Confidential,
for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
¨
Definitive
Information Statement
OXFORD
VENTURES, INC.
(Name
of Registrant as Specified in Charter)
Payment
of Filing Fee (Check the appropriate box):
¨
No
fee required.
x
Fee
computed on table below per Exchange Act Rules 14c-5(g) and
0-11.
(1)
Title
of each class of securities to which transaction
applies:
Common
Stock, $0.001 par value per share
(2)
Aggregate
number of securities to which transaction applies:
11,000,000
shares of Common Stock
(3)
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was determined):
$1.60.
The price is adjusted to reflect the 1 for 400 reverse stock split
which
will be effected at the effective time of the merger and the issuance
of
the merger shares.
(4)
Proposed
maximum aggregate value of transaction:
$17,600,000.
The value of the transaction is adjusted to reflect the 1 for 400
reverse
stock split which will be effected at the effective time of the
merger.
(5)
Total
fee paid: $3,520
x
Fee
paid previously with preliminary
materials.
¨
Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its
filing.
CALCULATION
OF FILING FEE
Title
of Each Class of Securities to be Registered
Aggregate
Number of Securities to which Transaction Applies
Price
Per Share of Securities to which Transaction Applies(1)
Aggregate
Proposed Value of Transaction(2)
Amount
of Filing Fee
Common
Stock, par
value $.001
11,000,000
$
1.60(1)
$
17,600,000(2)
$
3,520
Total
11,000,000
$
1.60
$
17,600,000
$
3,520
(1)
Estimated
solely for the purpose of calculating the filing fee pursuant to
Exchange
Act Rule 0-11 as of the close of the market on February 27, 2006,
based
upon the average of the bid and asked prices for that date, which
was
$.004. The price has been adjusted to reflect the 1 for 400 reverse
stock
split which will be effective as of the effective time of the merger
and
the issuance of the common
shares.
(2)
Estimated
solely for the purpose of calculating the registration fee pursuant
to
Exchange Act Rule 0-11. The price has been adjusted to reflect the
1 for
400 reverse stock split which will be effective as of the effective
time
of the merger and the issuance of the common shares. See footnote
1
above.
Notice
is
hereby given that Oxford Ventures, Inc., a Nevada corporation (the “Company”),
pursuant to the Bylaws of the Company, will hold a special stockholders’ meeting
(the “Special Meeting”) to be held at the offices of the Company’s special
counsel, Gottbetter & Partners, LLP, at 488 Madison Avenue, New York, NewYork10022 on March 27, 2006 at eleven o’clock in the morning, Eastern
Time:
(1)
To
amend our Certificate of Incorporation substantially in the form
of
Exhibit
1
to
effect a reverse stock split (the “Stock Split”) of our common stock of
one share, with a par value of $0.001, for four-hundred shares outstanding
so that every four-hundred outstanding shares of common stock before
the
Stock Split shall represent one share of our common stock, with a
par
value of $0.001, after the Stock Split with all fractional shares
rounded
up to the next whole share.
(2)
Upon
completion of the Stock Split, to amend our Certificate of Incorporation
substantially in the form of Exhibit
1
to
decrease the amount of authorized capital from 400,000,000 shares
of
common stock, $.001 par value to 200,000,000 shares of common stock,
$.001
par value, and to authorize the issuance of up to 20,000 shares of
Preferred Stock, par value $0.001 per share (the “Share
Amendment”).
(3)
To
adopt the Uluru Inc. 2006 Equity Incentive Plan (the “Plan”),
substantially in the Form attached hereto as Exhibit
2
pursuant to which our board of directors is given the ability to
provide
incentives through the issuance of options, stock, restricted stock,
and
other stock-based awards, representing up to 2,000,000 shares of
the
Company’s common stock, to certain employees, directors, officers and
non-employee service providers.
(4)
To
amend our Certificate of Incorporation substantially in the form
of
Exhibit
3
to
change our name from Oxford Ventures, Inc. to Uluru Inc. (the “Name
Change”), contingent upon the completion of the merger between Uluru Inc.
and Uluru Acquisition Corp. (the “Merger”) as contemplated by the Merger
Agreement entered into on October 14, 2005 between the Company, Uluru
Acquisition Corp. and Uluru Inc (the “Merger
Agreement”).
(5)
To
appoint Kerry P. Gray, William W. Crouse, Jeffery B. Davis and Dr.
David
Reese as the Company’s directors (the “Director Appointments”) upon the
completion of the Merger.
We
Are Not Asking You for a Proxy and You are Requested Not To Send Us a
Proxy.
As
of the
close of business on February 28, 2006, the record date for shares entitled
to
vote at the Special Meeting, there were 399,999,704 shares of our common
stock
outstanding. In connection with the Stock Split, the Share Amendment, the
Plan,
the Name Change and the Director Appointments (together, the “Proposed
Actions”), each share of our common stock is entitled to one vote. Each of the
Proposed Actions requires the affirmative vote of a majority of the outstanding
shares of our common stock present at the Special Meeting, except for the
Director Appointments, which requires a plurality of the votes cast. Prior
to
the mailing of this Information Statement, the Company’s Board of Directors, by
written consent on January 19, 2006 declared the advisability of the Proposed
Actions and called this Special Meeting so that the stockholders can vote
on the
Proposed Actions.
ACTION
TAKEN BY WRITTEN CONSENT OF THE BOARD OF DIRECTORS AND
MAJORITY
SHAREHOLDERS
We
intend
to furnish this Information Statement on or about March 1, 2006 to you to
provide you with information and a description of the proposed actions to
be
voted upon at a special stockholders’ meeting (the “Special Meeting”) to be held
at the offices of Gottbetter & Partners, LLP, our special counsel, at 488
Madison Avenue, New York, New York10022 on March 27, 2006 at eleven in the
morning Eastern Time.
WE
ARE NOT ASKING YOU FOR A PROXY AND
YOU
ARE REQUESTED NOT TO SEND US A PROXY.
We
intend
to mail this Information Statement on or about March 6, 2006 to our common
shareholders of record as at the close of business on February 28, 2006.
The
Information Statement is being delivered only to inform you of the actions
to be
voted on at the Special Meeting.
We
will
pay all costs associated with the distribution of this Information Statement,
including the costs of printing and mailing. We will reimburse brokerage firms
and other custodians, nominees and fiduciaries for reasonable expenses incurred
by them in sending this Information Statement to the beneficial owners of our
common stock.
We
will
only deliver one Information Statement to multiple shareholders sharing an
address unless we have received contrary instructions from one or more of such
shareholders. Upon written or oral request, we will promptly deliver a separate
copy of this Information Statement and any future annual reports and information
statements to any security holder at a shared address to which a single copy
of
this Information Statement was delivered, or deliver a single copy of this
Information Statement and any future annual reports and information statements
to any security holder or holders sharing an address to which multiple copies
are now delivered. You should direct any such requests to the following
address:
Our
Board
of Directors by written consent has called the Special Meeting:
(1)
To
amend our Certificate of Incorporation substantially in the form
of
Exhibit
1
to
effect a reverse stock split (the “Stock Split”) of our common stock of
one share, with a par value of $0.001, for four-hundred shares outstanding
so that every four-hundred outstanding shares of common stock before
the
Stock Split shall represent one share of our common stock, with a
par
value of $0.001, after the Stock Split with all fractional shares
rounded
up to the next whole share.
(2)
Upon
completion of the Stock Split, to amend our Certificate of Incorporation
substantially in the form of Exhibit
1
to
decrease the amount of authorized capital from 400,000,000 shares
of
common stock, $.001 par to 200,000,000 shares of common stock, $.001
par
value, and to authorize the issuance of up to 20,000 shares of Preferred
Stock, par value $0.001 per share (the “Share
Amendment”).
To
adopt the Uluru Inc. 2006 Equity Incentive Plan (the “Plan”),
substantially in the Form attached hereto as Exhibit
2,
pursuant to which our board of directors is given the ability to
provide
incentives through the issuance of options, stock, restricted stock,
and
other stock-based awards, representing up to 2,000,000 share of the
Company’s common stock, to certain employees, directors, officers and
non-employee service providers.
(4)
To
amend our Certificate of Incorporation substantially in the form
of
Exhibit
3
to
change our name from Oxford Ventures, Inc. to Uluru Inc. (the “Name
Change”), contingent upon the completion of the merger between Uluru Inc.
and Uluru Acquisition Corp. (the “Merger”) as contemplated by the Merger
Agreement entered into on October 14, 2005 between the us, Uluru
Acquisition Corp. and Uluru Inc.
(5)
To
appoint Kerry P. Gray, William W. Crouse, Jeffery B. Davis and Dr.
David
Reese as the Company’s directors (the “Director Appointments”) upon the
completion of the Merger.
As
of the
close of business on February 28, 2006, the record date for shares entitled
to
vote at the Special Meeting, there were 399,999,704 shares of our common
stock
outstanding. In connection with the Stock Split, the Share Amendment, the
Plan,
the Name Change and the Director Appointments (together, the “Proposed
Actions”), each share of our common stock is entitled to one vote. Each of the
Proposed Actions requires the affirmative vote of a majority of the outstanding
shares of our common stock present at our meeting. We are incorporated in
the
State of Nevada. Under Nevada Revised Status (“URS”) Section 78.310 and our
Articles of Incorporation and By- laws, the Proposed Actions maybe taken
by our
stockholders at the Special Meeting.
Our
Board
of Directors has called the Special Meeting to effect the Stock Split in
anticipation of effecting the transactions contemplated by the Merger Agreement.
The Name Change and Director Appointments are required by the Merger
Agreement, attached hereto as Exhibit
4.
Pursuant
to the Merger
Agreement, we will, among other things, issue 11,000,000 shares of our
authorized but previously unissued common stock to the stockholders of Uluru
in
exchange for all of the issued and outstanding common stock of Uluru.
The
Merger
is
expected to close on or about March 30, 2006, and will become effective upon
the
filing of Articles of Merger
with the Secretary of State of Nevada and the filing of a Certificate of
Merger
with the Secretary of State of Delaware.
SUMMARY
OF MERGER
This
summary assumes that the Stock Split is approved, the Articles of Merger are
filed with the office of the Secretary of State of Nevada and a Certificate
of
Merger is filed with the office of the Secretary of State of Delaware, the
date
upon which the last of these actions occurs being referred to herein as the
"effective time of the Merger". This summary highlights selected information
set
forth herein and may not contain all of the information that is important to
you. To understand fully the acquisition of Uluru, the amended Articles of
Incorporation and adoption of the new incentive stock plan, you should read
carefully this entire Information Statement and the accompanying documents
to
which we refer. We encourage you to read these documents as well as our Form
8-K
filed with the U.S. Securities and Exchange Commission on October 18, 2005
concerning the Merger Agreement.
We
were
incorporated in September 17, 1987 under the laws of the State of Nevada, under
the name Casinos of the World, Inc, having the stated purpose of engaging in
any
lawful practice or activity. On April 16, 1993, our shareholders approved an
amendment to change our name to Clean Way Corporation. On August 19, 1999,
our
shareholders approved an amendment to change our name to Trader Secrets.com,
Inc. On February 2, 2000, we entered into a Stock Acquisition Agreement with
National Lighting Corp, an Internet company incorporated in British Columbia,
Canada. National Lighting Corp. became our wholly owned subsidiary and changed
its name to VOIP Technology Inc., with the intent of providing user services
in
the Internet telephony business.
Our
charter was suspended (subject to reinstatement) by the State of Nevada in
September 2001 for inactivity and failure to pay annual fees and costs. Our
active status was reinstated on January 30, 2002, upon payment of all past
due
fees and costs. On January 30, 2002, our shareholders approved an amendment
to
our Articles of Incorporation, changing our name to Oxford Ventures, Inc. We
have the rights to Xtreme Games' technology. Xtreme Games is a NASCAR simulator
comprised of a full-size NASCAR racecar body, complete with a roll cage and
safety net. We are not currently pursuing business opportunities involving
the
Xtreme Games' technology.
Uluru
Acquisition Corp.
4655
East
Ivy St., Suite 101
Mesa
AZ
85205
Uluru
Acquisition, Corp. is a newly formed Nevada corporation, a wholly owned
subsidiary of ours that was organized for the specific purpose of effecting
the
Merger
transaction with Uluru. Uluru Acquisition Corp. has not conducted any business
during any period of its existence except in furtherance of the Merger.
Uluru
was
incorporated in Delaware in 2005 and is a development stage specialty
pharmaceutical company focused on the development of a portfolio of topical
delivery technologies to provide patients and consumers with an improved
clinical outcome through controlled delivery utilizing its innovative
transmucosal delivery system and Hydrogel Nanoparticle Aggregate Technology.
In
October of 2005, Uluru acquired the topical business component of Access
Pharmaceuticals, Inc.
Structure
of the Merger
At
the
effective time of the Merger,
the control of our company will change and we will carry on the business
of
Uluru, which consists exclusively of the topical component acquired from
Access Pharmaceuticals, Inc. in October 2005, as our sole business. This
change
of control will be effected through the following actions:
(i)
Uluru
Acquisition Corp. will merge with and into Uluru, which will survive the Merger
and become our wholly owned subsidiary. The separate corporate existence of
Uluru Acquisition Corp. will cease;
(ii)
We
will issue an aggregate of 11,000,000 shares of common stock to the Uluru
stockholders in exchange for 100% of the issued and outstanding shares of Uluru
capital stock;
As
a
result of the issuance of shares of our common stock in exchange for the
outstanding shares of Uluru capital stock, at the effective time of the
Merger,
the stockholders of Uluru will become stockholders of us and will own
collectively approximately 91.7% of our issued and outstanding shares of common
stock and our current stockholders will own approximately 8.3% of our issued
and
outstanding shares of common stock.
Merger
Consideration
In
the
Merger,
each issued and outstanding share of Uluru common stock will be converted into
the right to receive 5,000 shares of our common stock. In the aggregate, holders
of Uluru capital stock will receive 11,000,000 shares of our common stock.
Fractional shares will not be issued. After the Merger,
current Uluru stockholders will no longer own a direct equity interest in
Uluru.
Appraisal
Rights
Under
applicable Nevada law, our stockholders do not have the right to demand
appraisal of their shares in connection with the Merger
or
the actions that have been approved by the written consent of our controlling
stockholders.
Stock
Split
Our
Board
of Directors have approved the Stock Split which will decrease our capital
stock
from 399,999,704 outstanding shares of common stock to 1,000,000 shares of
common stock. The form of the Certificate of Amendment to our Articles of
Incorporation enacting the Stock Split is attached hereto as Exhibit
1.
Purpose
of the Stock Split
The
Stock
Split will have the effect of increasing the availability of additional
authorized but unissued shares of common stock. We will grant our Board of
Directors flexibility in raising additional capital to fund our business
operations and growth.
Risk
Factors
The
Merger
and the related transactions, as well as the ownership of our common stock
after
the Merger,
involve a high degree of risk. You should carefully consider the information
set
forth in the section entitled "Risk Factors" as well as the other information
in
this Information Statement.
Upon
completion of the Merger,
we will assume Uluru's assets and plan of operation, which entirely consists
of
the assets and plan of operation related to the topical business component
acquired from Access Pharmaceuticals, Inc. We will also assume Uluru's
liabilities, which entirely consists of the liabilities under Uluru's debentures
to us in October of 2005 and the topical business component acquired from
Access
Pharmaceuticals, Inc. Upon completion of the Merger, our plan of
operation may require additional financing to implement fully. There can be
no assurance that any future financing can be secured on reasonable terms,
or at
all.
Our
current stockholders will be diluted substantially by the issuance of shares
of
our common stock in the Merger,
and may be diluted by future issuances of securities issued and sold to satisfy
our working capital needs.
On
January 19, 2006, our Board approved an amendment to our Certificate of
Incorporation to effect a reverse stock split of our common stock of one share
for four-hundred shares outstanding so that every four-hundred outstanding
shares of common stock before the stock split shall represent one share of
common stock after the stock split with all fractional shares rounded up to
the
next whole share. The Board believes that the Stock Split is desirable for
several reasons. The Stock Split will provide us with enough authorized but
unissued common stock to effect the Merger. The Stock Split may enhance the
acceptability of the common stock by the financial community and the investing
public. The Board believes that the Stock Split may result in a broader market
for the common stock than that which currently exists. The Stock Split may
encourage interest and trading in our common stock and possibly promote greater
liquidity for the Company’s shareholders, although such liquidity could be
adversely affected by the reduced number of shares of common stock outstanding
after the Stock Split Effective Date (defined below).
Additionally,
a variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing with lower-priced stocks.
Some of those policies and practices pertain to the payment of broker’s
commissions and to time consuming procedures that function to make the handling
of lower-priced stocks economically unattractive to brokers. In addition, the
structure of trading commissions tends to have an adverse impact upon holders
of
lower-priced stock because the brokerage commission on a sale of lower-priced
stock generally represents a higher percentage of the sales price than the
commission on a relatively higher-priced issue. The proposed Stock Split could
result in a price level for the common stock that will reduce, to some extent,
the effect of the above-referenced policies and practices of brokerage firms
and
diminish the adverse impact of trading commissions on the market for the common
stock. Any reduction in brokerage commissions resulting from the Stock Split
may
be offset, however, in whole or in part, by increased brokerage commissions
required to be paid by shareholders selling “odd lots” created by such Stock
Split.
However,
there can be no assurance that any or all of these effects will occur;
including, without limitation, that the market price per share of New Common
Stock (defined below) after the Stock Split will either exceed or remain in
excess of the current market price. Further, there is no assurance that the
market for the common stock will be improved. Shareholders should be aware
that
we cannot predict what effect the Stock Split will have on the market price
of
the common stock.
EFFECT
OF
THE REVERSE STOCK SPLIT
On
the
Stock Split Effective Date, each four-hundred shares of our common stock issued
and outstanding immediately prior to the Stock Split Effective Date (the “Old
Common Stock”) will automatically and without any action on the part of the
shareholders be converted into one share of our Common Stock (the “New Common
Stock”). All fractional shares resulting from the Stock Split shall be rounded
up to the next whole share. The Stock Split will not materially affect the
proportionate equity interest in the Company of any holder of Old Common Stock
or the relative rights, preferences, privileges or priorities of any such
shareholder.
Consummation
of the Stock Split will not alter the number of authorized shares of common
stock. Separate action is being taken to decrease the number of authorized
shares of Common Stock from 400,000,000 shares to 200,000,000
shares.
Shareholders
should note that certain disadvantages may result from the adoption of the
Stock
Split. The number of outstanding shares of common stock will be decreased as
a
result of the Stock Split, and the number of authorized shares of common stock
will decrease from 400,000,000 share of common stock to 200,000,000 shares
of
common stock as a result of the Share Amendment, if approved. The Company will
therefore have the authority to issue a greater number of shares of common
stock
following the Stock Split without the need to obtain shareholder approval to
authorize additional shares, up to the maximum number of shares authorized
by
the Company’s Articles of Incorporation. Any such additional issuance may have
the effect of significantly reducing the interest of the existing shareholders
of the Company with respect to earnings per share, voting, liquidation value
and
book and market value per share.
The
par
value of the common stock will remain at $.001 per share following the Stock
Split, and the number of shares of common stock outstanding will be reduced.
As
a consequence, the aggregate par value of the outstanding common stock will
be
reduced, while the aggregate capital in excess of par value attributable to
the
outstanding common stock for statutory and accounting purposes will be
correspondingly increased. The Stock Split will not affect the Company’s total
shareholders’ equity. All share and per share information would be retroactively
adjusted following the Stock Split Effective Date to reflect the Stock Split
for
all periods presented in future filings.
The
common stock is currently registered under Section 12(g) of the Securities
Exchange Act of 1934 (the “Exchange Act”), and as a result, the Company is
subject to the periodic reporting and other requirements of the Exchange Act.
The Stock Split will not effect the registration of the common stock under
the
Exchange Act. After the Stock Split Effective Date, trades of the New Common
Stock will be reported on the Pink Sheets and the Over-the-Counter Bulletin
Board under a new symbol.
FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
We
have
not sought and will not seek an opinion of counsel or a ruling from the Internal
Revenue Service regarding the federal income tax consequences of the Stock
Split. We believe that because the Stock Split is not part of a plan to increase
any shareholder’s proportionate interest in the assets or earnings and profits
of the Company, the Stock Split will have the federal income tax effects set
forth below.
The
receipt of New Common Stock in the Stock Split should not result in any taxable
gain or loss to shareholders for federal income tax purposes. The tax basis
of
New Common Stock received as a result of the Stock Split will be equal, in
the
aggregate, to the basis of the Old Common Stock exchanged for New Common Stock.
The per share tax basis of the New Common Stock is based on the tax basis of
the
Old Common Stock for which the New Common Stock is exchanged. For the purposes
of determining whether short-term or long-term capital gains treatment will
be
applied to a shareholder’s disposition of New Common Stock subsequent to the
Stock Split, a shareholder’s holding period for the shares of Old Common Stock
will be included in the holding period for the New Common Stock received as
a
result of the Stock Split.
A
shareholder will receive a whole share of New Common Stock in lieu of any
fractional share of New Common Stock which such shareholder would otherwise
receive as a result of the Stock Split.
The
Stock
Split will constitute a reorganization within the meaning of Section
368(a)(1)(E) of the Internal Revenue Code or will otherwise qualify for general
nonrecognition treatment, and the Company will not recognize any gain or loss
as
a result of the Stock Split.
The
discussion set forth above relates to the material federal income tax
consequences of the Stock Split. Shareholders are urged to consult their tax
advisers as to the particular tax consequences to them of the Stock Split,
including the federal, state, local, foreign and other tax consequences to
them
of the Stock Split.
If
approved at the Special Meeting, the Stock Split will become effective (the
“Stock Split Effective Date”) upon the filing of the amendment to our
Certificate of Incorporation with the Secretary of State of the State of Nevada.
A copy of the form of Certificate of Amendment of the Certificate of
Incorporation is attached to this Information Statement on Exhibit
1.
DISSENTERS’
RIGHTS
We
are a
Nevada corporation and are governed by the NRS of the General Corporation Law
of
Nevada. Under NRS Section 92A.380 holders of our voting securities are not
entitled to dissenters’ rights with respect to the Stock Split.
