknowledged, the PARTIES hereby agree to the following:

 

AMENDED TERMS

 

1. Section 4.1(f) of the ORIGINAL LICENSE is deleted in its entirety and new Section 4.1(f) shall be substituted in its place, as follows:

 

4.1(f)   The following one-time milestone payments, regardless of whether the milestone is achieved by LICENSEE, a sublicensee or AFFILIATE:

 

(1) Commencement of a PHASE II STUDY for a LICENSED PRODUCT: $200,000;

 

(2) Commencement of a PHASE III STUDY for a LICENSED PRODUCT: $250,000;

 

(3) Filing a NEW DRUG APPLICATION for a LICENSED PRODUCT: $400,000; and

 

(4) Receipt of MARKET APPROVAL of a LICENSED PRODUCT: $500,000.

 

Each of the foregoing milestone payments shall be made by LICENSEE to UTMDACC (without invoice) within thirty (30) calendar days of achieving the milestone event and shall not reduce the amount of any other payment provided for in this ARTICLE IV. For purposes of this Section 4.1(f), “commencement” of a PHASE II or PHASE II STUDY shall be deemed to occur upon the administration of a LICENSED PRODUCT or placebo to the first patient enrolled in the PHASE II STUDY or PHASE III STUDY; and

 

2. Section 4.5 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 4.5 shall be substituted in its place, as follows:

 

 

 

 

4.5     All amounts payable hereunder by LICENSEE will be paid in United States funds without deductions for taxes, assessments, fees, or charges of any kind; provided, however, that if LICENSEE has used good faith, diligent efforts to seek all available exemptions from or reductions in withholding taxes to which BOARD and/or UTMDACC are entitled, then LICENSEE may deduct those withholding taxes LICENSEE is required by law to withhold from the amounts payable to UTMDACC. Checks are to be made payable to The University of Texas M. D. Anderson Cancer Center, and sent by United States mail to Box 4390, Houston, Texas 77210-4390, or by wire transfer to:

 

JPMorgan Chase Bank, N.A.

707 Travis

Houston, Texas 77002

SWIFT: __________ (for international wires only)

ABA ROUTING NO: __________ (for domestic wires)

ABA ROUTING NO: __________ (used for domestic ACH)

ACCOUNT NAME: Univ. of Texas M. D. Anderson Cancer Center Tech Commercialization

ACCOUNT NO.: __________

REFERENCE: include title and EFFECTIVE DATE of AGREEMENT and type of payment (e.g., license documentation fee, milestone payment, royalty [including applicable patent/application identified by MDA reference number and patent number or application serial number], or maintenance fee, etc.).

 

3. Section 4.7 of the ORIGINAL LICENSE is deleted in its entirety.

 

4. Section 6.1 of the ORIGINAL LICENSE is amended by inserting the following additional text at the end of Section 6.1:

 

Provided that (a) LICENSEE is not in breach or default of its obligations under this AGREEMENT, and (b) LICENSEE has made advance payment of anticipated patent expenses when requested by UTMDACC, then with respect to any patent application or patent under PATENT RIGHTS:

 

(i)          UTMDACC and LICENSEE shall confer in good faith regarding the filing of new applications, the prosecution of pending applications, and the maintenance and post-grant activities of issued patents;

 

(ii)          UTMDACC shall not abandon a patent application or patent under PATENT RIGHTS that is timely funded by LICENSEE so long as there is a bona fide basis, consistent with applicable laws, rules, and regulations, for continuing prosecution of the respective patent application or maintaining the respective patent, but the foregoing shall not prohibit UTMDACC from abandoning a patent application in favor of further prosecution via a related continuation or continuation in part application claiming priority to such abandoned application or from seeking reissue of a patent via a reissue proceeding for an issued patent; and

 

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(iii)          UTMDACC shall not refuse to file a patent application under PATENT RIGHTS that is timely funded and timely requested in writing by LICENSEE so long as there is a bona fide basis, consistent with applicable laws, rules, and regulations, for such filing.

 

5. Section 10.1 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 10.1 shall be substituted in its place, as follows:

 

10.1    LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of BOARD secured through:

 

The University of Texas

M. D. Anderson Cancer Center

Legal Services, Unit 1674

P.O. Box 301407

Houston, TX 77230-1407

 

Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

 

6. Section 12.1 of the ORIGNAL LICENSE is deleted in its entirety, and new Section 12.1 is hereby substituted in its place, as follows:

 

12.1   Except in connection with the sale of all or substantially all of LICENSEE’s assets to a third party, this AGREEMENT may not be assigned by LICENSEE without the prior written consent of UTMDACC, which shall not be unreasonably withheld. Provided that LICENSEE promptly delivers to UTMDACC a true and correct copy of all Form S-1 and Form S-1/A registration statements for Moleculin Biotech, Inc., UTMDACC shall not unreasonably withhold consent to the assignment of this AGREEMENT by LICENSEE to Moleculin Biotech, Inc., a Delaware corporation.

 

7. Section 13.2 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 13.2 shall be substituted in its place, as follows:

 

13.2    BOARD or UTMDACC have the right to terminate this license if LICENSEE or its sublicensee(s) fail to achieve any of the following:

 

(a)     within one (1) year of the AMENDMENT NO.1 EFFECTIVE DATE, initiate a preclinical toxicology program for a LICENSED PRODUCT. As used in this Section 13.2(a), a preclinical toxicology program means an in vivo study designed and conducted to determine toxicity, metabolism, absorption, elimination and other pharmacological action and to support an INVESTIGATIONAL NEW DRUG APPLICATION and/or a NEW DRUG APPLICATION;

 

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(b)     within three (3) years of the AMENDMENT NO.1 EFFECTIVE DATE, file an INVESTIGATIONAL NEW DRUG APPLICATION with the FDA for a PHASE I STUDY for a LICENSED PRODUCT; and

 

(c)     within five (5) years of the AMENDMENT NO.1 EFFECTIVE DATE, commence a PHASE I STUDY for a LICENSED PRODUCT. As used in this Section 13.2(c), a PHASE I STUDY shall be deemed to commence upon the administration of a LICENSED PRODUCT or placebo to the first patient enrolled in the PHASE I STUDY.

 

8. Section 15.2 of the ORIGINAL LICENSE is deleted in its entirety, and new Section 15.2 shall be substituted in its place, as follows:

 

15.2    Any notice required by this AGREEMENT must be given by prepaid, first class mail, and addressed in the case of UTMDACC to:

 

The University of Texas M. D. Anderson Cancer Center

Office of Technology Commercialization,

Unit 1669

PO Box 301407

Houston, Texas 77230-1407

ATTENTION: Ferran Prat, J.D., Ph.D.

 

or in the case of LICENSEE to:

 

Intertech Bio Corporation

3910 Cypress Creek Parkway

Suite 100

Houston, TX 77068

ATTENTION: Donald Picker, Chief Executive Officer

 

or other addresses as may be given from time to time under the terms of this notice provision.

 

9. This AMENDMENT NO. 1 is an integral part of the ORIGINAL LICENSE and shall become effective as of the AMENDMENT NO. 1 EFFECTIVE DATE, and the ORIGINAL LICENSE shall be amended as set forth herein. The PARTIES acknowledge and agree that, except as set forth in this AMENDMENT NO. 1, the terms and conditions of the ORIGINAL LICENSE shall remain in full force and effect.

 

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IN WITNESS WHEREOF, the PARTIES hereto have caused their duly authorized representatives to execute this AMENDMENT NO. 1.

 

BOARD OF REGENTS OF THE UNIVERSITY OF TEXAS SYSTEM, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER   INTERTECH BIO CORPORATION
     
By /s/ Dan Fontaine   By /s/ Donald Picker
  Dan Fontaine    
  Executive VP, Administration   Printed Name:  Donald Picker
  The University of Texas    
  M. D. Anderson Cancer Center   Title: CEO
         
Date: 10/19/2015   Date: 10/14/2015

 

Approved as to Content:  
   
By /s/ Ferran Prat  
  Ferran Prat, J.D., Ph.D.  
  Vice President, Strategic Industry Ventures  
  M. D. Anderson Cancer Center  

 

Date: 10/16/2015  

 

  5  

 

 

Exhibit 10.8

 

PATENT AND TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT

 

This fourteen (14) page AGREEMENT (“AGREEMENT”) is made on 15 of April 2011, by and between INTERTECH BIO CORPORATION (“INTERTECH”), and DERMIN Limited Liability Company having a principal place of business located at PL-00-116 Warszawa, ul. Świętokrzyska 36/17, Poland (“LICENSEE”).

 

I. RECITALS

 

A. “INTERTECH” owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED SUBJECT MATTER developed in its own facilities and at The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). PATENT RIGHTS and TECHNOLOGY RIGHTS developed at UTMDACC are subject to a License Agreement between “INTERTECH”, and UTMDACC (“UTMDACC LICENSE”).

 

B. LICENSEE desires to fund in part the development of topical anticancer drugs.

 

C. “INTERTECH”, desires to have the LICENSED SUBJECT MATTER developed in the LICENSED FIELD and used for the benefit of LICENSEE, “INTERTECH”, and where applicable, UTMDACC.

 

D. LICENSEE wishes to obtain a license from “INTERTECH” to practice LICENSED SUBJECT MATTER.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

 

II. EFFECTIVE DATE

 

This AGREEMENT is effective as of the date written above (“EFFECTIVE DATE”).

 

III. DEFINITIONS

 

As used in this AGREEMENT, the following terms have the meanings indicated:

 

AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business entity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE.

 

CALENDAR YEAR means the period between January 1st and December 31st including both of these dates.

 

COMMERCIALIZATION, with a correlative meaning for COMMERCIALIZE and COMMERCIALIZING, means all activities undertaken before and after obtaining MARKET AUTHORIZATION relating specifically to the pre-launch, launch, promotion, detailing, medical education and medical liaison activities, marketing, pricing, reimbursement, sale, and distribution of the LICENSED PRODUCTS, including: (a) strategic marketing, sales force detailing, advertising, medical education and liaison, and market and LICENSED PRODUCTS support; (b) any commercialization studies for use in generating data to be submitted to regulatory authorities (and all associated reporting requirements), and (c) all customer support, LICENSED PRODUCT distribution, invoicing and sales activities.

 

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COMMERCIALLY REASONABLE EFFORTS means those efforts consistent with the exercise of prudent scientific and business judgment in an active and ongoing program as applied by a LICENSEE, AFFILIATE or SUBLICENSEE to the development and commercialization of its own pharmaceutical products at a similar stage of development or commercialization and with similar market potential. Commercially Reasonable Efforts requires that a LICENSEE, AFFILIATE or SUBLICENSEE, at a minimum, set annual reasonable goals and objectives for development and/or commercialization (as applicable), assign responsibility for meeting such goals and objectives to qualified employees, and allocate sufficient resources to meet such goals and objectives.

 

DOSSIER means documentation that contains all available analytical and technical data related to the LICENSED SUBJECT MATTER and is required when applying for an authorization to market medicinal products.

 

LICENSED FIELD means the fields of human therapeutics.

 

LICENSED PRODUCTS means any product or service sold by LICENSEE comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT.

 

LICENSED SUBJECT MATTER means inventions and discoveries covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within LICENSED FIELD as well as all documentation related thereto, both existing and created in the future as a result of the activities of “INTERTECH”, LICENSEE and information made available to MOLEULIN by UTMDACC, including data which constitutes the DOSSIER of medicinal products required when applying for their marketing authorization.

 

LICENSED TERRITORY shall include only the countries of Belarus, Russia, Kazakhstan, Uzbekistan, Turkmenistan, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Ukraine.

 

MARKETING AUTHORIZATION (MA) means a document confirming that the relevant authorities in the LICENSED TERRITORY have allowed sales of a medicinal product made on the basis of the LICENSED SUBJECT MATTER.

 

NDA means a New Drug Application, as defined in the United States Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.), as amended, and the rules and regulations promulgated thereunder, or an equivalent foreign filing.

 

NET SALES means the gross revenues received by LICENSEE from a SALE less sales discounts actually granted, sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation actually prepaid or allowed, and amounts actually allowed or credited due to returns (not exceeding the original billing or invoice amount), all as recorded by LICENSEE in LICENSEE’s official books and records in accordance with generally accepted accounting practices and consistent with LICENSEE’s published financial statements and/or regulatory filings.

 

PATENT RIGHTS means INTERTECH’s rights in information or discoveries described in invention disclosures, or claimed in any patents, and/or patent applications, whether domestic or foreign, and all divisionals, continuations, continuations-in-part, reissues, reexaminations or extensions thereof and any letters patent that issue thereon as defined in Exhibit 1 attached hereto.

 

PHASE II CLINICAL STUDY means: (a) that portion of the drug development and review process which provides for early controlled clinical studies conducted to obtain preliminary data on the effectiveness of an investigational new drug for a particular indication, as more specifically defined by the rules and regulations of the FDA, including 21 C.F.R. § 312.21 or any future revisions or substitutes therefor; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

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PHASE IIb CLINICAL STUDY means that portion of a PHASE II CLINICAL STUDY involving controlled dose ranging to evaluate the efficacy and safety of an investigational new drug in the target patient population and to define the optimal dosing regimen.

 

SALE or SOLD means the transfer or disposition of a LICENSED PRODUCT for value to a party other than LICENSEE. SUBLICENSEE or AFFILIATE.

 

SUBLICENSEE means any third part other than an AFFILIATE which pursuant to a written agreement with LICENSEE obtains a sublicense in accordance with the terms of this AGREEMENT.

 

TECHNOLOGY RIGHTS means “INTERTECH” rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data owned or controlled by “INTERTECH” before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS.

 

IV. LICENSE

 

“INTERTECH”, hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to manufacture. have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD. This grant is subject to Article XIV-Term and Termination hereinbelow, the payment by LICENSEE to “INTERTECH  of all consideration as provided herein, the timely payment, of all amounts due under any related sponsored research agreement between “INTERTECH” and LICENSEE in effect during this AGREEMENT, and is further subject to the following rights retained by “INTERTECH” to Publish the general scientific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of Article XII-Confidential Information and Publication; and

 

LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE. LICENSEE agrees to deliver such contract to “INTERTECH” within thirty (30) calendar days following execution thereof.

 

LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER in the LICENSED TERRITORY consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its SUBLICENSEES relevant to this AGREEMENT, and for diligently collecting all amounts and records due LICENSEE from SUBLICENSEES. If a SUBLICENSEE pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its best reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

 

LICENSEE must deliver to “INTERTECH”: a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof within thirty (30) calendar days after execution, modification, or termination.

 

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If this AGREEMENT is terminated pursuant to Article XIV-Term and Termination, “INTERTECH” agrees to accept as successors to LICENSEE, existing SUBLICENSEES in good standing at the date of termination provided that each such SUBLICENSEE consents in writing to be bound by all of the terms and conditions of this AGREEMENT.

 

V. CONSIDERATION, PAYMENTS AND REPORTS

 

In consideration for the DOSSIER to be developed by “INTERTECH” and provided to LICENSEE under this AGREEMENT, LICENSEE agrees to pay “INTERTECH” the following:

 

(a) All out-of-pocket expenses incurred by “INTERTECH” in filing, prosecuting, enforcing and maintaining PATENT RIGHTS in the LICENSED TERRITORY, and all such future expenses incurred by “INTERTECH”, for so long as, and in such countries as this AGREEMENT remains in effect. “INTERTECH” will invoice LICENSEE within thirty five (35) calendar days of the EFFECTIVE DATE for expenses incurred as of that time and on a quarterly basis thereafter. The invoiced amounts will be paid by LICENSEE within thirty five (35) calendar days of invoice; and

 

(b) A nonrefundable DOSSIER development fee in the amount of US$ 35,000.00. This fee will not reduce the amount of any other payment provided for in this ARTICLE V, and is due and payable to 20 June 2011

 

(c) A nonrefundable fee in the amount of US$ 40,000.00 will be paid by LICENSEE to INTERTECH for “INTERTECH’s services to assist LICENSEE in obtaining additional funding. This fee will not reduce the amount of any other payment provided for in this ARTICLE V, and is due and payable upon the earlier of (i) LICENSEE receiving funding of US$1,000,000.00 or more for use in the development of LICENSED SUBJECT MATTER, or (ii) after twelve (12) months from the date of LICENSEE has received the financing from the Polish Agency for Enterprise Development

 

  (d) In consideration of rights granted by “INTERTECH” to LICENSEE under this AGREEMENT, LICENSEE agrees to pay “INTERTECH “the following:

 

(a) A running royalty on sales of LICENSED PRODUCTS to be determined by the UTMDACC LICENSE. It is understood and agreed that such running royalty will be equal to those amounts set forth in the UTMDACC LICENSE which “INTERTECH  would otherwise owe to UTMDACC for any sale of LICENSED PRODUCTS in the LICENSED TERRITORY plus an override of 2% to be added to such amounts. For example, if the UTMDACC LICENSE calls for a running royalty of 2.5%, the resulting royalty to LICENSEE will be 4.5%; and

 

(b) Unless otherwise provided in this article V(e) below, the following percentage of all consideration received by LICENSEE from either (i) any SUBLICENSEE pursuant to Article IV-License hereinabove, or (ii) any assignee pursuant to Aritcle XIII-Assignment hereinbelow (in consideration for “INTERTECH” allowing the assignment), including but not limited to, royalties, up-front payments, marketing, distribution, franchise, option, license, or documentation fees, bonus, and certain milestone payments and equity securities not excluded above:

 

(i) prior to completion of a PHASE IIb CLINICAL STUDY in the LICENSED TERRITORY - twenty five percent (25%); and

 

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(ii) on or after completion of PHASE IIb CLINICAL STUDY in the LICENSED TERRITORY - ten percent (10%).

 

Notwithstanding the above provision, in the event that the amounts payable to “INTERTECH” under the above percentages are less than the payments that “INTERTECH” is required to pay to UTMDACC for sublicenses granted under the UTMDACC LICENSE, LICENSEE shall be required to pay the amounts required under the UTMDACC LICENSE, referred to in paragraph “d” of Article V of this AGREEMENT plus 5% of those amounts to “INTERTECH” for those sublicenses.

 

No payments will be due from LICENSEE to “INTERTECH” under this Article V(e) for (i) research and development money; (ii) payments received by LICENSEE from a sublicense as a result of the purchase or sale of debt or equity securities of LICENSEE by such sublicense; or (iii) sales of LICENSED PRODUCTS covered by Article V(d).

 

As an example of how Article V(e) would be applied, if LICENSEE entered into a sublicense allowing a third party to use the LICENSED SUBJECT MATTER in exchange for payments to be made to LICENSEE, “INTERTECH” would be entitled to receive 25% of the payments received by LICENSEE until the completion by “INTERTECH” of a PHASE IIb CLINICAL STUDY. Once “INTERTECH” completed a PHASE IIb CLINICAL STUDY, “INTERTECH would then be entitled receive only 10% of the payments received by LICENSEE. Furthermore, the sale of any LICENSED PRODUCTS subject to the percentages included in Article V(e) would not be subject to the running royalty set forth in Article V(d).

 

Unless otherwise provided, all such payments are payable within forty-five (45) calendar days (“the Due Date”) after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to “INTERTECH” a true and accurate report, giving such particulars of the business conducted by LICENSEE and its SUBLICENSEEs, if any exist, during the preceding three calendar months under this AGREEMENT as necessary for “INTERTECH” to account for LICENSEE’s payments hereunder. This report will include pertinent data, including, but not limited to:

 

(a) the accounting methodologies used to account for and calculate the items included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and

 

(b) a list of LICENSED PRODUCTS produced for the three (3) preceding calendar months categorized by the technology it relates to under PATENT RIGHTS; and

 

(c) the total quantities of LICENSED PRODUCTS produced that are subject to the running royalties described in this Article V; and

 

(d) the total SALES that are subject to the running royalties described in this Article V; and

 

(e) the calculation of NET SALES that are subject to the running royalties described in this Article V; and

 

(f) the royalties so computed and due INTERTECH for the LICENSED PRODUCTS that are subject to the running royalties described in this Article V; and

 

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(g) all consideration received from each SUBLICENSEE or assignee and payments due INTERTECH and

 

(h) all other amounts INTERTECH herein.

 

Simultaneously with the delivery of each such report, LICENSEE agrees to pay “INTERTECH” the amount due, if any, for the period of such report. These reports are required even if no payments are due.

 

During the term of this AGREEMENT and for one (1) year thereafter but not longer than the period 7 years from the date of conclusion of this Agreement, LICENSEE agrees to keep complete and accurate records of its and its SUBLICENSEES’ SALES and NET SALES in sufficient detail to enable the royalties and other payments due hereunder to be determined. LICENSEE agrees to permit “INTERTECH or its representatives, at “INTERTECH’s expense, to periodically examine LICENSEE’s books, ledgers, and records during regular business hours for the purpose of and to the extent necessary to verify any report required under this AGREEMENT. If any amounts due INTERTECH are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination plus accrued interest at the highest allowable rate.

 

Within sixty (60) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to INTERTECH a written progress report as to LICENSEE’s (and any SUBLICENSEE’S) efforts and accomplishments during the preceding year in diligently commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and LICENSEE’s (and SUBLICENSEES’) commercialization plans for the upcoming year.

 

All amounts payable hereunder by LICENSEE will be paid in United States funds via wire transfer without deductions for taxes, assessments, fees, or charges of any, kind. Wire transfers shall be sent to:

 

BANK:

 

ABA ROUTING NO

 

ACCOUNT NAME: INTERTECH BIO CORPORATION

 

ACCOUNT NO:

 

No payments due or royalty rates owed under this AGREEMENT will be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by “INTERTECH” and another party, including, but not limited to, LICENSEE.

 

Any payments received beyond the Due Date will be subject to a late payment penalty of one percent (1%) of the amount originally owed for each month payment is delayed beyond the Due Date.

 

INTERTECH and LICENSEE agree to share all research results pertaining to LICENSED SUBJECT MATTER with one another and to cooperate fully in facilitating the use of such research in efforts to obtain regulatory approval within the LICENSED TERRITORY with regard to such efforts undertaken by LICENSEE and worldwide with regard to such efforts undertaken by “INTERTECH”. As an example, “INTERTECH” will share with LICENSEE all data a reports relating to applications made to the FDA regarding LICENSED SUBJECT MATTER to assist LICENSEE in its own efforts to seek EU approval. INTERTECH will assist LICENSEE in its efforts to obtain funding required for the further development of licensed technology by providing LICENSEE with information available to INTERTECH regarding INTERTECH’s research efforts and results.

 

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Within thirty (30) days of its submission of an NDA to the US Food and Drug Administration, “INTERTECH” agrees to provide LICENSEE all documentation and information available to “INTERTECH” INTERTECH necessary for LICENSEE to create a DOSSIER.

 

During the term of this AGREEMENT, INTERTECH agrees not to compete with LICENSEE in the LICENSED TERRITORY within the LICENSED FIELD for the sale of LICENSED PRODUCTS or products that use technology similar to the LICENSED SUBJECT MATTER or for the sale of products with indications approved for LICENSED PRODUCTS in the LICENSED TERRITORY within the LICENSED FIELD. During the term of this AGREEMENT, LICENSEE agrees not to compete with INTERTECH outside the LICENSED TERRITORY for the sale of LICENSED PRODUCTS or products that use technology similar to the LICENSED SUBJECT MATTER or for the sale of products with indications approved for LICENSED PRODUCTS outside the LICENSED TERRITORY. The LICENSEE and INTERTECH both agree that these restrictions are necessary and narrowly-tailored to achieve the legitimate business purposes of this AGREEMENT and the development of the LICENSED SUBJECT MATTER.

 

VI. COLLABORATION AND NON-COMPETITION

 

“INTERTECH” and LICENSEE agree to share all research results pertaining to LICENSED SUBJECT MATTER with one another and to cooperate fully in facilitating the use of such research in efforts to obtain regulatory approval within the LICENSED TERRITORY with regard to such efforts undertaken by LICENSEE and worldwide with regard to such efforts undertaken by “INTERTECH”. As an example, “INTERTECH” will share with LICENSEE all data a reports relating to appl ications made to the FDA regarding LICENSED SUBJECT MATTER to assist LICENSEE in its own efforts to seek EU approval, “INTERTECH” will assist LICENSEE in its efforts to obtain funding required for the further development of licensed technology by providing LICENSEE with information available to “INTERTECH” regarding “INTERTECH” research efforts and results.

 

Within thirty (30) days of its submission of an NDA to the US Food and Drug Administration, “INTERTECH” agrees to provide LICENSEE all documentation and information available to “INTERTECH” necessary for LICENSEE to create a DOSSIER.

 

During the term of this AGREEMENT, “INTERTECH” agrees not to compete with LICENSEE in the LICENSED TERRITORY within the LICENSED FIELD for the sale of LICENSED PRODUCTS or products that use technology similar to the LICENSED SUBJECT MATTER or for the sale of products with indications approved for LICENSED PRODUCTS in the LICENSED TERRITORY within the LICENSED FIELD. During the term of this AGREEMENT, LICENSEE agrees not to compete with “INTERTECH” outside the LICENSED TERRITORY for the sale of LICENSED PRODUCTS or products that use technology similar to the LICENSED SUBJECT MATTER or for the sale of products with indications approved for LICENSED PRODUCTS outside the LICENSED TERRITORY. The LICENSEE and “INTERTECH” both agree that these restrictions are necessary and narrowly-tailored to achieve the legitimate business purposes of this AGREEMENT and the development of the LICENSED SUBJECT MATTER.

 

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VII PATENTS AND INVENTIONS

 

If after consultation with LICENSEE, “INTERTECH” believes that a new patent application should be filed for LICENSED SUBJECT MATTER in the LICENSED TERRITORY, LICENSEE will pay the cost of searching, preparing, filing, prosecuting and maintaining same. INTERTECH agrees to use patent counsel for such efforts mutually agreed to by LICENSEE and “INTERTECH. “INTERTECH” will keep LICENSEE fully informed on a timely basis of all activity on the filings related to the LICENSED SUBJECT MATTER in the LICENSED TERRITORY and will provide LICENSEE with a copy of all applications and any documents received or filed during prosecution thereof for which LICENSEE has paid the cost of filing. For all applications and responses to office actions filed during the term of this AGREEMENT, LICENSEE will timely provide “INTERTECH” an initial draft and “INTERTECH” will review, finalize and file such documents. If LICENSEE notifies INTERTECH that it does not intend to pay the cost of an application, or if LICENSEE does not respond or INTERTECH make an effort to agree with “INTERTECH” on the disposition of rights of the subject invention, then “INTERTECH” may file such application at its own expense and LICENSEE’s rights to such invention under this AGREEMENT shall terminate in their entirety. The parties agree that they share a common legal interest to get valid enforceable patents and that LICENSEE will keep all privileged information received pursuant to this Section confidential.

 

If “INTERTECH” decides to cease the prosecution or maintenance of any patent relating to the LICENSED SUBJECT MATTER in the LICENSED TERRITORY, it shall notify LICENSEE in writing sufficiently in advance so that LICENSEE may, at its discretion, assume the responsibility for the prosecution or maintenance of such patents, at LICENSEE’s sole expense.

 

“INTERTECH” and LICENSEE undertake to cooperate with each other with a view to acquire and effectively enforce the rights arising from patent protection of the LICENSED SUBJECT MATTER in the LICENSED TERRITORY. Upon “INTERTECH’s request the LICENSEE will assist “INTERTECH” in these types of activities performed also in territories other than the LICENSED TERRITORY, whenever this is possible, necessary and legally permitted, with the understanding that the cost of these activities will be borne by “INTERTECH”. “INTERTECH undertakes to actively assist LICENSEE in the process of soliciting subsidies for development and effective application of the LICENSED SUBJECT MATTER

 

VIII. INFRINGEMENT BY THIRD PARTIES

 

LICENSEE, at its expense, may enforce any patent exclusively licensed hereunder against infringement in the LICENSED TERRITORY by third parties and is entitled to retain recovery from such enforcement. After reimbursement of LICENSEE’s reasonable legal costs and expenses related to such recovery, LICENSEE agrees to pay INTERTECH either: (a) the royalty detailed in Article V for any monetary recovery that is for sales of LICENSED PRODUCTS lost due to the infringement and fifty percent (50%) of any other damages received; or (b) fifty percent (50%) of reasonable royalties awarded and any other damages received in any recovery in which the compensatory award is solely for reasonable royalties.

 

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LICENSEE must notify “INTERTECH” in writing of any potential infringement within thirty (30) calendar days of knowledge thereof. If LICENSEE decides not to pursue an infringement enforcement action within six month of knowledge of such infringement, LICENSEE will notify “INTERTECH” and then “INTERTECH” may, at its discretion, after considering the commercially reasonable bases for LICENSEE’s decision not to pursue such infringement enforcement action, pursue the enforcement of any patent licensed hereunder on behalf of itself and LICENSEE. In such case, the parties will discuss in good faith the appropriate settlement of such case and/or the appropriate distribution of any recovery from such action, which shall depend on LICENSEE’s involvement with and contribution to such case and the effect of the LICENSEE’s ability to commercialize the LICENSED SUBJECT MATTER in the LICENSED TERRITORY.

 

In any suit or dispute involving an infringer, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.

 

IX. PATENT MARKING

 

LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and when possible for actual LICENSED PRODUCT(S) sold by LICENSEE, AFFILIATES, and/or SUBLICENSEES of LICENSEE will be permanently and legibly marked with the number of any applicable patent(s) licensed hereunder in accordance with each country’s patent laws.

 

X. INDEMNIFICATION AND INSURANCE

 

LICENSEE agrees to hold harmless and indemnify “INTERTECH”, its officers, employees, and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including without limitation, those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of or resulting from, the exercise or practice of the rights granted hereunder by LICENSEE, its officers, its AFFILIATES or their officers, employees, agents or representatives.

 

In no event shall “INTERTECH” be liable for any indirect, special, consequential or punitive damages (including, without limitation, damages for loss of profits or expected savings or other economic losses, or for injury to persons or property) arising out of, or in connection with, this AGREEMENT or its subject matter, regardless of whether “INTERTECH” knows or should know of the possibility of such damages.

 

Beginning at the time when any LICENSED SUBJECT MATTER is being distributed or sold (including for the purpose of obtaining regulatory approvals) by LICENSEE or by a SUBLICENSEE, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than US$ 1,000,000 per incident and US$ 1,000,000 annual aggregate, and LICENSEE shall use reasonable efforts to have “INTERTECH”, its officers, directors, employees and agents named as additional insureds. Such commercial general liability insurance shall provide: (i) product liability coverage; (ii) broad form contractual liability coverage for LICENSEE’s indemnification under this AGREEMENT; and (iii) coverage for litigation costs. The minimum amounts of insurance coverage required herein shall not be construed to create a limit of LICENSEE’s liability with respect to its indemnification under this AGREEMENT.

 

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LICENSEE shall provide “INTERTECH” with written evidence of such insurance within thirty (30) days of its procurement. Additionally, LICENSEE shall provide “INTERTECH” with written notice of at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance.

 

LICENSEE shall maintain such commercial general liability insurance beyond the expiration or termination of this AGREEMENT during: (i) the period that any LICENSED SUBJECT MATTER developed pursuant to this AGREEMENT is being commercially distributed or sold by LICENSEE or by a SUBLICENSEE or agent of LICENSEE; and (ii) the five (5) year period immediately after such period.

 

XI. USE OF INTERTECH AND UTMDACC’ S NAME

 

LICENSEE will not use the name of (or the name of any employee of) UTMDACC or “INTERTECH” in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of  “INTERTECH” or UTMDACC, as the case may be.

 

Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC or “INTERTECH” in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

 

XII. CONFIDENTIAL INFORMATION AND PUBLICATION

 

“INTERTECH” and LICENSEE each agree that all information contained in documents marked “confidential” and forwarded to one by the other (i) are to be received in strict confidence, (ii) are to be used only for the purposes of this AGREEMENT, and (iii) will not be disclosed by the recipient party (except as required by law or court order), its agents or employees without the prior written consent of the other party, except to the extent that the recipient party can establish by competent written proof that such information:

 

(a) was in the public domain at the time of disclosure; or

 

(b) later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or

 

(c) was lawfully disclosed to the recipient party by a third party having the right to disclose it; or

 

(d) was already known by the recipient party at the time of disclosure; or

 

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(e) was independently developed by the recipient party without use of the other party’s confidential information; or

 

(f) is required by law or regulation to be disclosed.

 

Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the other party’s confidential information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This obligation will exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

 

“INTERTECH” reserves the right to publish the general scientific findings from research related to LICENSED SUBJECT MATTER, with due regard to the protection of LICENSEE’s confidential information. INTERTECH will submit the manuscript of any proposed publication to LICENSEE at least thirty (30) calendar days before publication, and LICENSEE shall have the right to review and comment upon the publication in order to protect LICENSEE’s confidential information. Upon LICENSEE’s request, publication may be delayed up to sixty (60) additional calendar days to enable LICENSEE to secure adequate intellectual property protection of LICENSEE’s confidential information that would otherwise be affected by the publication.

 

Notwithstanding the limitations of this Article XII, LICENSEE shall have the right to use information provided by “INTERTECH” in its applications with EU governmental funding and regulatory agencies for the purposes of seeking funding or approval for the LICENSED SUBJECT MATTER.

 

XIII. ASSIGNMENT

 

This AGREEMENT may not be assigned by INTERTECH without the prior written consent of “INTERTECH”, which will not be unreasonably withheld. “INTERTECH” must respond within thirty (30) days of receipt of LICENSEE’s written request for assignment.

 

XIV. TERM AND TERMINATION

 

Subject to provisions in this Article XIV hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE to the full end of the term or terms for which PATENT RIGHTS have not expired.

 

Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety:

 

(a) automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver, assignee, or trustee, whether by voluntary act of LICENSEE or otherwise; or

 

(b) upon thirty (30) calendar days written notice from “INTERTECH”, if LICENSEE breaches or defaults on the payment or report obligations of ARTICLE V and has failed to make payments for one hundred eighty (180) calendar days, or use of name obligations of ARTICLE XI, unless, before the end of the such thirty (30)-calendar day notice period, LICENSEE has cured the default or breach satisfaction (including the payment of any late payment penalties due) “INTERTECH”s, and so notifies “INTERTECH”, stating the manner of the cure; or

 

(c) upon sixty (60) calendar days written notice from “INTERTECH” if LICENSEE breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of the such sixty (60) calendar-day notice period, LICENSEE has cured the default or breach to “INTERTECH’s satisfaction and so notifies INTERTECH”, stating the manner of the cure; or

 

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(d) at any time by mutual written agreement between LICENSEE and INTERTECH upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or

 

(e) if INTERTECH exercises its right to terminate due to LICENSEE’S failure to commercialize or actively attempt to commercialize as described above in this Article XIV; or

 

(f) upon sixty (60) calendar days written notice from “INTERTECH”, if LICENSEE has defaulted or been late on its payment obligations pursuant to the terms of this AGREEMENT on any two (2) occasions in a twelve (12) month period.

 

(g) at any time by LICENSEE if (i) INTERTECH fails to provide to LICENSEE the documentation and information required for LICENSEE to prepare a DOSSIER within thirty (30) days of INTERTECH’s filing of an NDA with the Food and Drug Administration, or (ii) INTERTECH does not cooperate in the process of LICENSEE soliciting a subsidy to develop the LICENSED SUBJECT MATTER within thirty (30) days of LICENSEE’s request for such cooperation.

 

Upon termination of this AGREEMENT:

 

(a) nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and

 

(b) LICENSEE covenants and agrees to be bound by the provisions of Articles X (Indemnification and Insurance), XI (Use of INTERTECH and UTMDACC’s Name) and XII (Confidential Information and Publication) of this AGREEMENT; and

 

(c) LICENSEE may, after the effective date of the termination and for a period of no more than six (6) months from such date of termination, sell all LICENSED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to Article V of this AGREEMENT; and

 

(d) Subject to paragraph (e) immediately above, LICENSEE agrees to cease and desist any use and all SALE of the LICENSED SUBJECT MATTER and LICENSED PRODUCTS upon termination of this AGREEMENT; and

 

(e) LICENSEE grants to INTERTECH a nonexclusive royalty bearing license with the right to sublicense others with respect to improvements made by LICENSEE (including improvements licensed by LICENSEE from third parties) in the LICENSED SUBJECT MATTER. LICENSEE and INTERTECH agree to negotiate in good faith the royalty rate for the nonexclusive license. INTERTECH’s right to sublicense others hereunder is solely for the purpose of permitting others to develop and commercialize the entire technology package.

 

XV WARRANTY: SUPERIOR RIGHTS

 

INTERTECH represents and warrants its belief that (a) it is the owner of the entire right, title, and interest in and to LICENSED SUBJECT MATTER developed by INTERTECH and it has the exclusive right to license LICENSED SUBJECT MATTER covered by the UTMDACC OPTION, (b) it has (or will have in the case of the LICENSED SUBJECT MATTER covered by the UTMDACC OPTION) the sole right to grant licenses thereunder, and (c) it has not knowingly granted licenses thereunder to any other entity that would restrict rights granted hereunder except as stated herein.

 

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LICENSEE understands and agrees that INTERTECH, by this AGREEMENT, makes no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER. INTERTECH, by this AGREEMENT, also makes no representation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by INTERTECH or UTMDACC in the LICENSED FIELD, nor does INTERTECH make any representation that the inventions contained in PATENT RIGHTS or LICENSED PRODUCTS do not infringe any other patents now held or that will be held by others or by INTERTECH.

 

LICENSEE, by execution hereof acknowledges, covenants and agrees that LICENSEE has not been induced in any way by INTERTECH or employees thereof to enter into this AGREEMENT, and further warrants and represents that (a) LICENSEE has conducted sufficient due diligence with respect to all items and issues pertaining to this AGREEMENT; and (b) LICENSEE has adequate knowledge and expertise, or has used knowledgeable and expert consultants, to adequately conduct such due diligence, and agrees to accept all risks inherent herein.

 

XVI. GENERAL

 

This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements and understandings are superseded hereby. No agreements altering or supplementing the terms hereof will be made except by a written document signed by both parties.

 

Any notice required by this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of “INTERTECH” to:

 

INTERTECH BIO CORPORATION

3910 FM 1960 Rd West, Suite 100,

Houston, TX 77068

Paul Fisher

CFO

 

or in the case of LICENSEE to:

 

DERMIN Sp. z o. o. ,

ul. Swietkorzyska 36/17

00-116 Warszawa

Poland

Attn: Krzysztof Filant, PhD

Authorized Representative

 

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or other addresses as may be given from time to time under the terms of this notice provision.

 

LICENSEE must comply with all applicable international, national and local laws and regulations in connection with its activities pursuant to this AGREEMENT.

 

This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, without regard to its conflict of law provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas, Houston Division) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction of such courts; however, nothing herein shall be deemed as a waiver by LICENSEE of its sovereign immunity.

 

Failure of “INTERTECH” to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved.

 

Headings included herein are for convenience only and will not be used to construe this AGREEMENT.

 

If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable.

 

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

 

INTERTECH  
   
/s/  Donald Picker  
By: Donald Picker  
Its: CFO CEO  
   
LICENSEE  
   
/s/ Krzysztof Filant  
By: Krzysztof Filant, PhD  
Its: Authorized Representative acting on the notarial power of attorney dated 18 March 2011  

 

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Exhibit 10.9

 

PATENT AND TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT

 

This fourteen (14) page AGREEMENT (“AGREEMENT”) is made on 27 of October, 2010, by and between MOLECULIN, LLC, a Texas limited liability company (“MOLECULIN”),and DERMIN limited liability company having a principal place of business located at PL-00-116 Warszawa, ul. Świętokrzyska 36/17, Poland (“LICENSEE”).

 

I. RECITALS

A. MOLECULIN owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED SUBJECT MATTER developed in its own facilities and at The University of Texas M. D. Anderson Cancer Center (“UTMDACC”). PATENT RIGHTS and TECHNOLOGY RIGHTS developed at UTMDACC are subject to a License Agreement between MOLECULIN and UTMDACC (“UTMDACC LICENSE”).

 

B. LICENSEE desires to fund in part the development of topical anticancer drugs.

 

C. MOLECULIN, desires to have the LICENSED SUBJECT MATTER developed in the LICENSED FIELD and used for the benefit of LICENSEE, MOLECULIN, and where applicable, UTMDACC.

 

D. LICENSEE wishes to obtain a license from MOLECULIN to practice LICENSED SUBJECT MATTER.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

 

II. EFFECTIVE DATE

This AGREEMENT is effective as of the date written above (“EFFECTIVE DATE”).

 

III. DEFINITIONS

As used in this AGREEMENT, the following terms have the meanings indicated:

 

AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business entity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE.

 

CALENDAR YEAR means the period between January 1st and December 31st including both of these dates.

 

COMMERCIALIZATION, with a correlative meaning for COMMERCIALIZE and COMMERCIALIZING, means all activities undertaken before and after obtaining MARKET AUTHORIZATION relating specifically to the pre-launch, launch, promotion, detailing, medical education and medical liaison activities, marketing, pricing, reimbursement, sale, and distribution of the LICENSED PRODUCTS, including: (a) strategic marketing, sales force detailing, advertising, medical education and liaison, and market and LICENSED PRODUCTS support; (b) any commercialization studies for use in generating data to be submitted to regulatory authorities (and all associated reporting requirements), and (c) all customer support, LICENSED PRODUCT distribution, invoicing and sales activities.

 

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COMMERCIALLY REASONABLE EFFORTS means those efforts consistent with the exercise of prudent scientific and business judgment in an active and ongoing program as applied by a LICENSEE, AFFILIATE or SUBLICENSEE to the development and commercialization of its own pharmaceutical products at a similar stage of development or commercialization and with similar market potential. Commercially Reasonable Efforts requires that a LICENSEE, AFFILIATE or SUBLICENSEE, at a minimum, set annual reasonable goals and objectives for development and/or commercialization (as applicable), assign responsibility for meeting such goals and objectives to qualified employees, and allocate sufficient resources to meet such goals and objectives.

 

DOSSIER means documentation that contains all available analytical and technical data related to the LICENSED SUBJECT MATTER and is required when applying for an authorization to market medicinal products.

 

LICENSED FIELD means the fields of human therapeutics.

 

LICENSED PRODUCTS means any product or service sold by LICENSEE comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT.

 

LICENSED SUBJECT MATTER means inventions and discoveries covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within LICENSED FIELD as well as all documentation related thereto, both existing and created in the future as a result of the activities of MOLECULIN, LICENSEE and information made available to MOLEULIN by UTMDACC, including data which constitutes the DOSSIER of medicinal products required when applying for their marketing authorization.

 

LICENSED TERRITORY shall include only the countries of Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Ukraine.

 

MARKETING AUTHORIZATION (MA) means a document confirming that the relevant authorities in the LICENSED TERRITORY have allowed sales of a medicinal product made on the basis of the LICENSED SUBJECT MATTER.

 

NDA means a New Drug Application, as defined in the United States Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.), as amended, and the rules and regulations promulgated thereunder, or an equivalent foreign filing.

 

NET SALES means the gross revenues received by LICENSEE from a SALE less sales discounts actually granted, sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation actually prepaid or allowed, and amounts actually allowed or credited due to returns (not exceeding the original billing or invoice amount), all as recorded by LICENSEE in LICENSEE’s official books and records in accordance with generally accepted accounting practices and consistent with LICENSEE’s published financial statements and/or regulatory filings.