INTERESTS
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No
director, executive officer, associate of any director or executive officer
or
any other person has any substantial interest, direct or indirect, by security
holdings or otherwise, in the Stock Split that is not shared by all other
shareholders of ours.
On
January 19, 2006, our Board approved an amendment to our Certificate of
Incorporation to decrease our authorized capitalization to 200,000,000 shares
of
common stock, $0.001 par value and to allow for the issuance of 20,000 shares
of
preferred stock, par value $0.001 per share.
The
Board
of Directors believes that it is in the best interests of the Company to
decrease the authorized number of shares of common stock remaining after the
effectiveness of the Stock Split. The decrease in the number of authorized
shares of common stock would result in fewer shares of authorized but unissued
shares of common stock being available for future issuance. This would decrease
the number of shares of common stock available for issuance for various
purposes, such as to raise capital to make acquisitions or in response to
takeover attempts by third parties (by, for example, reducing the number of
shares available to the Company for issuance for the purpose of diluting the
stock ownership of a third party contemplating a tender offer or other
transaction for the combination of the Company with another company.) The
Company believes, however, that after the proposed decrease the number of
authorized but unissued shares of common stock remaining would be sufficient
for
such purposes. Moreover, a decrease in our authorized capital will decrease
our
state franchise tax liabilities.
EFFECT
OF
THE SHARE AMENDMENT
The
decrease in authorized shares of common stock and the creation of authorized
share of preferred stock will not have any immediate effect on the rights of
existing shareholders.
If
approved at the Special Meeting, the Share Amendment will take effect by filing
an amendment to our Certificate of Incorporation with the Secretary of State
of
the State of Nevada. A copy of the form of Certificate of Amendment of the
Certificate of Incorporation is attached to this Information Statement in
Exhibit
1.
PREFERRED
STOCK
The
preferred stock will be issuable in series upon resolution of our Board of
Directors. The Board of Directors will be authorized to establish the relative
terms, rights and other provisions of any series of preferred stock. Our Board
of Directors has no current intention of issuing any preferred stock. However,
unless otherwise required by law in a particular circumstance, the Board of
Directors can, without shareholder approval, issue preferred stock in the future
with voting and conversion rights which could adversely affect the voting power
of the common stock. The issuance of preferred stock could be expected to,
and
may have the effect of, delaying, averting or preventing a change in control
of
us.
DISSENTERS’
RIGHTS
We
are a
Nevada corporation. Under NRS Section 92A.380, holders of our voting securities
are not entitled to dissenters’ rights with respect to the Share Amendment.
INTERESTS
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No
director, executive officer, associate of any director or executive officer
or
any other person has any substantial interest, direct or indirect, by security
holdings or otherwise, in the Share Amendment that is not shared by all other
shareholders of ours.
THIRD
ACTION
ADOPTION
OF 2006 Equity Incentive Plan
General
On
January 19, 2006, our Board of Directors approved a plan that will enable us
to
grant equity and equity-linked awards to our directors, officers, employees
and
non-employee service providers. This plan is called the "2006 Equity Incentive
Plan". The plan is intended to allow us to provide incentives that will (1)
strengthen the desire of highly competent persons to serve as directors,
officers and employees of our company and (2) further stimulate their efforts
on
behalf of our company.
Additional
Information Concerning the 2006 Equity Incentive Plan
We
have
summarized below certain key provisions of the 2006 Equity Incentive Plan.
This
summary may not contain all the information that is important to you. Before
you
decide how to vote, you should review the entire plan. A copy of the plan is
included as Exhibit
2.
Shares
Available
The
maximum number of shares of our common stock that may be delivered under the
plan is 2,000,000 subject to adjustment for certain specified changes to our
capital structure. Some awards under the plan may link future payments to the
awardee to the future value of a specified number of shares of our common stock.
The number of shares used for reference purposes in connection with these awards
will be considered "delivered" for purposes of computing the maximum number
of
shares that may be delivered under the plan. If an award under the plan
terminates without the shares subject thereto being delivered, the shares
subject to such award will thereafter be available for further awards under
the
plan.
All
directors, officers, employees and non-employee service providers of our company
are eligible to participate in the plan.
Administration
The
administrator of the plan will be the Compensation/Stock Option Committee of
the
Board or any other committee which the Board designates to serve as the
administrator of the plan. The committee serving as administrator (the
"Committee") will, among other things, have the authority to:
·
construe
the plan and any award under the
plan;
·
select
the directors, officers, employees and non-employee service providers
and
to whom awards may be granted and the time or times at which awards
will
be granted;
·
determine
the number of shares of our common stock to be covered by or used
for
reference purposes for any award;
·
determine
and modify from time to time the terms, conditions, and restrictions
of
any award;
·
approve
the form of written instrument evidencing any
award;
·
accelerate
or otherwise change the time or times at which an award becomes vested
or
when an award may be exercised or becomes
payable;
·
waive,
in whole or in part, any restriction or condition with respect to
any
award; and
·
modify,
extend or renew outstanding awards, or accept the surrender of outstanding
awards and substitute new awards.
The
Committee has not yet made any awards under the plan. Because the granting
of
awards is in the sole discretion of the Committee, the nature and magnitude
of
future awards cannot currently be determined.
Types
of
Awards
The
types
of awards that may be made under the plan are stock options, stock appreciation
rights, restricted stock awards, and stock units. The Committee will fix the
terms of each award, including, to the extent relevant, the following: (1)
exercise price for options, base price for stock appreciation rights, and
purchase price, if any, for restricted stock awards, (2) vesting requirements
and other conditions to exercise, (3) term and termination, (4) effect, if
any,
of change of control and (5) method of exercise and of any required payment
by
the recipient. Additional information concerning the types of awards that may
be
made is set forth below.
Stock
Options.
The
Committee may grant options that are qualified as "incentive stock options"
under Section 422 of the Internal Revenue Code ("ISOs") and options that are
not
so qualified ("non-qualified options"). ISOs are subject to certain special
limitations, including the following: (1) the exercise price per share may
not
be less than 100% of the fair market value per share of our common stock as
of
the grant date (110% of such fair market value, if the recipient owns more
than
10% of the total combined voting power of all classes of our outstanding
shares), (2) the term may not exceed 10 years, and (3) the recipient must be
an
employee of our company.
Stock
Appreciation Rights.
A stock
appreciation right gives the holder the opportunity to benefit from the
appreciation of our common stock over a specified base price determined by
the
Committee. Upon exercise of a stock appreciation right, the holder has the
right
to receive in respect of each share subject thereto a payment equal to the
excess, if any, of: (1) the fair market value of a share of our common stock
as
of the exercise date over (2) the specified base price. At the discretion of
the
Committee, any required payment may be made in cash, shares of our common stock,
or both.
Restricted
Stock Awards.
A
restricted stock award entitles the recipient to acquire shares of our common
stock for no consideration or for the consideration specified by the Committee.
The shares will be subject to such vesting periods and other restrictions and
conditions as the Committee
determines.
Stock
Units.
A stock
unit is a bookkeeping account to which there is credited the fair market value
of a share of our common stock. The value of the account is subsequently
adjusted to reflect changes in the fair market value. Upon exercise of a stock
unit, the holder is entitled to receive the value of the account. At the
discretion of the Committee, any required payment may be made in cash, shares
of
our common stock, or both.
Certain
Corporate Transactions
If
certain corporate transactions specified in the plan occur, the Committee may
make appropriate or equitable adjustments to the Plan and Awards, including
(1)
the number of shares of stock that can be granted; (2) the number and kind
of
shares or other securities subject to any then outstanding awards and (3) the
exercise price, base price, or purchase price applicable to outstanding Awards
under the Plan.
The
Committee may cancel outstanding awards, but not outstanding stock or restricted
stock awards, in connection with any merger or consolidation of our company
or
any sale or transfer of all or part of our assets or business, or any similar
event. The Committee may determine to make no compensation whatsoever for any
canceled awards that are not in-the-money (as defined below) or for any canceled
awards to the extent not vested. We are required to provide payment in cash
or
other property for the in-the-money value of the vested portion of awards that
are in-the-money and that are canceled as aforesaid. Awards are in-the-money
only to the extent of their then realizable market value, without taking into
account the potential future increase in the value of the award (whether under
Black-Scholes-type formulas or otherwise).
Amendment
The
board
may amend the plan at any time and from time to time, provided that (1) no
amendment may deprive any person of any rights granted under the plan before
the
effective date of such amendment, without such person's consent; and (2)
amendments may be subject to shareholder approval to the extent needed to comply
with applicable law and stock exchange requirements.
No
award
may be granted under the plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the plan. However,
all
awards made prior to such time will remain in effect in accordance with their
terms.
Certain
Federal Income Tax Considerations
Matters
Relating to Section 162(m) of the Internal Revenue Code
Section
162(m) of the Internal Revenue Code places a $1,000,000 annual limit on the
compensation deductible by the Company paid to certain of its executives. The
limit, however, does not apply to “qualified performance-based compensation.”The Company believes that awards of stock options, SARs and certain other
“performance-based compensation” awards under the Plan will qualify for the
performance-based compensation exception to the deductibility
limit.
Matters
Relating to Change of Control
The
Committee may provide that the vesting of an award be accelerated upon a change
of control. In such event, all or a portion of the relevant award may be deemed
a "parachute payment." Under provisions of the Internal Revenue Code, (1) the
recipient of an "excess parachute payments" (as defined in Section 280G of
the
Internal Revenue Code) would be required to pay a 20% excise tax thereon (in
addition to income tax otherwise owed) and (2) the "excess parachute payment"
would not be deductible to our company. If any of our executive officers is
required to pay such an excise tax, we will be required to pay the executive
an
amount that is sufficient on an after-tax basis to offset such
payment.
Non-Qualified
Options. No income will be recognized by a participant upon the grant of a
non-qualified option. Upon exercise, the participant will generally have
ordinary income in the amount equal to the excess of the fair market value
of
the shares acquired over the exercise price. The income recognized by an
employee participant will be subject to tax withholding. Upon a later sale
of
such shares, the participant will have capital gain or loss in an amount equal
to the difference between the amount realized on such sale and the tax basis
of
the shares sold. We will be entitled to a tax deduction in the same amount
as
the ordinary income recognized by the participant with respect to shares
acquired upon exercise of the non-qualified option.
Incentive
Stock Options. No income will be recognized by a participant upon the grant
of
an incentive stock option. Further, the participant will recognize no income
at
the time of exercise (although a participant may have income for purposes of
alternative minimum tax calculations) and we will not be allowed a deduction
for
federal income tax purposes in connection with the grant or exercise of an
option. If the participant holds the acquired shares two years from the date
of
grant and one year from the date of exercise the entire gain (or loss) realized
when the participant eventually disposes of the stock is treated as long term
capital gain (or loss). If the shares are disposed of before such holding period
requirements are satisfied, the participant will recognize ordinary income
in an
amount equal to the lesser of the difference between (1) the exercise price
and
the fair market value of the shares on the date of exercise or (2) the exercise
price and the sales proceeds. Any remaining gain or loss will be treated as
capital gain or loss. We will be entitled to a federal income tax deduction
equal to the amount of ordinary
income recognized by the participant.
If
approved at the Special Meeting, the plan will immediately become
effective.
INTERESTS
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Upon
the
adoption of the plan, we intend to use the plan to compensate our directors,
officers, employees and non-employee service providers with equity compensation.
However, there is no current agreement or obligation obligating us to provide
equity compensation and no determination has yet been made regarding potential
equity compensation grants.
DISSENTERS’
RIGHTS
Holders
of our voting securities are not entitled to dissenters’ rights with respect to
our adoption of the Plan.
On
January 19, 2006, our Board of Directors approved a change of our name to “Uluru
Inc”. Pursuant to the Agreement and Plan of Reorganization among the Company and
Uluru Inc. (“Uluru”), Uluru Acquisition Corp. and Mr. Kerry P. Gray, we will
acquire all the outstanding capital stock of Uluru as part of the Merger. The
reason for the name change is to reflect our intention to adopt Uluru’s business
model. We believe this name change will assist in the marketing of the Uluru
brand and will more accurately reflect our business.
EFFECTIVE
DATE OF THE NAME CHANGE
If
approved at the Special Meeting, this amendment will not become effective until
the completion of the Merger upon the filing of an amendment to our Certificate
of Incorporation with the Secretary of State of the State of Nevada. A copy
of
the form of Certificate of Amendment of the Certificate of Incorporation is
attached to this Information Statement in Exhibit
3.
As the
Name Change is contingent upon the completion of the merger between Uluru Inc.
and our wholly-owned subsidiary Uluru Acquisition Corp., at any time before
the
effective date of the Name Change, notwithstanding approval of the proposed
amendment by the stockholders, the board of directors may, by resolution,
abandon the proposed amendment without further action by the
stockholders.
DISSENTERS’
RIGHTS
We
are a
Nevada corporation. Under NRS Section 92A.380, holders of our voting securities
are not entitled to dissenters’ rights with respect to the Name Change.
INTERESTS
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No
director, executive officer, associate of any director or executive officer
or
any other person has any substantial interest, direct or indirect, by security
holdings or otherwise, in the Name Change that is not shared by all other
shareholders of ours.
The
following nominees have been nominated to hold office for a term of one year
or
until their successors have been duly appointed starting upon the completion
of
the Merger.
Upon
completion of the Merger, our Directors and Executive Officers will
be:
Name
Age
Office
Kerry
P. Gray
53
CEO,
Director
William
W. Crouse
63
Chairman,
Director
Jeffery
B. Davis
42
Director
Dr.
David Reese
34
Director
Mr.
Kerry
P. Gray, 52, was the President and Chief Executive Officer of Access
Pharmaceuticals, Inc. and a director of Access Pharmaceuticals from January
1996
until May 2005. Mr. Gray served as President and Chief Executive Officer of
Access Pharmaceuticals, Inc., a private Texas corporation from June 1993 to
1996. Previously, Mr. Gray served as Vice President and Chief Financial Officer
of PharmaSciences, Inc., a company he co-founded to acquire technologies in
the
drug delivery area. From May 1990 to August 1991, Mr. Gray was Senior Vice
President, Americas, Australia and New Zealand of Rhone-Poulenc Rorer, Inc.
Prior to the Rorer/Rhone Poulenc merger, he had been Area Vice President
Americas of Rorer International Pharmaceuticals. Previously, from January 1986
to May 1988, he was Vice President, Finance of Rorer International
Pharmaceuticals, having served in that same capacity for the Revlon Health
Care
Group of companies before their acquisition by Rorer Group. Between 1975 and
1985, he held various senior financial positions with the Revlon Health Care
Group.
William
W. Crouse, 63,
is a
Managing Director and General Partner of HealthCare Ventures LLC, a biotech
venture capital firm. Mr. Crouse was former Worldwide President of Ortho
Diagnostic Systems and Vice President of Johnson & Johnson
International. He also served as Division Director of DuPont Pharmaceuticals
and
as President of Revlon Health Care Group's companies in Latin America, Canada
and Asia/Pacific. Currently, Mr. Crouse serves as a Director of The
Medicines Company, Imclone Systems and several private biotechnology
companies. Mr. Crouse formerly served as a Director of
BioTransplant, Inc., Dendreon Corporation, OraSure Technologies, Inc.,
Human Genome Sciences, Raritan Bancorp, Inc., Allelix
Biopharmaceuticals, Inc. and several private biotechnology companies.
Mr. Crouse currently serves as Trustee of Lehigh University and as Trustee
of the New York Blood Center. Mr. Crouse is a graduate of Lehigh University
(Finance and Economics) and Pace University (M.B.A.).
Jeffery
B. Davis, 42, has extensive experience in investment banking,
corporate development and financing for development stage, life sciences
companies. Mr. Davis is currently President of SCO Financial Group LLC, and
President and Financial Principal of SCO Securities LLC, SCO's NASD-member
broker-dealer. Mr. Davis has served on numerous boards of directors
for life sciences companies, and currently sits on the boards of Virium
Pharmaceuticals, Inc., and Somanta Pharmaceuticals, Inc. Previously, Mr. Davis
served as a Chief Financial Officer of a publicly traded, NASDAQ-NM healthcare
technology company. Prior to that, he was Vice President, Corporate
Finance, at Deutsche Bank AG and Deutsche Morgan Grenfell, both in the U.S.
and
Europe. Mr. Davis also served in senior marketing and product management
positions at AT&T Bell Laboratories, where he was also a member of the
technical staff and was involved in marketing and product management at Philips
Medical Systems North America. Mr. Davis received his M.B.A. from The
Wharton School, University of Pennsylvania and his B.S. in Biomedical
Engineering from The College of Engineering, Boston
University.
Dr.
David
Reese, 34, is a biotechnology consultant for both the healthcare and financial
industries. The founder of Alexea Consulting, David has advised biotechnology
companies on issues of strategic alliances and capital acquisition. As a
sell-side analyst, Dr. Reese advises hedge funds on drug candidates, scientific
due diligence and pipeline valuations. David’s most recent sell-side position
was as Biotech Analyst for Saturn DKR Management where he built a 125 million
dollar biotechnology portfolio. Dr. Reese obtained his Bachelors of Science
in
Microbiology from Arizona State University. He performed his Doctoral research
at Vanderbilt University in the School of Medicine. David conducted research
fellowships at the University of Texas Southwestern Medical Center, and Cornell
University. Dr. Reese has numerous publications and has contributed to multiple
academic reviews as well as a book chapter in a medical textbook. His specific
research areas included diabetes, cardiovascular disease, congenital
abnormalities and cancer.
Our
board
does not have a nominating committee. The proposed directors and executive
officers, were chosen as part of the negotiations to the Merger. Pursuant to
the
terms and conditions of the Merger Agreement, the current Board shall resign
concurrently with the consummation of the Merger and the new Board of Directors
shall be appointed and serve for a term of one year or until they resign or
are
duly removed and replaced.
EFFECTIVE
DATE OF THE DIRECTOR APPOINTMENTS
If
approved at the Special Meeting, the Director Appointments will take effect
upon
the completion of the Merger.
DISSENTERS’
RIGHTS
We
are a
Nevada corporation. Under NRS Section 92A.380, holders of our voting securities
are not entitled to dissenters’ rights with respect to the Director
Appointments.
INTERESTS
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No
current director, executive officer, associate of any director or executive
officer or any other person has any substantial interest, direct or indirect,
by
security holdings or otherwise, in the Director Appointments that is not shared
by all other shareholders of ours.
RISK
FACTORS
The
approval of the Stock Split will provide us with enough authorized but unissued
shares to carry out the Merger contemplated by the Merger Agreement. If the
Merger between Uluru Acquisition Corp. and Uluru occurs, Uluru will become
our
wholly-owned subsidiary. The actual results of the combined company may differ
materially from those anticipated in these forward-looking statements. We will
operate as a combined company in a market environment that is difficult to
predict and that involves significant risks and uncertainties, many of which
will be beyond the combined company's control. Additional risks and
uncertainties not presently known to us, or that are not currently believed
to
be important to you, if they materialize, also may adversely affect the combined
company.
Risks
Relating to the Merger
and Capital Structure
Our
current stockholders have no opportunity to approve or disapprove the
Merger
and will experience substantial dilution in connection with the
Merger.
The
Merger
and the consequent acquisition of Uluru have been approved by our Board of
Directors and by the Board of Directors and the sole shareholder of Uluru
Acquisition Corp., our wholly owned subsidiary, and will not be presented to
our
stockholders for approval. Accordingly, stockholders are not being asked to
approve or disapprove the Merger. In addition, in the event the Merger
is
consummated as described herein, a total of 11,000,000 shares of our common
stock will be issued to the current stockholders of Uluru. The shares to be
issued in the Merger
to
current Uluru stockholders will represent approximately 91.7% of the total
number of shares of our common stock issued and outstanding immediately
following the Merger.
Consequently, our current stockholders will experience substantial dilution
in
their ownership interest in our company.
Our
Standby Equity Distribution Agreement may have a dilutive impact on our
stockholders.
We
are to
a great extent dependent on external financing to fund our operations. Our
financial needs may be partially provided from the Standby Equity Distribution
Agreement with Cornell Capital. The issuance of shares of our common stock
under
that agreement would have a dilutive impact on our other stockholders and the
issuance of such shares could have a negative effect on the market price of
our
common stock. In addition, if we access that equity line, we will issue shares
of our common stock to Cornell Capital Partners at a discount of 2% of the
lowest daily volume weighted average of our common stock during a specified
period of trading days after we access the that equity line. Issuing shares
at a
discount will further dilute the interests of other stockholders.
To
the
extent that Cornell sells shares of our common stock issued under SEDA to third
parties, our stock price may decrease due to the additional selling pressure
in
the market. The perceived risk of dilution from sales of stock to or by Cornell
may cause holders of our common stock to sell their shares. This could
contribute to a decline in the stock price of our common stock.
If
the Merger
does not occur, we will not benefit from the expenses we have incurred
in the pursuit of the Merger.
The
Merger
may not be completed. If conditions for completion of the Merger
are not satisfied or the Merger
is
not otherwise completed, we will have incurred expenses for which no ultimate
benefit will have been received. We currently expect to incur out of pocket
expenses of approximately $300,000 for services in connection with the
Merger,
consisting of professional fees, financial printing and other related charges,
much of which may be incurred even if the Merger
is
not completed. If the Merger
is
not completed, such expenses will be paid for by advances from stockholders,
which will be evidenced on our financial statements as current
liabilities.
The
Merger
will not significantly enhance our liquidity, and we will require future
financing to proceed with our anticipated business activities following the
completion of the Merger.
There can be no assurance that financing will be available on terms beneficial
to us or at all.
We
anticipate that future funding will most likely be in the form of debt and/or
private equity financing. The number of shares of our common stock to be issued
in the Merger,
and the aggregate number of shares to be outstanding after completion of the
Merger,
as shown elsewhere in this Information Statement, do not take into account
any
such future financing and, accordingly, our stockholders may be subject to
additional and substantial
We
anticipate that we will need funds, following the Merger,
in order to further the efforts of Uluru to develop a portfolio of topical
delivery technologies. If we raise additional capital by selling equity or
equity-linked securities, these securities would dilute the ownership percentage
of our existing stockholders. Also, these securities could have rights,
preferences or privileges senior to those of our common stock. Similarly, if
we
raise additional capital by borrowing or issuing debt securities, the terms
of
such debt financing could restrict us in terms of how we operate our business,
which could also affect the value of our common stock.
Furthermore,
the terms of our outstanding convertible notes may limit our ability to, among
other things:
· incur
additional debt;
· pay
cash
dividends, redeem, retire or repurchase our stock or change our capital
structure;
· enter
into certain transactions with affiliates;
· create
additional liens on our assets; or
· issue
certain types of preferred stock or issue common stock at below market
prices.
Our
ability to borrow additional funds or raise additional equity may be limited
by
our financial condition, in addition to the terms of our outstanding debt.
Additionally, events such as our inability to continue to reduce our loss from
continuing operations, could adversely affect our liquidity and our ability
to
attract additional funding as required.
We
may
not be able to raise capital on reasonable terms or at all.
There
is no assurance of an established public trading market, which would adversely
affect the ability of our investors to sell their securities in the public
market.
Even
though our shares of common stock are expected to continue to be quoted on
the
OTC Bulletin Board, we cannot predict the extent to which a trading market
will
develop or how liquid that market might become. Uluru's shares have never
been
quoted or listed on a public market and have no trading history. In
addition, most common shares outstanding after the Merger,
including the shares issued to Uluru stockholders, will be "restricted
securities" within the meaning of Rule 144 promulgated by the SEC, and will
therefore be subject to certain limitations on the ability of holders to
resell
such shares. Accordingly, holders of our common stock may be required to
retain
their shares for an indefinite period of time.
The
OTC
Bulletin Board is an inter-dealer, over-the-counter market that provides
significantly less liquidity than the NASD's automated quotation system (the
"NASDAQ Stock Market"). Quotes for stocks included on the OTC Bulletin Board
are
not listed in the financial sections of newspapers as are those for the NASDAQ
Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin
Board may be difficult to obtain and holders of common stock may be unable
to
resell their securities. Market prices for our common stock will be influenced
by a number of factors, including:
(i)
the
issuance of new equity securities pursuant to the Merger,
or a future offering;
(ii)
changes
in interest rates;
(iii)
competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
(iv)
variations
in quarterly operating results;
(v)
change
in financial estimates by securities
analysts;
(vi)
the
depth and liquidity of the market for our common
stock;
(vii)
investor
perceptions of Uluru and of topical delivery technologies generally;
and
Our
common stock could continue to be considered a "penny stock" and may be
difficult to sell.
Our
common stock could continue be considered to be a "penny stock" if it meets
one
or more of the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Exchange Act. These include but are not limited to the
following: (i) the stock trades at a price less than $5.00 per share; (ii)
it is
not traded on a "recognized" national exchange; (iii) it is not quoted on the
NASDAQ Stock Market, or even if so quoted, has a price less than $5.00 per
share; or (iv) is issued by a company with net tangible assets less than
$2,000,000, if in business longer than three continuous years, or with average
revenues of less than $6,000,000 for the past three years. The principal result
or effect of being designated a "penny stock" is that securities broker-dealers
cannot recommend the stock but must trade in it on an unsolicited
basis.
Additionally,
Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder by
the
SEC require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain
a
manually signed and dated written receipt of the document before effecting
any
transaction in a penny stock for the investor's account.
Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of
any
investor for transactions in such stocks before selling any penny stock to
that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor
and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide
the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.
Following
the Merger,
the current principal stockholder of Uluru will have significant influence
over
us.
The
controlling stockholder of Uluru will beneficially own a majority of our
outstanding voting stock following the Merger.
As a result, he will possess significant influence, giving him the ability,
among other things, to elect all members of our Board of Directors and to
approve significant corporate transactions. Such stock ownership and control
may
also have the effect of delaying or preventing a future change in control,
impeding a merger,
consolidation, takeover or other business combination or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of
our company.
Standards
for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting,
and
attestation of its assessment by our independent registered public accountants.
The SEC has extended the compliance dates for certain filers and, accordingly,
we believe that this requirement will first apply to our annual report for
fiscal 2007. The standards that must be met for management to assess the
internal control over financial reporting as effective are new and complex,
and
require significant documentation, testing and possible remediation to meet
the
detailed standards. We may encounter problems or delays in completing activities
necessary to make an assessment of our internal control over financial
reporting. In addition, the attestation process by our independent registered
public accountants is new and we may encounter problems or delays in completing
the implementation of any requested improvements and receiving an attestation
of
its assessment by our independent registered public accountants. If we cannot
assess our internal control over financial reporting as effective, or our
independent registered public accountants are unable to provide an unqualified
attestation report on such assessment, investor confidence and share value
may
be negatively impacted.
Our
obligations under the secured debentures are secured by all of our
assets.
Our
obligations under the $13,000,000 secured debentures are secured by all of
our
assets. As a result, if we default under the terms of the secured debentures
or
related agreements, including our failure to issue shares of common stock upon
conversion by the holder, our failure to timely file a registration statement
or
have such registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreement or related
secured debentures or the commencement of a bankruptcy, insolvency,
reorganization or liquidation proceeding against us could require the early
repayment of the convertible debentures, if the default is not cured with the
specified grace period. In addition we could be required to issue and the
holders would have the ability to sell up to 40,000,000 shares of our common
stock and/or the holders could foreclose their security interest and liquidate
some or all of our assets, and we could cease to operate.
Risks
Relating to Our Business After the Completion of the Merger
Uluru
has not recorded revenues or an operating profit since its inception and we
have
had only $6,202 of earned revenues for several years. Continuing losses may
exhaust our capital resources and force us to discontinue
operations.
Our
ability to achieve significant revenue or profitability depends upon our ability
to successfully complete the development of drug candidates, to develop and
obtain patent protection and regulatory approvals for our drug candidates and
to
manufacture and commercialize the resulting drugs. We may not generate
significant revenues or profits form the sale of these products in the future.
Furthermore, we may not be able to ever successfully identify, develop,
commercialize, patent, manufacture, obtain required regulatory approvals and
market any additional products. Moreover, even if we do identify, develop,
commercialize, patent, manufacture, and obtain required regulatory approvals
to
market additional products, we may not generate revenues or royalties form
commercial sales of these products for a significant number of years, if at
all.
Therefore, our proposed operations are subject to all the risks inherent in
the
establishment of a new business enterprise.
In
the
next few years, our revenues may be limited to minimal product sales and
royalties, any amount that we receive under strategic partnerships and research
or drug development collaborations that we may establish and, as a result,
we
may be unable to achieve or maintain profitability in the future or to achieve
significant revenues in order to fund our operations. The topical business
component of Access Pharmaceuticals, Inc. that Uluru acquired and that will
be
the only component of our business if the merger is completed has incurred
losses, including a net loss of $3,175,327 for the year ended December 31,2004
and $395,325 for the year ended December 31, 2003.
We
may not successfully commercialize our drug candidates.
Our
drug
candidates are subject to the risks of failure inherent in the development
of
pharmaceutical based on new technologies and our failure to develop safe,
commercially viable drugs would severely limit our ability to become profitable
or to achieve significant revenues. We may be unable to successfully
commercialize our drug candidates because:
·
some
or all of our drug candidates may be found to be unsafe or ineffective
or
otherwise fail to meet applicable regulatory standards or receive
necessary regulatory clearances;
·
our
drug candidates, if safe and effective, may be too difficult to develop
into commercially viable drugs;
·
it
may be difficult to manufacture or market out drug candidates in
a large
scale;
·
proprietary
rights of third parties may preclude us from marketing our drug
candidates; and
·
third
parties may market superior or equivalent
drugs.
If
we are
unable to develop sufficiently attractive commercial uses for our drug
candidates delivery technologies or if we are unable to produce these materials
at a competitive cost, we may not achieve profitability.
The
success of our research and development activities, upon which we primarily
focus, is uncertain.
Our
primary focus is on our research and development activities and the
commercialization of compounds covered by proprietary biopharmaceutical patents
and applications. Research and development activities, by their nature, preclude
definitive statements as to the time required and costs involved in reaching
certain objectives. Actual research and development costs, therefore, could
exceed budgeted amounts and estimated time frames may require extension. Costs
overruns, unanticipated regulatory delays or demands, unexpected adverse side
effects or insufficient therapeutic efficacy will prevent or substantially
slow
our research and development effort and our business could ultimately
suffer.
We
may be unable to successfully develop, market, or commercialize our products
or
our product candidates without establishing new relationships and maintaining
current relationships.
Our
strategy for the research, development and commercialization of our potential
pharmaceutical products may require us to enter into various arrangements with
corporate and academic collaborators, licensors, licensees and others, in
addition to our existing relationships with other parties. Specifically, we
may
seed to joint venture, sublicense or enter other marketing arrangements with
parties that have an established marketing capability or we may choose to pursue
the commercialization of such products on acceptable terms. Furthermore, if
we
maintain and establish arrangements or relationships with third parties, our
business may deem necessary to develop, commercialized and market our potential
pharmaceutical products on acceptable terms. Furthermore, if we maintain and
establish arrangements or relationships with third parties, our business may
depend upon the successful performance by these third parties of their
responsibilities under those arrangements and relationships. For our
commercialized products we currently rely upon the following relationships
in
the following marketing territories for sales, manufacturing or regulatory
approval efforts:
For
Aphthasol® and OraDiscA™
·
ProStrakan
Ltd. - United Kingdom and Ireland manufacturing marketing rights
and
regulatory approval
·
Zambon
Group - France, Germany, Holland, Belgium, Luxembourg, Switzerland,
Brazil, Colombia and Italy manufacturing and marketing
rights
·
Laboratories
Dr. Esteve SA - Spain, Portugal, and Greece manufacturing and marketing
rights
·
Meda,
AB for Scandinavia, the Baltic states and Iceland marketing
rights
·
Paladin
Labs, Inc. for Canada manufacturing and marketing
rights
·
EpiTan,
Ltd. for Australia and New Zealand for marketing
rights
·
Orient
Europharma, Co., Ltd. for Taiwan, Hong-Kong, Malaysia, Philippines,
Thailand and Singapore for marketing
rights
For
Zindaclin® and Residerm®:
·
ProStrakan
Ltd. - worldwide manufacturing, marketing and regulatory approval
rights
·
Fujisawa
GmbH - sublicensed continental Europe marketing
rights
·
Hyundai
- sublicensed Korea marketing
rights
·
Taro
- sublicensed Israel marketing
rights
·
Biosintetica
- sublicensed Brazil marketing
rights
·
Six
companies for eleven other smaller countries - sublicensed marketing
rights
For
one
of our ORaDisc™ products in development, on January 6, 2004, we entered into an
exclusive license and supply agreement with Wyeth Consumer Healthcare for sales
of the product in North America. If this product is marketed, we will depend
upon Wyeth Consumer Healthcare for sales of this product in this
territory.
Our
ability to successfully commercialize, and market our products and product
candidates could be limited if a number of these existing relationships were
terminated.
We
may be unable to successfully manufacture our products and our product
candidates in clinical quantities or for commercial purposes without the
assistance of contract manufacturers, which may be difficult for us to obtain
and maintain.
We
have
limited experience in the manufacture of pharmaceutical products in clinical
quantities or for commercial purposes, and we may not be able to manufacture
any
new pharmaceutical products that we may develop. As a result, we have
established, and in the future intend to establish arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical
trials and for the manufacture, packaging, labeling, and distribution of
finished pharmaceutical products. If we are unable to contract for a sufficient
supply of our pharmaceutical products on acceptable terms, our preclinical
and
human clinical testing schedule may be delayed, resulting in the delay of our
clinical programs and submission of product candidates for regulatory approval,
which could cause our business to suffer. Our business could suffer if there
are
delays or difficulties in establishing relationships with manufacturers to
produce, package, label and distribute our finished pharmaceutical or other
medical products, if any, market introduction and subsequent sales of such
products. Moreover, contract manufacturers that we may use must adhere to
current Good Manufacturing Practices, as required by the U.S. Food and Drug
Administration. In this regard, the FDA will not issue a pre-market approval
or
product and establishment licenses, where applicable, to a manufacturing
facility for the products until the manufacturing facility passes a pre-approval
plant inspection. If we are unable to obtain or retain third party manufacturing
on commercially acceptable terms, we may not be able to commercialize our
products as planned. Our potential dependence upon third parties for the
manufacture of our products may adversely affect our ability to generate profits
or acceptable profit margins and our ability to develop and deliver such
products on a timely and competitive basis.
Our
amlexanox 5% paste is marketed in the US as Aphthasol®. We selected Contract
Pharmaceuticals Ltd. Canada as our manufacturer of amlexanox 5% paste and they
manufactured product for the US market and initial qualifying batches of the
product for Europe.
Our
business could be adversely affected by any adverse economic developments in
the
pharmaceuticals industry and/or the economy in general.
Upon
the
effectiveness of the merger, our sole business will be Uluru's business,
which
is the topical business component that it acquired from Access
Pharmaceuticals, Inc. in October of 2005. As a result, we will depend on
the
demand for the application of our technology and our business will
be susceptible to downturns in the pharmaceutical industry and the economy
in general. Any significant downturn in the market or in general economic
conditions would likely hurt our business.
If
Uluru fails to keep up with changes affecting its technology and the markets
that it will ultimately service, it will become less competitive, adversely
affecting future financial performance.
In
order
to remain competitive and serve its customers effectively, Uluru must respond
on
a timely and cost-efficient basis to changes in technology, industry standards
and procedures and customer preferences. Uluru needs to continuously develop
new
technology, products and services to address new developments. In some cases
these changes may be significant and the cost to comply with these changes
may
be substantial. We cannot assure you that we will be able to adapt to any
changes in the future or that we will have the financial resources to keep
up
with changes in the marketplace. Also, the cost of adapting our technology,
products and services may have a material and adverse effect on our operating
results.
We
are subject to extensive governmental regulation which increases our cost of
doing business and may affect our ability to commercialize any new products
that
we may develop.
The
FDA
and comparable agencies in foreign countries impose substantial requirements
upon the introduction of pharmaceutical products through lengthy and detailed
laboratory, preclinical and clinical testing procedures and other costly and
time-consuming procedures to establish their safety and efficacy. Some of our
drugs and drug candidates require receipt and maintenance of governmental
approvals for commercialization. Preclinical and clinical trials and
manufacturing of our drug candidates will be subject to the rigorous testing
and
approval processes of the FDA and corresponding foreign regulatory authorities.
Satisfaction of these requirements typically takes a significant number of
years
and can vary substantially based upon the type, complexity and novelty of the
product. Due to the time consuming and uncertain nature of the drug candidate
development process and the governmental approval process described above,
we
cannot assure you when we, independently or with our collaborative partners,
might submit a new drug application for FDA or other regulatory
review.
Government
regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of our potential drugs
for
a considerable or indefinite period of time, impose costly procedural
requirements upon our activities and furnish a competitive advantage to larger
companies or companies more experienced in regulatory affairs. Delays in
obtaining governmental regulatory approval could adversely affect our marketing
as well as our ability to generate significant revenues from commercial sales.
Our drug candidates may not receive FDA or other regulatory approvals on a
timely basis or at all. Moreover, if regulatory approval of a drug candidate
is
granted, such approval may impose limitations on the indicated use for which
such drug may be marketed. Even if we obtain initial regulatory approvals for
our drug candidates, our drugs and our manufacturing facilities would be subject
to continual review and periodic inspection, and later discovery of previously
unknown problems with a drug, manufacturer or facility may result in
restrictions on the marketing or manufacture of such drug, including withdrawal
of the drug from the market. The FDA and other regulatory authorities
stringently apply regulatory standards and failure to comply with regulatory
standards can, among other things, result in fines, denial or withdrawal of
regulatory approvals, product recalls or seizures, operating restrictions and
criminal prosecution.
Intense
competition may limit our ability to successfully develop and market commercial
products.
The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Our competitors in the
United States and elsewhere are numerous and include, among others, major
multinational pharmaceutical and chemical companies, specialized biotechnology
firms and universities and other research institutions.
Many
of
these competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing
organizations. As a result, our competitors may successfully develop
technologies and drugs that are more effective or less costly than any that
we
are developing or which would render our technology and future products obsolete
and noncompetitive.
In
addition, some of our competitors have greater experience than we do in
conducting preclinical an clinical trials and obtaining FDA and other regulatory
approvals for drug candidates more rapidly than we do. Companies that complete
clinical trials obtain required regulatory agency approvals and commence
commercial sale of their drugs before their competitors may achieve a
significant competitive advantage. Drugs resulting from our research and
development efforts or from our joint efforts with collaborative partners
therefore may not be commercially competitive with our competitors’ existing
products or products under development.
Trends
toward managed health care and downward price pressured on medical products
and
services may limit our ability to profitably sell any drugs that we any
develop.
Lower
prices for pharmaceutical products may result from:
·
Third-party
payers’ increasing challenges to the prices charged for medical products
and services;
·
The
trend toward managed health care in the Unites States and the concurrent
growth of HMOs and similar organizations that can control or significantly
influence the purchase of healthcare services and products;
and
·
Legislative
proposals to reform healthcare or reduce government insurance
programs.
The
cost
containment measures that healthcare providers are instituting, including
practice protocols and guidelines and clinical pathways, and the effect of
any
healthcare reform, could limit our ability to profitably sell any drugs that
we
may successfully develop. Moreover, any future legislation or regulation, if
any, relating to the healthcare industry or third-party coverage and
reimbursement, may cause our business to suffer.
Our
future success depends on retaining Uluru’s existing key employees and hiring
and assimilating new key employees. The loss of key employees or the inability
to attract new key employees could limit our ability to execute our growth
strategy, resulting in lost sales and a slower rate of growth.
Our
success depends in part on our ability to retain Uluru’s key employees including
Kerry Gray. Although following the Merger
we
expect to have employment agreements with these executives, each executive
can
terminate his or her agreement at any time. Also, we do not carry, nor do we
anticipate obtaining, "key man" insurance on our executives. It would be
difficult for us to replace any one of these individuals. In addition, as we
grow we may need to hire additional key personnel. We may not be able to
identify and attract high quality employees or successfully assimilate new
employees into our existing management structure.
Our
growth strategy assumes that we may possibly make future targeted strategic
acquisitions. A future acquisition may disrupt our business, dilute stockholder
value or distract management's attention from operations.
Unless
we
can develop Uluru’s present technology or newly acquired technology into
marketable products, our ability to generate revenue may be hindered and our
ability to achieve profitability will be slow and difficult. A possible strategy
is to acquire new technology or products through targeted strategic
acquisitions. If we attempt and fail to execute on this strategy, our revenues
may not increase and our ability to achieve significant profitability will
be
delayed.
We
may
not be able to identify any appropriate targets or acquire them on reasonable
terms. Even if we make strategic acquisitions, we may not be able to integrate
these technologies, products and/or businesses into our existing operations
in a
cost-effective and efficient manner.
We
may be unable to protect our intellectual property adequately or cost
effectively, which may cause us to lose market share or reduce
prices.
Our
future success depends significantly on Uluru’s ability to protect and preserve
its proprietary rights related to its technology and resulting products. We
cannot assure you that we will be able to prevent third parties from using
our
intellectual property rights and technology without our authorization. Although
Uluru has several patents and intends to pursue aggressively efforts to obtain
patent protection for its new technology, it will also rely on trade secrets,
common law trademark rights and trademark registrations, as well as
confidentiality and work for hire, development, assignment and license
agreements with employees, consultants, third party developers, licensees and
customers. However, these measures afford only limited protection and may be
flawed or inadequate. Also, enforcing intellectual property rights could be
costly and time-consuming and could distract management's attention from
operating business matters.
Uluru's
intellectual property may infringe on the rights of others, resulting in costly
litigation.
In
recent
years, there has been significant litigation in the United States involving
patents and other intellectual property rights. In particular, there has been
an
increase in the filing of suits alleging infringement of intellectual property
rights, which pressure defendants into entering settlement arrangements quickly
to dispose of such suits, regardless of their merits. Other companies or
individuals may allege that we infringe on their intellectual property rights.
Litigation, particularly in the area of intellectual property rights, is costly
and the outcome is inherently uncertain. In the event of an adverse result,
we
could be liable for substantial damages and we may be forced to discontinue
our
use of the subject matter in question or obtain a license to use those rights
or
develop non-infringing alternatives. Any of these results would increase our
cash expenditures, adversely affecting our financial condition.
MERGER
AGREEMENT
The
following is only a summary of the material provisions of the Merger Agreement.
The Merger
Agreement is attached to this Information Statement as Exhibit
4.
Please
read the Merger
Agreement in its entirety.
On
October 12, 2005, we entered into the Merger Agreement with Uluru and Uluru
Acquisitions Corp. Under the Merger Agreement, Uluru Acquisition Corp. will
merge with and into Uluru, as a result of which we will acquire all of the
issued and outstanding shares of Uluru and Uluru will become our wholly-owned
subsidiary.
In
connection with the Merger, the holders of Uluru common stock will receive
11,000,000 shares of our common stock, or approximately 91.7% of our outstanding
shares of Common Stock. On a fully diluted basis, after giving effect to the
Merger, the conversion of outstanding debentures and the use of an equity line,
Uluru’s shareholders will receive approximately 40% of the shares of our common
stock.
Material
Terms of the Merger
Subject
to the terms and conditions of the Merger Agreement, at the effective time
of
the Merger, our subsidiary, Uluru Acquisition Corp., will merge with and
into
Uluru, the separate corporate existence of Uluru Acquisition Corp. will cease
and we will become the parent corporation of Uluru. We will issue an aggregate
of 11,000,000 shares of common stock to the approximately 13 Uluru stockholders
in exchange for 100% of the issued and outstanding shares of Uluru capital
stock.
Immediately
prior to the effective time of the Merger and subject to the approval of the
Name Change, we will file an amended Articles of Incorporation that will change
our corporate name to "Uluru, Inc." as a result of the Merger.
At
the
effective time of the Merger and subject to the approval of the Director
Appointments, the members of the Uluru Board of Directors holding office
immediately prior to the effective time will become our directors, and all
persons holding offices of Uluru at the effective time, will continue to hold
the same offices of the surviving corporation. Simultaneously, our directors
and
officers immediately prior to the closing of the Merger will resign from all
of
their respective positions with us, effective immediately upon the closing
of
the Merger.
Effective
Time of the Merger
The
Merger Agreement provides that, subject to the approval of the Uluru
stockholders and satisfaction or waiver of other conditions, the Merger will
be
consummated by filing a certificate of Merger and any other appropriate
documents with the Secretary of State of Nevada and Delaware. We expect the
Merger to be consummated promptly after fulfilling the terms and conditions
of
the agreement.