 

PATENT RIGHTS means MOLECULIN’s rights in information or discoveries described in invention disclosures, or claimed in any patents, and/or patent applications, whether domestic or foreign, and all divisionals, continuations, continuations-in-part, reissues, reexaminations or extensions thereof and any letters patent that issue thereon as defined in Exhibit I attached hereto.

 

PHASE II CLINICAL STUDY means: (a) that portion of the drug development and review process which provides for early controlled clinical studies conducted to obtain preliminary data on the effectiveness of an investigational new drug for a particular indication, as more specifically defined by the rules and regulations of the FDA, including 21 C.F.R. § 312.21 or any future revisions or substitutes therefor; or (b) a similar clinical study in any national jurisdiction other than the United States.

 

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PHASE IIb CLINICAL STUDY means that portion of a PHASE II CLINICAL STUDY involving controlled dose ranging to evaluate the efficacy and safety of an investigational new drug in the target patient population and to define the optimal dosing regimen.

 

SALE or SOLD means the transfer or disposition of a LICENSED PRODUCT for value to a party other than LICENSEE. SUBLICENSEE or AFFILIATE.

 

SUBLICENSEE means any third part other than an AFFILIATE which pursuant to a written agreement with LICENSEE obtains a sublicense in accordance with the terms of this AGREEMENT.

 

TECHNOLOGY RIGHTS means MOLECULIN’s rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data owned or controlled by MOLECULIN before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS.

 

IV. LICENSE

MOLECULIN, hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to manufacture, have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD. This grant is subject to Article XIV-Term and Termination hereinbelow, the payment by LICENSEE to MOLECULIN of all consideration as provided herein, the timely payment, of all amounts due under any related sponsored research agreement between MOLECULIN and LICENSEE in effect during this AGREEMENT, and is further subject to the following rights retained by MOLECULIN to Publish the general scientific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of Article XII-Confidential Information and Publication; and

 

LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE. LICENSEE agrees to deliver such contract to MOLECULIN within thirty (30) calendar days following execution thereof.

 

LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER in the LICENSED TERRITORY consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its SUBLICENSEES relevant to this AGREEMENT, and for diligently collecting all amounts and records due LICENSEE from SUBLICENSEES. If a SUBLICENSEE pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its best reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

 

LICENSEE must deliver to MOLECULIN a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof within thirty (30) calendar days after execution, modification, or termination.

 

If this AGREEMENT is terminated pursuant to Article XIV-Term and Termination, MOLECULIN agrees to accept as successors to LICENSEE, existing SUBLICENSEES in good standing at the date of termination provided that each such SUBLICENSEE consents in writing to be bound by all of the terms and conditions of this AGREEMENT.

 

   

 

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V. CONSIDERATION, PAYMENTS AND REPORTS

In consideration for the DOSSIER to be developed by MOLECULIN and provided to LICENSEE under this AGREEMENT, LICENSEE agrees to pay MOLECULIN the following:

 

(a) All out-of-pocket expenses incurred by MOLECULIN in filing, prosecuting, enforcing and maintaining PATENT RIGHTS in the LICENSED TERRITORY, and all such future expenses incurred by MOLECULIN, for so long as, and in such countries as this AGREEMENT remains in effect. MOLECULIN will invoice LICENSEE within thirty (30) calendar days of the EFFECTIVE DATE for expenses incurred as of that time and on a quarterly basis thereafter. The invoiced amounts will be paid by LICENSEE within thirty (30) calendar days of invoice; and

 

(b) A nonrefundable DOSSIER development fee in the amount of US$100,000.00. This fee will not reduce the amount of any other payment provided for in this ARTICLE V, and is due and payable within ten (10) calendar days after the AGREEMENT has been fully executed by all parties; and

 

(c) A nonrefundable fee in the amount of US$100,000.00 will be paid by LICENSEE to MOLECULIN for MOLECULIN’s services to assist LICENSEE in obtaining additional funding. This fee will not reduce the amount of any other payment provided for in this ARTICLE V, and is due and payable upon the earlier of (i) LICENSEE receiving funding of US$1,000,000.00 or more for use in the development of LICENSED SUBJECT MATTER, or (ii) six (6) months from the EFFECTIVE DATE.; and

 

In consideration of rights granted by MOLECULIN to LICENSEE under this AGREEMENT, LICENSEE agrees to pay MOLECULIN the following:

 

(a) A running royalty on sales of LICENSED PRODUCTS to be determined by the UTMDACC LICENSE. It is understood and agreed that such running royalty will be equal to those amounts set forth in the UTMDACC LICENSE which MOLECULIN would otherwise owe to UTMDACC for any sale of LICENSED PRODUCTS in the LICENSED TERRITORY plus an override of 1% to be added to such amounts. For example, if the UTMDACC LICENSE calls for a running royalty of 2.5%, the resulting royalty to LICENSEE will be 3.5%; and

 

(b) Unless otherwise provided in this article V(e) below, the following percentage of all consideration received by LICENSEE from either (i) any SUBLICENSEE pursuant to Article IV-License hereinabove, or (ii) any assignee pursuant to Aritcle XIII-Assignment hereinbelow (in consideration for MOLECULIN allowing the assignment), including but not limited to, royalties, up-front payments, marketing, distribution, franchise, option, license, or documentation fees, bonus, and certain milestone payments and equity securities not excluded above:

 

(i) prior to completion of a PHASE IIb CLINICAL STUDY in the LICENSED TERRITORY - twenty five percent (25%); and

 

(ii) on or after completion of PHASE IIb CLINICAL STUDY in the LICENSED TERRITORY - ten percent (10%).

 

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Notwithstanding the above provision, in the event that the amounts payable to MOLECULIN under the above percentages are less than the payments that MOLECULIN is required to pay to UTMDACC for sublicenses granted under the UTMDACC LICENSE, LICENSEE shall be required to pay the amounts required under the UTMDACC LICENSE, referred to in paragraph “d” of Article V of this AGREEMENT plus 5% of those amounts to MOLECULIN for those sublicenses.

 

No payments will be due from LICENSEE to MOLECULIN under this Article V(e) for (i) research and development money; (ii) payments received by LICENSEE from a sublicense as a result of the purchase or sale of debt or equity securities of LICENSEE by such sublicense; or (iii) sales of LICENSED PRODUCTS covered by Article V(d).

 

As an example of how Article V(e) would be applied, if LICENSEE entered into a sublicense allowing a third party to use the LICENSED SUBJECT MATTER in exchange for payments to be made to LICENSEE, MOLECULIN would be entitled to receive 25% of the payments received by LICENSEE until the completion by MOLECULIN of a PHASE II b CLINICAL STUDY. Once MOLECULIN completed a PHASE IIb CLINICAL STUDY, MOLECULIN would then be entitled receive only 10% of the payments received by LICENSEE. Furthermore, the sale of any LICENSED PRODUCTS subject to the percentages included in Article V(e) would not be subject to the running royalty set forth in Article V(d).

 

Unless otherwise provided, all such payments are payable within forty-five (45) calendar days (“the Due Date”) after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to MOLECULIN a true and accurate report, giving such particulars of the business conducted by LICENSEE and its SUBLICENSEEs, if any exist, during the preceding three calendar months under this AGREEMENT as necessary for MOLECULIN to account for LICENSEE’s payments hereunder. This report will include pertinent data, including, but not limited to:

 

(a) the accounting methodologies used to account for and calculate the items

included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and

 

(b) a list of LICENSED PRODUCTS produced for the three (3) preceding calendar months categorized by the technology it relates to under PATENT RIGHTS; and

 

(c) the total quantities of LICENSED PRODUCTS produced that are subject to the running royalties described in this Article V; and

 

(d) the total SALES that are subject to the running royalties described in this Article V; and

 

(e) the calculation of NET SALES that are subject to the running royalties described in this Article V; and

 

(f) the royalties so computed and due MOLECULIN for the LICENSED PRODUCTS that are subject to the running royalties described in this Article V; and

 

(g) all consideration received from each SUBLICENSEE or assignee and payments due MOLECULIN; and

 

   

 

Page 5  

 

  

(h) all other amounts due MOLECULIN herein.

 

Simultaneously with the delivery of each such report, LICENSEE agrees to pay MOLECULIN the amount due, if any, for the period of such report. These reports are required even if no payments are due.

 

During the term of this AGREEMENT and for one (1) year thereafter but not longer than the period 7 years from the date of conclusion of this Agreement , LICENSEE agrees to keep complete and accurate records of its and its SUBLICENSEES’ SALES and NET SALES in sufficient detail to enable the royalties and other payments due hereunder to be determined. LICENSEE agrees to permit MOLECULIN or its representatives, at MOLECULIN’s expense, to periodically examine LICENSEE’s books, ledgers, and records during regular business hours for the purpose of and to the extent necessary to verify any report required under this AGREEMENT. If any amounts due MOLECULIN are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination plus accrued interest at the highest allowable rate.

 

Within sixty (60) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to MOLECULIN a written progress report as to LICENSEE’s (and any SUBLICENSEE’S) efforts and accomplishments during the preceding year in diligently commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and LICENSEE’s (and SUBLICENSEES’) commercialization plans for the upcoming year.

 

All amounts payable hereunder by LICENSEE will be paid in United States funds via wire transfer without deductions for taxes, assessments, fees, or charges of any, kind. Wire transfers shall be sent to:

 

ABA ROUTING NO:

 

ACCOUNT NAME:       Moleculin, LLC

 

ACCOUNT NO:

 

No payments due or royalty rates owed under this AGREEMENT will be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by MOLECULIN and another party, including, but not limited to, LICENSEE.

 

Any payments received beyond the Due Date will be subject to a late payment penalty of five percent (5%) of the amount originally owed for each month payment is delayed beyond the Due Date.

 

VI. COLLABORATION AND NON-COMPETITION

MOLECULIN and LICENSEE agree to share all research results pertaining to LICENSED SUBJECT MATTER with one another and to cooperate fully in facilitating the use of such research in efforts to obtain regulatory approval within the LICENSED TERRITORY with regard to such efforts undertaken by LICENSEE and worldwide with regard to such efforts undertaken by MOLECULIN. As an example, MOLECULIN will share with LICENSEE all data a reports relating to applications made to the FDA regarding LICENSED SUBJECT MATTER to assist LICENSEE in its own efforts to seek EU approval. MOLECULIN will assist LICENSEE in its efforts to obtain funding required for the further development of licensed technology by providing LICENSEE with information available to MOLECULIN regarding MOLECULIN’s research efforts and results.

 

Page 6  

 

  

Within thirty (30) days of its submission of an NDA to the US Food and Drug Administration, MOLECULIN agrees to provide LICENSEE all documentation and information available to MOLECULIN necessary for LICENSEE to create a DOSSIER.

 

During the term of this AGREEMENT, MOLECULIN agrees not to compete with LICENSEE in the LICENSED TERRITORY within the LICENSED FIELD for the sale of LICENSED PRODUCTS or products that use technology similar to the LICENSED SUBJECT MATTER or for the sale of products with indications approved for LICENSED PRODUCTS in the LICENSED TERRITORY within the LICENSED FIELD. During the term of this AGREEMENT, LICENSEE agrees not to compete with MOLECULIN outside the LICENSED TERRITORY for the sale of LICENSED PRODUCTS or products that use technology similar to the LICENSED SUBJECT MATTER or for the sale of products with indications approved for LICENSED PRODUCTS outside the LICENSED TERRITORY. The LICENSEE and MOLECULIN both agree that these restrictions are necessary and narrowly-tailored to achieve the legitimate business purposes of this AGREEMENT and the development of the LICENSED SUBJECT MATTER.

 

VII. PATENTS AND INVENTIONS

If after consultation with LICENSEE, MOLECULIN believes that a new patent application should be filed for LICENSED SUBJECT MATTER in the LICENSED TERRITORY, LICENSEE will pay the cost of searching, preparing, filing, prosecuting and maintaining same. MOLECULIN agrees to use patent counsel for such efforts mutually agreed to by LICENSEE and MOLECULIN. MOLECULIN will keep LICENSEE fully informed on a timely basis of all activity on the filings related to the LICENSED SUBJECT MATTER in the LICENSED TERRITORY and will provide LICENSEE with a copy of all applications and any documents received or filed during prosecution thereof for which LICENSEE has paid the cost of filing. For all applications and responses to office actions filed during the term of this AGREEMENT, LICENSEE will timely provide MOLECULIN an initial draft and MOLECULIN will review, finalize and file such documents. If LICENSEE notifies MOLECULIN that it does not intend to pay the cost of an application, or if LICENSEE does not respond or make an effort to agree with MOLECULIN on the disposition of rights of the subject invention, then MOLECULIN may file such application at its own expense and LICENSEE’s rights to such invention under this AGREEMENT shall terminate in their entirety. The parties agree that they share a common legal interest to get valid enforceable patents and that LICENSEE will keep all privileged information received pursuant to this Section confidential.

 

If MOLECULIN decides to cease the prosecution or maintenance of any patent relating to the LICENSED SUBJECT MATTER in the LICENSED TERRITORY, it shall notify LICENSEE in writing sufficiently in advance so that LICENSEE may, at its discretion, assume the responsibility for the prosecution or maintenance of such patents, at LICENSEE’s sole expense.

 

MOLECULIN and LICENSEE undertake to cooperate with each other with a view to acquire and effectively enforce the rights arising from patent protection of the LICENSED SUBJECT MATTER in the LICENSED TERRITORY. Upon MOLECULIN’s request the LICENSEE will assist MOLECULIN in these types of activities performed also in territories other than the LICENSED TERRITORY, whenever this is possible, necessary and legally permitted, with the understanding that the cost of these activities will be borne by MOLECULIN. MOLECULIN undertakes to actively assist LICENSEE in the process of soliciting subsidies for development and effective application of the LICENSED SUBJECT MATTER.

 

Page 7  

 

 

VIII. INFRINGEMENT BY THIRD PARTIES

LICENSEE, at its expense, may enforce any patent exclusively licensed hereunder against infringement in the LICENSED TERRITORY by third parties and is entitled to retain recovery from such enforcement. After reimbursement of LICENSEE’s reasonable legal costs and expenses related to such recovery, LICENSEE agrees to pay MOLECULIN either: (a) the royalty detailed in Article V for any monetary recovery that is for sales of LICENSED PRODUCTS lost due to the infringement and fifty percent (50%) of any other damages received; or (b) fifty percent (50%) of reasonable royalties awarded and any other damages received in any recovery in which the compensatory award is solely for reasonable royalties.

 

LICENSEE must notify MOLECULIN in writing of any potential infringement within thirty (30) calendar days of knowledge thereof. If LICENSEE decides not to pursue an infringement enforcement action within six month of knowledge of such infringement, LICENSEE will notify MOLECULIN and then MOLECULIN may, at its discretion, after considering the commercially reasonable bases for LICENSEE’s decision not to pursue such infringement enforcement action, pursue the enforcement of any patent licensed hereunder on behalf of itself and LICENSEE. In such case, the parties will discuss in good faith the appropriate settlement of such case and/or the appropriate distribution of any recovery from such action, which shall depend on LICENSEE’s involvement with and contribution to such case and the effect of the LICENSEE’s ability to commercialize the LICENSED SUBJECT MATTER in the LICENSED TERRITORY.

 

In any suit or dispute involving an infringer, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.

 

IX. PATENT MARKING

LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and when possible for actual LICENSED PRODUCT(S) sold by LICENSEE, AFFILIATES, and/or SUBLICENSEES of LICENSEE will be permanently and legibly marked with the number of any applicable patent(s) licensed hereunder in accordance with each country’s patent laws.

 

X. INDEMNIFICATION AND INSURANCE

LICENSEE agrees to hold harmless and indemnify MOLECULIN, its officers, employees, and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including without limitation, those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of or resulting from, the exercise or practice of the rights granted hereunder by LICENSEE, its officers, its AFFILIATES or their officers, employees, agents or representatives.

 

In no event shall MOLECULIN be liable for any indirect, special, consequential or punitive damages (including, without limitation, damages for loss of profits or expected savings or other economic losses, or for injury to persons or property) arising out of, or in connection with, this AGREEMENT or its subject matter, regardless of whether MOLECULIN knows or should know of the possibility of such damages.

 

Beginning at the time when any LICENSED SUBJECT MATTER is being distributed or sold (including for the purpose of obtaining regulatory approvals) by LICENSEE or by a SUBLICENSEE, LICENSEE shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than US$2,000,000 per incident and US$2,000,000 annual aggregate, and LICENSEE shall use reasonable efforts to have MOLECULIN, its officers, directors, employees and agents named as additional insureds. Such commercial general liability insurance shall provide: (i) product liability coverage; (ii) broad form contractual liability coverage for LICENSEE’s indemnification under this AGREEMENT; and (iii) coverage for litigation costs. The minimum amounts of insurance coverage required herein shall not be construed to create a limit of LICENSEE’s liability with respect to its indemnification under this AGREEMENT.

 

Page 8  

 

  

LICENSEE shall provide MOLECULIN with written evidence of such insurance within thirty (30) days of its procurement. Additionally, LICENSEE shall provide MOLECULIN with written notice of at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance.

 

LICENSEE shall maintain such commercial general liability insurance beyond the expiration or termination of this AGREEMENT during: (i) the period that any LICENSED SUBJECT MATTER developed pursuant to this AGREEMENT is being commercially distributed or sold by LICENSEE or by a SUBLICENSEE or agent of LICENSEE; and (ii) the five (5) year period immediately after such period.

 

XI. USE OF MOLECULIN AND UTMDACC’ S NAME

LICENSEE will not use the name of (or the name of any employee of) UTMDACC or MOLECULIN in any advertising, promotional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of MOLECULIN or UTMDACC, as the case may be.

 

Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC or MOLECULIN in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

 

XII. CONFIDENTIAL INFORMATION AND PUBLICATION

MOLECULIN and LICENSEE each agree that all information contained in documents marked “confidential” and forwarded to one by the other (i) are to be received in strict confidence, (ii) are to be used only for the purposes of this AGREEMENT, and (iii) will not be disclosed by the recipient party (except as required by law or court order), its agents or employees without the prior written consent of the other party, except to the extent that the recipient party can establish by competent written proof that such information:

 

(a) was in the public domain at the time of disclosure; or

 

(b) later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or

 

(c) was lawfully disclosed to the recipient party by a third party having the right to disclose it; or

 

(d) was already known by the recipient party at the time of disclosure; or

 

(e) was independently developed by the recipient party without use of the other party’s confidential information; or

 

(f) is required by law or regulation to be disclosed.

 

Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the other party’s confidential information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This obligation will exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

 

   

 

Page 9  

 

 

MOLECULIN reserves the right to publish the general scientific findings from research related to LICENSED SUBJECT MATTER, with due regard to the protection of LICENSEE’s confidential information. MOLECULIN will submit the manuscript of any proposed publication to LICENSEE at least thirty (30) calendar days before publication, and LICENSEE shall have the right to review and comment upon the publication in order to protect LICENSEE’s confidential information. Upon LICENSEE’s request, publication may be delayed up to sixty (60) additional calendar days to enable LICENSEE to secure adequate intellectual property protection of LICENSEE’s confidential information that would otherwise be affected by the publication.

 

Notwithstanding the limitations of this Article XII, LICENSEE shall have the right to use information provided by MOLECULIN in its applications with EU governmental funding and regulatory agencies for the purposes of seeking funding or approval for the LICENSED SUBJECT MATTER.

 

XIII. ASSIGNMENT

This AGREEMENT may not be assigned by LICENSEE without the prior written consent of MOLECULIN, which will not be unreasonably withheld. MOLECULIN must respond within thirty (30) days of receipt of LICENSEE’s written request for assignment.

 

XIV. TERM AND TERMINATION

Subject to provisions in this Article XIV hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE to the full end of the term or terms for which PATENT RIGHTS have not expired.

 

Any time after two (2) years from the EFFECTIVE DATE, MOLECULIN has the right to terminate this license in any national political jurisdiction within the LICENSED TERRITORY if LICENSEE, within ninety (90) calendar days after receiving written notice from MOLECULIN of the intended termination, fails to provide written evidence consistent with MOLECULIN’s reporting obligations to UTMDACC that LICENSEE or its SUBLICENSEE(s) has COMMERCIALIZED or is using COMMERCIALLY REASONABLE EFFORTS to COMMERCIALIZE a LICENSED PRODUCT such jurisdiction.

 

Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety:

 

(a) automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver, assignee, or trustee, whether by voluntary act of LICENSEE or otherwise; or

 

(b) upon thirty (30) calendar days written notice from MOLECULIN, if LICENSEE breaches or defaults on the payment or report obligations of ARTICLE V and has failed to make payments for one hundred eighty (180) calendar days, or use of name obligations of ARTICLE XI, unless, before the end of the such thirty (30)-calendar day notice period, LICENSEE has cured the default or breach to MOLECULIN’s satisfaction (including the payment of any late payment penalties due), and so notifies MOLECULIN, stating the manner of the cure; or

 

(c) upon sixty (60) calendar days written notice from MOLECULIN if LICENSEE breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of the such sixty (60) calendar-day notice period, LICENSEE has cured the default or breach to MOLECULIN’s satisfaction and so notifies MOLECULIN, stating the manner of the cure; or

 

Page 10  

 

 

(d) at any time by mutual written agreement between LICENSEE and MOLECULIN upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or

 

(e) if MOLECULIN exercises its right to terminate due to LICENSEE’S failure to commercialize or actively attempt to commercialize as described above in this Article XIV; or

 

(f) upon sixty (60) calendar days written notice from MOLECULIN, if LICENSEE has defaulted or been late on its payment obligations pursuant to the terms of this AGREEMENT on any two (2) occasions in a twelve (12) month period.