We
anticipate that the closing will take place at a mutually agreed upon time,
but
no later than five days after all conditions precedent have been met satisfied
or waived and all required documents have been delivered.
Merger
Consideration
Upon
consummation of the Merger, each share of outstanding Uluru common stock shall
be converted into the right to receive 5,000 shares of our common stock. There
are 2,200 shares of Uluru issued and outstanding. Accordingly, following the
exchange, holders of Uluru capital stock will hold 11,000,000 shares of our
common stock.
As
a
result of the Merger, Uluru Acquisition Corp. will merge with and into Uluru,
as
a result of which we will acquire all of the issued and outstanding shares
of
Uluru and Uluru will become a wholly-owned subsidiary of ours. Also in
connection with the Merger, the holders of Uluru common stock will receive
11,000,000 shares of the common stock.
No
fraction of any share of our common stock will be issued to any former holder
of
Uluru capital stock; rather, the number of shares of our common stock otherwise
issuable, if other than a whole number, will be rounded to the nearest higher
whole number.
Conditions
to the Merger
The
respective obligations of Uluru, Uluru Acquisition Corp. and us to complete
the
Merger are subject to the satisfaction or waiver of various conditions,
including:
(a)
the
Merger being approved by Uluru’s
shareholders;
(b)
the
completion of a $13,000,000 bridge financing from Prenox, LLC and
Highgate
House Funds, Ltd. to us, as set forth in our Form 8-K filed with
the U.S.
Securities and Exchange Commission on October 18,2005.;
(c)
the
completion and sale of certain pharmaceutical assets to Uluru from
Access
Pharamceuticals, Inc., which sale occurred in October
2005;
(d)
satisfactory
completion of all necessary due diligence by Uluru and us;
and
(e)
we
shall have completed the Stock Split so that our issued and outstanding
shares prior to the Merger shall equal approximately 1,000,000
shares.
Reasons
for the Merger
For
the
past several years, the Company sought unsuccessfully to raise capital necessary
to fund its operations. The Company’s revenue growth has been substantially
limited by its available funding and human resources. The bridge financing
we
announced in October 2005 was predicated on our completion of the Merger with
Uluru.
The
Company’s Board of Directors determined after significant evaluation and due
diligence, that the terms of the proposed Merger are fair and equitable,
advisable and are in the best interest of the Company and its shareholders.
In
proposing this Merger, the Company's Board of Directors has thoroughly discussed
the Merger Agreement with its management as well as with its legal counsel
and
other advisors and considered a variety of factors impacting favorably toward
a
Merger including those listed below. The Board did not engage any other
financial advisors and did not obtain any reports, opinions or appraisals from
any outside professionals or experts. The Company consulted only with its
attorneys and accountants in structuring and negotiating the Merger with Uluru.
Availability
of Alternative Sources of Funding.
Prior
to the identification of the opportunity with Uluru, the Company's operations
had been funded predominately by financing contributed by current management
stockholders. The Company had very limited success in attracting other sources
of financing on terms acceptable to the Board of Directors. Our board believes
that the Merger will provide increased opportunities for financing of its
operations, as evidenced by the Company’s completion of the bridge financing
with Prenox and Highgate in October 2005. The Company believes the Merger with
Uluru will provide the Company with additional opportunities for new funding.
In
connection with the Merger, we propose to undertake a reverse stock split and
amend our capitalization - both of which we believe will allow significant
funding opportunities for the combined companies. We also believe that Uluru's
growth and introduction of its products will help attract funding for the
combined companies. We have been unable, on a stand alone basis, to attract
funding or allocate the resources necessary to undertake the expansion of our
business or enhance our presence in the investment community. We believe that
the combined company will be in a position to allocate funds to the Company's
continuing operations and increase the Company's exposure to potential sources
of capital.
Other
Considerations of the Board Of Directors.
The
board discussed the potential dilution to the existing Company shareholders
in
connection with the Merger. Our board determined that the dilution, while not
optimal, was preferable to terminating operations altogether, which would have
been the inevitable, if not imminent, outcome in the absence of funding or
an
acquisition scenario.
Expected
Benefits of the Merger.
The
combination of the Company and Uluru will result in several strategic benefits.
Uluru will provide the Company with an existing therapeutics business that
it
acquired from Access Pharmaceuticals, Inc. and that will become our sole
focus.
The Company also anticipates that the transaction will result in certain
synergistic opportunities resulting from, among other things, administrative
efficiencies.
In
addition to the benefits described above, the Company's Board of Directors
also
considered the following factors in the course of its
deliberations:
·
The
financial performance and condition, business operations and prospects
of
each of the Company, Uluru and the combined company. As described
elsewhere in this Information Statement, the Company has limited
prospects
to continue as a stand-alone enterprise for the foreseeable future,
and
has little or no prospects for generating revenues in the near term.
In
addition, our Board considered the fact that our independent auditors
have
included in their audit reports for our financial statements for
the year
ended December 31, 2004 a qualification that they express substantial
doubt about the Company's ability to continue as a going concern.
Our
Board determined that a combination with Uluru would provide the
prospects
for revenues, access to capital and funding for the continued operations
of the Company business. See "Reasons for the Merger - the Company"
above.
·
The
Company's need for funding to support revenue
growth.
·
The
structure of the transaction and terms of the Merger Agreement, as
described elsewhere in this Information Statement. Our Board considered
the fact that under the Merger Agreement the Company shareholders
would
suffer considerable dilution. However, our Board considered the overall
prospects of the Company on a stand-alone basis and determined that
participating in the potential growth of Uluru, coupled with the
opportunities the Merger would bring for the Company, was in the
best
interests of the Company shareholders. Our Board determined that
the
combined business and the resulting capitalization fairly reflect
the
current value and realistic prospects of the Company and represents
a
potential increase in value to our shareholders that could not be
realized
in the absence of the Merger.
·
The
relative market capitalization of both the Company and Uluru and
the
expected capital structure of the combined company after the Merger.
Our
Board considered the overall post-Merger capitalization and the relative
value of the outstanding shares of the Company in determining to
proceed
with the transaction. Our Board determined that notwithstanding the
dilutive nature of the Merger, the value of the outstanding shares
of the
Company would be immediately increased as a result of the transaction.
Our
Board determined that the Merger represents an opportunity to increase
shareholder value whereas continuing on a standalone basis would
likely
have resulted in the complete erasure of any existing
value.
·
Economic
and intangible aspects of a Merger for our company and its stockholders.
Our Board considered the history and prospects of Uluru and determined
that its growth potential and potential for access to investment
capital
supported their revenue models and projections. From an economic
point of
view, our Board determined that Uluru would be a viable, operating
entity
with prospects for significant growth and increasing valuation. Our
Board
also determined that access to the public markets and liquidity would
further enhance the economic value of Uluru going forward. With respect
to
the intangible aspects of the Merger, our Board determined that the
resources in terms of personnel, leadership and facilities would
enhance
the Company's operations. Our Board also determined that Uluru's
presence
in the combined company would energize and enthuse our projects,
and or
shareholders' general view of our company and stock
performance.
·
Possible
stock market reaction to the transaction. Our Board determined that
the
Merger with Uluru would bring immediate value to the shareholders
by
increasing the market price of the stock and the overall valuation
of the
company. Our board determined that the Merger combined with the issuance
of new shares and the prospect of a post-Merger financing, would
also
promote trading volume, which in turn enhances the liquidity and
value of
the stock held by the existing Company
shareholders.
·
The
challenges inherent in the combination of two businesses and the
possible
diversion of management attention for an extended period of
time.
·
The
risk of not capturing all the anticipated synergies between the Company
and Uluru and the risk that other anticipated benefits might not
be
realized.
·
The
Company's uneven historical revenue
performance.
After
consideration of these factors and others not mentioned above, the Company's
Board of Directors determined that the risks were significantly outweighed
by
the potential benefits of the Merger.
This
discussion of the information and factors considered by the Company's Board
of
Directors includes all of the material positive and negative factors considered
by the Company's Board of Directors, but it is not intended to be exhaustive
and
may not include all the factors considered. The Company's Board of Directors
did
not quantify or assign any relative or specific weights to the various factors
that it considered in reaching its determination that the Merger Agreement
and
the Merger are advisable and fair to and in the best interests of the Company
and its stockholders. Rather, the Company's Board of Directors viewed its
position and recommendation as being based on the totality of the information
presented to and factors considered by it. In addition, individual members
of
the Company's Board of Directors may have given differing weights to different
factors in reaching its decisions.
After
careful consideration, the Company Board of Directors unanimously approved
the
Merger Agreement and the Merger.
Cost
and Expenses of the Merger
The
Merger
Agreement provides that all costs and expenses in connection with the
Merger
will be paid by the party incurring such costs and expenses. We anticipate
that
such costs will total approximately $300,000. We have agreed to pay all expenses
related to the preparation, printing and mailing of the Information Statement
and all related filing and other fees. All of such funds will be provided from
the proceeds of our bridge financing with Prenox and Highgate.
Regulatory
Approval
No
regulatory approval is required to be received by either us or Uluru for the
Merger to occur.
CERTAIN
TRANSACTIONS AND INFORMATION RELATED TO THE MERGER
Change
in Control
A
change
of control of our company will occur as a result of the Merger, pursuant to
which the stockholders of Uluru will become our stockholders and will own,
collectively, approximately 91.7% of the issued and outstanding shares of our
common stock.
Certain
Federal Income Tax Consequences
Because
no action is being taken in connection with our current outstanding shares
of
common stock, no gain or loss is anticipated to be recognized by our
stockholders in connection with the Merger. It is expected that the issuance
of
our shares of common stock to Uluru stockholders pursuant to the Merger will
be
tax-free to those persons.
Appraisal
Rights
Under
applicable Nevada law, our stockholders do not have the right to demand
appraisal of their shares in connection the approval by written consent of
the
amended Articles of Incorporation and other actions that may be contemplated
in
connection with the acquisition of Uluru pursuant to the Merger.
Consequences
of the Merger Not Occurring
If
the
conditions to the Merger, including enacting the Stock Split, are not fulfilled
prior to the Merger and the eligible party to the Merger does not waive
that
unfulfilled condition or if we are unable to execute the Merger for any
reason
whatsoever, we will have to unwind all the transactions related to the
Merger.
The parties to the Merger will be relieved of all rights and
obligations under the Merger Agreement as well as under the
Indemnifying Escrow Agreement that was entered into simultaneously with
the
Merger Agreement. Funds and shares placed into escrow under the Indeminifying
Escrow Agreement will be returned to the persons that respectively placed
those funds and shares into escrow. The parties to the Merger Agreement and
the Indemnifying Escrow Agreement will be free to continue their operations
as
if they had never entered into those agreements. The non-completion of the
Merger will not trigger any penalties under those agreements or an automatic
default under our debentures to Prentice and Highgate or under Uluru's
debentures to us. Those debentures will remain in full force and
effect.
Federal
Securities Law Consequences
Our
shares of common stock to be issued to the Uluru stockholders in connection
with
the Merger will not be registered under the Securities Act at the effective
time
of the Merger. It is intended that such shares will be issued pursuant to the
private placement exemption under Section 4(2) and/or Regulation D of the
Securities Act. These shares are deemed "restricted stock" and will bear an
appropriate restrictive legend indicating that the resale of such shares may
be
made only pursuant to registration under the Securities Act or pursuant to
an
available exemption from such registration.
Certain
outstanding shares of common stock, including those issued pursuant to the
Merger, will be "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act. Under the provisions of Rule 144,
restricted securities may be sold into the public market, subject to holding
period, volume and other limitations set forth under the Rule. In general,
under
Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including any person who may be deemed to be an "affiliate," as defined under
the Securities Act, is entitled to sell, within any three-month period, an
amount of shares that does not exceed the greater of:
(i)
the
average weekly trading volume in the common stock, as reported through
the
automated quotation system of a registered securities association,
during
the four calendar weeks preceding such sale,
or
(ii)
1%
of the shares then outstanding.
In
order
for a stockholder to rely on Rule 144, we must have available adequate current
public information with respect to our business and financial status. A person
who is not deemed to be an affiliate and has not been an affiliate for the
most
recent three months, and who has held restricted shares for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
various resale limitations of Rule 144.
Under
Rule 144, the one-year holding period will commence as of the effective time
of
the Merger for the stockholders of Uluru who receive shares of our common stock
in the Merger. Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about us.
Our
Operations After the Merger
Following
the Merger, our only business activities will be the business in which Uluru
is
currently engaged. At the effective time of the Merger and subject to the
approval of the Director Appointments, our directors and executive officers
will
be replaced by the directors and executive officers of Uluru.
We
will
continue to be a reporting company under the Exchange Act and will continue
to
file periodic reports and be subject to the proxy solicitation requirements
of
the Exchange Act. It is anticipated that our common stock will not be listed
on
any national securities exchange or on the Nasdaq Stock Market, but will
continue to be listed on the OTC Bulletin Board, under a new trading symbol.
The
principal office of Uluru will become our principal office.
Business
of Uluru
Business
Following
the Merger, we will assume all of the business, assets operations and
liabilities of Uluru, a development stage company whose primary business is
focused on the development of a portfolio of topical delivery technologies.
Uluru’s products include:
·
Aphthasol®,
our amlexanox 5% paste, is an FDA approved prescription drug for
the
treatment of recurrent aphthous ulcers, commonly known as canker
sores, in
healthy adults. Amlexanox 5% paste was approved by regulatory authorities
for sale in the UK. Approval to market was granted in Austria, Germany,
Greece, Finland, Ireland, Luxumbourg, The Netherlands, Norway, Portugal
and Sweden. We licensed manufacturing rights to ProStrakan, Zambon,
Esteve
and Mipharm for specific countires in Europe. Contract Pharmaceuticals
Ltd. Canada has also been selected as our European supplier of amlexanox
5% paste and this facility has been approved for European
supply;
OraDisc™
A is an FDA approved prescription drug incorporating the same active
ingredient as Aphthasol in an erodible mucoadhesive film for the
treatment
of recurrent Aphthous ulcers, in healthy individuals greater than
12 years
of age. We received regulatory approval from the FDA to manufacture
and
sell OraDisc™ in September 2004 and are proceeding with our manufacturing
end marketing plans for 2006; and
·
Residerm®,
a technology used to create Zindaclin, an antibiotic used for the
topical
treatment of acne. We licensed our patents for worldwide manufacturing
and
marketing for Zindaclin® and ResiDerm® technology to ProStrakan Ltd. for
the period of the patents. We receive a share of the licensing revenues
and royalty on the sales of the product. Prostrakan has a contract
manufacturer for Zindaclin® which is a European Union approved facility.
Zindaclin® was approved in the UK and throughout Europe in most European
Union countries including new member states and several non-European
markets. Zindaclin® is marketed in UK, France, Germany, Ireland, Belgium,
Cyprus, Israel and Korea. Zindaclin® is under review in other markets
including Australia, New Zealand, Brazil and
others.
In
addition, Uluru has licensed Access Pharmaceuticals nanoparticle hydrogel
technology for all applications excluding intravenous, subcutaneous and intra
muscular uses as a drug delivery device, which include wound management, burn
care, dermal fillers, plastic surgery, ocular delivery, and orthopedic
applications.
Market
Information and Dividends
Uluru’s
common stock is not listed or quoted on any exchange or secondary market. It
has
paid no dividends since inception.
Management’s
Discussion and Analysis of Financial Condition
The
following discussion, which relates to the Topical Business Component of Access
Pharmaceuticals Inc. (the “Topical Business Component”), should be read in
conjunction with the Topical Business Component’s consolidated financial
statements and related notes included elsewhere in this Information
Statement.
The Topical
Business Component is a diversified division engaged in the development of
novel therapeutics based primarily on the adaptation of existing therapeutic
agents using its proprietary drug delivery platforms. The Topical Business
Component represents a component of the consolidated operations of Access
Pharmaceuticals Inc. and its subsidiary companies, a Delaware Corporation.
The
Topical Business Component consists of three patented drug delivery technologies
from which three products have been approved for marketing in various global
markets. In addition, numerous products are under development utilizing the
mucoadhesive film and nanoparticle aggregate technologies. The Topical
Business Component’s customer base consists of numerous strategic alliances with
partners throughout the world to manufacture and market our products. Continuing
operation of the Topical Business Component includes a research and development
facility in Dallas, Texas, a third party distribution arrangement for the sale
of a product in the United States, and a network of strategic partners
globally.
Total
revenues in 2004 were $586,874 as compared to $1,312,991 in 2003, a decrease
of
$726,117. This decrease in revenue was principally the result of licensing
revenues, which declined from $747,283 in 2003 to $142,143 in 2004 a decrease
of
$605,140. We recognize licensing revenues over the period of the performance
obligation under our licensing agreements. Licensing revenue recognized in
both
2004 and 2003 were from several agreements; primarily agreements related to
Zindaclin and numerous smaller agreements for the marketing of the Amlexanox
products.
Product
sales of Aphthasol, the product for the treatment of canker sores, totaled
$350,575 in 2004 as compared to product sales of $532,022 in 2003. Sales in
2004
were limited due to a supply interruption of the product. Supplies were
manufactured in the third quarter of 2004 and sales recommenced in late
September 2004. Sales in 2003 occurred thorough June prior to the supply
interruption, which effected the sales for 16 months.
Royalty
income for 2004 was $94,156 an increase of $60,470 over the income in 2003
of
$33,686. This increase reflects both increased sales in existing markets and
the
launch of the product in ten additional territories.
Cost
of
Product Sales declined $37,260 in 2004 to $239,276 as a result of the decline
in
product sales.
In
2004,
total operating expenses declined to $3,443,496 from the 2003 expenses of
$3,661,880. This net reduction in operating expenses was due to Research and
Development expense, which was reduced from $2,426,101 in 2003 to $1,615,071
in
2004, a decline of $811,030, offset by an increase in general and administrative
expense of $581,833, from $1,035,031 in 2003 to $1,616,864 in 2004.
The
decrease in total Research and Development expense was due to the
following:
·
Lower
clinical development costs for OraDisc A of $710,165, due to the
completion of a pivotal study during
2003,
·
Lower
outside laboratory services supporting the development of OraDisc
A
totaling $96,395,
·
A
$137,303 reduction of labor cost in clinical development due to the
completion of the study in 2003,
and
·
Reduced
consulting expenses of $23,800
These
research and development decreases were partially offset by the following
research and development increases:
·
Increased
development expenses of $87,583 on new OraDisc products,
and
·
Contract
manufacturing scale-up expenses of $68,210 for the production of
Aphthasol
The
increase in General and Administration costs were due to the
following:
·
Higher
patent expenses of $148,138 associated with the international prosecution
of our OraDisc patent,
·
Increased
legal expense due to litigation
($154,911),
·
Consulting
expense increase due to the appointment of a business development
consultant and a consultant who conducted an overall business review
($79,638), and
·
Increased
accounting fees of $25,414 associated with compliance for
Sarbanes-Oxley.
Our
Loss
from Operations increased by $470,473 from $2,625,425 in 2003 to $3,095,898
in
2004. This change reflects the decline in Gross Profit of $688,857, which is
partially offset by a decrease of $218,384 in total operating
expenses.
Net
Loss
of $3,175,327 in 2004 was an increase over the net loss incurred in 2003 of
$395,325.
The
2003
net loss was favorably impacted by a $2,280,049 settlement with Block Drug
Company, which stemmed from a failure to honor a supply agreement for
Aphthasol.
Interest
expense in 2004 increased by $115,435 due to the operating losses incurred
during the year for which interest expense was provided by allocation, based
on
applicable financial resources provided by Access Pharmaceuticals,
Inc.
Total
revenues for the nine months ended September 30, 2005 increased $351,922 to
$654,279 over revenues for the same period of 2004 of $302,357.
Product
sales of Aphthasol, marketed in the United States for the treatment of canker
sores, totaled $480,939 in the nine months ended September 30, 2005 an increase
of $374,451 over the corresponding nine months period of 2004. This increase
reflects the supply interruption in 2004 which was not resolved until September
2004, compared with sales throughout 2005.
Licensing
revenue, which is recognized over the period of the performance of the
obligations under our licensing agreements, declined $28,085 from $125,749
for
the nine month period in 2004 to $97,664 for the first nine months in 2005.
The
licensing revenues fluctuate on a quarterly basis based on the timing of
ResiDerm revenues which are recognized when received as all obligations of
the
licensing agreements have been performed. The licensing revenue results from
numerous agreements related to ResiDerm, Aphthasol and OraDisc
projects.
Royalty
Income marginally increased by $5,556 from $70,120 in the nine month period
in
2004 to $75,676 in the corresponding period in 2005. The royalty increase is
due
to the launch of Zindaclin in additional territories.
Cost
of
product sales in the first nine months of 2005 were $206,333 a $109,591 increase
over corresponding period in 2004 where the expense was $96,742. This increase
is volume related.
In
the
nine month period ending September 30, 2005, total operating expenses marginally
increased $7,404 from $2,516,889 in 2004 to $2,524,293. This decline was the
result of a significant reduction in General and Administrative expense which
declined $333,269 in 2005, from $1,202,881 in 2004 to $869,612. Offsetting
this
expense decline was an increase in Research and Development expense of $336,553
from $1,156,075 in 2004 to $1,492,628.
The
increase in Research and Development expense in 2005 was due to the
following:
·
A
decrease in production scale-up expense and process validation for
Aphthasol at the new contract manufacturer,
$261,454.
·
Lower
laboratory supplies of $37,000.
·
Reduced
travel and entertainment of
$13,744.
These
reductions in expenses were offset by the following increases in Research and
Development expenses:
·
Increased
development and production scale-up expenses associated with the
OraDisc
range of products, $360,125.
·
Expenses
payable to the FDA associated with the approval of OraDisc A,
$173,108.
·
Increased
salary expenses to support the further development of the nanoparticle
aggregate technology and the commercialization of the OraDisc range
of
products, $114,648.
The
decrease in General and Administration costs were due to the
following:
·
A
reduction in legal expense in 2005 of $115,732 due to the completion
of
the outstanding litigation with third
parties.
·
A
reduction in patent expense of $108,796 due to the international
prosecution expense of the OraDisc patent being incurred in
2004
·
A
decrease in salary costs of $105,052 associated with a reduction
in
administrative personnel.
·
Reduced
outside consulting expenses of
$40,060
·
A
reduction in public relations expenses due to the elimination of
an
outside service, $11,500.
These
expense decreases were partially offset by the following increase in General
and
Administrative expenses:
·
Outside
accounting fees associated with Sarbanes Oxley compliance,
$45,613.
Our
loss
from operations decreased by $234,927 form $2,311,274 for the first nine months
of 2004 to $2,076,347 for the corresponding period in 2005. This change
principally reflects the increase in gross profit in 2005 associated with the
increased sales volume.
Net
loss
of $2,096,937 was a decrease of $290,698 over the net loss incurred in the
corresponding period of 2004 of $2,387,635. The net loss was favorably impacted
by a foreign currency translation gain in 2005 of $91,400 associated with the
strengthening of the United States dollar. Partially offsetting this gain was
an
increase in interest expense of $26,250 associated with the increased
loss.
Liquidity
and Capital Resources
The
Topical Business Component of Access Pharmaceuticals Inc. has operated as an
integral part of the overall company. Consequently, all activities of this
component have been funded by Access Pharmaceuticals Inc., which has funded
its
operations primarily through private sale of common stock and convertible notes.
Contract research payments, licensing fees, and milestone payments from
corporate alliances and mergers have also provided funding for operations.
As of
December 31, 2004 our working capital was $(322,196), which was an increase
of
$130,629 when compared to our working capital at December 31, 2003 of
$(452,825). The increase in working capital was due mainly to a reduction
in receivables due to the receipt of a licensing payment, and a reduction in
the
deferred charge for FDA fees being amortized over one year, substantially offset
by an increase in accounts payable associated with the growth of the Topical
Business Component.
As
of
September 30, 2005 our working capital was $(722,187) which was a decrease
of
$389,991 compared to our working capital at December 31, 2004 of $(332,196).
The
decrease in working capital was due principally to a reduction in prepaid
expenses and deferred charges.
Critical
accounting policies and estimates
The
preparation of the Topical Business Component’s financial statements in
conformity with accounting principles generally accepted in the United States
of
America require it to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amount
of
revenues and expenses during the reported period. In applying our accounting
principles, we must often make individual estimates and assumptions regarding
expected outcomes or uncertainties. As you might expect, the actual results
of
these outcomes are often different than the estimated or assumed amounts. These
differences are usually minor and are included in our consolidated financial
statements as soon as they are known. The Topical Business Component’s
estimates, judgments, and assumptions are continually evaluated based on
available information and experience. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.
Revenue
recognition
Revenue
associated with up-front license, technology access and research and development
funding payments under collaborative agreements is recognized ratably over
the
performance period of the agreements. Determination of any alteration of the
performance period normally indicated by the terms of such agreements involves
judgment on management’s part.
Past
Contacts, Transactions or Negotiations
In
August
2005, contact was initiated between Dan Leonard, our President, and Kerry Gray,
the President of Uluru who at the time was negotiating with Access
Pharmaceuticals to acquire their topical delivery technologies business
component. They had several telephone conversations regarding the possible
merger between their two entities. We were intrigued by Uluru’s possible
acquisition of the topical business technologies, and Uluru was attracted by
our
shareholder base, business and finance contacts and status as a publicly traded
company. Following due diligence by both companies, we entered into the Merger
Agreement with Uluru on October 12, 2005.
Simultaneous
with entering into the Merger Agreement and as consideration for entering into
the Merger Agreement, we entered into a financing arrangement with Uluru. On
October 12, 2005, we entered into a Bridge Loan and Control Share and Pledge
Security Agreement with Uluru and Kerry P. Gray. Pursuant to the Bridge Loan
Agreement, we loaned Uluru $10,700,000 in exchange for a secured debenture.
In
addition to granting the Uluru Debenture, Uluru granted a security interest
in
its assets to Oxford and Mr. Gray pledged Uluru shares representing 54.5% of
Uluru's capital stock to Oxford.
To
fund
the Uluru financing, we entered into a Securities Purchase Agreement on October12, 2005 to issue secured convertible debentures to Highgate House Funds, Ltd.
and Prenox, LLC in an amount of up to $15,000,000 and to issue Highgate and
Prenox warrants for up to 5,000,000 shares of the Registrant's common stock
for
a period of five years with an exercise price of $0.01. Also on October 12,2005, we issued a $10,000,000 secured convertible debenture to Prenox and a
$3,000,000 secured convertible debenture to Highgate as well as the Warrants.
In
exchange for the purchase of the Debentures, we granted Highgate and Prenox
a
security interest in all of its assets, including any assets we acquire while
the Debentures are outstanding. To entice Highgate and Prenox to enter into
the
Securities Purchase Agreement, we assigned the Security Interest and the Pledged
Shares to Prenox and Highgate pursuant to a Collateral Assignment Agreement
entered into between the Registrant, Highgate and Prenox.
Legal
Proceedings
Uluru
is
not involved in any, and is not aware of any pending, litigation or government
investigation.
Independent
Public Accountants
Uluru
retained the independent certified public accounting firm of Braverman
International, P.C. to audit the financial statements of the Topical Business
Component of Access Pharmaceuticals Inc. (which is a carve-out of the financial
aspects of a group of technologies of Access Pharmaceuticals Inc.) for fiscal
years 2004 and 2003. Uluru has had no disagreements with its accountants
regarding accounting and financial disclosure. There have been no changes in
Uluru’s accounting firm since its inception. Representatives of the principal
accountants of Uluru are not expected to be present at the special
meeting.
SELECTED
HISTORICAL FINANCIAL DATA OF OXFORD VENTURES, INC.
The
following selected financial data is derived from our financial statements.
This
information is only a summary and does not provide all of the information
contained in such financial statements, including the related notes thereto
and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are part of our Quarterly Report on Form 10-QSB for the
nine
months ended September 30, 2005 and Annual Report on Form 10-KSB for the year
ended December 31, 2004, which are incorporated herein by reference. The
statement of operations data for each of the years in the two-year period ended
December 31, 2004 and the balance sheet data at December 31, 2004 are derived
from our audited financial statements. The data as of and for the nine months
ended September 30, 2005 and 2004 are derived from our unaudited financial
statements which include all adjustments, consisting only of normal recurring
adjustments and accruals, that we consider necessary for a fair presentation
of
its financial position and results of operations for these periods. Interim
operating results for the nine months ended September 30, 2005 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 2005 or any future period.
SELECTED
HISTORICAL FINANCIAL DATA OF TOPICAL BUSINESS COMPONENT OF ACCESS
PHARMACEUTICALS, INC. AND SUBSIDIARIES
The
selected financial data set forth below should be read together with the
financial statements of the Topical Business Component included with this
Information Statement. The statement of operations data are derived from the
Topical Business Component’s audited financial statements. The statement of
operations data for the nine months ended September 30, 2005, and the balance
sheet data as of September 30, 2005 are derived from unaudited financial
statements of the Topical Business Component which include all adjustments,
consisting only of normal recurring adjustments and accruals, that we consider
necessary for a fair presentation of our financial position and results of
operations for these periods. As Uluru commenced business operations in October
of 2005 by acquiring the topical component of Access Pharmaceuticals Inc. and
its subsidiaries, the following data includes historical financial data for
that
business component. Interim operating results for the nine months ended
September 30, 2005 are not necessarily indicative of the results that may be
expected for the entire fiscal year ended December 31, 2005 or any future
period. The following selected financial data of the Topical Business Component
should be read in conjunction with its financial statements and the notes
thereto included herewith as Exhibit
5.
Consolidated
Statement of Operations and Comprehensive Loss
Data:
The
following unaudited pro forma financial information of Oxford Ventures, Inc.
for
the nine months ended September 30, 2005 and the year ended December 31, 2004,
has been prepared to assist stockholders in their analyses of the financial
effects of the Merger. This information is based on our historical financial
statements and should also be read in conjunction with the historical financial
statements and related notes of the Topical Business Component, which are
included in Exhibit
5
hereto.
The pro forma statements of operation have been prepared to give effect to
the
Merger as if the Merger had occurred on January 1, 2004. The unaudited pro
forma
balance sheet information as of September 30, 2005 has been prepared to give
effect to the Merger as if the Merger had occurred on September 30,2005.
The
values used in the preparation of the pro forma financial statements were
determined based on negotiations between the companies and comparable values
for
companies at Uluru’s stage of development.
As
described elsewhere herein, the Merger is expected to be accounted for as a
reverse acquisition in which, for accounting purposes, Uluru is being treated
as
the acquirer. These unaudited pro forma financial statements have been prepared
assuming that 11,000,000 shares of our common stock will be issued to Uluru
stockholders in the Merger.
The
unaudited pro forma financial information is not necessarily indicative of
the
results that might have occurred had the transactions taken place on January1,2004 or September 30, 2005 and are not intended to be a projection of future
results. Future results may vary significantly from the results reflected in
the
following unaudited pro forma financial information because of normal
operations, future acquisitions, future development activities, and other
factors. The notes to these pro forma financial statements should be read in
conjunction with the statements themselves.
The
above statement gives effect to the following pro forma adjustments
necessary to reflect the merger of Oxford Ventures, Inc. and the
Topical
Business Component of Access Pharmaceuticals, Inc. (“ULURU”) with ULURU
being the acquirer for accounting purposes, as if the transaction
had
occurred September 30, 2005.
a)
To
eliminate the shareholders equity section of Oxford Ventures, Inc.
in
connection with the merger and credit the net deficit to combined
equity.
b)
To
record the issuance for accounting purposes of shares of Oxford Ventures,
Inc. to purchase the ULURU assets (valued at $16,500,000) of 11,000,000
shares of Oxford Ventures Inc. (adjusted to reflect a 400 for 1 reverse
stock split). The value placed on the shares was determined based
on
negotiations between the companies and comparable values for companies
at
ULURU’s stage of development. The valuation of the acquisition used in
the
accompanying pro forma balance sheet is equivalent to approximately
$1.50
per share of Oxford Ventures, Inc. common stock post reverse split
(0.00375 cents prior to the reverse split), before expenses of the
merger.
c)
Accrual
of $300,000 of estimated legal, accounting and other professional
fees
relating to the merger.
After
the
consummation of the transaction described herein, Oxford Ventures, Inc. will
have 200,000,000 common shares authorized, approximately 11,815,000 common
shares issued and outstanding, 20,000 preferred shares authorized and no
preferred shares issued.
*
AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES
OUTSTANDING (NOTE 2, 3)
378,898
850,990
11,000,000
11,000,000
11,378,898
11,850,990
*
REFLECTS
THE 400 FOR 1 REVERSE STOCK
SPLIT
Notes
to Pro Forma Combined Condensed Statement of
Operations
Note
1:
The
above statement gives effect to the merger of Oxford Ventures, Inc.
and
ULURU with ULURU being the acquirer for accounting purposes, as if
the
merger had occurred on January 1,2004.
Note
2:
The
average number of outstanding shares of ULURU gives retroactive effect
to
the proposed issuance of 11,000,000 (post a 400 for 1 reverse stock
split)
shares of Oxford Ventures, Inc. for the purchase of the ULURU
assets.
Note
3:
The
pro forma combined-weighted average number of common shares outstanding
is
based on the weighed average number of shares of common stock of
Oxford
Ventures, Inc. outstanding during the period plus those shares to
be
issued in conjunction with the acquisition. Reconciliation between
the
Oxford Ventures, Inc. historical weighted average shares outstanding
and
pro forma weighted average shares outstanding is as
follows:
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information concerning ownership of the Company’s
common stock, on a post Stock-Split basis, as of January 20, 2006, by (i) each
person known to the Company to be the beneficial owner of more than five percent
of the outstanding shares of our common stock on a post Stock-Split basis,
(ii)
each director, and (iii) all of our directors and executive officers as a group.
Applicable
percentage ownership is based on 399,999,704 shares of common stock
outstanding as of January 19, 2005, together with securities exercisable
or convertible into shares of common stock within 60 days of January19,2005 for each stockholder. The numbers provided in the table assume
that
the Stock Split has occurred so that for each four hundred outstanding
shares, stockholders will receive one share and so that the number
of
outstanding shares is reduced from 399,999,704 shares to approximately
1,000,000 shares of common stock. Beneficial ownership is determined
in
accordance with the rules of the Securities and Exchange Commission
and
generally includes voting or investment power with respect to securities.
Shares of common stock that are currently exercisable or exercisable
within 60 days of January 19, 2005 are deemed to be beneficially
owned by
the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other
person.
(2)
Represents
20,405,004 shares held by Daniel K. Leonard as Trustee for the benefit
of
his family and 794,996 shares owned by Mr. Leonard's two
daughters,
or on a post Stock Split basis 51,102 shares and 1,988 shares,
respectively.
(3)
Represents
26,230,768 shares held by Erin C. Hicks as Trustee for the benefit
of her
nieces and nephews and 5,000,000 shares owned by Ms. Hicks individually,
or on a post Stock Split basis 65,577 shares and 12,500 shares,
respectively.
The
following table shows compensation earned during the fiscal years ended December31, 2004 and 2003 by our executive officers.
Summary
Compensation Table
Long
Term Compensation
Annual
Compensation
Awards
Payouts
Name
& Principal Position
Year
Salary
($)
Bonus
($)
Other
Annual Compensation ($)
Restricted
Stock Awards ($)
Securities
Underlying Options/
SARs
(#)
LTIP
Payouts
($)
All
Other Compensation
($)
Daniel
Leonard, CEO,
2004
$
25,000
-0-
-0-
-0-
-0-
-0-
-0-
Chairman
and President
2003
$
25,000
-0-
-0-
-0-
-0-
-0-
-0-
Roy
Breeling, Former Chairman
2004
$
15,000
-0-
$
1,000
-0-
-0-
-0-
-0-
2003
$
10,000
-0-
-0-
-0-
-0-
-0-
-0-
Dennis
Blackman,
2004
-0-
-0-
$
1,000
-0-
-0-
-0-
-0-
Former
Dirrector
2003
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Albert
B. Plant,
2004
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Former
Secretary, Director
2003
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Victor
Schaefer,
2004
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Former
Director
2003
-0-
-0-
-0-
-0-
-0-
-0-
-0-
John
Paul Pleskovitch,
2004
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Former
Director
2003
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Eric
Hutton,
2004
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Former
Director
2003
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Dan
Leonard has a strong background in business management, practical applications
of technology, marketing and sales. Most recently, from January to November
2003, he served as president and co-founder of e-Information Systems, LLC,
of
Elkhorn, Neb. - a data consolidation company. Leonard also has served as
director of business development for Data Delivery Services, of Conroe, Tex
from
January 2002-03; as a vice president in charge of sales and marketing for Vital
Processing Services, of Tempe, Arizona from September 1998 to January 2002,
and
assistant vice president of national sales for First National Bank, of Omaha,
Neb. He also created and managed the bank card operations division for MCI
Telecommunications, in Denver, CO., where he handled hiring, and budgeting,
billing, auditing and contract execution for a $750 million portfolio. He
studied at University of Nebraska, in Omaha from 1980-1983. As Dan Leonard
was
our sole director in 2005, the board of directors took all action by written
consent and there were no board meetings in that year.
Pursuant
to the Merger Agreement, the Company will acquire all the outstanding capital
stock of Uluru. The Company will issue 11,000,000 shares, on a post-stock split
basis, of its Common Stock to the holders of Uluru’s stock holders as
consideration and in exchange for all of Uluru’s outstanding capital stock, as a
result of which the Company will wholly own Uluru.
Some
statements in this Information Statement contain certain “forward-looking”
statements of management of the Company. Forward-looking statements are
statements that estimate the happening of future events are not based on
historical fact. Forward-looking statements may be identified by the use of
forward-looking terminology, such as “may,”“shall,”“could,”“expect,”“estimate,”“anticipate,”“predict,”“probable,”“possible,”“should,”“continue,” or similar terms, variations of those terms or the negative of those
terms. The forward-looking statements specified in the following information
have been compiled by our management on the basis of assumptions made by
management and considered by management to be reasonable. Our future operating
results, however, are impossible to predict, and no representation, guaranty
or
warranty is to be inferred from those forward-looking statements. The
assumptions used for purposes of the forward-looking statements specified in
the
following information represent estimates of future events and are subject
to
uncertainty as to possible changes in economic, legislative, industry and other
circumstances. As a result, the identification and interpretation of data and
other information and their use in developing and selecting assumptions from
and
among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and, accordingly, no opinion is expressed
on
the achievability of those forward-looking statements. We cannot guaranty that
any of the assumptions relating to the forward-looking statements specified
in
the following information are accurate, and we assume no obligation to update
any such forward-looking statements.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the information and reporting requirements of the Securities Exchange
Act of 1934 and in accordance with this Act, we file periodic reports, documents
and other information with the Securities and Exchange Commission relating
to
our business, financial statements and other matters. These reports and other
information may be inspected and are available for copying at the offices of
the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC
20549. Our SEC filings are also available to the public from the SEC’s website
at http://www.sec.gov.
INCORPORATION
BY REFERENCE
The
Securities and Exchange Commission allows us to incorporate by reference
information into this Information Statement, which means that we can disclose
important information by referring you to another document filed separately
by
us with the SEC. The following documents previously filed by us with the SEC
are
incorporated by reference in this Information Statement and are deemed to be
a
part of this Information Statement:
· Our
Annual Report on Forms 10-KSB for the fiscal year ended December 31,2004;
Any
statement contained in a document incorporated by reference in this Information
Statement shall be deemed to be modified or superseded for all purposes to
the
extent that a statement contained in this Information Statement modifies or
replaces the statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute part of this
Information Statement.
We
undertake to send by first class mail, without charge and within one business
day after receipt of any written or oral request, to any person to whom a copy
of this Information Statement has been delivered, a copy of any or all of the
documents referred to above which have been incorporated by reference in this
Information Statement, other than exhibits to the documents unless the exhibits
are specifically incorporated by reference herein. Requests for copies should
be
directed to our Chief Financial Officer at Oxford Ventures, Inc., 4538 South
140th
Street,
Omaha, Nebraska68137.
We
file
annual, quarterly and current reports and other information with the SEC under
the Securities Exchange Act of 1934, as amended. You may read and copy any
reports and other information that we file at the SEC’s public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549, and you may also obtain
copies of those documents from the SEC upon payment of the prescribed fee.
Information about the operation of the public reference room may be obtained
by
calling the SEC at 1-800-SEC-0330. The reports and other information that we
file with the SEC are also available through the SEC’s web site at
http://www.sec.gov.
(Pursuant
to NRS 78.385 and 78.390 - After Issuance of
Stock)
1.
Name
of corporation:
Oxford
Ventures, Inc.
2.
The
articles have been amended as follows (provide article numbers,
if
available):
Article
IV has been amended by amending and restating in full Article IV of the Articles
of Incorporation as follows:
ARTICLE
IV
All
issued and outstanding shares of Common Stock, par value $.001 per share ("Old
Common Stock"), outstanding as of the close of business on January [ ], 2005
(the "Effective Date") shall automatically and without any action on the part
of
the holder of the Old Common Stock be converted into 0.0025 times the number
of
shares of Old Common Stock, par value $.001 per share ("New Common Stock").
Each
holder of a certificate or certificates which immediately prior to the Effective
Date represented outstanding shares of Old Common Stock (the "Old Certificates")
shall, from and after the Effective Date, be entitled to receive a certificate
or certificates (the "New Certificates") representing the shares of New Common
Stock into which the shares of Old Common Stock formerly represented by such
Old
Certificates are converted under the terms hereof. Prior to the Effective Date,
there are 399,999,704 shares of issued and outstanding shares of Old Common
Stock. On the Effective Date, there will be approximately 1,000,000 issued
and
outstanding shares of New Common Stock.
The
total
number of shares of stock which the corporation shall have authority to issue
is
Two-Hundred Million and Twenty Thousand (200,020,000) shares, of which
Two-Hundred Million (200,000,000) shares shall be Common Stock, $0.001 par
value
per share, and Twenty-Thousand (20,000) shares shall be Preferred Stock, $0.001
par value per share (the "Preferred").
The
Preferred may be issued from time to time in one or more series. The Board
of
Directors of the corporation is authorized from time to time to designate by
resolution, one or more series of preferred stock, and the powers, preferences
and rights, and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof as shall be permitted by
Nevada law, and
to
fix or
alter the number of shares comprising any such series and the designation
thereof.
3.
The
vote by which the stockholders holding shares in the corporation
entitling
them to exercise at least a majority of the voting power, or such
greater
proportion of the voting power as may be required in the case of
a vote by
classes or series, or as may be required by the provisions of the
articles
of incorporation have voted in favor of the amendment is: [insert]
shares
in favor, or [insert]% of the voting
power
4.
Effective
date of filing (optional):
(must
not be later than 90 days after the certificate is filed)
5.
Officer
Signature
(required): /s/ [insert]
* If
any proposed amendment would alter or change any preference or any relative
or
other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure
to include any of the above information and submit the proper fees may cause
this filing to be rejected.
This
form must be accompanied by appropriate
fees.
1.1 Purpose.
The
purpose of the Plan is to provide additional incentive to employees, officers
and directors of Uluru Inc. ("Corporation"). It is intended that Awards granted
under the Plan strengthen the desire of such persons to remain in the employ
or
act as directors of the Corporation and stimulate their efforts on behalf of
the
Corporation.
1.2 Effective
Date; Term. The Plan is effective as of the date on which the Plan was adopted
by the Board, subject to approval of the stockholders within twelve months
before or after such date. No Award shall be granted under the Plan after the
close of business on the day immediately preceding the tenth anniversary
of the effective date of the Plan. Subject to other applicable provisions of
the
Plan, all Awards made under the Plan prior to such termination of the Plan
shall
remain in effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
1.3 Shares
Subject to the Plan. Subject to adjustments as provided in Article IX, the
number of shares of Stock that may be delivered, purchased or used for reference
purposes (with respect to SARs or Stock Units) with respect to Awards granted
under the Plan shall be 2,000,000 shares. If any Award, or portion of an Award,
under the Plan expires or terminates unexercised, becomes unexercisable or
is
forfeited or otherwise terminated, surrendered or canceled as to any shares
without the delivery of shares of Stock or other consideration, the shares
subject to such Award shall thereafter be available for further Awards under
the
Plan.