 

(g) at any time by LICENSEE if (i) MOLECULIN fails to provide to LICENSEE the documentation and information required for LICENSEE to prepare a DOSSIER within thirty (30) days of MOLECULIN’s filing of an NDA with the Food and Drug Administration, or (ii) MOLECULIN does not cooperate in the process of LICENSEE soliciting a subsidy to develop the LICENSED SUBJECT MATTER within thirty (30) days of LICENSEE’s request for such cooperation.

 

Upon termination of this AGREEMENT:

 

(a) nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and

 

(b) LICENSEE covenants and agrees to be bound by the provisions of Articles X (Indemnification and Insurance), XI (Use of MOLECULIN and UTMDACC’s Name) and XII (Confidential Information and Publication) of this AGREEMENT; and

 

(c) LICENSEE may, after the effective date of the termination and for a period of no more than six (6) months from such date of termination, sell all LICENSED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to Article V of this AGREEMENT; and

 

(d) Subject to paragraph (c) immediately above, LICENSEE agrees to cease and desist any use and all SALE of the LICENSED SUBJECT MATTER and LICENSED PRODUCTS upon termination of this AGREEMENT; and

 

(e) LICENSEE grants to MOLECULIN a nonexclusive royalty bearing license with the right to sublicense others with respect to improvements made by LICENSEE (including improvements licensed by LICENSEE from third parties) in the LICENSED SUBJECT MATTER. LICENSEE and MOLECULIN agree to negotiate in good faith the royalty rate for the nonexclusive license. MOLECULIN’s right to sublicense others hereunder is solely for the purpose of permitting others to develop and commercialize the entire technology package.

 

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XV. WARRANTY: SUPERIOR RIGHTS

MOLECULIN represents and warrants its belief that (a) it is the owner of the entire right, title, and interest in and to LICENSED SUBJECT MATTER developed by MOLECULIN and it has the exclusive right to license LICENSED SUBJECT MATTER covered by the UTMDACC OPTION, (b) it has (or will have in the case of the LICENSED SUBJECT MATTER covered by the UTMDACC OPTION) the sole right to grant licenses thereunder, and (c) it has not knowingly granted licenses thereunder to any other entity that would restrict rights granted hereunder except as stated herein.

 

LICENSEE understands and agrees that MOLECULIN, by this AGREEMENT, makes no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER. MOLECULIN, by this AGREEMENT, also makes no representation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by MOLECULIN or UTMDACC in the LICENSED FIELD, nor does MOLECULIN make any representation that the inventions contained in PATENT RIGHTS or LICENSED PRODUCTS do not infringe any other patents now held or that will be held by others or by MOLECULIN.

 

LICENSEE, by execution hereof acknowledges, covenants and agrees that LICENSEE has not been induced in any way by MOLECULIN or employees thereof to enter into this AGREEMENT, and further warrants and represents that (a) LICENSEE has conducted sufficient due diligence with respect to all items and issues pertaining to this AGREEMENT; and (b) LICENSEE has adequate knowledge and expertise, or has used knowledgeable and expert consultants, to adequately conduct such due diligence, and agrees to accept all risks inherent herein.

 

XVI. GENERAL

This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements and understandings are superseded hereby. No agreements altering or supplementing the terms hereof will be made except by a written document signed by both parties.

 

Any notice required by this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of MOLECULIN to:

 

MOLECULIN, LLC
1973 W. Clay St.

Houston, TX 77019
Attn: Walter V Klemp
Managing Member

 

or in the case of LICENSEE to:

 

DORMIN Sp. z o. o.

ul. Świetkorzyska 36/17

00-116 Warszawa

Poland

Attn: Jerzy Repeta

President of Management Board

 

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or other addresses as may be given from time to time under the terms of this notice provision.

 

LICENSEE must comply with all applicable international, national and local laws and regulations in connection with its activities pursuant to this AGREEMENT.

 

This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, without regard to its conflict of law provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas, Houston Division) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction of such courts; however, nothing herein shall be deemed as a waiver by LICENSEE of its sovereign immunity.

 

Failure of MOLECULIN to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved.

 

Headings included herein are for convenience only and will not be used to construe this AGREEMENT.

 

If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable.

 

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

 

MOLECULIN  
   
By:/s/ Walter V. Klemp  
its: Managing Member  
   
LICENSEE  
 
By: Ing. Jerzy Repeta  
Its: President of Management Board  

 

Page 13  

 

Exhibit 10.10

 

IntertechBio Rights Transfer Agreement

 

This Rights Transfer Agreement (the “Agreement”) is made between Moleculin Biotech, Inc. (“MBI”), a Delaware Corporation, whose address is 1973 W Clay St, Houston, Texas 77019 and IntertechBio Corporation (“IntertechBio”), a Texas Corporation whose address is 1973 W Clay St, Houston, Texas 77019, on August 11, 2015 (“Effective Date”).

 

Recitals

WHEREAS, IntertechBio currently holds a license to certain metabolic inhibitor technology owned by The University of Texas M.D. Anderson Cancer Center (“UTMDACC”) dated April 2, 2012 (the “License”); and

 

WHEREAS, MBI wishes to gain rights to the License;

 

NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and other valuable consideration, the sufficiency of which is hereby acknowledged, MBI and IntertechBio hereby agree as follows:

 

Assignment of License

Subject to the other terms and conditions of this Agreement, IntertechBio hereby agrees to assign the License to MBI and to seek all necessary approvals from UTMDACC to perfect such assignment. If despite IntertechBio’s best efforts, such assignment cannot be approved by UTMDACC by September 30, 2015, MBI shall have the right to require IntertechBio to enter into a pass-through sublicense agreement (the “IntertechBio Sublicense”) granting MBI all the rights afforded to IntertechBio under the License and obliging MBI to cover whatever costs that may arise as a result MBI’s activity pursuant to the IntertechBio Sublicense. To the extent that such sublicense results in any fees assessed by UTMDACC relating to the consideration paid by MBI to IntertechBio in connection with this Agreement, IntertechBio agrees to indemnify MBI for such fees, which may result in a reduction of the net consideration IntertechBio receives as a result of this Agreement.

 

Transfer of Data

Upon the request of MBI, IntertechBio agrees to transfer any and all data it may have regarding the License or the subject matter relating to the License (the “License Data”). Specifically, IntertechBio does hereby grant, set over, bargain, convey, assign, transfer and deliver to MBI, MBI’s successors and assigns, as of the Effective Date, all of IntertechBio’s right, title and interest in and to the License and the License Data, including, without limitation, and with respect to all such intangible assets as are included therein, all trade secrets, know-how, confidential information, and all other intellectual property rights of IntertechBio included in the License Data.

 

Issuance of MBI Shares

In exchange for the forgoing Assignment of License and current and future Transfers of Data, including the License Data, MBI agrees to issue to IntertechBio 611,000 shares (the “Shares”) of MBI Common Stock. IntertechBio shall take all actions reasonably necessary or desirable in connection with the consummation of any initial public offering of MBI as requested by MBI (including the execution of customary lock-up agreements on terms no less favorable than the terms relating to the directors and executive officers of MBI).

 

To the extent IntertechBio chooses to distribute the Shares to its shareholders, or otherwise, IntertechBio agrees to require such persons or entities to agree to the foregoing requirement in form satisfactory to MBI.

 

Representations and Warranties of IntertechBio

IntertechBio hereby represents and warrants that it is the sole licensee of the License except for a sublicense granted to Dermin Limited Liability Company of Warsaw Poland, dated April 15, 2011, a copy of which is provided as Exhibit A to this Agreement.

 

Effective as of the date IntertechBio enters into the agreement with UTMDACC attached hereto as Exhibit B, IntertechBio represents and warrants that the License is free and clear of any liens, encumbrances, pledges or claims and that IntertechBio has the right to enter into this Agreement and to assign the License and transfer the License Data, subject only to receipt of approval by UTMDACC.

 

To the best of IntertechBio’s knowledge, the Patents Rights and Technology Rights (each as defined in the License) are valid and enforceable.

 

 

 

  

IntertechBio represents and warrants that this Agreement has been duly authorized, executed and delivered by IntertechBio and is a legal, valid and binding agreement of IntertechBio enforceable in accordance with its terms, and that IntertechBio has received all required consents or approvals of its shareholders.

 

IntertechBio further represents and warrants that it is an "accredited investor" as defined in Section 2(15) of the Securities Act of 1933, as amended and in Rule 501 promulgated thereunder. IntertechBio represents and warrants that it is acquiring the Shares for its own account for investment purposes and not with a view to or for sale in connection with the distribution of the Shares, nor with any present intention of selling or otherwise disposing of all or any part of the Shares.

 

IntertechBio acknowledges that there is no assurance that MBI will be able to successfully complete an initial public offering of its securities, and that the transfers pursuant to this Agreement are not contingent on the completion of an initial public offering or any other event.

 

Miscellaneous

 

This Agreement will bind and inure to the benefit of the administrators, subsidiaries, legal representatives, successors and permitted assigns of the parties hereto.

 

The interpretation of this Agreement shall be governed by the internal substantive laws of the State of Texas, without giving effect to the conflicts of laws principles thereof. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent and only for the duration of such prohibition or enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

 

This Agreement may be executed by the parties hereto in one or more counterparts, each of which shall be considered original for all purposes, but all of which together shall constitute one and the same Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter herein and neither this Agreement nor any of its provisions may be changed, waived or terminated except as herein expressly provided, or in a written instrument signed by both of the parties hereto. Nothing herein expressed or implied is intended or should be construed to confer upon or give to any other person or entity, other than the parties to this Agreement, any rights or remedies under or by reason of this Agreement.

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date by their duly authorized representatives.

 

MOLECULIN BIOTECH, INC.  
     
By: /s/ Walter V. Klemp  
     
Walter V. Klemp, Chairman & CEO  
     
INTERTECHBIO CORPORATION  
     
By: /s/ Don Picker  
     
Don Picker, President  

 

 

 

Exhibit 10.11

 

AGREEMENT AND PLAN OF MERGER

 

By and Among

 

MOLECULIN BIOTECH, INC.

 

and

 

MOLECULIN, LLC

 

dated as of

 

____________, 2016

 

 

 

  

Table of Contents

 

ARTICLE I DEFINITIONS 1
     
1.01. Definitions 1
1.02. Rules of Construction 1
     
ARTICLE II THE MERGER 1
     
2.01. The Merger 1
2.02. Closing; Closing Date; Effective Time 2
2.03. Effect of the Merger 2
2.04. Certificate of Incorporation; Bylaws 2
2.05. Directors and Officers 2
     
ARTICLE III CONVERSION OF SECURITIES 2
     
3.01. Merger Consideration; Conversion and Cancellation of Securities 2
3.02. Issuance of Certificates for MBI Common Stock 3
3.03. No Appraisal Rights for Dissenting Company Unitholders 4
3.04. Contingent Royalty Payments to Company Unitholders 4
     
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5
     
4.01. Organization and Standing 5
4.02. Articles of Organization and LLC Agreement 5
4.03. Corporate Power 6
4.04. Capitalization 6
4.05. Authorization 6
4.06. No Conflict; Required Filings and Consents 7
4.07. Financial Statements 7
4.08. Absence of Changes 7
4.09. Liabilities 8
4.10. Title to Properties and Assets; Liens 8
4.11. Patents and Other Intangible Assets 9
4.12. Litigation 9
4.13. Employees 9
4.14. Certain Transactions 10
4.15. Material Contracts and Obligations 10
4.16. Private Placements 10
4.17. Brokers or Finders; Other Offers 10
4.18. Tax Return and Payments 11
4.19. Environmental and Safety Laws 11
4.20. Compliance with Laws; Permits 12
     
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MBI 12
     
5.01. Organization and Standing 12

 

i  

 

  

5.02. Charter and Bylaws 12
5.03. Corporate Power 12
5.04. Capitalization 12
5.05. Authorization 13
5.06. No Conflict; Required Filings and Consents 13
5.07. Financial Statements 14
5.08. Title to Properties and Assets; Liens 14
5.09. Patents and Other Intangible Assets 14
5.10. Litigation 15
5.11. Employees 15
5.12. Certain Transactions 15
5.13. Private Placement 15
5.14. Brokers or Finders; Other Offers 16
5.15. Environmental and Safety Laws 16
5.16. Compliance with Laws; Permits 16
5.17. Specific Tax Representations 16
     
ARTICLE VI COVENANTS 17
     
6.01. Affirmative Covenants of MBI and the Company 17
6.02. Negative Covenants of the Company 17
6.03. Negative Covenants of MBI 19
6.04. No Solicitation 20
6.05. Notices of Certain Events; Consultation 22
6.06. Access and Information 22
     
ARTICLE VII ADDITIONAL AGREEMENTS 23
     
7.01. Meetings of Stockholders 23
7.02. Appropriate Action; Consents; Filings 24
7.03. Tax Treatment 26
7.04. Public Announcements 26
7.05. Employees 26
7.06. Indemnification 26
     
ARTICLE VIII CONDITIONS 27
     
8.01. Conditions to Obligations of Each Party 27
8.02. Additional Conditions to Obligations of MBI 27
8.03. Additional Conditions to Obligations of the Company 28
     
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 29
     
9.01. Termination 29
9.02. Effect of Termination 30
9.03. Amendment 30
9.04. Waiver 31
9.05. Fees, Expenses and Other Payments 31

 

ii  

 

  

ARTICLE X GENERAL PROVISIONS 31
     
10.01. Effectiveness of Representations, Warranties and Agreements 31
10.02. Notices 31
10.03. Headings 32
10.04. Severability 32
10.05. Entire Agreement 33
10.06. Assignment 33
10.07. Parties in Interest 33
10.08. Specific Performance 33
10.09. Failure or Indulgence Not Waiver; Remedies Cumulative 33
10.10. Governing Law; Consent Jurisdiction; Venue 33
10.11. Waiver of Trial by Jury 34
10.12. Counterparts 34

 

Exhibit A Definitions

 

iii  

 

  

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER, dated as of __________, 2016 (this “ Agreement ”), is by and among MOLECULIN BIOTECH, INC., a Delaware corporation (“ MBI ”), and MOLECULIN LLC, a Texas limited liability company (the “ Company ”).

 

WHEREAS, the Company, upon the terms and subject to the conditions of this Agreement and in accordance with Delaware Law and Texas Law, will merge with and into MBI (the “ Merger ”);

 

WHEREAS, the respective boards of directors of MBI and the Company have determined that the Merger is fair to, and in the best interests of, it and its stockholders and have approved and adopted this Agreement and the transactions contemplated hereby;

 

WHEREAS, for federal income tax purposes, it is intended that the Merger qualify as a corporate organization transaction under the provisions of Section 351 of the United States Internal Revenue Code of 1986, as amended (the “ Code ”);

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.01.          Definitions . Certain capitalized and other terms used in this Agreement are defined in Exhibit A hereto and are used herein with the meanings ascribed to them therein.

 

1.02.          Rules of Construction . Unless the context otherwise requires, as used in this Agreement: (a) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (b) “or” is not exclusive; (c) “including” means “including, without limitation;” (d) words in the plural include the singular; (e) the terms “hereof,” “herein,” “hereby,” “hereto” and derivative or similar words refer to this entire Agreement; and (f) the terms “Article” or “Section” refer to the specified Article of Section of this Agreement.

 

ARTICLE II

 

THE MERGER

 

2.01.          The Merger . Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Delaware Law and Texas Law, at the Effective Time (as defined in Section 2.02 of this Agreement), the Company shall be merged with and into MBI (the “ Merger ”) pursuant to the Plan, whereby the separate corporate existence of the Company shall cease and MBI shall continue as the surviving corporation (the “ Surviving Corporation ”). The name of the Surviving Corporation shall be “Moleculin Biotech, Inc.”

 

 

 

  

2.02.          Closing; Closing Date; Effective Time . The consummation of the Merger and the closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Seyfarth Shaw LLP, 700 Milam, Suite 1400, Houston, Texas 77002 as soon as practicable (but in any event within two business days) after the satisfaction or, if permissible, waiver of the conditions set forth in Article VIII, or at such other date, time and place as MBI and the Company may agree in writing (the date of the Closing being the “ Closing Date ”). As promptly as practicable on the Closing Date, the parties hereto shall cause the Merger to be consummated by filing (i) a Certificate of Merger with the Secretary of State of Delaware, in such form as required by, and executed in accordance with, the relevant provisions of, Delaware Law and (ii) a Certificate of Merger with the Secretary of State of Texas, in such form as required by, and executed in accordance with, the relevant provisions of, Texas Law (the time of such filings being the “ Effective Time” ).

 

2.03.          Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law and Texas Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company shall continue with, or vest in, as the case may be, the Surviving Corporation, and all debts, liabilities and duties of the Company shall continue to be, or become, as the case may be, the debts, liabilities and duties of the Surviving Corporation.

 

2.04.          Certificate of Incorporation; Bylaws . At the Effective Time, the Certificate of Formation and Bylaws of the Surviving Corporation shall be the Certificate of Incorporation and Bylaws, respectively, of the Surviving Corporation, in each case, as in effect immediately prior to the Effective Time and shall thereafter continue to be the Certificate of Incorporation and Bylaws, respectively, of the Surviving Corporation until amended as provided therein and pursuant to Delaware Law.

 

2.05.          Directors and Officers . The directors and officers of MBI immediately prior to the Effective Time shall continue to serve in their respective offices of the Surviving Corporation from and after the Effective Time, in each case until their respective successors are duly elected or appointed and qualified or until their resignation or removal.

 

ARTICLE III

 

CONVERSION OF SECURITIES

 

3.01.          Merger Consideration; Conversion and Cancellation of Securities . At the Effective Time, by virtue of the Merger and without any action on the part of MBI, the Company or their respective stockholders:

 

(a)           Subject to Section 3.01(c) , each Series A Preferred Unit of the Company issued and outstanding immediately prior to the Effective Time shall be converted into 0.0470844 shares of Common Stock of the Surviving Corporation ( MBI Common Stock ); provided , however , that in no event shall the aggregate number of shares of MBI Common Stock issued for the aggregate number of issued and outstanding Series A Preferred Units exceed 930,000.

 

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(b)           Subject to Section 3.01(c) , each Common Unit of the Company issued and outstanding immediately prior to the Effective Time shall be converted into 0.0175466 shares of MBI Common Stock; provided , however , that in no event shall the aggregate number of shares of MBI Common Stock issued for the aggregate number of issued and outstanding Common Units exceed 70,000.

 

(c)           Each Series A Preferred Unit or Common Unit of the Company held in the treasury of the Company or owned, directly or indirectly, by MBI immediately prior to the Effective Time shall be cancelled and retired without any conversion thereof, and no other securities of the Surviving Corporation shall be issuable, and no payment shall be made, with respect thereto.

 

(d)           All Series A Preferred Units and Common Units of the Company (collectively, the “ Converted Securities ”) converted pursuant to Sections 3.01(a) and (b) shall no longer be outstanding and shall automatically be cancelled and retired and cease to exist, and each holder of Converted Securities shall cease to have any rights with respect thereto except the right to receive, shares of MBI Common Stock in accordance with Sections 3.01(a) or (b) , as applicable, or cash in lieu of fractional shares to be paid in accordance with Section 3.02(c) , or contingent royalty payments in accordance with Section 3.04 . Such shares of MBI Common Stock are referred to herein as the “ Merger Shares ” and such Merger Shares, together with the cash payable pursuant to Section 3.02(c) or the contingent royalty payments pursuant to Section 3.04 , are referred to herein as the “ Merger Consideration

 

(e)           The shares of MBI Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger and such shares shall remain issued and outstanding.

 

(f)           As of the Effective Time, the stock transfer books of the Company shall be deemed closed, and no transfer of shares of Common Units or Series A Preferred Units that were outstanding immediately prior to the Effective Time shall thereafter be made or consummated.

 

3.02.          Issuance of Certificates for MBI Common Stock .

 

(a)           As soon as practicable after the Effective Time, each holder of a Converted Security shall be entitled to receive in exchange therefor a certificate or certificates representing the number of whole shares of MBI Common Stock that such holder has a right to receive in accordance with Section   3.01(a) or (b) , as the case may be (or at MBI s discretion a book-entry confirmation of such MBI Common Stock ownership), and a cash payment in lieu of fractional shares of MBI Common Stock, if any, in accordance with Section 3.02(c) .

 

(b)           All shares of MBI Common Stock issued in accordance with the terms hereof, including any cash paid in accordance with Section 3.02(c) , shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such Converted Securities.

 

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(c)           No fraction of a share of MBI Common Stock will be issued as a result of the Merger. In lieu of any such fractional shares that otherwise would have been issued in the Merger, MBI will pay each applicable holder an amount in cash (without interest and rounded to the nearest cent) determined by multiplying (a) the offering price per share of MBI Common Stock offered and sold in its initial public offering of securities pursuant to the Act (as defined below) (the IPO Offering Price ) by (b) the fractional interest of a share of MBI Common Stock to which such holder would otherwise be entitled (after taking into account all Converted Securities held of record by such holder at the Effective Time).

 

(d)           MBI shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any former holder of Converted Securities such amounts as MBI (or any affiliate thereof) is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld by MBI, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the former holder of the Converted Securities in respect of which such deduction and withholding was made by MBI (or any affiliate thereof).

 

(e)           The certificates evidencing shares of MBI Common Stock (or at MBI s discretion the book-entry confirmation of such MBI Common Stock ownership) delivered pursuant to this Section 3.02 will bear a legend substantially in the form set forth below and containing such other information as MBI may deem necessary or appropriate:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.

 

3.03.          No Appraisal Rights for Dissenting Company Unitholders . Under applicable Texas law and the LLC Agreement, there are no appraisal rights for any Company Unitholders who dissent from the Merger.