ARTICLE
II
DEFINITIONS
For
purposes of the Plan, the following terms shall be defined as set forth
below.
2.1 Administrator
means the Compensation Committee or any other committee which
is
designated by the Board as the "Administrator."
2.2 Award
means
any Stock Options (including ISOs and NSOs), SARs (including free-standing
and
tandem SARs), Restricted Stock Awards, Stock Units, or any combination of the
foregoing granted pursuant to the Plan, except, however, when the term is being
used under the Plan with respect to a particular category of grant in which
case
it shall only refer to that particular category of grant.
2.3 Board
means
the Board of Directors of the Corporation.
2.4 Code
means
the Internal Revenue Code of 1986, as amended.
2.5 Fair
Market
Value of the Stock on any given date means the average of the high and low
price
of a share of Stock, as traded on a national securities exchange.
2.6 Grant
Agreement means the agreement between the Corporation and the Participant
pursuant to which the Corporation authorizes an Award hereunder. Each Grant
Agreement entered into between the Corporation and a Participant with respect
to
an Award granted under the Plan shall contain such provisions, consistent with
the provisions of the Plan, as may be established by the
Administrator.
2.7 Grant
Date
means the date on which the Administrator formally acts to grant an Award to
a
Participant or such other date as the Administrator shall so designate at the
time of taking such formal action.
2.8 ISO
means any
Stock Option designated and qualified as an "incentive stock option" as defined
in Code section 422.
2.9 NSO
means any
Option that is not an ISO.
2.10 Option
means
any option to purchase shares of Stock granted under Article V.
2.10 Parent
means
a corporation, whether now or hereafter existing, within the meaning of the
definition of "parent corporation" provided in Code section 424(e), or any
successor to such definition.
2.11 Participant
means any person to whom any Award is granted pursuant to the Plan.
2.12 Restricted
Stock Award means any Award of shares of restricted Stock granted pursuant
to
Article VII of the Plan.
2.13 SAR
means a
stock appreciation right, as awarded under Article VI.
2.14 Stock
means
the voting common stock of the Corporation, subject to adjustments pursuant
to
the Plan.
2.15 Stock
Unit
means credits to a bookkeeping reserve account solely for accounting purposes,
where the amount of the credit shall equal the Fair Market Value of a share
of
Stock on the date of grant (unless the Administrator
provides otherwise in the Grant Agreement) and which shall be subsequently
increased or decreased to reflect the Fair Market Value of a share of Stock.
Stock Units do not require segregation of any of the Corporation's assets.
Stock
Units are awarded under Article VII.
2.16 Subsidiary
means any corporation or other entity (other than the Corporation) in any
unbroken chain of corporations or other entities, beginning with the
Corporation, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
ARTICLE
III
ADMINISTRATION
3.1 General.
The
Plan shall be administered by the Administrator. The Administrator's
determinations under the Plan (including without limitation determinations
of
the persons to receive Awards, the form, amount and timing of such Awards,
the
terms and provisions of such Awards and the agreements evidencing same) need
not
be uniform and may be made by the Administrator selectively among persons who
receive, or are eligible to receive, Awards under the Plan, whether or not
such
persons are similarly situated.
3.2 Duties.
The
Administrator shall have full power and authority to administer and interpret
the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Administrator deems necessary or advisable, all within the
Administrator's sole and absolute discretion. The Administrator shall have
full
power and authority to take all other actions necessary to carry out the purpose
and intent of the Plan, including, but not limited to, the authority to:
(a) construe
the
Plan and any Award under the Plan;
(b) select
the
officers and directors to whom Awards may be granted and the time or times
at
which Awards shall be granted;
(c) determine
the
number of shares of Stock to be covered by or used for reference purposes for
any Award;
(d) determine
and
modify from time to time the terms and conditions, including restrictions,
of
any Award (including provisions that would allow for cashless exercise of Awards
and/or reduction in the exercise price of outstanding Awards) and to approve
the
form of written instrument evidencing Awards;
(e) accelerate
or
otherwise change the time or times at which an Award becomes vested or when
an
Award may be exercised or becomes payable and to waive or accelerate the lapse,
in whole or in part, of any restriction or condition with respect to such Award,
including, but not limited to, any restriction or condition with respect to
the
vesting or exercisability of an Award following a Participant's termination
of
employment or death;
(f) impose
limitations on Awards, including limitations on transfer and repurchase
provisions; and
(g) modify,
extend or renew outstanding Awards, or accept the surrender of outstanding
Awards and substitute new Awards.
ARTICLE
IV
ELIGIBILITY
AND PARTICIPATION
4.1 Eligibility.
Officers, directors, employees and non-employee service providers of the
Corporation shall be eligible to participate in the Plan.
ARTICLE
V
STOCK
OPTIONS
5.1 General.
Subject to the other applicable provisions of the Plan, the Administrator may
from time to time grant to eligible Participants Awards of ISOs or NSOs. The
ISO
or NSO Awards granted shall be subject to the following terms and
conditions.
5.2 Grant
of
Option. The grant of an Option shall be evidenced by a Grant Agreement, executed
by the Corporation and the Participant, describing the number of shares of
Stock
subject to the Option, whether the Option is an ISO or NSO, the Exercise Price
of the Option, the vesting period for the Option and such other terms and
conditions that the Administrator deems, in it sole discretion, to be
appropriate, provided that such terms and conditions are not inconsistent with
the Plan.
5.3 Price.
The
price per share payable upon the exercise of each Option (the "Exercise Price")
shall be determined by the Administrator and set forth in the Grant Agreement;
provided, however, that in the case of ISOs, the Exercise Price shall not be
less than 100% of the Fair Market Value of the shares on the Grant
Date.
5.4 Payment.
Options may be exercised in whole or in part by payment of the Exercise Price
of
the shares to be acquired in accordance with the provisions of the Grant
Agreement, and/or such rules and regulations as the Administrator may prescribe,
and/or such determinations, orders, or decisions as the Administrator may
make.
5.5 Terms
of
Options. The term during which each Option may be exercised shall be determined
by the Administrator; provided, however, that in no event shall an ISO be
exercisable more than ten years from the date it is granted.
5.6 Reload
Options. The terms of an Option may provide for the automatic grant of a new
Option Award when the Exercise Price of the Option and/or any related tax
withholding obligation is paid by tendering shares of Stock.
5.7 Restrictions
on ISOs. ISO Awards granted under the Plan shall comply in all respects with
Code section 422 and, as such, shall meet the following additional
requirements:
(a) Grant
Date.
An ISO must be granted within ten (10) years of the earlier of the Plan's
adoption by the Board of Directors or approval by the Corporation's
shareholders.
(b) Exercise
Price and Term. The Exercise Price of an ISO shall not be less than 100% of
the
Fair Market Value of the shares on the date the Option is granted and the term
of the Option shall not exceed ten (10) years. Notwithstanding the immediately
preceding sentence, the Exercise Price of any ISO granted to a Participant
who
owns, within the meaning of Code section 422(b)(6), after application of the
attribution rules in Code section 424(d), more than ten percent (10%) of the
total combined voting power of all classes of shares of the Corporation, or
its
Parent or Subsidiary corporations, shall be not less than 110% of the Fair
Market Value of the Stock on the Grant Date and the term of such ISO shall
not
exceed five (5) years.
(c) Maximum
Grant. The aggregate Fair Market Value (determined as of the Grant Date) of
shares of Stock with respect to which all ISOs first become exercisable by
any
Participant in any calendar year under this or any other plan of the Corporation
and its Parent and Subsidiary corporations may not exceed $100,000 or such
other
amount as may be permitted from time to time under Code section 422. To the
extent that such aggregate Fair Market Value shall exceed $100,000, or other
applicable amount, such Options shall be treated as NSOs. In such case, the
Corporation may designate the shares of Stock that are to be treated as stock
acquired pursuant to the exercise of an ISO by issuing a separate certificate
for such shares and identifying the certificate as ISO shares in the stock
transfer records of the Corporation.
(d) Participant.
ISOs shall only be issued to employees of the Corporation, or of a Parent or
Subsidiary of the Corporation.
(e) Tandem
Options Prohibited. An ISO may not be granted in tandem with a NSO in such
a
manner that the exercise of one affects a Participant's right to exercise the
other.
(f) Designation.
No option shall be an ISO unless so designated by the Administrator at the
time
of grant or in the Grant Agreement evidencing such Option.
5.8 Exercisability.
Options shall be exercisable as provided in the Grant Agreement.
5.9 Transferability.
ISOs
shall be non-transferable. Except as provided in the Grant Agreement, NSOs
shall
not be assignable or transferable by the Participant, except by will or by
the
laws of descent and distribution.
ARTICLE
VI
STOCK
APPRECIATION RIGHTS
6.1 Award
of
SARs. Subject to the other applicable provisions of the Plan, the Administrator
may at any time and from time to time grant SARs to eligible Participants,
either on a free-standing basis (without regard to or in addition to the grant
of an Option) or on a tandem basis (related to the grant of an underlying
Option).
6.2 Restrictions
on Tandem SARs. ISOs may not be surrendered in connection with the exercise
of a
tandem SAR unless the Fair Market Value of the Stock subject to the ISO is
greater than the Exercise Price for such ISO. SARs granted in tandem with
Options shall be exercisable only to the same extent and subject to the same
conditions as the related Options are exercisable. The Administrator may, in
its
discretion, prescribe additional conditions to the exercise of any such tandem
SAR.
6.3 Amount
of
Payment Upon Exercise of SARs. A SAR shall entitle the Participant to receive,
subject to the provisions of the Plan and the Grant Agreement, a payment having
an aggregate value equal to the product of (i) the excess of (A) the Fair Market
Value on the exercise date of one share of Stock over
(B)
the base price per share specified in the Grant Agreement, times (ii) the number
of shares specified by the SAR, or portion thereof, which is exercised. In
the
case of exercise of a tandem SAR, such payment shall be made in exchange for
the
surrender of the unexercised related Option (or any portions thereof which
the
Participant from time to time determines to surrender for this
purpose).
6.4 Form
of
Payment Upon Exercise of SARs. Payment by the Corporation of the amount
receivable upon any exercise of a SAR may be made by the delivery of Stock
or
cash, or any combination of Stock and cash, as determined in the sole discretion
of the Administrator.
6.5 Transferability.
SARs
shall be transferable only as provided in the Grant Agreement.
ARTICLE
VII
RESTRICTED
STOCK AND STOCK UNITS
7.1 Grants.
Subject to the other applicable provisions of the Plan, the Administrator may
grant Restricted Stock or Stock Units to Participants in such amounts and for
such consideration, including no consideration or such minimum consideration
as
may be required by law, as it determines. Such Awards shall
be
made pursuant to a Grant Agreement.
7.2 Terms
and
Conditions. A Restricted Stock Award entitles the recipient to acquire shares
of
Stock and a Stock Unit Award entitles the recipient to be paid the Fair Market
Value of the Stock on the exercise date. Stock Units may be settled in Stock,
cash or a combination thereof, as determined by the Administrator. Restricted
Stock Awards and Stock Unit Awards are subject to vesting periods and other
restrictions and conditions as the Administrator may include in the Grant
Agreement.
(a) The
Grant
Agreement for each Restricted Stock Award shall specify the applicable
restrictions on such shares of Stock, the duration of such restrictions, and
the
times at which such restrictions shall lapse with respect
to all or a specified number of shares of Stock that are part of the Award.
Notwithstanding the foregoing, the Administrator may reduce or shorten the
duration of any restriction applicable to any shares of Stock awarded to any
Participant under the Plan.
(b) Share
certificates with respect to restricted shares of Stock may be issued at the
time of grant of the Restricted Stock Award, subject to forfeiture if the
restrictions do not lapse, or upon lapse of the restrictions.
If share certificates are issued at the time of grant of the Restricted Stock
Award, the certificates shall bear an appropriate legend with respect to the
restrictions applicable to such Restricted Stock Award (as described in Section
11.1) or, alternatively, the Participant may be required to deposit the
certificates with the Corporation during the period of any restriction thereon
and to execute a blank stock power or other instrument of transfer.
(c) The
extent of
the Participant's rights as a shareholder with respect to the Restricted Stock
shall be specified in the Grant Agreement.
7.4 Stock
Units.
(a) The
grant of
Stock Units shall be evidenced by a Grant Agreement that states the number
of
Stock Units evidenced thereby and the terms and conditions of such Stock
Units.
(b) Stock
Units
may be exercised in the manner described in the Grant Agreement.
(c) The
extent of
the Participant's rights as a shareholder with respect to the Stock Units shall
be specified in the Grant Agreement.
7.5 Transferability.
Unvested Restricted Stock Awards or Stock Units may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Grant Agreement.
ARTICLE
VIII
TAX
WITHHOLDING
8.1 Corporation's
Right to Demand Payment for Withholding.
(a) Subject
to
subparagraph (b), as a condition to taking any action otherwise required under
the Plan or any Grant Agreement, the Corporation shall have the right to require
assurance that the Participant will remit to the Corporation when required
an
amount sufficient to satisfy federal, state and local tax withholding
requirements. The Administrator may permit such withholding obligations to
be
satisfied through cash payment by the Participant, through the surrender of
shares of Stock which the Participant already
owns, through the surrender of shares of Stock to which the Participant is
otherwise entitled under the Plan or through any other method determined by
the
Administrator.
(b) If
a
Participant makes a disposition of shares of Stock acquired upon the exercise
of
an ISO within either two (2) years after the Option was granted or one (1)
year
after its exercise by the Participant, the Participant shall promptly notify
the
Corporation and the Corporation shall have the right to require the Participant
to pay to the Corporation an amount sufficient to satisfy federal, state and
local tax withholding requirements.
(a) In
the event
of any change in the capital structure or business of the Corporation by reason
of any stock dividend or extraordinary dividend, stock split or reverse stock
split, recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, non-cash distributions with respect to its
outstanding Stock, reclassification of the Corporation's capital stock, any
sale
or transfer of all or part of the Corporation's assets or business, or any
similar change affecting the Corporation's capital structure or business or
the
capital structure of any business of any Subsidiary, as determined by the
Administrator, if the Administrator determines that an adjustment is equitable,
then the Administrator may make such adjustments as it deems equitable with
respect to the Plan and Awards, including, without limitation, in: (i) the
number of shares of Stock that can be granted or used for reference purposes
pursuant to the Plan; (ii) the number and kind of shares or other securities
subject to any then outstanding Awards under the Plan; and (iii) the exercise
price, base price, or purchase price applicable to outstanding Awards under
the
Plan. The adjustment by the Administrator shall be final, binding and
conclusive.
(b) The
Administrator may cancel outstanding Awards, but not outstanding Stock or
Restricted Stock Awards, in connection with any merger, consolidation of the
Corporation, or any sale or transfer of all or part of the Corporation's assets
or business, or any similar event. The Administrator may determine to make
no
compensation whatsoever for any canceled Awards that are not in-the-money (as
hereinafter defined) or for any canceled Awards to the extent not vested. The
Corporation shall provide payment in cash or other property for the in-the-money
value of the vested portion of Awards that are in-the-money and that are
canceled as aforesaid. Awards are "in-the-money" only to the extent of their
then realizable market value, without taking into account the potential future
increase in the value of the Award (whether under Black-Scholes-type formulas
or
otherwise). The opinion by the Administrator of the in-the-money value of any
Award shall be final, binding and conclusive.
9.2 Substitution
of Options. In the event that, by reason of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation,
the
Board shall authorize the issuance or assumption
of a stock option or stock options in a transaction to which Code section 424(a)
applies, then, notwithstanding any other provision of the Plan, the
Administrator may grant options upon such terms and conditions as it may deem
appropriate for the purpose of assumption of the old option, or substitution
of
a new option for the old option, in conformity with the provisions of Code
section 424(a) and the rules and regulations thereunder, as they may be amended
from time to time.
ARTICLE
X
AMENDMENT
AND TERMINATION
10.1 Amendment.
The Board may amend the Plan at any time and from time to time, provided that
(i) no amendment shall deprive any person of any rights granted under the Plan
before the effective date of such amendment, without such person's consent;
and
(ii) amendments may be subject to shareholder approval to the extent needed
to
comply with applicable law and stock exchange requirements.
10.2 Termination.
The Board reserves the right to terminate the Plan in whole or in part at any
time, without the consent of any person granted any rights under the
Plan.
11.1 Restrictive
Legends. The Corporation may at any time place legends referencing any
restrictions described in the Grant Agreement and any applicable federal or
state securities law restrictions on all certificates representing shares of
Stock underlying an Award.
11.2 Compliance
with Governmental Regulations. Notwithstanding any provision of the Plan or
the
terms of any Grant Agreement entered into pursuant to the Plan, the Corporation
shall not be required to issue any shares hereunder prior to registration of
the
shares subject to the Plan under the Securities Act of 1933, as amended, or
the
Securities Exchange Act of 1934, as amended, if such registration shall be
necessary, or before compliance by the Corporation or any Participant with
any
other provisions of either of those acts or of regulations or rulings of the
Securities and Exchange Commission thereunder, or before compliance with other
federal and state laws and regulations and rulings thereunder, including the
rules any applicable securities exchange or quotation system.
11.3 No
Guarantee
of Employment. Participation in this Plan shall not be construed to confer
upon
any Participant the legal right to be retained in the employ of the Corporation
or give any person any right to any payment whatsoever, except to the extent
of
the benefits provided for hereunder.
11.4 Governing
Law. The provisions of this Plan shall be governed by, construed and
administered in accordance with applicable federal law; provided, however,
that
to the extent not in conflict with federal law, this Plan shall be governed
by,
construed and administered under the laws of Nevada, other than its laws
respecting choice of law.
11.5 Severability.
If any provision of the Plan shall be held invalid, the remainder of this Plan
shall not be affected thereby and the remainder of the Plan shall continue
in
force.
(Pursuant
to NRS 78.385 and 78.390 - After Issuance of
Stock)
1.
Name
of corporation:
Oxford
Ventures, Inc.
2.
The
articles have been amended as follows (provide article numbers,
if
available):
Article
I
has been further amended to change the name of the Corporation to Uluru Inc.
by
amending and restating in full Article One of the Articles of Incorporation
as
follows:
ARTICLE
I
The
name
of this corporation is Uluru Inc.
3.
The
vote by which the stockholders holding shares in the corporation
entitling
them to exercise at least a majority of the voting power, or such
greater
proportion of the voting power as may be required in the case of
a vote by
classes or series, or as may be required by the provisions of the
articles
of incorporation have voted in favor of the amendment is: [insert]
shares
in favor, or [insert]% of the voting
power
4.
Effective
date of filing (optional):
(must
not be later than 90 days after the certificate is filed)
5.
Officer
Signature
(required): /s/ [insert]
* If
any proposed amendment would alter or change any preference or any relative
or
other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure
to include any of the above information and submit the proper fees may cause
this filing to be rejected.
This
form must be accompanied by appropriate
fees.
AGREEMENT
AND PLAN OF MERGER
(this
“Agreement”), dated as of October __, 2005, by and among Oxford Ventures, Inc.,
a Nevada corporation (the “Parent”), Uluru Acquisition Corp., a Nevada
corporation (the “Acquisition Subsidiary”) and Uluru Inc., a Delaware
corporation (the “Company”). The Parent, the Acquisition Subsidiary and the
Company are each referred to individually as a “Party” and referred to
collectively herein as the “Parties.”
WHEREAS,
this Agreement contemplates a merger of the Acquisition Subsidiary with and
into
the Company with the Company as the surviving entity (the “Merger”). In the
Merger, the shareholders of the Company will receive common stock of the Parent
in exchange for their capital stock of the Company.
WHEREAS,
pursuant to the terms of a certain Securities Purchase Agreement, dated as
of
October [--], 2005 (the “Bridge Loan Agreement”), and related documents
(collectively with the Bridge Loan Agreement, the “Bridge Loan Documents”), the
Parent has loaned and will loan (the “Bridge Loan”) an aggregate of $10,700,000
to the Company, which will be deemed repaid in full at the Effective Time (as
defined below).
WHEREAS,
Parent, Acquisition Subsidiary, and the Company desire that the Merger qualifies
as a “plan of reorganization” under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the “Code”) and not subject the holders of equity
securities of the Company to tax liability under the Code.
NOW,
THEREFORE, in consideration of the representations, warranties and covenants
herein contained, and for other good and valuable consideration the receipt,
adequacy and sufficiency of which are hereby acknowledged, the Parties hereto,
intending legally to be bound, agree as follows.
ARTICLE
I
THE
MERGER
1.1The
Merger.
Upon
and subject to the terms and conditions of this Agreement, the Acquisition
Subsidiary shall merge with and into the Company at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Acquisition Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the “Surviving
Corporation”). The “Effective Time” shall be the later to occur of the time at
which articles of merger and other appropriate or required documents prepared
and executed in accordance with Nevada Revised Statutes Chapter 92A (the
“Articles of Merger”) are filed with the Secretary of State of Nevada and the
time at which a copy thereof is filed in accordance with the relevant provisions
of the Delaware General Corporation Law (the “DGCL”) with the Secretary of State
of Delaware. The Merger shall have the effects set forth in Section 92A.250
of
the Nevada Revised Statutes and Section 252 of the DGCL.
1.2The
Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place at the offices of Gottbetter & Partners, LLP in New York, New
York commencing at 9:00 a.m. local time on November [--], 2005, or, if all
of
the conditions to the obligations of the Parties to consummate the transactions
contemplated hereby have not been satisfied or waived by such date, on such
mutually agreeable later date as soon as practicable (and in any event not
later
than three (3) business days) after the satisfaction or waiver of all conditions
(excluding the delivery of any documents to be delivered at the Closing by
any
of the Parties) set forth in Article V hereof (the “Closing Date”).