 

3.04.          Contingent Royalty Payments to Company Unitholders .

 

(a)           As additional consideration payable to the Company Unitholders under the Merger, if drugs for dermatology indications are successfully developed by MBI (or any successor entity) using any of the Existing IP Assets (as hereinafter defined) during the term of the License Agreements (as hereinafter defined), the Company Unitholders, in the aggregate, shall be entitled to receive a 2.5% royalty on the net revenues, as defined in the License Agreements (as herein defined), generated by such drugs. Any net revenues would include a deduction for license fees or royalty obligations payable to MD Anderson for such Existing IP Assets. For the purposes of this Section 3.04 , Existing IP Assets shall mean all intellectual property licensed from MD Anderson under the   Patent and Technology License Agreement entered into by and between IntertechBio Corporation and MD Anderson dated April 2, 2012, as amended, and the Patent and Technology License Agreement dated June 21, 2010, as amended, between MD Anderson and the Company (collectively, the License Agreements ). Any contingent royalty payments to the Company Unitholders under this Section 3.04 shall be made pro rata based on the number of shares of MBI Common Stock received in the Merger by each Company Unitholder to the aggregate number of shares of MBI Common Stock received by all Company Unitholders.

 

  - 4 -  
 

 

(b)           The right to receive the contingent royalty payments in Section 3.04(a) above are for drugs developed only for dermatology indications, and do not include drugs developed for any other indications. MBI has no obligations of any nature to pursue the development of any drugs for dermatology indications and MBI has advised the Company that it does not intend to devote any resources to such development. The Company acknowledges that (i) the contingent royalty payments in Section 3.04(a) above are unlikely to occur, contingent and speculative, (ii) there is no assurance that the Unitholders will ever receive any payments under Section 3.04(a) , and (iii) MBI has not promised or projected any contingent royalty payments under Section 3.04(a) .

 

(c)           MBI shall be entitled to deal exclusively with the Unitholder Representative on all matters relating to this Section 3.04 and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Company Unitholder by the Unitholder Representative, and on any other action taken or purported to be taken on behalf of any Company Unitholders by the Unitholder Representative, as being fully binding upon such Person. Notices or communications to or from the Unitholder Representative shall constitute notice to or from each of the Company Unitholders for the purposes of this Section 3.04 . For the purposes of this Section 3.04 , the Unitholder Representative shall mean the Person appointed pursuant to Section 7 of the Consent, Waiver and Investment Agreement executed by the Company Unitholders to approve the Merger, who shall initially be Michael Clinard.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to MBI that:

 

4.01.          Organization and Standing . The Company is a limited liability company duly organized and existing under, and by virtue of, the laws of the State of Texas and is in good standing under such laws. The Company has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Company Material Adverse Effect.

 

4.02.          Articles of Organization and LLC Agreement . The Company has heretofore made available to MBI a complete and correct copy of the Certificate of Formation and the Amended and Restated Company Agreement, as amended to date, of the Company (the “ Company LLC Agreement ”). The Company is not in violation in any material respect of any of the provisions of its Certificate of Formation or the Company LLC Agreement.

 

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4.03.          Corporate Power . The Company has, and will have at the Closing Date, all requisite legal and corporate power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement.

 

4.04.          Capitalization .

 

(a)           The issued and outstanding Units of the Company on the date hereof are (i) 19,766,861 Series A Preferred Units and (ii) 3,989,374 Common Units. No Profits Units are issued and outstanding.

 

(b)           Except as described in Section 4.04(a) , as of the date of this Agreement, no equity securities of the Company are issued or outstanding or reserved for any purpose. Each of the outstanding equity interests in the Company is duly authorized, validly issued, and fully paid and nonassessable, and has not been, or will not be, issued in violation of (nor are any of the equity interests in the Company subject to) any preemptive or similar rights created by statute, the Certificate of Formation or Company LLC Agreement of the Company, or any agreement to which the Company is a party or bound.

 

(c)           Except as set forth in Section 4.04(a) , there are no outstanding securities, options, warrants or other rights (including registration rights), agreements or commitments of any character to which the Company is a party relating to the issued or unissued equity interests of the Company or obligating the Company to grant, issue, deliver or sell, or cause to be granted, issued, delivered or sold, any equity interests of the Company, by sale, lease, license or otherwise. There are no obligations, contingent or otherwise, of the Company to (i) repurchase, redeem or otherwise acquire any equity interests of the Company; or (ii) dispose of any equity interest in the Company. The Company (x) directly or indirectly does not own, (y) has not agreed to purchase or otherwise acquire or (z) does not hold any interest convertible into or exchangeable or exercisable for, the capital stock or other equity interests of any Person. There are no voting trusts, proxies or other agreements or understandings to which the Company is a party or by which the Company is bound with respect to the voting of any equity interests of the Company. Except as set forth in Section 4.04(c) of the Company Disclosure Letter, there are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which Unitholders of the Company may vote.

 

(d)           Section 4.04(d) of the Company Disclosure Letter sets forth a true and complete list of all Company Unitholders and the number of Series A Preferred Units and Common Units owned of record by such Company Unitholders.

 

4.05.          Authorization . All corporate action on the part of the Company, its directors and Unitholders necessary for the authorization, execution, delivery and performance of this Agreement and the performance of all of the Company’s obligations hereunder has been taken or will be taken prior to the Closing Date. This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except (i) as the same may be limited by bankruptcy, insolvency or other laws relating to or affecting creditors’ rights generally or by general equitable principles and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

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4.06.          No Conflict; Required Filings and Consents .

 

(a)           Assuming that the Approvals, filings and notifications described in Section   4.06(b) have been obtained or made, as the case may be, the execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not (i)   conflict with or violate the Certificate of Formation or the Company LLC Agreement, in each case as amended or restated, of the Company, (ii)   conflict with or violate any Laws applicable to the Company or by which any of its assets or properties is bound or subject, or (iii)   result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by or to which the Company or any of its assets or properties is bound or subject, except for any such conflicts or violations described in clause   (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation, payment obligations or liens or encumbrances described in clause   (iii) that would not reasonably be expected to have a Company Material Adverse Effect.

 

(b)           The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not, require the Company to obtain any Approvals of or from, or to make any filing with or notification to, any Governmental Entity or third Person, except (i)   as disclosed in Section   4.06(b) of the Company Disclosure Letter, (ii)   for the filing and recordation of appropriate merger documents as required by Delaware Law and Texas Law, and (iii) where the failure to obtain such Approvals, or to make such filings or notifications, would not reasonably be expected to have a Company Material Adverse Effect.

 

4.07.          Financial Statements . The Company has delivered to MBI its audited balance sheet as of the years ended December 31, 2013 and 2014 and its reviewed balance sheet as of September 30, 2015 and its statements of operations for the period from January 1, 2013 and 2014 through December 31, 2013 and 2014 and for the period from January 1, 2015 through September 30, 2015 (the “ Company Financial Statements ”). The Company Financial Statements are complete and correct in all material respects and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated. The Company Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the dates, and during the periods, indicated therein.

 

4.08.          Absence of Changes . Since September 30, 2015, except as described in Section 4.08 of the Company Disclosure Letter and this Agreement:

 

(a)           the Company has not entered into any transaction which was not in the ordinary course of business;

 

(b)           there has been no event or occurrence that would have a Company Material Adverse Effect;

 

  - 7 -  
 

 

(c)           there has been no damage to, destruction of or loss of physical property (whether or not covered by insurance) materially adversely affecting the business or operations of the Company;

 

(d)           the Company has not declared, set aside or paid any dividend or made any distribution on its capital stock, or directly or indirectly redeemed, purchased or otherwise acquired any of its capital stock;

 

(e)           the Company has not increased the compensation of any of its officers, directors or agents, or the rate of pay of its employees as a group;

 

(f)           there has been no resignation or termination of employment of any key officer or employee of the Company, the Company does not have a present intention to terminate the employment of any of the foregoing, and the Company has no Knowledge of the impending resignation or termination of employment of any such officer or employee;

 

(g)           there has been no labor dispute involving the Company or its employees and none is pending or, to the Company s Knowledge, threatened;

 

(h)           there has not been any change in the contingent obligations of the Company, by way of guaranty, endorsement, indemnity, warranty or otherwise;

 

(i)           there have not been any loans, advances or guarantees made by the Company to any of its employees, officers or directors; and

 

(j)           to the Company s Knowledge, there has been no other event or condition of any character pertaining to and materially adversely affecting the assets or business of the Company.

 

4.09.          Liabilities . The Company has no liabilities or obligations, absolute or contingent (individually or in the aggregate), except (i) the liabilities and obligations set forth in the Company Financial Statements, (ii) liabilities and obligations which have been incurred subsequent to September 30, 2015 in the ordinary course of business which have not been in the aggregate, materially adverse, (iii) liabilities and obligations under the lease for its principal lab, and (iv) liabilities and obligations under licensing, sales, procurement and other contracts and arrangements entered into in the normal course of business.

 

4.10.          Title to Properties and Assets; Liens . The Company owns its properties and assets, free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such properties or assets. With respect to the properties and assets it leases, the Company, and to the Company’s Knowledge, the counterparty is in compliance with such leases and the Company holds a valid leasehold interest free of any liens, claims or encumbrances. The Company does not own any real property.

 

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4.11.          Patents and Other Intangible Assets .

 

(a)           The Company owns or has the right or license to use all patents, trademarks, service marks, service names, trade names, trade secrets and copyrights used in the conduct of its business as now conducted, free and clear of all claims, mortgages, liens, loans, and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company s ownership or use of such intellectual property rights. All of the patents, trademarks, service marks and copyrights that the Company owns or has the right or license to use are listed or described in Section 4.11 of the Company Disclosure Letter.

 

(b)           The Company has no actual knowledge, without any investigation, that the Company is infringing upon or misappropriating any valid intellectual property rights of any Person (including without limitation, former employers of all current and former employees, consultants, officers, directors and stockholders of the Company), including the right to the name Moleculin, and its web site address www.moleculin.com. Without any special investigation for purposes of this Agreement, the Company, in its reasoned judgment, has determined that making, using or selling any products or methods set forth in Section 4.11 of the Company Disclosure Letter will not constitute an infringement or misappropriation by the Company of the kind described in the preceding sentence.

 

(c)           Except as set forth in Section 4.11 of the Company Disclosure Letter, the Company is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intellectual property right, with respect to the use thereof or in connection with the conduct of its business or otherwise.

 

(d)           The License Agreement dated June 21, 2010, as amended to date, between the Company and M.D. Anderson, is in full force and effect, and no default or event which with the lapse of time or the giving of notice would constitute a default, exists thereunder.

 

4.12.          Litigation . There are no actions, suits, proceedings or investigations pending or, to the Company’s Knowledge, threatened against the Company or its properties before any Governmental Entity. The Company is not subject to any continuing order, writ, injunction, consent decree or settlement agreement of, or similar written agreement with, or, to the Company’s Knowledge, continuing investigation by, any Court or Governmental Entity.

 

4.13.          Employees . To the Company’s Knowledge, no employee of the Company is in violation of any term of any employment contract, intellectual property disclosure agreement or any other contract or agreement relating to the relationship of such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. The Company is in compliance in all material respects with the applicable provisions of ERISA, and no “reportable event,” as such term is defined in Section 4043 of ERISA, has occurred with respect to any plan subject to Title IV of ERISA or any other plan to which the Company is required to contribute on behalf of its employees.

 

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4.14.          Certain Transactions . Except as set forth in Section 4.14 of the Company Disclosure Statement, the Company is not indebted, directly or indirectly, to any of its officers, directors or stockholders or to their respective spouses or children, in any amount whatsoever; none of said officers, directors or, to the Company’s Knowledge, stockholders, or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm, corporation or entity with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that officers, directors and/or stockholders of the Company may own less than 1% of the stock of publicly traded companies which may compete with the Company. No officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.

 

4.15.          Material Contracts and Obligations . Included in Section 4.15 of the Company Disclosure Letter is a list of all agreements, contracts, indebtedness, liabilities and other obligations to which the Company is a party or by which it is bound that are material to the conduct and operations of its business and properties, specifically including those which provide for payments in any fiscal year to or by the Company in excess of $10,000, which obligate the Company to share, license or develop any product or technology, which purports to restrict or limit the ability of the Company from freely engaging in any line of business anywhere in the world or competing with any other Person, which provides for any joint venture or partnership involving the Company, or which involve transactions or proposed transactions between the Company and its officers, directors, affiliates or any affiliate thereof. Copies of such agreements and contracts and documentation evidencing such liabilities and other obligations have been made available for inspection by MBI and its counsel. All of such agreements and contracts are valid, binding obligations of the Company and are in full force and effect in all material respects, assuming due execution by the other parties to such agreements and contracts. The Company has no Knowledge of any breach or anticipated breach by any other parties to any contract, agreement or instrument included in Section 4.15 of the Company Disclosure Letter.

 

4.16.          Private Placements . All securities issued by the Company prior to the date hereof have been issued in transactions exempt from registration under the Securities Act and all applicable state securities or “blue sky” Laws, and the Company has not violated the Securities Act or any applicable state securities or “blue sky” Laws in connection with the issuance of any such securities.

 

4.17.          Brokers or Finders; Other Offers . Except as set forth in Section 4.17 of the Company Disclosure Statement, the Company has not incurred and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement.

 

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4.18.          Tax Return and Payments .

 

(a)           (i) All tax returns and reports of or with respect to any Tax ( Tax Returns ) that are required to be filed by or with respect to the Company on or before the Effective Time have been or will be duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items ( Tax Items ) required to be included in each such Tax Return have been so included and all such Tax Items and any other information provided in each such Tax Return are true, correct and complete, subject to Company’s right to amend such Tax Returns to correct any errors or oversights therein that would not have an adverse effect on MBI, (iii) all Taxes owed by the Company that are or have become due reflected on such returns and reports have been timely paid in full, (iv) no penalty, interest or other charge is or will become due with respect to the late filing of any such Tax Return or late payment of any such Tax subject to the right to amend set forth in the preceding sentence, (v) all Tax withholding and deposit requirements imposed on or with respect to the Company have been satisfied in full in all respects, (vi) there are no mortgages, pledges, liens, encumbrances, charges or other security interests on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax, (vii) no Tax Returns of the Company have been the subject of an audit, (viii) there is no claim against the Company for Taxes due and payable, and no assessment, deficiency or adjustment has been asserted, proposed or, to the Knowledge of the Company, threatened with respect to any Tax Return of or with respect to the Company, (ix) no claim has ever been made by a Taxing authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation in that jurisdiction, (x) there is not in force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to the Company or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or with respect to the Company, (xi) the total amounts set up as liabilities for current and deferred Taxes in the Company Financial Statements are sufficient to cover the payment of all Taxes, whether or not assessed or disputed, which are, or are hereafter found to be, or to have been, due by or with respect to the Company up to and through the periods covered thereby, (xii) the Company has not entered into any Tax allocation, sharing or indemnity agreement under which the Company could become liable to another Person as a result of the imposition of Tax upon such Person, or the assessment or collection of Tax, (xiii) except for liens for current Taxes not yet due and payable, no liens for Taxes exist upon the assets of any of the Company, and (xiv) the Company has not entered into any agreement or arrangement with any Taxing authority that requires the Company to take any action or to refrain from taking any action.

 

(b)           The Company is classified as a partnership for U.S. Federal income tax purposes.

 

4.19.          Environmental and Safety Laws . The Company is not in violation of any applicable statute, Law or Regulation relating to the environment or occupational health and safety, which violation would have a Company Material Adverse Effect, nor are any material expenditures required in order to comply with any such existing statute, Law or Regulation.

 

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4.20.          Compliance with Laws; Permits . To the Company’s Knowledge, the Company is not in violation of any applicable statute, Regulation, order or restriction of any Governmental Entity in respect of the conduct of its business or the ownership of its properties, which violation would have a Company Material Adverse Effect. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a Company Material Adverse Effect, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

 

4.21.          Unit Holder Status . To the knowledge of the Company, each holder of either Series A Preferred Units or Common Units as of the Effective Time will be an “accredited investor” as that term is defined in the Act.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF MBI

 

MBI hereby represents and warrants to the Company that:

 

5.01.          Organization and Standing . MBI is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. MBI has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. MBI is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a MBI Material Adverse Effect.

 

5.02.          Charter and Bylaws . MBI has heretofore made available to the Company a complete and correct copy of the Certificate of Incorporation and Bylaws, as amended or restated. MBI is not in violation of any of the provisions of its Certificate of Incorporation or any material provision of its Bylaws.

 

5.03.          Corporate Power . MBI have, and will have at the Closing Date, all requisite legal and corporate power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement. MBI has, and will have at the Closing Date, all requisite legal and corporate power and authority to issue the Merger Shares and pay the other Merger Consideration hereunder.

 

5.04.          Capitalization .

 

(a)           The authorized capital of MBI as of the Effective Time will consist of:

 

(i)           75,000,000 shares of MBI Common Stock, 11,061,000 shares of which will be issued and outstanding, excluding MBI Common Stock representing the Merger Consideration.

 

(ii)          MBI has reserved 1,500,000 shares of MBI Common Stock for issuance to officers, directors, employees, consultants and advisors of MBI pursuant to the MBI Stock Plan.

 

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(b)           Except as described in this Section 5.04 or in Section 5.04(b) of the MBI Disclosure Letter, as of the date of this Agreement, no shares of capital stock or other equity securities of MBI are issued or outstanding or reserved for any purpose. Each of the outstanding shares of capital stock of MBI as of the date hereof is duly authorized, validly issued, and fully paid and nonassessable, and has not been issued in violation of any preemptive or similar rights created by statute, the Certificate of Incorporation or Bylaws of MBI, or any agreement to which MBI is a party or bound.

 

(c)           Except as set forth in Section 5.04(a)(ii) above or in Section 5.04(c) of the MBI Disclosure Letter, there are no outstanding securities, options, warrants or other rights (including registration rights), agreements or commitments of any character to which MBI is a party relating to the issued or unissued capital stock or other equity interests of MBI or obligating MBI to grant, issue, deliver or sell, or cause to be granted, issued, delivered or sold, any shares of the capital stock or other equity interests of MBI, by sale, lease, license or otherwise. Except as set forth in Section 5.04(c) of the MBI Disclosure Letter, there are no voting trusts, proxies or other agreements or understandings to which MBI is a party or by which MBI is bound with respect to the voting of any shares of capital stock or equity interests of MBI. MBI has agreed to issue certain convertible promissory notes as set forth in Section 5.04(c) of the MBI Disclosure Letter.

 

5.05.          Authorization . All corporate action on the part of MBI, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement, the authorization, issuance and delivery of the Merger Shares and the performance of all of MBI’s obligations hereunder has been taken or will be taken prior to the Closing Date. This Agreement constitutes a valid and binding obligation of MBI, enforceable in accordance with its terms, except (i) as the same may be limited by bankruptcy, insolvency or other laws relating to or affecting creditors’ rights generally or by general equitable principles and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. The Merger Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable and will have the rights, preferences and privileges described in MBI’s charter and the Merger Shares will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the holders thereof through no action of MBI; provided , however , that the Merger Shares will be subject to restrictions on transfer under state and/or federal securities laws. The issuance of the Merger Shares is not subject to any preemptive rights or rights of first refusal.

 

5.06.          No Conflict; Required Filings and Consents .

 

(a)           Assuming that the Approvals, filings and notifications described in Section 5.06(b) have been obtained or made, as the case may be, the execution and delivery of this Agreement by MBI does not, and the consummation of the transactions contemplated hereby will not (i) conflict with or violate the charter or bylaws, in each case as amended or restated, of MBI, (ii) conflict with or violate any Laws applicable to MBI or by which any of its assets or properties is bound or subject, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a lien or encumbrance on any of the properties or assets of MBI pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which MBI is a party or by or to which MBI or any of its assets or properties is bound or subject, except for any such conflicts or violations described in clause (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation, payment obligations or liens or encumbrances described in clause (iii) that would not reasonably be expected to have a MBI Material Adverse Effect.

 

  - 13 -  
 

 

(b)           The execution and delivery of this Agreement by MBI does not, and the consummation of the transactions contemplated hereby will not, require MBI to obtain any Approvals of or from, or to make any filing with or notification to, any Governmental Entity or third Person, except (i)   as disclosed in Section 5.06(b) of the MBI Disclosure Letter, (ii)   for applicable requirements, if any, of the Securities Act, blue sky Laws and the filing and recordation of appropriate merger documents as required by Delaware Law and Texas Law, and (iii)   where the failure to obtain such Approvals, or to make such filings or notifications, would not have a MBI Material Adverse Effect.

 

5.07.          Financial Statements . MBI has delivered to the Company its audited balance sheet and statement of operations as of and for the nine-month period ended September 30, 2015 (the “ MBI Audited Financial Statements ”). The MBI Audited Financial Statements are complete and correct in all material respects and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated. The MBI Audited Financial Statements accurately set out and describe the financial condition and operating results of MBI as of the dates, and during the periods, indicated therein.

 

5.08.          Title to Properties and Assets; Liens . MBI owns its properties and assets, free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair MBI’s ownership or use of such properties or assets. With respect to the properties and assets it leases, MBI, and to MBI’s Knowledge, the counterparty is in compliance with such leases and MBI holds a valid leasehold interest free of any liens, claims or encumbrances.

 

5.09.          Patents and Other Intangible Assets .

 

(a)           MBI owns or has the right or license to use all patents, trademarks, service marks, service names, trade names, trade secrets and copyrights used in the conduct of its business as now conducted, free and clear of all claims, mortgages, liens, loans, and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair MBI’s ownership or use of such intellectual property rights. All of the material patents, trademarks, service marks and copyrights that MBI owns or has the right or license to use are listed or described in Section 5.09 of the MBI Disclosure Letter.

 

(b)           Except as set forth in Section 5.09 of the MBI Disclosure Letter, MBI has no actual knowledge, without any investigation, that MBI is infringing upon or misappropriating any valid intellectual property rights of any Person or entity (including without limitation, former employers of all current and former employees, consultants, officers, directors and stockholders of MBI). Without any special investigation for purposes of this Agreement, MBI, in its reasoned judgment, has determined that making, using or selling any products or methods set forth in Section 5.09 of the MBI Disclosure Letter will not constitute an infringement or misappropriation by MBI of the kind described in the preceding sentence.

 

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(c)           Except as set forth in Section 5.09 of the MBI Disclosure Letter, MBI is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intellectual property right, with respect to the use thereof or in connection with the conduct of its business or otherwise.

 

(d)           MBI has obtained from all employees and consultants of MBI an invention assignment and confidentiality agreement (or substantially similar agreement), copies of which were previously made available to the Company.

 

5.10.          Litigation . There are no actions, suits, proceedings or investigations pending or, to MBI’s Knowledge, threatened against MBI or its properties before any Governmental Entity. MBI is not subject to any continuing order, writ, injunction, consent decree or settlement agreement of, or similar written agreement with, or, to MBI’s Knowledge, continuing investigation by, any Court or Governmental Entity.

 

5.11.          Employees . To MBI’s Knowledge, no employee of MBI is in violation of any term of any employment contract, intellectual property disclosure agreement or any other contract or agreement relating to the relationship of such employee with MBI or any other party because of the nature of the business conducted or to be conducted by MBI. MBI is in compliance in all material respects with the applicable provisions of ERISA, and no “reportable event,” as such term is defined in Section 4043 of ERISA, has occurred with respect to any plan subject to Title IV of ERISA or any other plan to which MBI is required to contribute on behalf of its employees.

 

5.12.          Certain Transactions . Except as set forth in Section 5.12 of the MBI Disclosure Letter, MBI is not indebted, directly or indirectly, to any of its officers, directors or stockholders or to their respective spouses or children, in any amount whatsoever; none of said officers, directors or, to MBI’s Knowledge, stockholders, or any members of their immediate families, are indebted to MBI or have any direct or indirect ownership interest in any firm, corporation or entity with which MBI is affiliated or with which MBI has a business relationship, or any firm or corporation which competes with MBI except that officers, directors and/or stockholders of MBI may own less than 1% of the stock of publicly traded companies which may compete with MBI. No officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with MBI. MBI is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.

 

5.13.          Private Placement . All securities issued by MBI prior to the date hereof have been issued in transactions exempt from registration under the Securities Act and all applicable state securities or “blue sky” Laws, and MBI has not violated the Securities Act or any applicable state securities or “blue sky” Laws in connection with the issuance of any such securities.

 

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5.14.          Brokers or Finders; Other Offers . MBI has not incurred and will not incur, directly or indirectly, as a result of any action taken by MBI, any liability for brokerage or finders’ fees or agents’ commissions in connection with this Agreement.

 

5.15.          Environmental and Safety Laws . MBI is not in violation of any applicable statute, Law or Regulation relating to the environment or occupational health and safety, which violation would have a MBI Material Adverse Effect, nor are any material expenditures required in order to comply with any such existing statute, Law or Regulation.

 

5.16.          Compliance with Laws; Permits . MBI is not in violation of any applicable statute, Regulation, order or restriction of any Governmental Entity in respect of the conduct of its business or the ownership of its properties, which violation would have a MBI Material Adverse Effect. MBI has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a MBI Material Adverse Effect, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. MBI is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

 

5.17.          Specific Tax Representations .

 

(a)          MBI has no plan or intention to reacquire any of the MBI Common Stock to be issued under or in connection with the Transactions;

 

(b)          MBI has no plans or intentions to sell or otherwise dispose of any of the assets of the Company, except for dispositions made in the ordinary course of business;

 

(c)          Following the transactions contemplated by this Agreement, MBI will use a significant portion of the assets of the Company in the business of MBI;

 

(d)          MBI does not own directly or indirectly, nor has it owned during the past five (5) years, directly or indirectly, any Units or other equity of the Company;

 

(e)          MBI is not an investment company within the meaning of section 351(e) of the Code;

 

(f)          The MBI Common Stock to be issued in the transactions contemplated by the Agreement has the current right to vote in the election of corporate directors of MBI.

 

(g)          Other than the cash to be issued in lieu of fractional shares under Section 3.02(c) of this Agreement, the only consideration to be issued in exchange for the Units of the Company on the Closing Date will be MBI Common Stock;

 

(h)          MBI currently is and as of the Closing Date will be classified as a corporation for U.S Federal income tax purposes;

 

  - 16 -  
 

  

(i)          The Merger, and the merger of Annamed, LLC (“ Annamed ”) with and into MBI immediately prior to the Merger, will occur under the Plan in which the rights of the parties are defined.

 

(j)          The Merger, and the merger of Annamed with and into MBI immediately prior to the Merger, is planned to be substantially contemporaneous and occur on approximately the same date.

 

(k)          MBI will pay its own expenses, if any, incurred in connection with the Merger.

 

ARTICLE VI

 

COVENANTS

 

6.01.          Affirmative Covenants of MBI and the Company . Each of MBI and the Company hereby covenants and agrees that, prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by the other, it will:

 

(a)           operate its business in all material respects in the usual and ordinary course consistent with past practices;

 

(b)           use its reasonable best efforts to preserve substantially intact its business organization, maintain its material rights and franchises, retain the services of its respective officers and key employees and maintain its relationships and goodwill with its customers and suppliers;

 

(c)           maintain and keep its material properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, and maintain supplies and inventories in quantities consistent with its customary business practice; and

 

(d)           with respect to the Company, use its reasonable best efforts to keep in full force and effect insurance and bonds comparable in amount and scope of coverage to that currently maintained.

 

6.02.          Negative Covenants of the Company . Except as expressly contemplated by this Agreement or otherwise consented to in writing by MBI, from the date of this Agreement until the Effective Time, the Company will not do any of the foregoing:

 

(a)           (i) increase the compensation payable to or to become payable to any director, officer or employee; (ii) grant any severance or termination pay to, or enter into or amend any employment or severance agreement with, any director, officer or employee; (iii) establish, adopt or enter into any employee benefit plan or arrangement; or (iv) amend, or take any other actions with respect to, any employee benefit plan or the Company Stock Plan, except as contemplated by this Agreement;

 

(b)           declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of capital stock or other equity interests of the Company;

 

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(c)           (i)   except as expressly contemplated in this Agreement, redeem, purchase or otherwise acquire any shares of its capital stock or other equity interests or any securities or obligations convertible into or exchangeable for any shares of its capital stock or other equity interests, or any options, warrants or conversion or other rights to acquire any shares of its capital stock or other equity interests or any such securities or obligations; (ii)   effect any reorganization or recapitalization; or (iii)   split, combine or reclassify any of its capital stock or other equity interests or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock or other equity interests;

 

(d)           (i)   issue, deliver, award, grant or sell, or authorize or propose the issuance, delivery, award, grant or sale (including the grant of any security interests, liens, claims, pledges, limitations in voting rights, charges or other encumbrances) of, any units or shares of any class of its capital stock or other equity interests (including shares held in treasury), any securities convertible into or exercisable or exchangeable for any such units, shares or interests, or any rights, warrants or options to acquire any such units, shares or interests; (ii)   amend or otherwise modify the terms of any such rights, warrants or options the effect of which shall be to make such terms more favorable to the holders thereof; (iii)   take any action to optionally accelerate the exercisability of any such rights, options or warrants;

 

(e)           acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or by any other manner, any other Person or division thereof, or otherwise acquire or agree to acquire any assets of any other Person (other than the purchase of assets from suppliers or vendors in the ordinary course of business and consistent with past practice);

 

(f)           sell, lease (as lessor), exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease (as lessor), exchange, mortgage, pledge, transfer or otherwise dispose of, any of its assets, except for dispositions of inventories and of assets in the ordinary course of business and consistent with past practice;

 

(g)           release any third party from its obligations, or grant any consent, under any existing standstill provision under any confidentiality or other agreement, or fail to enforce any such agreement upon the request of MBI;

 

(h)           adopt or propose to adopt any amendments to its operating agreement or certificate of formation;

 

(i)           (i) change any of its methods of accounting in effect at September 30, 2015, except as required by Law or GAAP, or (ii) settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes;

 

(j)           incur any obligation for borrowed money or purchase money indebtedness, whether or not evidenced by a note, bond, debenture or similar instrument, other than such obligations that are owed to MBI from time to time;

 

  - 18 -  
 

 

(k)           enter into any arrangement, agreement or contract with any third Person which provides for an exclusive arrangement with that third Person or is substantially more restrictive on Company or substantially less advantageous to the Company than arrangements, agreements or contracts existing on the date hereof;

 

(l)           enter into, renew, amend or waive in any material manner, or terminate or give notice of a proposed renewal or material amendment, waiver or termination of, any contract, arrangement or agreement to which the Company is a party;

 

(m)           take or cause to be taken any action that could reasonably be expected to materially delay, or materially and adversely affect, the consummation of the transactions contemplated hereby;

 

(n)           enter into or amend in any material manner any contract, agreement or commitment with any officer, director, employee or stockholder of the Company or with any affiliate or associate of any of the foregoing;

 

(o)           pay, satisfy, discharge or settle any claims, liabilities or obligations (absolute, accrued, contingent or otherwise), other than pursuant to mandatory terms of any contract in effect on the date hereof, involving payments by the Company in excess of $1,000 individually or in the aggregate;

 

(p)           make any loans, advances or capital contributions to, or investments in any Person;

 

(q)           enter into any new line of business;

 

(r)           make any capital expenditures in excess of $1,000 individually or in the aggregate; or

 

(s)           agree in writing or otherwise to do any of the foregoing.

 

6.03.          Negative Covenants of MBI . Except as expressly contemplated by this Agreement or otherwise consented to in writing by the Company, from the date of this Agreement until the Effective Time, MBI will not do any of the following:

 

(a)           declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of capital stock or other equity interests of MBI;

 

(b)           sell, lease (as lessor), exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease (as lessor), exchange, mortgage, pledge, transfer or otherwise dispose of, any of its material assets or any material assets of any of its subsidiaries, except for dispositions of inventories and of assets in the ordinary course of business and consistent with past practice;

 

(c)           take or cause to be taken any action that could reasonably be expected to materially delay, or materially and adversely affect, the consummation of the transactions contemplated hereby;

 

  - 19 -  
 

 

(d)           undertake any action or make any election that would deprive the ability of the Merger to qualify as a corporate organization under section 351 of the Code, or

 

(e)           agree in writing or otherwise to do any of the foregoing.

 

6.04.          No Solicitation .

 

(a)           From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement pursuant to Section 9.01 , the Company agrees that it will not, and will not authorize or permit any of its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives (“ Representatives ”) to, directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate any inquiries regarding or the making or implementation of any Acquisition Proposal, (ii) engage in any discussions or negotiations with, or provide any information or data to, any Person relating to or that may reasonably be expected to lead to an Acquisition Proposal or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal, (iii) approve or recommend or propose publicly to approve or recommend any Acquisition Proposal or (iv) enter into any agreement, arrangement or understanding contemplating or relating to any Acquisition Proposal or requiring the Company to abandon, terminate or fail to consummate the Merger or any other transactions contemplated by this Agreement.

 

(b)           Notwithstanding anything in this Agreement to the contrary, with respect to any bona fide written Acquisition Proposal made after the date of this Agreement and not withdrawn which was not solicited, encouraged or facilitated after the date of this Agreement in breach of and did not otherwise result from a breach of this Section   6.04 , the Company or its Board of Directors may (i) to the extent applicable, comply with Rule   14e-2(a) promulgated under the Exchange Act, provided that such compliance shall not include any recommendation of such Acquisition Proposal except upon compliance with the provisions of the following clause   (ii) or (ii) prior to obtaining the Required Company Vote, (A) furnish information to, and negotiate or otherwise engage in discussions with, any Person who has delivered such Acquisition Proposal provided that no information may be furnished until the Company obtains a confidentiality agreement from such Person with terms no less favorable to the Company than those contained in the Confidentiality Agreement and the Company shall not commence negotiations or discussions with or provide information to, any such Person until 72 hours after the Company shall have advised MBI of its intention to take any such actions or (B) recommend such Acquisition Proposal to its stockholders but only at a time that is after the fifth business day following the later of (1)   MBI s receipt of written notice that the Company s Board of Directors has made the determination required by clauses (x) and (y) below and is prepared to recommend such Acquisition Proposal and (2)   the date MBI is provided a copy of (and an accurate description of all material terms not covered thereby) such Acquisition Proposal, if and only to the extent that, in the case of the actions referred to in clauses (A) and (B) above, prior to taking any such action (x)   the Board of Directors of the Company determines in good faith by affirmative vote of a majority of all of its members, after consultation with its outside legal counsel, that such Acquisition Proposal is a Superior Proposal (taking into account any adjustment to the terms and conditions of the Merger proposed by MBI in response to such Acquisition Proposal) and (y) the Board of Directors of the Company determines in good faith by affirmative vote of a majority of all of its members on the basis of the advice of its outside legal counsel that such action is necessary for the Board of Directors of the Company to comply with its fiduciary duties to its stockholders under applicable Law. Nothing in this Section 6.04 will permit the Company to terminate this Agreement except as specifically provided in Article IX hereof or effect any other obligation of the Company under this Agreement.

 

  - 20 -  
 

 

(c)           From and after the date of this Agreement, the Company shall as promptly as possible after receipt (and in any event within 24 hours) notify MBI in writing of any inquiries, proposals or offers, or any discussions or negotiations sought to be initiated or continued with, it or its Representatives relating to, constituting or which could reasonably be expected to lead to an Acquisition Proposal or any request for information relating to the Company contemplating, relating to or which could reasonably be expected to lead to any Acquisition Proposal. Such notice will include the name of such Person and the material terms and conditions of any proposal, inquiry, offer or request, and the Company will as soon as possible provide such other details of the Acquisition Proposal, inquiry, offer or request as MBI may reasonably request. The Company will keep MBI fully informed on a prompt basis (and in any event within 24 hours) of the status and terms, including any material changes or adjustments made to or proposed to be made to the terms, of any such inquiry, proposal, offer or request. If the Company or its Representatives receives a request for information from a Person who has made an unsolicited bona fide written Acquisition Proposal and the Company is permitted, as contemplated under Section   6.04(b) , to provide such Person with information, the Company will provide to MBI a copy of the confidentiality agreement with such Person promptly upon its execution and provide to MBI a list of, and copies of, the information provided to such Person concurrently with delivery to such Person and immediately provide MBI with access to all information to which such Person was provided access.

 

(d)           The Company will immediately cease and cause to be terminated all existing activities, discussions or negotiations by it and the other Persons referred to in Section 6.04(a) with any Person other than MBI conducted heretofore with respect to any Acquisition Proposal. The Company also agrees, if it has not already done so, to promptly request each Person, if any, that has heretofore executed a confidentiality agreement within the 12 months prior to the date hereof in connection with any Acquisition Proposal to return or destroy all confidential information heretofore furnished to such Person by or on behalf of it or its Subsidiaries and take commercially reasonable actions necessary to enforce the provisions of any continuing confidentiality, standstill or similar agreement. The Company will take such action as is necessary to inform promptly the Persons referred to in Section   6.04(a) of the provisions of this Section   6.04 and will be responsible for any breach of this Section   6.04 by such Persons.

 

  - 21 -  
 

 

6.05.          Notices of Certain Events; Consultation .

 

(a)           The Company shall as promptly as reasonably practicable notify MBI of: (i) any notice or other communication of which the Company has Knowledge from any Person alleging that the consent of such Person (or another Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication of which the Company has Knowledge from any Governmental Entity in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims, investigations or proceedings commenced or, or to the Knowledge of the Company, threatened against, relating to or involving or otherwise affecting the Company that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.08 or which relate to the consummation of the transactions contemplated by this Agreement; and (iv) any fact or occurrence between the date of this Agreement and the Effective Time of which it has Knowledge which makes any of its representations contained in this Agreement untrue in any material respect or causes any material breach of its obligations under this Agreement.

 

(b)           MBI shall as promptly as reasonably practicable notify the Company of: (i) any notice or other communication of which MBI has Knowledge from any Person alleging that the consent of such Person (or other Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication of which MBI has Knowledge from any Governmental Entity in connection with the transactions contemplated by this Agreement; and (iii) any fact or occurrence between the date of this Agreement and the Effective Time of which it becomes aware which makes any of its representations contained in this Agreement untrue in any material respect or causes any material breach of its obligations under this Agreement.

 

6.06.          Access and Information .

 

(a)           Each of MBI and the Company shall (i) afford to the other party and such other party’s Representatives reasonable access at reasonable times, upon reasonable prior notice, to its officers, employees, agents, properties, offices and other facilities and to the books and records thereof and (ii) furnish promptly to the other party and its Representatives such information concerning its business, properties, contracts, records and personnel (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by such other party.

 

(b)           Notwithstanding the foregoing provisions of this Section 6.06 , neither party shall be required to grant access or furnish information to the other party to the extent that such access or the furnishing of such information is prohibited by Law. No investigation by the parties hereto made heretofore or hereafter shall affect the representations and warranties of the parties which are herein contained and each such representation and warranty shall survive such investigation.

 

(c)           The information received pursuant to Section 6.06(a) that is non-public shall be deemed to be confidential information for purposes of this Agreement.

 

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ARTICLE VII

 

ADDITIONAL AGREEMENTS

 

7.01.          Meetings of Stockholders .

 

(a)           As promptly as practicable after the execution of this Agreement, MBI and the Company shall prepare an information statement (the “ Information Statement ”) containing such information regarding the Merger, the transactions contemplated by this Agreement and the issuance of the Merger Shares as necessary to satisfy the requirements of Rule 502 of Regulation D under the Securities Act. The information supplied by the Company and MBI for inclusion in the Information Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. If at any time prior to the Effective Time any event or circumstance relating to the Company or MBI, or any of their respective officers or directors, should be discovered by the Company or MBI that should be set forth in a supplement to the Information Statement, the Company or MBI, as the case may be, shall promptly inform the other party thereof in writing.

 

(b)           The Company will, as promptly as possible after the date of this Agreement, take all actions necessary in accordance with state and federal securities Laws, Texas Law and its Certificate of Formation and Company LLC Agreement to either (i) call, give notice of, convene and hold a meeting of the Company s Unitholders to be held on the earliest possible date or (ii) prepare and distribute a written consent of Unitholders in lieu of a meeting of the Company s Unitholders, in either case to consider and vote on approval of this Agreement and the Merger (the Company Unitholders Meeting ), and the Company will consult with MBI in connection therewith. Subject to Section 7.01(b) , the Board of Directors of the Company will recommend to the Unitholders of the Company the approval of this Agreement and the Merger and the Company will use its reasonable best efforts to solicit from the Unitholders of the Company proxies or consents in favor of the approval of this Agreement and the Merger and to secure the Required Company Vote. The Company will, in connection with the delivery of notice of the Company Unitholders Meeting, deliver the Information Statement to its Unitholders entitled to notice of and to vote at the Company Unitholders Meeting. Subject to the foregoing and Sections   7.01(c) , as applicable, the Information Statement shall include the recommendation of the Company s Board of Directors in favor of approval of the Merger and adoption and approval of this Agreement and the recommendation of MBI s Board of Directors in favor of approval of the Merger and adoption and approval of this Agreement and the issuance of the Merger Shares pursuant to the Merger.

 

(c)           The Board of Directors of the Company shall be permitted to withhold, withdraw, amend or modify its recommendation in favor of this Agreement and the Merger to its stockholders ( Change of Recommendation ), but only at a time that is after the fifth business day following the Change of Recommendation Notice Date (as defined below), if all of the following conditions are met: (i) a bona fide Acquisition Proposal shall have been made and not withdrawn which was not solicited, encouraged or facilitated after the date of this Agreement in breach of and did not otherwise result from a breach of Section 6.04 , (ii) the Board of Directors of the Company determines in good faith by affirmative vote of a majority of all of its members, after consultation with its outside legal counsel, that such Acquisition Proposal is a Superior Proposal (taking into account any adjustment to the terms and conditions of the Merger proposed by MBI in response to such Acquisition Proposal) and (iii) the Board of Directors of the Company determines in good faith by affirmative vote of a majority of all of its members on the basis of advice of its outside legal counsel that such Change of Recommendation is necessary for the Board of Directors of the Company to comply with its fiduciary duties to its stockholders under Texas Law. The Change of Recommendation Notice Date shall be the later to occur of (1) MBI s receipt of written notice that the Company s Board of Directors has made the determination required by clauses (ii) and (iii) above and is prepared to effect a Change of Recommendation and the manner in which it intends to do so and (2) the date MBI is provided a copy of (and an accurate description of all material terms not covered thereby) the Acquisition Proposal described in the immediately preceding sentence.

 

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(d)           Unless this Agreement is terminated in accordance with Article IX , the obligation of the Company to convene and hold the Company Unitholders Meeting will not be limited or otherwise effected by any Change of Recommendation. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the immediately preceding sentence will not be effected by the commencement, public proposal, public disclosure or communication to the Company of any Acquisition Proposal or interest in an Acquisition Proposal or any Change of Recommendation. The Company s Board of Directors will not, in connection with any Change of Recommendation, take any action to withdraw the approval of the Board of Directors of the Company of this Agreement or the Merger.

 

(e)           MBI will, as promptly as possible after the date of this Agreement, take all actions necessary in accordance with federal securities laws, Delaware Law and its charter and bylaws to either (i) call, give notice of, convene and hold a meeting of MBI s stockholders to be held on the earliest possible date determined in consultation with the Company or (ii) prepare and distribute a written consent of stockholders in lieu thereof, in either case to consider and vote on approval of this Agreement and the Merger (the MBI Stockholders Meeting ).