(a) the
Company shall deliver to the Parent and the Acquisition Subsidiary the various
certificates, instruments and documents referred to in Section 5.2;
(b) the
Parent and the Acquisition Subsidiary shall deliver to the Company the various
certificates, instruments and documents referred to in Section 5.3;
(c) the
Surviving Corporation shall file with the Secretary of State of the States
of
Delaware and Nevada the Articles of Merger;
(d) each
of
the shareholders of record of the Company immediately prior to the Effective
Time (the “Company Shareholders”) shall deliver to the Parent the certificate(s)
representing his, her or its Company Shares (as defined below);
(e) the
Parent shall deliver certificates for the Initial Shares (as defined below)
to
each Company Shareholder in accordance with Section 1.5;
(f) the
Parent shall deliver to the Company (i) evidence that the Parent’s Board of
Directors is authorized to consist of five individuals, (ii) the resignations
of
all individuals who served as directors and/or officers of the Parent
immediately prior to the Closing Date, (iii) evidence of the appointment of
five
directors to serve immediately following the Closing Date, four of whom shall
have been designated by the Company and one of whom shall have been designated
by Highgate House Funds, Ltd. and Prentice Capital Management, LP, and (v)
evidence of the appointment of such executive officers of the Parent to serve
immediately following the Closing Date as shall have been designated by the
Company; and
(g) the
Parent, Kerry Gray (the “Indemnification Representative”) and Gottbetter &
Partners, LLP (the “Escrow Agent”) shall execute and deliver the Escrow
Agreement in substantially the form attached hereto as Exhibit
A
(the
“Escrow Agreement”) and the Parent shall deliver to the Escrow Agent a
certificate for the Escrow Shares (as defined below) being placed in escrow
on
the Closing Date pursuant to Section 1.9.
1.4Additional
Actions.
If
at any
time after the Effective Time the Surviving Corporation shall consider or be
advised that any deeds, bills of sale, assignments or assurances or any other
acts or things are necessary, desirable or proper (a) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, its right, title
or interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of either the Company or Acquisition Subsidiary or (b)
otherwise to carry out the purposes of this Agreement, the Surviving Corporation
and its proper officers and directors or their designees shall be authorized
(to
the fullest extent allowed under applicable law) to execute and deliver, in
the
name and on behalf of either the Company or Acquisition Subsidiary, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Company or Acquisition Subsidiary, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title
or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of the Company or Acquisition Subsidiary, as applicable,
and otherwise to carry out the purposes of this Agreement.
1.5Conversion
of Shares.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
any Party or the holder of any of the following securities:
(a) Each
share of common stock, $.01 par value per share, of the Company (“Company
Shares”) issued and outstanding immediately prior to the Effective Time (other
than Company Shares owned beneficially by the Parent or the Acquisition
Subsidiary and Dissenting Shares (as defined below)) shall be converted into
and
represent the right to receive (subject to the provisions of Section 1.9) such
number of shares of common stock, $0.001 par value per share, of the Parent
(“Parent Common Stock”) as is equal to the Common Conversion Ratio (as defined
below). An aggregate of 11,000,000 shares (the “Merger Shares”) of Parent Common
Stock shall be issued to the shareholders of the Company in connection with
the
Merger. Any reverse splits that occur prior to the Effective Time shall not
affect the amount of the Merger Shares.
(b) The
“Common Conversion Ratio” shall be obtained by dividing (i) 11,000,000 shares of
Parent Common Stock by (ii) the total number of outstanding Company Shares
immediately prior to the Effective Time on a diluted basis after giving effect
to the exercise of all outstanding options, warrants of convertible securities,
if any.Shareholders
of record of the Company as of October [--], 2005 (the “Indemnifying
Shareholders”) shall be entitled to receive immediately95%
of
the shares of Parent Common Stock into which their Company Shares were converted
pursuant to this Section 1.5 (the “Initial Shares”); the remaining5%of
the
shares of Parent Common Stock into which their Company Shares were converted
pursuant to this Section 1.5, rounded to the nearest whole number (with .5
shares rounded upward to the nearest whole number) (the “Escrow Shares”), shall
be deposited in escrow pursuant to Section 1.9 and shall be held and disposed
of
in accordance with the terms of the Escrow Agreement. The Initial Shares and
the
Escrow Shares shall together be referred to herein as the “Merger
Shares.”
(c) Each
issued and outstanding share of Acquisition Subsidiary common stock shall be
converted into one validly issued, fully paid and nonassessable share of
Surviving Corporation common stock.
1.6Dissenting
Shares.
(a) For
purposes of this Agreement, “Dissenting Shares” means Company Shares held as of
the Effective Time by a Company Shareholder who has not voted such Company
Shares in favor of the adoption of this Agreement and the Merger and with
respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 262 of the DGCL and not effectively withdrawn or
forfeited prior to the Effective Time. Dissenting Shares shall not be converted
into or represent the right to receive the Merger Shares, unless such Company
Shareholder’s right to appraisal shall have ceased in accordance with Section
262 of the DGCL. If such Company Shareholder has so forfeited or withdrawn
his,
her or its right to appraisal of Dissenting Shares, then, (i) as of the
occurrence of such event, such holder’s Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the Merger Shares issuable in respect of such Company Shares pursuant to
Section 1.5, and (ii) promptly following the occurrence of such event,
the Parent shall deliver to such Company Shareholder a certificate representing
95% of the Merger Shares to which such holder is entitled pursuant to
Section 1.5 (which shares shall be considered Initial Shares for all
purposes of this Agreement) and shall deliver to the Escrow Agent a certificate
representing the remaining 5% of the Merger Shares to which such holder is
entitled pursuant to Section 1.5 (which shares shall be considered Escrow
Shares for all purposes of this Agreement).
(b) The
Company shall give the Parent prompt notice of any written demands for appraisal
of any Company Shares, withdrawals of such demands, and any other instruments
that relate to such demands received by the Company. The Company shall not,
except with the prior written consent of the Parent, make any payment with
respect to any demands for appraisal of Company Shares or offer to settle or
settle any such demands.
1.7Fractional
Shares.
No
certificates or scrip representing fractional Initial Shares shall be issued
to
Company Shareholders on the surrender for exchange of certificates that
immediately prior to the Effective Time represented Company Shares converted
into Merger Shares pursuant to Section 1.5 (“Certificates”) and such Company
Shareholders shall not be entitled to any voting rights, rights to receive
any
dividends or distributions or other rights as a stockholder of the Parent with
respect to any fractional Initial Shares that would have otherwise been issued
to such Company Shareholders. In lieu of any fractional Initial Shares that
would have otherwise been issued, each former Company Shareholder that would
have been entitled to receive a fractional Initial Share shall, on proper
surrender of such person’s Certificates, receive such whole number of Initial
Shares as is equal to the precise number of Initial Shares to which such Company
Shareholder would be entitled, rounded up or down to the nearest whole number
(with a fractional interest equal to .5 rounded upward to the nearest whole
number); provided that each such Company Shareholder shall receive at least
one
Initial Share.
1.8Options
and Warrants.
The
Company shall cause the termination, as of the Effective Time, of any and all
outstanding warrants and options to purchase capital stock of the Company which
remain unexercised (each “Options” or “Warrants”).
1.9Escrow.
On the
Closing Date, the Parent shall deliver to the Escrow Agent a certificate (issued
in the name of the Escrow Agent or its nominee) representing the Escrow Shares,
as described in Section 1.5, for the purpose of securing the
indemnification obligations of the Indemnifying Shareholders set forth in this
Agreement. The Escrow Shares shall be held by the Escrow Agent under the Escrow
Agreement, in substantially the form set forth in Exhibit A attached hereto,
pursuant to the terms thereof. The Escrow Shares shall be held as a trust fund
and shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of the Escrow
Agreement.
(b) The
Bylaws of the Company in effect immediately prior to the Effective Time shall
be
the Bylaws of the Surviving Corporation until duly amended or
repealed.
1.11No
Further Rights.
From
and after the Effective Time, no Company Shares shall be deemed to be
outstanding, and holders of Certificates shall cease to have any rights with
respect thereto, except as provided herein or by law.
1.12Closing
of Transfer Books.
At the
Effective Time, the stock transfer books of the Company shall be closed and
no
transfer of Company Shares shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Parent or the Surviving Corporation,
they shall be cancelled and exchanged for Initial Shares in accordance with
Section 1.5, subject to Section 1.9 and to applicable law in the case
of Dissenting Shares.
1.13Post-Closing
Adjustment.
In the
event that, during the period commencing from the Closing Date and ending on
the
second anniversary of the Closing Date, the Company (or its controlling
shareholders immediately prior to the Merger) (the “Controlling Company
Shareholders”) incurs any Loss with respect to, in connection with, or arising
from any Parent Liabilities, then promptly following the filing by the Parent
with the Securities and Exchange Commission (the “SEC”) of a quarterly report
relating to the most recent completed quarter for which such determination
has
been made, the Parent shall issue to the Company Shareholders and/or their
designees such number of shares of Parent Common Stock as would result from
dividing (x) the whole dollar amount representing such Losses by (y) the VWAP
of
the Company’s common stock for the five (5) Trading Days immediately prior to
the date such Loss is incurred. The limit on the aggregate number of shares
of
Parent Common Stock issuable under this Section 1.13 shall be 2,000,000 shares.
As
used
in this Section 1.13: (a) “Loss” shall mean any and all costs and expenses,
including reasonable attorneys’ fees, court costs, reasonable accountants’ fees,
and damages and losses, net of any insurance proceeds actually received by
the
party suffering the Loss with respect thereto; (b) “Claims” shall include, but
are not limited to, any claim, notice, suit, action, investigation, other
proceedings (whether actual or threatened); and (c) “Parent Liabilities” shall
mean all Claims against and liabilities, obligations or indebtedness of any
nature whatsoever of the Parent, accruing on or before the Closing Date (whether
primary, secondary, direct, indirect, liquidated, unliquidated or contingent,
matured or unmatured), including, but not limited to (i) any breach by the
Parent or the Acquisition Subsidiary of any of their respective representations
or warranties set forth in Article III herein, (ii) any litigation threatened,
pending or for which a basis exists, that has resulted or may result in the
entry of judgment in damages or otherwise against the Parent or any Subsidiary;
(iii) any and all outstanding debts owed by the Parent or any Subsidiary; (iv)
any and all internal or employee related disputes, arbitrations or
administrative proceedings threatened, pending or otherwise outstanding, (v)
any
and all liens, foreclosures, settlements, or other threatened, pending or
otherwise outstanding financial, legal or similar obligations of the Parent
or
any Subsidiary, as such Liabilities are determined by the Parent’s independent
auditors, on a quarterly basis, and (vi) all fees and expenses incurred in
connection with effecting the adjustments contemplated by this Section
1.13.
“Trading
Day”
means
any day on which the Parent Common Stock is listed or quoted for trading on
a
Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Parent Common Stock are listed
or quoted for trading on the date in question: the OTC Bulletin Board, the
Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange
or the Nasdaq National Market.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Parent Common Stock are then listed or quoted on a Trading
Market, the daily volume weighted average price of the Parent Common Stock
for
such date (or the nearest preceding date) on the Trading Market on which the
Parent Common Stock are then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern
Time); (b) if the Parent Common Stock are not then listed or quoted on a Trading
Market and if prices for the Parent Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Parent Common Stock
for
such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if
the
Parent Common Stock are not then listed or quoted on the OTC Bulletin Board
and
if prices for the Parent Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Parent Common Stock so reported; or
(d)
in all other cases, the fair market value of a share of Parent Common Stock
as
determined by an independent appraiser selected in good faith by the
Parties.
1.14Exemption
From Registration.
Parent
and the Company intend that the shares of Parent Common Stock to be issued
pursuant to Section 1.5 hereof or upon exercise of options exchanged
pursuant to Section 1.8 hereof in each case in connection with the Merger will
be issued in a transaction exempt from registration under the Securities Act
by
reason of section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and/or Rule 506 of Regulation D promulgated by the SEC
thereunder.
The
Company represents and warrants to the Parent that the statements contained
in
this Article II are true and correct, except as set forth in the disclosure
schedule provided by the Company to the Parent on the date hereof and accepted
in writing by the Parent (the “Disclosure Schedule”). The Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article II, and except to the extent that it
is clear from the context thereof that such disclosure also applies to any
other
paragraph, the disclosures in any paragraph of the Disclosure Schedule shall
qualify only the corresponding paragraph in this Article II.For
purposes of this Article II, the phrase “to the knowledge of the Company”
or any phrase of similar import shall be deemed to refer to the actual knowledge
of Kerry P. Gray, as well as any other knowledge which Kerry P. Gray would
have
possessed had he made reasonable inquiry with respect to the matter in
question.
2.1Organization,
Qualification and Corporate Power.
The
Company is a corporation duly organized, validly existing and in corporate
and
tax good standing under the laws of the State of Delaware. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except
where
the failure to be so qualified or in good standing, individually or in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect (as defined below). The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
furnished or made available to the Parent complete and accurate copies of its
Certificate of Incorporation and Bylaws. The Company is not in default under
or
in violation of any provision of its Certificate of Incorporation, as amended
to
date, or its Bylaws, as amended to date. For purposes of this Agreement,
“Company Material Adverse Effect” means a material adverse effect on the assets,
business, condition (financial or otherwise), results of operations or future
prospects of the Company.
2.2Capitalization.
The
authorized capital stock of the Company consists of (a) 3,000 shares of common
stock, $.01 par value (“Company Shares”). As of the date of this Agreement,
2,200 Company Shares were issued and outstanding, and no Company Shares were
held in the treasury of the Company. Section 2.2 of the Disclosure Schedule
sets forth a complete and accurate list of (i) all shareholders of the
Company, indicating the number and class of Company Shares held by each
shareholder, (ii) all outstanding Options and Warrants, indicating
(A) the holder thereof, (B) the number of Company Shares subject to
each Option and Warrant, (C) the exercise price, date of grant, vesting
schedule and expiration date for each Option or Warrant, and (D) any terms
regarding the acceleration of vesting, and (iii) all stock option plans and
other stock or equity-related plans of the Company. All of the issued and
outstanding Company Shares are, and all Company Shares that may be issued upon
exercise of Options or Warrants will be (upon issuance in accordance with their
terms), duly authorized, validly issued, fully paid, nonassessable and free
of
all preemptive rights. Other than the Options and Warrants listed in
Section 2.2 of the Disclosure Schedule, there are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance or redemption of any of its capital stock. There are no outstanding
or
authorized stock appreciation, phantom stock or similar rights with respect
to
the Company. There are no agreements to which the Company is a party or by
which
it is bound with respect to the voting (including without limitation voting
trusts or proxies), registration under the Securities Act, or sale or transfer
(including without limitation agreements relating to pre-emptive rights, rights
of first refusal, co-sale rights or “drag-along” rights) of any securities of
the Company. To the knowledge of the Company, there are no agreements among
other parties, to which the Company is not a party and by which it is not bound,
with respect to the voting (including without limitation voting trusts or
proxies) or sale or transfer (including without limitation agreements relating
to rights of first refusal, co-sale rights or “drag-along” rights) of any
securities of the Company. All of the issued and outstanding Company Shares
were
issued in compliance with applicable federal and state securities
laws.
2.3Authorization
of Transaction.
The
Company has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
by the Company of this Agreement and, subject to the adoption of this Agreement
and the approval of the Merger by a majority of the votes represented by the
outstanding Company Shares entitled to vote on this Agreement and the Merger
(the “Requisite Company Shareholder Approval”), the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized
by
all necessary corporate action on the part of the Company. Without limiting
the
generality of the foregoing, the Board of Directors of the Company
(i) determined that the Merger is fair and in the best interests of the
Company and its shareholders, (ii) adopted this Agreement in accordance
with the provisions of the DGCL, and (iii) directed that this Agreement and
the Merger be submitted to the shareholders of the Company for their adoption
and approval and resolved to recommend that the shareholders of Company vote
in
favor of the adoption of this Agreement and the approval of the Merger. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms.
2.4Noncontravention.
Subject
to the filing of the Articles of Merger as required by the DGCL and the Nevada
Revised Statutes, neither the execution and delivery by the Company of this
Agreement, nor the consummation by the Company of the transactions contemplated
hereby, will (a) conflict with or violate any provision of the Certificate
of Incorporation or Bylaws of the Company, as amended to date, Bylaws or other
organizational document of any Subsidiary (as defined below), (b) require
on the part of the Company or any Subsidiary any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a “Governmental Entity”), (c) conflict with, result in
a breach of, constitute (with or without due notice or lapse of time or both)
a
default under, result in the acceleration of obligations under, create in any
party the right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or
to
which any of their assets is subject, except for (i) any conflict, breach,
default, acceleration, termination, modification or cancellation which,
individually or in the aggregate, would not have a Company Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby or (ii) any notice, consent or waiver the absence of
which, individually or in the aggregate, would not have a Company Material
Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby, (d) result in the imposition of any
Security Interest (as defined below) upon any assets of the Company or any
Subsidiary or (e) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company, any Subsidiary or any of their
properties or assets. For purposes of this Agreement: “Security Interest” means
any mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law), other than
(i) mechanic’s, materialmen’s, and similar liens, (ii) liens arising
under worker’s compensation, unemployment insurance, social security,
retirement, and similar legislation, and (iii) liens on goods in transit
incurred pursuant to documentary letters of credit, in each case arising in
the
Ordinary Course of Business (as defined below) of the Company and not material
to the Company; and “Ordinary Course of Business” means the ordinary course of
the Company’s business, consistent with past custom and practice (including with
respect to frequency and amount).
(a) There
is
no corporation, partnership, joint venture or other entity in which the Company
has, directly or indirectly, an equity interest representing 50% or more of
the
capital stock thereof or other equity interests therein (a
“Subsidiary”).
(b) The
Company does not control directly or indirectly or have any direct or indirect
equity participation or similar interest in any corporation, partnership,
limited liability company, joint venture, trust or other business association
which is not a Subsidiary.
2.6Intentionally
Left Blank.
2.7Intentionally
Left Blank..
2.8Undisclosed
Liabilities.
The
Company has no liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for contractual and other liabilities in connection with the
acquisition of certain assets from Access Pharmaceuticals Inc. pursuant to
transactions expected in connection herewith or incurred in the Ordinary Course
of Business which are not required by GAAP to be reflected on a balance
sheet.
2.9Tax
Matters.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i)“Taxes”
means all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government,
or
any agency thereof, or other political subdivision of the United States or
any
such government, and any interest, fines, penalties, assessments or additions
to
tax resulting from, attributable to or incurred in connection with any tax
or
any contest or dispute thereof.
(ii)“Tax
Returns” means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes.
(b) The
Company is a start-up entity and has not yet filed nor has it been required
to
file any Tax Returns. The Company has no actual or potential liability for
any
Tax obligation of any taxpayer (including without limitation any affiliated
group of corporations or other entities that included the Company during a
prior
period) other than the Company. All Taxes that the Company is or was required
by
law to withhold or collect have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental Entity.
(c) The
Company has not been informed by any jurisdiction that the jurisdiction believes
that the Company was required to file any Tax Return that was not filed. The
Company has not waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to a Tax assessment or
deficiency.
(d) The
Company has not taken any action or knows of any fact, agreement, plan or other
circumstances that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
2.10Assets.
The
Company owns or leases all tangible assets necessary for the conduct of its
businesses as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from material defects, has been maintained
in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used. No asset of the Company (tangible or intangible)
is
subject to any Security Interest, except as otherwise listed in Section 2.10
of
the Disclosure Schedule.
2.11Owned
Real Property.
The
Company does not own any real property.
2.12Real
Property Leases.
Section 2.12 of the Disclosure Schedule lists all real property leased or
subleased to or by the Company or any Subsidiary and lists the term of such
lease, any extension and expansion options, and the rent payable thereunder.
The
Company has delivered or made available to the Parent complete and accurate
copies of the leases and subleases listed in Section 2.12 of the Disclosure
Schedule. With respect to each lease and sublease listed in Section 2.12 of
the Disclosure Schedule:
(a) the
lease
or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease
or sublease will continue to be legal, valid, binding, enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing;
(c) neither
the Company nor any Subsidiary nor, to the knowledge of the Company, any other
party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Company, is threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a breach or default by the Company or any
Subsidiary or, to the knowledge of the Company, any other party under such
lease
or sublease;
(d) neither
the Company nor any Subsidiary has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
and
(e) the
Company is not aware of any Security Interest, easement, covenant or other
restriction applicable to the real property subject to such lease, except for
recorded easements, covenants and other restrictions which do not materially
impair the current uses or the occupancy by the Company or a Subsidiary of
the
property subject thereto.
The
Company owns or has the right to use all Intellectual Property (as defined
below) necessary (i) to use, manufacture, market and distribute the products
manufactured, marketed, sold or licensed, and to provide the services provided,
by the Company to other parties (together, the “Customer Deliverables”) and
(ii) to operate the internal systems of the Company that are material to
its business or operations, including, without limitation, computer hardware
systems, software applications and embedded systems (the “Internal Systems”; the
Intellectual Property owned by or licensed to the Company and incorporated
in or
underlying the Customer Deliverables or the Internal Systems is referred to
herein as the “Company Intellectual Property”). Each item of Company
Intellectual Property will be owned or available for use by the Surviving
Corporation immediately following the Closing on substantially identical terms
and conditions as it was immediately prior to the Closing. The Company has
taken
all reasonable measures to protect the proprietary nature of each item of
Company Intellectual Property. To the knowledge of the Company, (a) no other
person or entity has any rights to any of the Company Intellectual Property
owned by the Company except pursuant to agreements or licenses entered into
by
the Company and such person in the ordinary course, and (b) no other person
or
entity is infringing, violating or misappropriating any of the Company
Intellectual Property. For purposes of this Agreement, “Intellectual Property”
means all (i) patents and patent applications, (ii) copyrights and registrations
thereof, (iii) computer software, data and documentation, (iv) trade secrets
and
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(v) trademarks, service marks, trade names, domain names and applications and
registrations therefor and (vi) other proprietary rights relating to any of
the
foregoing.
(a) Section
2.14 of the Disclosure Schedule lists the following agreements (written or
oral)
to which the Company is a party as of the date of this Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties providing for lease payments in excess of $50,000
per
annum or having a remaining term longer than 12 months;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for
performance over a period of more than one year, (B) which involves more
than the sum of $50,000, or (C) in which the Company has granted
manufacturing rights, “most favored nation” pricing provisions or exclusive
marketing or distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party;
(iii) any
agreement establishing a partnership or joint venture;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $50,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement concerning confidentiality or noncompetition;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any officer, director or stockholder of the Company or
any
affiliate (an “Affiliate”), as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), thereof;
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Company Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Company to indemnify
any
other party thereto (excluding indemnities contained in agreements for the
purchase, sale or license of products entered into in the Ordinary Course of
Business); and
(x) any
other
agreement (or group of related agreements) either involving more than $50,000
or
not entered into in the Ordinary Course of Business.