 

7.02.          Appropriate Action; Consents; Filings .

 

(a)           The Company and MBI shall each use their reasonable best efforts to (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (ii) obtain from any Governmental Entities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or make any filings with or notifications or submissions to any Governmental Entity (other than described in the following clause (iii)) required to be made by the Company or MBI in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the Merger, (iii) make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement and the Merger, required under (A) the Securities Act and any other applicable federal or state securities Laws, and (B) any other applicable Law; provided that the Company and MBI shall cooperate with each other in connection with the making of all such filings and submissions. Each of the Company and MBI, upon request, shall furnish to the other and to any Governmental Entity all information concerning itself and its subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary, advisable or required for any application or other filing or submission to be made pursuant to the rules and regulations of any applicable Law in connection with the transactions contemplated by this Agreement.

 

  - 24 -  
 

 

(b)           The Company and MBI agree to cooperate with respect to and agree to use their reasonable best efforts to contest and resist, any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) of any Court or other Governmental Entity that is in effect and that restricts, prevents or prohibits the consummation of the Merger or any other transactions contemplated by this Agreement.

 

(c)

 

(i)           (i)            Each of the Company and MBI shall give any notices to third Persons, and use their reasonable best efforts to obtain any third Persons consents (A) necessary, proper or advisable to consummate the transactions contemplated by this Agreement, (B) otherwise required under any contracts, licenses, leases or other agreements in connection with the consummation of the transactions contemplated hereby or (C) required to prevent a Company Material Adverse Effect or a MBI Material Adverse Effect from occurring after the Effective Time.

 

(ii)          In the event that any party shall fail to obtain any third Person consent described in subsection (c)(i) above, such party shall use its reasonable best efforts, and shall take any such actions reasonably requested by the other parties, to limit the adverse effect upon the Company and MBI and their respective businesses resulting, or which could reasonably be expected to result after the Effective Time, from the failure to obtain such consent.

 

(d)           Nothing in this Agreement shall require MBI to agree to, or permit the Company to agree to, the imposition of conditions, the payment of any amounts or any requirement of divestiture to obtain any Approval, and in no event shall any party take, or be required to take, any action that would or could reasonably be expected to have a Company Material Adverse Effect or a MBI Material Adverse Effect.

 

(e)           Each of the Company and MBI shall promptly notify the other of (i)   any material change in its current or future business, financial condition or results of operations, (ii)   any complaints, investigations or hearings (or communications indicating that the same may be contemplated) of any Court or Governmental Entities with respect to the transactions contemplated hereby or its business, (iii)   the institution or the threat of material litigation involving it, or (iv)   any event or condition that might reasonably be expected to cause any of its representations, warranties, covenants or agreements set forth herein not to be true and correct at the Effective Time. As used in the preceding sentence, material litigation means any case, arbitration or adversary proceeding or other matter which would have been required to be disclosed on the Company Disclosure Letter pursuant to Section 4.08 or the MBI Disclosure Letter pursuant to Section 5.08 , as the case may be, if in existence on the date hereof, or in respect of which the legal fees and other costs to the Company might reasonably be expected to exceed $50,000 over the life of the matter.

 

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7.03.          Tax Treatment . The parties hereto intend that the Merger shall qualify as a corporate organization within the meaning of Section 351(a) of the Code and that this Agreement shall constitute part of the a plan to reorganize MBI for the purposes of Section 351 of the Code and the Treasury Regulations promulgated thereunder. Each party hereto shall use its reasonable best efforts to cause the Merger to qualify, and shall not take, and shall use its reasonable best efforts to prevent any affiliate of such party from taking, any actions that could prevent the Merger from qualifying, as a corporate organization under the provisions of Section 351(a) of the Code.

 

7.04.          Public Announcements . MBI shall be responsible for issuing any press release or otherwise making any public statements with respect to the Merger.

 

7.05.          Employees . MBI shall have the right, but not the obligation, to make offers of employment and enter into employment or consulting arrangements with any employee or consultant of the Company. Any such employment or consulting arrangement shall be effective at the Effective Time. MBI is also expressly authorized to offer awards under the MBI Stock Plan to officers, directors, employees, agent and consultants of the Company in MBI’s sole and absolute discretion.

 

7.06.          Indemnification .

 

(a)           For a period of six years after the Effective Time, MBI agrees that it will indemnify and hold harmless each present and former director and/or officer of the Company and such other Persons whom the Company would have had the power to indemnify under Section 145 of Delaware Law, determined as of immediately prior to the Effective Time (the “ Indemnified Parties ”), that is made a party or threatened to be made a party to any threatened, pending or completed, action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that he or she was a director or officer of the Company prior to the Effective Time and arising out of actions or omissions of the Indemnified Party in any such capacity occurring at or prior to the Effective Time (a “ Claim ”) against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities reasonably incurred in connection with any Claim, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under Delaware Law or the charter or bylaws of the Company, including provisions therein relating to the advancement of expenses incurred in the defense of any Claim.

 

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(b)           The provisions of this Section 7.06 are intended to be for the benefit of, and will be enforceable by, each Person entitled to indemnification hereunder and the heirs and representatives of such Person.

 

ARTICLE VIII

 

CONDITIONS

 

8.01.          Conditions to Obligations of Each Party . The respective obligations of each party to effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of the following conditions:

 

(a)           No Order . No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, Regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and has the effect of making the Merger or the other transactions contemplated hereby illegal or otherwise prohibiting consummation of the Merger or the other transactions contemplated hereby.

 

(b)           Government Consents . The applicable waiting period under any Approvals of any Governmental Entity the failure to obtain would constitute a criminal offense, or individually or in the aggregate would be reasonably expected to have a Company Material Adverse Effect or a MBI Material Adverse Effect after the Effective Time, shall have been obtained.

 

(c)           Effective Date of Registration Statement . The effectiveness of the Form S-1 registration statement of MBI related to its initial public offering of MBI securities. For the avoidance of doubt, the parties intend to effect the Merger immediately prior to the effective time of the foregoing registration statement such that as of the effective time of the registration statement the Merger shall have been completed.

 

8.02.          Additional Conditions to Obligations of MBI . The obligations of MBI to effect the Merger and the other transactions contemplated hereby are also subject to the satisfaction at or prior to the Closing Date of the following conditions:

 

(a)           Representations and Warranties . Each of the representations and warranties of the Company contained in this Agreement (which for purposes of this subparagraph (a) shall be read as though none of them contained any Company Material Adverse Effect or other materiality qualifications), except for the representations and warranties contained in Sections 4.01 , 4.02 , 4.03 , 4.04 and 4.05 , shall be true and correct in all respects on the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties specifically relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date) except where the failure of such representations and warranties in the aggregate to be true and correct in all respects has not had, and would not reasonably be expected to have, a Company Material Adverse Effect. Each of the representations and warranties of the Company set forth in Sections 4.01 , 4.02 , 4.03 , 4.04 and 4.05 of this Agreement shall be true and correct in all respects on the date of this Agreement and on the Closing Date as if made on and as of such date (except for such representations and warranties made as of a specified date, which shall be true and correct in all respects as of such specified date).

 

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(b)           Agreements and Covenants . The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.

 

(c)           No Material Adverse Effect . No Company Material Adverse Effect shall have occurred since the date hereof and be continuing.

 

(d)           Compliance Certificate . MBI shall have received a certificate of the Chief Executive Officer of the Company, dated the Closing Date, confirming that the conditions in Sections 8.02(a) , (b) and (c) have been satisfied.

 

(e)           No Pending Action . There shall not be any action taken, any Law, Regulation or order enacted (whether temporary, preliminary or permanent), issued, promulgated, enforced, entered or deemed applicable by any Governmental Entity or pending or threatened any Action by any Governmental Entity or other Person, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the consummation of the Merger, (ii) seeking to obtain material damages in connection with the transactions contemplated by this Agreement or (iii) imposing any condition or restriction that in the judgment of MBI, acting reasonably, would be materially burdensome to the future operations or business of MBI or the Surviving Corporation after the Effective Time.

 

(f)           Consent, Waiver and Investment Agreement . Company Unitholders representing the Required Company Vote shall have executed and delivered a Consent, Waiver and Investment Agreement in form and substance satisfactory to the Company and MBI.

 

(g)           Unitholder Approval . This Agreement and the Merger shall have been approved and adopted by the Required Company Vote.

 

8.03.          Additional Conditions to Obligations of the Company . The obligations of the Company to effect the Merger and the other transactions contemplated hereby are also subject to the satisfaction at or prior to the Closing Date of the following conditions:

 

(a)           Representations and Warranties . Each of the representations and warranties of MBI contained in this Agreement (which for purposes of this subparagraph (a) shall be read as though none of them contained any MBI Material Adverse Effect or other materiality qualification), except for the representations and warranties contained in Sections 5.01 , 5.02 , 5.03 , 5.04 and 5.05 , shall be true and correct in all respects on the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties specifically relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date) except where the failure of such representations and warranties in the aggregate to be true and correct in all respects has not had, and would not reasonably be expected to have, a MBI Material Adverse Effect. Each of the representations and warranties of MBI set forth in Sections 5.01 , 5.02 , 5.03 , 5.04 and 5.05 of this Agreement shall be true and correct in all respects on the date of this Agreement and on the Closing Date as if made on and as of such date (except for such representations and warranties made as of a specified date, which shall be true and correct in all respects as of such specified date).

 

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(b)           Agreements and Covenants . MBI shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date.

 

(c)           No Material Adverse Effect . No MBI Material Adverse Effect shall have occurred since the date hereof and be continuing.

 

(d)           Compliance Certificate . The Company shall have received a certificate of the President of MBI, dated the Closing Date, confirming that the conditions in Sections 8.03(a) , (b) and (c) have been satisfied.

 

(e)           Stockholder Approval . This Agreement and the Merger shall have been approved and adopted by stockholders of MBI.

 

ARTICLE IX

 

TERMINATION, AMENDMENT AND WAIVER

 

9.01.          Termination . This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the stockholders of the Company or MBI of the Merger:

 

(a)           by mutual written consent of the Company and MBI;

 

(b)           by MBI, upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become untrue, in either case only if the conditions set forth in Section 8.02(a) , (b) or (c) of this Agreement, as the case may be, would be incapable of being satisfied; provided, that such breach or untruth has not been cured within 30 days following the earlier of receipt by MBI of written notice of such breach or untruth from the Company or receipt by the Company of written notice of such breach or untruth from MBI;

 

(c)           by the Company, upon a breach of any representation, warranty, covenant or agreement on the part of MBI set forth in this Agreement, or if any representation or warranty of MBI shall have become untrue, in either case only if the conditions set forth in Section 8.03(a) , (b) or (c) of this Agreement, as the case may be, would be incapable of being satisfied; provided, that such breach or untruth has not been cured within 30 days following the earlier of receipt by the Company of written notice of such breach or untruth from MBI or receipt by MBI of written notice of such breach or untruth from the Company;

 

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(d)           by either MBI or the Company, if there shall be any Law, order, injunction or decree which is final and nonappealable preventing the consummation of the Merger;

 

(e)           by either MBI or the Company, if the Merger shall not have been consummated before the 45th day after the date of this Agreement; provided , however , that the right to terminate this Agreement under this Section   9.01(e) shall not be available to any party whose failure or whose affiliates failure to perform any material covenant, agreement or obligation hereunder has been the cause of, or resulted in, the failure of the Merger to occur on or before such date;

 

(f)           by either MBI or the Company if this Agreement and the Merger shall not be adopted and approved by the Required Company Vote;

 

(g)           by either MBI or the Company if this Agreement and the Merger shall not be adopted and approved by the requisite vote of the stockholders of MBI;

 

(h)           by MBI, if the Board of Directors of the Company (A) shall fail to recommend or shall withdraw, modify or change in any manner adverse to MBI its approval or recommendation of this Agreement and the Merger, (B) shall approve, recommend or publicly announce its intention to enter into any Acquisition Proposal, (C) shall have breached any of its obligations under Section 6.04 , (D) shall fail to reaffirm its approval or recommendation of this Agreement and the Merger as promptly as practicable (but in any event within five business days) after receipt of any written request to do so from MBI, (E) shall not have sent to its stockholders pursuant to Rule 14e-2 promulgated under the Securities Act a statement disclosing that the Board of Directors of the Company recommends rejection of any tender or exchange offer relating to its securities that has been commenced by a Person unaffiliated with MBI within ten business days after such tender or exchange offer is first published, sent or given, (F) shall exempt any Person other than MBI from the ability to acquire or vote shares or (G) shall resolve to take any of the actions specified in clause (A), (B) or (F) of this Section 9.01(h) ; or

 

(i)           by the Company, if the Board of Directors of the Company shall have made a Change of Recommendation in accordance with Section 7.01(b) .

 

9.02.          Effect of Termination . Except as provided in Section 9.05 or Section 10.01 of this Agreement, in the event of the termination of this Agreement pursuant to Section 9.01 , this Agreement shall forthwith become void, there shall be no liability on the part of MBI or the Company or their respective officers, directors, or stockholders and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any party of any liability for any willful breach of such party’s representations or warranties contained in this Agreement. No termination of this Agreement shall affect the obligations of the parties under the Confidentiality Agreement.

 

9.03.          Amendment . This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided , however , that, after approval of the Merger by the Unitholders of the Company, no amendment, which under applicable Law may not be made without the approval of the Unitholders of the Company, may be made without such approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.

 

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9.04.          Waiver . At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby.

 

9.05.          Fees, Expenses and Other Payments .

 

(a)           Except as provided in Section 9.02 of this Agreement, all expenses incurred by the parties hereto shall be borne solely and entirely by the party which has incurred such expenses whether or not the Merger is consummated.

 

ARTICLE X

 

GENERAL PROVISIONS

 

10.01.          Effectiveness of Representations, Warranties and Agreements .

 

(a)           Except as set forth in Section 10.01(b) of this Agreement, the representations, warranties and agreements of each party hereto shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other party hereto, any person controlling any such party or any of their officers, directors, representatives or agents, whether prior to or after the execution of this Agreement.

 

(b)           The representations and warranties in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Article I X. This Section   10.01(b) shall not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Effective Time or after termination of this Agreement.

 

10.02.          Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given upon receipt, if delivered personally, mailed by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address) or sent by electronic transmission to the e-mail address specified below:

 

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(a)    If to MBI, to:

 

Moleculin Biotech, Inc.

1973 West Clay

Houston, Texas 77019

Attention: Louis Ploth

E-mail: lploth@moleculin.com

 

with a copy to (which copy shall not constitute notice hereunder):

 

Schiff Hardin LLP

901 K Street NW

Suite 700

Washington, DC 20001

Attention: Cavas Pavri

Email: cpavri@schiffhardin.com

 

(b)   If to the Company:

 

Moleculin, LLC

1973 West Clay

Houston Texas 77019

Attention: Lori Bisson

Email: lbisson@moleculin.com

 

with a copy to (which copy shall not constitute notice hereunder):

 

Seyfarth Shaw LLP

700 Milam, Suite 1400

Houston, Texas 77002

Attention: Paul Pryzant

Email: ppryzant@seyfarth.com

 

10.03.          Headings . The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section references herein are, unless the context otherwise requires, references to sections of this Agreement.

 

10.04.          Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

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10.05.          Entire Agreement . This Agreement (together with the Exhibits, the Company Disclosure Letter and the MBI Disclosure Letter) and the Confidentiality Agreement constitute the entire agreement of the parties, and supersede all prior agreements and undertakings, both written and oral, among the parties or between any of them, with respect to the subject matter hereof. The Company agrees that nothing contained in this Agreement, or the transactions contemplated hereby or thereby, shall be deemed to violate the Confidentiality Agreement.

 

10.06.          Assignment . This Agreement shall not be assigned by any party prior to the Effective Time by operation of Law or otherwise.

 

10.07.          Parties in Interest . This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

10.08.          Specific Performance . The parties hereby acknowledge and agree that the failure of any party to perform its agreements and covenants hereunder, including its failure to take all actions as are necessary on its part to the consummation of the Merger, will cause irreparable injury to the other parties for which damages, even if available, will not be an adequate remedy. Accordingly, each party hereby consents to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of such party’s obligations and to the granting by any court of the remedy of specific performance of its obligations hereunder.

 

10.09.          Failure or Indulgence Not Waiver; Remedies Cumulative . No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive to, and not exclusive of, any rights or remedies otherwise available.

 

10.10.          Governing Law; Consent Jurisdiction; Venue .

 

(a)           This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Law.

 

(b)           Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the state courts of Texas and to the jurisdiction of the United States District Court for the Southern District of Texas, for the purpose of any action or proceeding arising out of or relating to this Agreement and each of the parties hereto irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined exclusively in any Texas state or federal court sitting in the Harris County, Texas. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

 

  - 33 -  
 

 

(c)           Each of the parties hereto irrevocably consents to the service of any summons and complaint and any other process in any other action or proceeding relating to the Merger, on behalf of itself or its property, by the personal delivery of copies of such process to such party. Nothing in this Section   10.10 shall affect the right of any party hereto to service legal process in any other manner permitted by Law.

 

10.11.          Waiver of Trial by Jury . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

10.12.          Counterparts . This Agreement may be executed in multiple counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

 

*     *     *    *    *

 

[Signature Page Follows]

 

  - 34 -  
 

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

  MOLECULIN BIOTECH, INC.
   
  By:  
  Name: Louis Ploth
  Title: President and Chief Financial Officer
   
  MOLECULIN LLC
   
  By:  
  Name: Walter Klemp
  Title: Chief Executive Officer

 

Signature Page to Agreement and Plan of Merger

 

 

 

 

EXHIBIT A

 

Definitions

 

“Acquisition Proposal” means any contract, proposal, offer or other indication of interest (whether or not in writing and whether or not delivered to the stockholders of the Company generally) relating to any of the following (other than the transactions contemplated by this Agreement or the Merger): (a) any merger, amalgamation, arrangement, share exchange, take-over bid, tender offer, recapitalization, consolidation or other business combination directly or indirectly involving the Company, (b) any acquisition of any business that constitutes 25% or more of the Company’s net revenues, net income or stockholders’ equity, or assets representing 25% of the book value of the assets of the Company (or any license, lease, long-term supply agreement, exchange, mortgage, pledge or other arrangement having a similar economic effect) in each case in a single transaction or a series of related transactions, (c) any acquisition of beneficial ownership (as defined under Section 13(d) of the Exchange Act) of 25% or more of the capital stock of the Company, or (d) any public announcement of an intention to, do any of the foregoing;

 

affiliate ” means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, another person;

 

Annamed ” has the meaning given such term in Section 5.17(i) .

 

Approvals ” means any consent, license, permit, approval, waiver, authorization or order;

 

a person shall be deemed a “ beneficial owner ” of or to have “beneficial ownership” of capital stock in accordance with the interpretation of the term “beneficial ownership” as defined in Rule 13d-3 under the Exchange Act, as in effect on the date hereof; provided that a person shall be deemed to be the beneficial owner of, and to have beneficial ownership of, capital stock that such person or any affiliate of such person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise;

 

business day ” means any day other than a day on which banks in the State of Texas are authorized or obligated to be closed;

 

Certificates ” shall have the meaning set forth in Section 3.01(e) ;

 

Change of Recommendation ” shall have the meaning set forth in Section 7.01(c) ;

 

Change of Recommendation Notice Date ” shall have the meaning set forth in Section 7.01(c);

 

Claim ” shall have the meaning set forth in Section 7.08 ;

 

Closing ” shall have the meaning set forth in Section 2.02 ;

 

  A- 1  
 

 

Closing Date ” shall have the meaning set forth in Section 2.02 ;

 

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder;

 

Common Units ” shall mean all of the Units designated as Common Units of the Company;

 

“Company Disclosure Letter” shall mean a letter of even date herewith delivered by the Company to MBI prior to the execution of the Agreement and certified by a duly authorized officer of the Company, which identifies exceptions to the Company’s representations and warranties contained in Article IV by specific Section and subsection references;

 

Company Financial Statements ” shall have the meaning set forth in Section 4.07 ;

 

“Company Material Adverse Effect” shall mean any change, effect, event, circumstance or occurrence with respect to the business, condition (financial or otherwise), results of operations, properties, assets, liabilities or obligations of the Company, that is, or could be, material and adverse to the current or future business, condition (financial or otherwise), results of operations, properties, assets, liabilities or obligations of the Company or could prevent or materially delay or impair the Company’s ability to perform its obligations under this Agreement;

 

Company Unitholders ” or “ Unitholders ” means the holders of the Series A Preferred Units and Common Units of the Company;

 

Company Unitholders’ Meeting ” shall have the meaning set forth in Section 7.01(b) ;

 

Control ” (including the terms “controlled,” “controlled by” and “under common control with”) means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise;

 

“Court” shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice;

 

Delaware Law ” shall mean the General Corporation Law of the State of Delaware;

 

Effective Time ” shall have the meaning set forth in Section 2.02 ;

 

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the Regulations promulgated thereunder;

 

“Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder;

 

Existing IP Assets ” shall have the meaning set forth in Section 3.04(a) .

 

  A- 2  
 

 

“GAAP” shall mean generally accepted accounting principles in the United States as in effect from time to time;

 

“Governmental Entity” shall mean any governmental agency or authority (including a Court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers;

 

Indemnified Parties ” shall have the meaning set forth in Section 7.08 ;

 

Information Statement ” shall have the meaning set forth in Section 7.01(a) ;

 

Knowledge ” means the actual knowledge of any officer or director of a Person after reasonable inquiry of the management personnel employed by such Person;

 

“Law” shall mean all laws, statutes and ordinances of the United States, any state of the United States, any foreign country, any foreign state and any political subdivision thereof, including all decisions of Courts having the effect of law in each such jurisdiction;

 

Merger ” shall have the meaning set forth in Section 2.01 ;

 

Merger Consideration ” shall have the meaning set forth in Section 3.01(d) ;

 

Merger Shares ” shall have the meaning set forth in Section 3.01(d) ;

 

MBI Audited Financial Statements ” shall have the meaning set forth in Section 5.07 ;

 

MBI Common Stoc k” shall mean the common stock, par value $0.001 per share, of MBI;

 

MBI Disclosure Letter ” shall mean a letter of even date herewith delivered by MBI to the Company prior to the execution of the Agreement and certified by a duly authorized officer of MBI, which identifies exceptions to MBI’s representations and warranties contained in Article V by specific Section and subsection references;

 

MBI Financial Statements ” shall have the meaning set forth in Section 5.07 ;

 

“MBI Material Adverse Effect” shall mean any change, effect, event, circumstance or occurrence with respect to the business, condition (financial or otherwise), results of operations, properties, assets, liabilities or obligations of MBI, that is, or could be, material and adverse to the current or future business, condition (financial or otherwise), results of operations, properties, assets, liabilities or obligations of MBI or could prevent or materially delay or impair MBI’s ability to perform its obligations under this Agreement;

 

MBI Options ” shall have the meaning set forth in Section 5.04(a)(iii) ;

 

MBI Stock Plan ” shall mean the Moleculin Biotech, Inc. Long-Term Incentive Plan to be duly adopted by the Board of Directors and approved by MBI’s stockholders prior to the Closing Date;

 

  A- 3  
 

 

MBI Stockholders’ Meeting ” shall have the meaning set forth in Section 7.01(e) ;

 

MBI Unaudited Financial Statements ” shall have the meaning set forth in Section 5.07 ;

 

Person ” means an individual, corporation, partnership, limited liability company, joint stock company, association, trust, estate, unincorporated organization, other entity or group (as defined in Section 13(d) of the Exchange Act);

 

Plan ” shall mean the Plan of Reorganization of MBI adopted by MBI prior to the date of this Agreement under which the Company plans to merge with and into MBI pursuant to the Merger under this Agreement, and Annamed will merge with and into MBI pursuant to a merger and a separate merger agreement, in each case in exchange for MBI Common Stock except to the extent cash is issued by MBI to compensate the Unitholders of the Company and Annamed for fractional units payable to such Unitholders.

 

“Regulation” shall mean any rule or regulation of any Governmental Entity having the effect of Law or of any rule or regulation of any self-regulatory organization;

 

Representatives ” shall have the meaning set forth in Section 6.04 ;

 

MD Anderson ” shall mean the University of Texas M.D. Anderson Cancer Center;

 

Required Company Vote ” shall mean the (i) affirmative vote of the holders of at least a majority of the issued and outstanding Series A Preferred Units and Common Units, voting together, to approve this Agreement and the Merger, and (ii) the affirmative vote of the holders of a majority of the issued and outstanding Series A Preferred Units, voting together as a separate class.

 

“Securities Act” shall mean the Securities Act of 1933, as amended, and the Regulations promulgated thereunder;

 

subsidiary ” or “ subsidiaries ” of any Person, means any entity, whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned or controlled by such party or by one or more of its respective subsidiaries or by such party and any one or more of its respective subsidiaries;

 

“Superior Proposal” means any bona fide written proposal by a third Person directly or indirectly, to acquire businesses representing more than 50% of the Company’s net revenues, net income or stockholders’ equity, or assets representing more than 50% of the Company’s total assets, or more than 50% of the Company’s capital stock, whether by way of merger, amalgamation, arrangement, share exchange, take-over bid, recapitalization, sale of assets or otherwise, and that in the good faith determination by affirmative vote of a majority of all of the members of the Board of Directors of the Company (after consultation with and receipt of an opinion from its outside legal counsel) after taking into account all legal, financial, regulatory and other aspects of such proposal and the party making such proposal, (a) is reasonably capable of being completed without undue delay, (b) is not subject to any financing contingency and (c) would, if consummated in accordance with its terms, result in a transaction more favorable to the Company’s stockholders from a financial point of view than the Merger;

 

  A- 4  
 

 

Surviving Corporation ” shall have the meaning set forth in Section 2.01 ;

 

Tax ” or “ Taxes ” means any and all taxes, charges, fees, levies, assessments, duties or other amounts payable to any federal, state, local or foreign taxing authority or agency, including, without limitation, (A) income, franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad valorem, value added, sales, use, service, real or personal property, capital stock, license, payroll, withholding, disability, employment, social security, workers compensation, unemployment compensation, utility, severance, excise, stamp, windfall profits, transfer and gains taxes, (B) customs, duties, imposts, charges, levies or other similar assessments of any kind, and (C) interest, penalties and additions to Tax imposed with respect thereto;

 

Tax Items ” shall have the meaning set forth in Section 4.19 ; and

 

Tax Returns ” shall have the meaning set forth in Section 4.19 .

 

Texas Law ” shall mean the Texas Business Organizations Code.

 

Units ” shall collectively mean the Common Units and Series A Preferred Units of the Company.

 

  A- 5  

Exhibit 10.12

 

ESCROW DEPOSIT AGREEMENT

 

This ESCROW DEPOSIT AGREEMENT (this “ Agreement ”) dated as of this [__] day of [_____] 2016, by and among MOLECULIN BIOTECH, INC. , a Delaware corporation (the “ Company ”), having an address at 2575 West Bellfort, Suite 333, Houston, Texas 77054, BONWICK CAPITAL PARTNERS, LLC, a [ ]. (the “ Underwriter ”), having an address at 40 West 57 th Street, 28 th Floor, New York, New York 10019, and SIGNATURE BANK (the “ Escrow Agent ”), a New York State chartered bank, having an office at [ insert address of Signature Bank’s financial center maintaining the account ]. All capitalized terms not herein defined shall have the meaning ascribed to them in that certain Prospectus, dated [______], 2016,including all attachments, schedules and exhibits thereto (the “ Prospectus ”).

 

W I T N E S S E T H :

 

WHEREAS , pursuant to the terms of the Memorandum the Company desires to sell (the “ Offering ”) a minimum of $[ insert Minimum Amount ] (the “ Minimum Amount ”) and a maximum of $[ insert Maximum Amount ] (the “ Maximum Amount ”) of its shares (the “ Shares ”). Each Share is being sold at a price of $[ insert share/unit price ] per Share; and

 

WHEREAS, unless the Minimum Amount is sold by [ insert Termination Date ] (the “ Termination Date ”), the Offering shall terminate and all funds shall be returned to the subscribers in the Offering, and if the Minimum Amount is met, the Offering may continue until the Termination Date; and

 

WHEREAS , the Company and Underwriter desire to establish an escrow account with the Escrow Agent into which the Company and Underwriter shall instruct Investors introduced to the Company by Underwriter (the “ Investors ”) to deposit checks and other instruments for the payment of money made payable to the order of “Signature Bank as Escrow Agent for Moleculin Biotech, Inc.,” and Escrow Agent is willing to accept said checks and other instruments for the payment of money in accordance with the terms hereinafter set forth; and

 

WHEREAS , the Company, as issuer, and Underwriter, as an introducing broker-dealer, represent and warrant to the Escrow Agent that they will comply with all of their respective obligations under applicable state and federal securities laws and regulations with respect to sale of the Offering; and

 

 

 

 

WHEREAS , the Company and Underwriter represent and warrant to the Escrow Agent that they have not stated to any individual or entity that the Escrow Agent’s duties will include anything other than those duties stated in this Agreement; and

 

WHEREAS , the Company and Underwriter warrant to the Escrow Agent that a copy of each document that has been delivered to Investors and third parties that include Escrow Agent’s name and duties, has been attached hereto as Schedule I .

  

NOW, THEREFORE, IT IS AGREED as follows:

 

1. Delivery of Escrow Funds .

 

(a) Underwriter and the Company shall instruct Investors to deliver to Escrow Agent checks made payable to the order of “Signature Bank, as Escrow Agent for Moleculin Biotech, Inc.,” or wire transfer to Signature Bank, [ insert address of Signature Bank’s financial center maintaining the account ], ABA No. 026013576 for credit to Signature Bank, as Escrow Agent for Moleculin Biotech, Inc., Account No. _____________, in each case, with the name and address of the individual or entity making payment. In the event any Investor’s address is not provided to Escrow Agent by the Investor, then Underwriter and/or the Company agree to promptly provide Escrow Agent with such information in writing. The checks or wire transfers shall be deposited into a non interest-bearing account at Signature Bank entitled “Moleculin Biotech, Inc., Signature Bank, as Escrow Agent” (the “ Escrow Account ”).

 

(b) The collected funds deposited into the Escrow Account are referred to as the “ Escrow Funds .”

 

(c) The Escrow Agent shall have no duty or responsibility to enforce the collection or demand payment of any funds deposited into the Escrow Account. If, for any reason, any check deposited into the Escrow Account shall be returned unpaid to the Escrow Agent, the sole duty of the Escrow Agent shall be to return the check to the Investor and advise the Company and Underwriter promptly thereof.

 

2. Release of Escrow Funds . The Escrow Funds shall be paid by the Escrow Agent in accordance with the following:

 

(a) In the event that the Company and Underwriter advise the Escrow Agent in writing that the Offering has been terminated (the “ Termination Notice ”), the Escrow Agent shall promptly return the funds paid by each Investor to said Investor without interest or offset.

 

 

 

 

(b) Reserved.

 

(c) Provided that the Escrow Agent does not receive the Termination Notice in accordance with Section 2(a) and there is the Minimum Amount deposited into the Escrow Account on or prior to the Termination Date, the Escrow Agent shall, upon receipt of written instructions, in the form of Exhibit A, attached hereto and made a part hereof, or in a form and substance satisfactory to the Escrow Agent, received from the Company and Underwriter, pay the Escrow Funds in accordance with such written instructions, such payment or payments to be made by wire transfer within one (1) business day of receipt of such written instructions. Such instructions must be received by the Escrow Agent no later than 3:00 PM Eastern Time on a Banking Day for the Escrow Agent to process such instructions that Banking Day.

 

(d) If by 3:00 P.M. Eastern time on the Termination Date, the Escrow Agent has not received written instructions from the Company and Underwriter regarding the disbursement of the Escrow Funds or the total amount of the Escrow Funds is less than the Minimum Amount, then the Escrow Agent shall promptly return the Escrow Funds to the Investors without interest or offset. The Escrow Funds returned to each Investor shall be free and clear of any and all claims of the Escrow Agent.

 

(e) The Escrow Agent shall not be required to pay any uncollected funds or any funds that are not available for withdrawal.

 

(f) If the Termination Date or any date that is a deadline under this Agreement for giving the Escrow Agent notice or instructions or for the Escrow Agent to take action is not a Banking Day, then such date shall be the Banking Day that immediately preceding that date. A “ Banking Day ” is any day other than a Saturday, Sunday or a day that a New York State chartered bank is not legally obligated to be opened.

 

3. Acceptance by Escrow Agent . The Escrow Agent hereby accepts and agrees to perform its obligations hereunder, provided that:

 

(a) The Escrow Agent may act in reliance upon any signature believed by it to be genuine, and may assume that any person who has been designated by Underwriter or the Company to give any written instructions, notice or receipt, or make any statements in connection with the provisions hereof has been duly authorized to do so. Escrow Agent shall have no duty to make inquiry as to the genuineness, accuracy or validity of any statements or instructions or any signatures on statements or instructions. The names and true signatures of each individual authorized to act singly on behalf of the Company and Underwriter are stated in Schedule II , which is attached hereto and made a part hereof. The Company and Underwriter may each remove or add one or more of its authorized signers stated on Schedule II by notifying the Escrow Agent of such change in accordance with this Agreement, which notice shall include the true signature for any new authorized signatories.

 

 

 

 

(b) The Escrow Agent may act relative hereto in reliance upon advice of counsel in reference to any matter connected herewith. The Escrow Agent shall not be liable for any mistake of fact or error of judgment or law, or for any acts or omissions of any kind, unless caused by its willful misconduct or gross negligence.

 

(c) Underwriter and the Company agree to indemnify and hold the Escrow Agent harmless from and against any and all claims, losses, costs, liabilities, damages, suits, demands, judgments or expenses (including but not limited to reasonable attorney’s fees) claimed against or incurred by Escrow Agent arising out of or related, directly or indirectly, to this Escrow Agreement unless caused by the Escrow Agent’s gross negligence or willful misconduct.

 

(d) In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder, the Escrow Agent shall be entitled to (i) refrain from taking any action other than to keep safely the Escrow Funds until it shall be directed otherwise by a court of competent jurisdiction, or (ii) deliver the Escrow Funds to a court of competent jurisdiction.

 

(e) The Escrow Agent shall have no duty, responsibility or obligation to interpret or enforce the terms of any agreement other than Escrow Agent’s obligations hereunder, and the Escrow Agent shall not be required to make a request that any monies be delivered to the Escrow Account, it being agreed that the sole duties and responsibilities of the Escrow Agent shall be to the extent not prohibited by applicable law (i) to accept checks or other instruments for the payment of money and wire transfers delivered to the Escrow Agent for the Escrow Account and deposit said checks and wire transfers into the non-interest bearing Escrow Account, and (ii) to disburse or refrain from disbursing the Escrow Funds as stated above, provided that the checks received by the Escrow Agent have been collected and are available for withdrawal.

 

 

 

 

4. Escrow Account Statements and Information. The Escrow Agent agrees to send to the Company and/or the Underwriter a copy of the Escrow Account periodic statement, upon request in accordance with the Escrow Agent’s regular practices for providing account statements to its non-escrow clients and to also provide the Company and/or Underwriter, or their designee, upon request other deposit account information, including Escrow Account balances, by telephone or by computer communication, to the extent practicable. The Company and Underwriter agree to complete and sign all forms or agreements required by the Escrow Agent for that purpose. The Company and Underwriter each consent to the Escrow Agent’s release of such Escrow Account information to any of the individuals designated by Company or Underwriter, which designation has been signed in accordance with Section 3(a) by any of the persons in Schedule II .  Further, the Company and Underwriter have an option to receive e-mail notification of incoming and outgoing wire transfers. If this e-mail notification service is requested and subsequently approved by the Escrow Agent, the Company and Underwriter agrees to provide a valid e-mail address and other information necessary to set-up this service and sign all forms and agreements required for such service. The Company and Underwriter each consent to the Escrow Agent’s release of wire transfer information to the designated e-mail address(es). The Escrow Agent’s liability for failure to comply with this section shall not exceed the cost of providing such information.

 

5. Resignation and Termination of the Escrow Agent . The Escrow Agent may resign at any time by giving 30 days’ prior written notice of such resignation to Underwriter and the Company. Upon providing such notice, the Escrow Agent shall have no further obligation hereunder except to hold as depositary the Escrow Funds that it receives until the end of such 30-day period. In such event, the Escrow Agent shall not take any action, other than receiving and depositing Investors checks and wire transfers in accordance with this Agreement, until the Company has designated a banking corporation, trust company, attorney or other person as successor. Upon receipt of such written designation signed by Underwriter and the Company, the Escrow Agent shall promptly deliver the Escrow Funds to such successor and shall thereafter have no further obligations hereunder. If such instructions are not received within 30 days following the effective date of such resignation, then the Escrow Agent may deposit the Escrow Funds held by it pursuant to this Agreement with a clerk of a court of competent jurisdiction pending the appointment of a successor. In either case provided for in this Section, the Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds.

 

 

 

 

6. Termination . The Company and Underwriter may terminate the appointment of the Escrow Agent hereunder upon written notice specifying the date upon which such termination shall take effect, which date shall be at least 30 days from the date of such notice. In the event of such termination, the Company and Underwriter shall, within 30 days of such notice, appoint a successor escrow agent and the Escrow Agent shall, upon receipt of written instructions signed by the Company and Underwriter, turn over to such successor escrow agent all of the Escrow Funds; provided , however , that if the Company and Underwriter fail to appoint a successor escrow agent within such 30-day period, such termination notice shall be null and void and the Escrow Agent shall continue to be bound by all of the provisions hereof. Upon receipt of the Escrow Funds, the successor escrow agent shall become the escrow agent hereunder and shall be bound by all of the provisions hereof and Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds and under this Agreement.

 

7. Investment . All funds received by the Escrow Agent shall be held only in non-interest bearing bank accounts at Signature Bank.

 

8. Compensation . Escrow Agent shall be entitled, for the duties to be performed by it hereunder, to a fee of $4,000.00, which fee shall be paid by the Company upon the signing of this Agreement. In addition, the Company shall be obligated to reimburse Escrow Agent for all fees, costs and expenses incurred or that become due in connection with this Agreement or the Escrow Account, including reasonable attorney’s fees. Neither the modification, cancellation, termination or rescission of this Agreement nor the resignation or termination of the Escrow Agent shall affect the right of Escrow Agent to retain the amount of any fee which has been paid, or to be reimbursed or paid any amount which has been incurred or becomes due, prior to the effective date of any such modification, cancellation, termination, resignation or rescission. To the extent the Escrow Agent has incurred any such expenses, or any such fee becomes due, prior to any closing, the Escrow Agent shall advise the Company and the Company shall direct all such amounts to be paid directly at any such closing.

 

 

 

 

9. Notices . All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by hand-delivery, by facsimile (followed by first-class mail), by nationally recognized overnight courier service or by prepaid registered or certified mail, return receipt requested, to the addresses set forth below:

 

If to Underwriter:

 

Bonwick Capital Partners, LLC

40 West 57th Street, 28th Floor

New York, New York 10019

Attention: Daniel J. McClory, Managing Director

Fax:

 

If to the Company:

 

Moleculin Biotech, Inc.

2575 West Bellfort, Suite 333

Houston, Texas 77054

Attention: Walter V. Klemp, Acting CEO

 

If to Escrow Agent:

 

Signature Bank

[ address of financial center]

_______________

Attention : [ name & title of Group Director]

Fax: [Private Client Group’s fax number]

 

10. General .

 

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be entirely performed within such State, without regard to choice of law principles and any action brought hereunder shall be brought in the courts of the State of New York, located in the County of New York. Each party hereto irrevocably waives any objection on the grounds of venue, forum nonconveniens or any similar grounds and irrevocably consents to service of process by mail or in any manner permitted by applicable law and consents to the jurisdiction of said courts. EACH OF THE PARTIES HERETO HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

 

 

 

(b) This Agreement sets forth the entire agreement and understanding of the parties with respect to the matters contained herein and supersedes all prior agreements, arrangements and understandings relating thereto.

 

(c) All of the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto, as well as their respective successors and assigns.

 

(d) This Agreement may be amended, modified, superseded or canceled, and any of the terms or conditions hereof may be waived, only by a written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver of any party of any condition, or of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. No party may assign any rights, duties or obligations hereunder unless all other parties have given their prior written consent.

 

(e) If any provision included in this Agreement proves to be invalid or unenforceable, it shall not affect the validity of the remaining provisions.

 

(f) This Agreement and any modification or amendment of this Agreement may be executed in several counterparts or by separate instruments and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto.

 

11. Form of Signature. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any modification or amendment of this Agreement; provided , however , that each party who produces a facsimile signature agrees, by the express terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party.

 

12. No Third-Party Beneficiaries .  This Agreement is solely for the benefit of the parties and their respective successors and permitted assigns, and no other person has any right, benefit, priority, or interest under or because of the existence of this Agreement.

 

 

 

 

 

IN WITNESS WHEREOF , the parties have duly executed this Agreement as of the date first set forth above.

 

MOLECULIN BIOTECH, INC.   BONWICK CAPITAL PARTNERS, LLC  
             
BY:     BY:    
  NAME: WALTER V. KLEMP     NAME:     
  TITLE: ACTING CHIEF EXECUTIVE OFFICER     TITLE:     
             
             
SIGNATURE BANK        
         
BY:          
  NAME:          
  TITLE:          
             
BY:          
  NAME:          
  TITLE:          

 

 

 

 

 

Schedule I

 

OFFERING DOCUMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Escrow Deposit Agreement – Public Offering Rev. 05/2015

 

 

 

Schedule II

 

The Escrow Agent is authorized to accept instructions signed or believed by the Escrow Agent to be signed by any one of the following on behalf of the Company and Underwriter. 

 

 

 

Moleculin Biotech, Inc.

 

 

  Name   True Signature  
         
         
  Walter V. Klemp      
         
         
  Louis Ploth, Jr.      
         

 

Bonwick Capital Partners, LLC 

         
         
  Name   True Signature  
         
         
         
         

 

 

 

 

 

 

 

 

 

Escrow Deposit Agreement – Public Offering Rev. 05/2015

 

 

 

Exhibit A

 

FORM OF ESCROW RELEASE NOTICE

 

Date:

 

Signature Bank

[ address of financial center]

______________

Attention: [ name & title of Group Director]

 

Dear _________:

 

In accordance with the terms of Section 2(c) of an Escrow Deposit Agreement dated as of ________ __, 2016 (the "Escrow Agreement"), by and between Moleculin Biotech, Inc. (the "Company"), Signature Bank (the "Escrow Agent") and Bonwick Capital Partners, LLC. ("Underwriter"), the Company and Underwriter hereby notify the Escrow Agent that the ________ closing will be held on ___________ for gross proceeds of $_________.

 

 

PLEASE DISTRIBUTE FUNDS BY WIRE TRANSFER AS FOLLOWS (wire instructions attached):

 

 

________________________: $

 

________________________: $

 

________________________: $

 

 

Very truly yours,

 

Moleculin Biotech, Inc.

 

By:_____________

Name:__________

Title:____________

 

Bonwick Capital Partners, LLC

 

By:_____________

Name:___________

Title:____________

 

 

 

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   

We hereby consent to the inclusion in this Registration Statement on Form S-1 (Amendment No. 2) of our report dated March 21, 2016 relating to Moleculin Biotech, Inc.’s financial statements as of December 31, 2015 and for the period from July 28, 2015 (Inception) to December 31, 2015 and our report dated March 21, 2016 relating to Moleculin, LLC’s financial statements as of December 31, 2015 and 2014 and for the years then ended. We also consent to the reference to our firm under the heading "Experts" appearing therein.

 

/s/ GBH CPAs, PC

 

 

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

 

March 21, 2016