(b) The
Company has delivered or made available to the Parent a complete and accurate
copy of each agreement listed in Section 2.14 of the Disclosure Schedule.
With respect to each agreement so listed: (i) the agreement is legal,
valid, binding and enforceable and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in
full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing; and (iii) neither
the Company nor, to the knowledge of the Company, any other party, is in breach
or violation of, or default under, any such agreement, and no event has
occurred, is pending or, to the knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute
a
breach or default by the Company or any Subsidiary or, to the knowledge of
the
Company, any other party under such contract.
2.15Accounts
Receivable.
The
Company has no accounts receivable.
2.16Powers
of Attorney.
There
are no outstanding powers of attorney executed on behalf of the
Company.
2.17Insurance.
Section 2.17 of the Disclosure Schedule lists each insurance policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability and automobile insurance
policies and bond and surety arrangements) to which the Company or any
Subsidiary is a party. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or owning assets
similar to those of the Company and the Subsidiaries. There is no material
claim
pending under any such policy as to which coverage has been questioned, denied
or disputed by the underwriter of such policy. All premiums due and payable
under all such policies have been paid, neither the Company nor any Subsidiary
may be liable for retroactive premiums or similar payments, and the Company
and
the Subsidiaries are otherwise in compliance in all material respects with
the
terms of such policies. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any such policy.
Each such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing.
2.18Litigation.As
of the
date of this Agreement, there is no action, suit, proceeding, claim, arbitration
or investigation before any Governmental Entity or before any arbitrator (a
“Legal Proceeding”) which is pending or has been threatened in writing against
the Company which (a) seeks either damages or equitable relief or (b) if
determined adversely to the Company could have, individually or in the
aggregate, a Company Material Adverse Effect.
2.19Warranties.
No
service sold or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty, right of credit or other indemnity other than the applicable
standard terms and conditions of sale of the Company or the appropriate
Subsidiary.
2.20Employees.
(a) Section
2.20 of the Disclosure Schedule contains a list of all employees of the Company
along with the position and the annual rate of compensation of each such person.
Each current employee of the Company has entered into a confidentiality/
assignment of inventions agreement with the Company, a copy or form of which
has
previously been delivered to the Parent. Section 2.20 of the Disclosure Schedule
contains a list of all employees of the Company who are a party to a
non-competition agreement with the Company; copies of such agreements have
previously been delivered to the Parent. To the knowledge of the Company, no
key
employee or group of employees has any plans to terminate employment with the
Company.
(b) The
Company is not a party to or bound by any collective bargaining agreement,
nor
has it experienced any strikes, grievances, claims of unfair labor practices
or
other collective bargaining disputes. The Company has no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of
the
Company. To the knowledge of the Company there are no circumstances or facts
which could individually or collectively give rise to a suit based on
discrimination of any kind.
2.21Employee
Benefits.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i)“Employee
Benefit Plan” means any “employee pension benefit plan” (as defined in
Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii)“ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
(iii)“ERISA
Affiliate” means any entity which is, or at any applicable time was, a member of
(1) a controlled group of corporations (as defined in Section 414(b)
of the Code), (2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the
Company.
(b) Section 2.21(b)
of the Disclosure Schedule contains a complete and accurate list of all Employee
Benefit Plans maintained, or contributed to, by the Company or any ERISA
Affiliate. Complete and accurate copies of (i) all Employee Benefit Plans
which have been reduced to writing, (ii) written summaries of all unwritten
Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual reports filed
on IRS Form 5500, 5500C or 5500R and (for all funded plans) all plan financial
statements for the last five plan years for each Employee Benefit Plan, have
been delivered or made available to the Parent. Each Employee Benefit Plan
has
been administered in all material respects in accordance with its terms and
each
of the Company and the ERISA Affiliates has in all material respects met its
obligations with respect to such Employee Benefit Plan and has made all required
contributions thereto. The Company, each ERISA Affiliate and each Employee
Benefit Plan are in compliance in all material respects with the currently
applicable provisions of ERISA and the Code and the regulations thereunder
(including without limitation Section 4980 B of the Code, Subtitle K,
Chapter 100 of the Code and Sections 601 through 608 and Section 701
et seq. of ERISA). All filings and reports as to each Employee Benefit Plan
required to have been submitted to the Internal Revenue Service or to the United
States Department of Labor have been duly submitted.
(c) To
the
knowledge of the Company, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(d) All
the
Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date
of
its most recent determination letter or application therefor in any respect,
and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required
to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been
tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(e) Neither
the Company nor any ERISA Affiliate has ever maintained an Employee Benefit
Plan
subject to Section 412 of the Code or Title IV of ERISA.
(f) At
no
time has the Company or any ERISA Affiliate been obligated to contribute to
any
“multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(g) There
are
no unfunded obligations under any Employee Benefit Plan providing benefits
after
termination of employment to any employee of the Company (or to any beneficiary
of any such employee), including but not limited to retiree health coverage
and
deferred compensation, but excluding continuation of health coverage required
to
be continued under Section 4980B of the Code or other applicable law and
insurance conversion privileges under state law. The assets of each Employee
Benefit Plan which is funded are reported at their fair market value on the
books and records of such Employee Benefit Plan.
(h) No
act or
omission has occurred and no condition exists with respect to any Employee
Benefit Plan maintained by the Company or any ERISA Affiliate that would subject
the Company or any ERISA Affiliate to (i) any material fine, penalty, tax or
liability of any kind imposed under ERISA or the Code or (ii) any contractual
indemnification or contribution obligation protecting any fiduciary, insurer
or
service provider with respect to any Employee Benefit Plan.
(i) No
Employee Benefit Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of Section 501(c)(9)
of the Code.
(j) Each
Employee Benefit Plan is amendable and terminable unilaterally by the Company
at
any time without liability to the Company as a result thereof and no Employee
Benefit Plan, plan documentation or agreement, summary plan description or
other
written communication distributed generally to employees by its terms prohibits
the Company from amending or terminating any such Employee Benefit
Plan.
(k) Section
2.21(k) of the Disclosure Schedule discloses each: (i) agreement with any
shareholder, director, executive officer or other key employee of the Company
or
any Subsidiary (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
the
Company of the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee or
(C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Company that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person’s
“parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Company, including without limitation
any stock option plan, stock appreciation right plan, restricted stock plan,
stock purchase plan, severance benefit plan or Employee Benefit Plan, any of
the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(a) The
Company has complied with all applicable Environmental Laws (as defined below),
except for violations of Environmental Laws that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. There is no pending or, to the knowledge of the
Company, threatened civil or criminal litigation, written notice of violation,
formal administrative proceeding, or investigation, inquiry or information
request by any Governmental Entity, relating to any Environmental Law involving
the Company, except for litigation, notices of violations, formal administrative
proceedings or investigations, inquiries or information requests that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. For purposes of this
Agreement, “Environmental Law” means any federal, state or local law, statute,
rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation,
administrative decision or order pertaining to (i) treatment, storage,
disposal, generation and transportation of industrial, toxic or hazardous
materials or substances or solid or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous materials or substances, or solid or hazardous waste, including
without limitation emissions, discharges, injections, spills, escapes or dumping
of pollutants, contaminants or chemicals; (v) the protection of wild life,
marine life and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels, containers, abandoned or
discarded barrels, and other closed receptacles; (vii) health and safety of
employees and other persons; and (viii) manufacturing, processing, using,
distributing, treating, storing, disposing, transporting or handling of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms “release” and “environment” shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (“CERCLA”).
(b) To
the
knowledge of the Company there is no material environmental liability with
respect to any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any
Subsidiary.
2.23Legal
Compliance.
The
Company and the conduct and operations of its businesses, are in compliance
with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for
any
violations or defaults that, individually or in the aggregate, have not had
and
would not reasonably be expected to have a Company Material Adverse
Effect.
2.24Customers
and Suppliers.
The
Company has no customers or suppliers.
2.25Permits.
Section
2.25 of the Disclosure Schedule sets forth a list of all permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
(including without limitation those issued or required under Environmental
Laws
and those relating to the occupancy or use of owned or leased real property)
(“Permits”) issued to or held by the Company. Such listed Permits are the only
Permits that are required for the Company to conduct its businesses as presently
conducted except for those the absence of which, individually or in the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. Each such Permit is in full force and effect and,
to
the knowledge of the Company, no suspension or cancellation of such Permit
is
threatened and there is no basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in full force and
effect immediately following the Closing.
2.26Certain
Business Relationships With Affiliates.
Except
as listed in Section 2.26 of the Disclosure Schedule, no Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is
used in the business of the Company, (b) has any claim or cause of action
against the Company, or (c) owes any money to, or is owed any money by, the
Company. Section 2.26 of the Disclosure Schedule describes any transactions
involving the receipt or payment in any fiscal year between the Company and
any
Affiliate thereof.
To the
knowledge of the Company, no officer, director or stockholder of Company or
any
“affiliate” (as such term is defined in Rule 12b-2 under the Exchange Act)
or “associate” (as such term is defined in Rule 405 under the Securities Act) of
any such person has had, either directly or indirectly, (a) an interest in
any
person that (i) furnishes or sells services or products that are furnished
or
sold or are proposed to be furnished or sold by the Company or (ii) purchases
from or sells or furnishes to the Company any goods or services, or (b) a
beneficial interest in any contract or agreement to which Company is a party
or
by which it may be bound or affected. The Company has not extended or maintained
credit, arranged for the extension of credit, or renewed an extension of credit,
in the form of a personal loan to or for any director or executive officer
(or
equivalent thereof) of the Company.
2.27Compliance
with Laws.
The
Company:
(a) has
not,
and the past and present officers, directors and Affiliates of the Company
have
not, been the subject of, nor does any officer or director of the Company have
any reason to believe that Company or any of its officers, directors or
Affiliates will be the subject of, any civil or criminal proceeding or
investigation by any federal or state agency alleging a violation of securities
laws;
(b) has
not
been the subject of any voluntary or involuntary bankruptcy proceeding, nor
has
it been a party to any material litigation;
(c) has
not,
and the past and present officers, directors and Affiliates have not, been
the
subject of, nor does any officer or director of the Company have any reason
to
believe that the Company or any of its officers, directors or affiliates will
be
the subject of, any civil, criminal or administrative investigation or
proceeding brought by any federal or state agency having regulatory authority
over such entity or person;
2.28Brokers’
Fees.
The
Company has no liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions contemplated by this
Agreement, except as listed in Section 2.28 of the Disclosure
Schedule.
2.29Books
and Records.
The
minute books and other similar records of the Company contain complete and
accurate records of all actions taken at any meetings of the Company’s
shareholders, Board of Directors or any committee thereof and of all written
consents executed in lieu of the holding of any such meeting. The books and
records of the Company accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of the
Company and have been maintained in accordance with good business and
bookkeeping practices.
2.30Disclosure.
No
representation or warranty by the Company contained in this Agreement, and
no
statement contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered or to be delivered by or on behalf
of
the Company pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in
order to make the statements herein or therein not misleading. The Company
has
disclosed to the Parent all material information relating to the business of
the
Company or any Subsidiary or the transactions contemplated by this
Agreement.
2.31Duty
to Make Inquiry.
To the
extent that any of the representations or warranties in this Section 2 are
qualified by “knowledge” or “belief,”the Company represents and warrants that
it has made due and reasonable inquiry and investigation concerning the matters
to which such representations and warranties relate, including, but not limited
to, diligent inquiry by its directors, officers and key personnel.
2.32Board
Actions.
The
Company’s Board of Directors (a) has unanimously determined that the Merger is
fair and in the best interests of the Company shareholders and is on terms
that
are fair to such Company shareholders and has recommended the Merger to the
Company shareholders, and (b) shall submit the Merger and this Agreement to
the
vote and approval of the Company shareholders or the approval of the Company
shareholders by written consent.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE PARENT
AND
THE ACQUISITION SUBSIDIARY
Each
of
the Parent and the Acquisition Subsidiary represents and warrants to the Company
that the statements contained in this Article III are true and correct,
except as set forth in the Parent Disclosure Schedule provided by the Parent
and
the Acquisition Subsidiary to the Company on the date hereof and accepted in
writing by the Parent (the “Parent Disclosure Schedule”). The Parent Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III, and except to the extent
that it is clear from the context thereof that such disclosure also applies
to
any other paragraph, the disclosures in any paragraph of the Parent Disclosure
Schedule shall qualify only the corresponding paragraph in this Article
III.For
purposes of this Article III, the phrase “to the knowledge of the Parent”
or any phrase of similar import shall be deemed to refer to the actual knowledge
of the executive officers of the Parent, as well as any other knowledge which
such executive officers would have possessed had they made reasonable inquiry
with respect to the matter in question.
3.1Organization,
Qualification and Corporate Power.
The
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada and the Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws
of the state of Nevada. The Parent is duly qualified to conduct business and
is
in corporate and tax good standing under the laws of each jurisdiction in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified or
in
good standing would not have a Parent Material Adverse Effect (as defined
below). The Parent has all requisite corporate power and authority to carry
on
the businesses in which it is engaged and to own and use the properties owned
and used by it. The Parent has furnished or made available to the Company
complete and accurate copies of its Certificate of Incorporation and Bylaws.
For
purposes of this Agreement, “Parent Material Adverse Effect” means a material
adverse effect on the assets, business, condition (financial or otherwise),
results of operations or future prospects of the Parent and its subsidiaries,
taken as a whole.
3.2Capitalization.
The
authorized capital stock of the Parent consists of (a) 400,000,000 shares of
Parent Common Stock, of which shares were issued and outstanding as of the
date
of this Agreement, of which 399,999,704 shares are issued or outstanding. The
Parent Common Stock is presently eligible for quotation on the NASD
Over-the-Counter Bulletin Board.All
of
the issued and outstanding shares of Parent Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
All
of the Merger Shares and all shares of Parent Common Stock issued pursuant
to
the Subscription Agreement will be, when issued in accordance with this
Agreement or the Subscription Agreement, duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights.
3.3Authorization
of Transaction.
Each of
the Parent and the Acquisition Subsidiary has all requisite power and authority
to execute and deliver this Agreement and (in the case of the Parent) the Escrow
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery by the Parent and the Acquisition Subsidiary of this Agreement
and
(in the case of the Parent) the Subscription Agreement, and the agreements
contemplated hereby and thereby (collectively, the “Transaction Documentation”)
and the consummation by the Parent and the Acquisition Subsidiary of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Parent and
Acquisition Subsidiary, respectively. This Agreement has been duly and validly
executed and delivered by the Parent and the Acquisition Subsidiary and
constitutes a valid and binding obligation of the Parent and the Acquisition
Subsidiary, enforceable against them in accordance with its terms.
3.4Noncontravention.
Subject
to compliance with the applicable requirements of the Securities Act and any
applicable state securities laws, the Exchange Act and the filing of the
Certificate of Merger and the Articles of Merger as required respectively by
the
DGCL and the Nevada Revised Statutes, neither the execution and delivery by
the
Parent or the Acquisition Subsidiary of this Agreement or the Transaction
Documentation, nor the consummation by the Parent or the Acquisition Subsidiary
of the transactions contemplated hereby or thereby, will (a) conflict with
or violate any provision of the Certificate of Incorporation or Bylaws of the
Parent or the Acquisition Subsidiary, (b) require on the part of the Parent
or the Acquisition Subsidiary any filing with, or permit, authorization, consent
or approval of, any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both)
a
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Parent or the
Acquisition Subsidiary is a party or by which either is bound or to which any
of
their assets are subject, except for (i) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not
adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not adversely
affect the consummation of the transactions contemplated hereby, or
(d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Parent or the Acquisition Subsidiary or any of
their properties or assets.
3.5Subsidiaries.
The
Parent does not control directly or indirectly or have any direct or indirect
equity participation or similar interest in any corporation, partnership,
limited liability company, joint venture, trust or other business association,
excluding its interest in Acquisition Subsidiary.
3.6Exchange
Act Reports.
The
Parent has furnished or made available to the Company through the SEC’s website
complete and accurate copies, as amended or supplemented, of its (a)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, as
filed with the SEC, and (b) all other reports filed by the Parent under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act
with the SEC since April 19, 2002 (such reports are collectively referred to
herein as the “Parent Reports”). The Parent Reports constitute all of the
documents required to be filed by the Parent under Section 13 or
subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from
October 17, 2001through
the date of this Agreement. The Parent Reports complied in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder when filed. As of their respective dates, the Parent Reports did
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,
in
light of the circumstances under which they were made, not
misleading.
3.7Compliance
with Laws.
Each of
the Parent and its Subsidiaries:
(a) and
the
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for
any
violations or defaults that, individually or in the aggregate, have not had
and
would not reasonably be expected to have a Parent Material Adverse
Effect;
(b) has
complied with all federal and state securities laws and regulations, including
being current in all of its reporting obligations under such federal and state
securities laws and regulations;
(c) has
not,
and the past and present officers, directors and Affiliates of the Parent have
not, been the subject of, nor does any officer or director of the Parent have
any reason to believe that Parent or any of its officers, directors or
Affiliates will be the subject of, any civil or criminal proceeding or
investigation by any federal or state agency alleging a violation of securities
laws;
(d) has
not
been the subject of any voluntary or involuntary bankruptcy proceeding, nor
has
it been a party to any material litigation;
(e) has
not,
and the past and present officers, directors and Affiliates have not, been
the
subject of, nor does any officer or director of the Parent have any reason
to
believe that the Parent or any of its officers, directors or affiliates will
be
the subject of, any civil, criminal or administrative investigation or
proceeding brought by any federal or state agency having regulatory authority
over such entity or person;
(f) does
not
and will not on the Closing, have any liabilities, contingent or otherwise,
including but not limited to notes payable and accounts payable, and is not
a
party to any executory agreements; and
(g) is
not a
“blank check company” as such term is defined by Rule 419 of the Securities
Act.
3.8Financial
Statements.
The
Parent has provided or made available to the Company the unaudited and
consolidated balance sheet (the “Parent Interim Balance Sheet”) as of and for
each of the twomonths
ended August 31, 2005 (the “Parent Interim Balance Sheet Date”) and related
statements of operations and cash flows (collectively, the “Parent Interim
Financial Statements. The audited financial statements and unaudited interim
financial statements of the Parent included in the Parent Reports and the Parent
Interim Financial Statements (collectively, the “Parent Financial Statements”)
(i) complied as to form in all material respects with applicable accounting
requirements and, as appropriate, the published rules and regulations of the
SEC
with respect thereto when filed, (ii) were prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby (except
as
may be indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-QSB under the Exchange Act),
(iii)
fairly present the consolidated financial condition, results of operations
and
cash flows of the Parent as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of
the
Parent.
3.9Absence
of Certain Changes.
Since
the Parent Interim Balance Sheet Date, there has occurred no event or
development which, individually or in the aggregate, has had, or could
reasonably be expected to have in the future, a Parent Material Adverse
Effect.
3.10Litigation.
Except
as disclosed in the Parent Reports, as of the date of this Agreement, there
is
no Legal Proceeding which is pending or, to the Parent’s knowledge, threatened
against the Parent or any subsidiary of the Parent which, if determined
adversely to the Parent or such subsidiary, could have, individually or in
the
aggregate, a Parent Material Adverse Effect or which in any manner challenges
or
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.
3.11Undisclosed
Liabilities.
None of
the Parent and its Subsidiaries has any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated and whether
due or to become due), except for (a) liabilities shown on the Parent
Interim Balance Sheet, (b) liabilities which have arisen since the Parent
Interim Balance Sheet Date in the Ordinary Course of Business and
(c) contractual and other liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance
sheet.
3.12Tax
Matters.
(a) The
Parent and Acquisition Subsidiary have filed on a timely basis all Tax Returns
that it was required to file, and all such Tax Returns were complete and
accurate in all material respects. Each of the Parent and Acquisition Subsidiary
has paid on a timely basis all Taxes that were due and payable. The unpaid
Taxes
of the Parent and Acquisition Subsidiary for tax periods through the Parent
Interim Balance Sheet Date do not exceed the accruals and reserves for Taxes
(excluding accruals and reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the Parent Interim
Balance Sheet. Neither the Parent nor any Acquisition Subsidiary has any actual
or potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Parent or Acquisition Subsidiary during a prior period) other than the
Parent and the Acquisition Subsidiary. All Taxes that the Parent or the
Acquisition Subsidiary are or were required by law to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid
to
the proper Governmental Entity.
(b) The
Parent has delivered or made available to the Company complete and accurate
copies of all federal income Tax Returns, examination reports and statements
of
deficiencies assessed against or agreed to by the Parent or any Parent
Subsidiary since January 1, 2002. No examination or audit of any Tax Return
of
the Parent or any Parent Subsidiary by any Governmental Entity is currently
in
progress or, to the knowledge of the Parent, threatened or contemplated. Neither
the Parent nor the Parent Subsidiary has been informed by any jurisdiction
that
the jurisdiction believes that the Parent or the Parent Subsidiary was required
to file any Tax Return that was not filed. Neither the Parent nor the Parent
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or
deficiency.
(c) The
Parent has not taken any action or knows of any fact, agreement, plan or other
circumstances that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
3.13Assets.
Each of
the Parent and the Subsidiaries owns or leases all tangible assets necessary
for
the conduct of its businesses as presently conducted and as presently proposed
to be conducted. Each such tangible asset is free from material defects, has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used. No asset of the Parent or
any
Subsidiary (tangible or intangible) is subject to any Security Interest except
as set forth in Parent Disclosure Schedule 3.13.
3.14Owned
Real Property.
Neither
the Parent nor any Subsidiary owns any real property.
3.15Real
Property Leases.
Section
3.15 of the Parent Disclosure Schedule lists all real property leased or
subleased to or by the Parent or any Subsidiary and lists the term of such
lease, any extension and expansion options, and the rent payable thereunder.
The
Parent has delivered or made available to the Company complete and accurate
copies of the leases and subleases listed in Section 3.15 of the Parent
Disclosure Schedule. With respect to each lease and sublease listed in
Section 3.15 of the Parent Disclosure Schedule:
(a) the
lease
or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease
or sublease will continue to be legal, valid, binding, enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing;
(c) neither
the Parent nor any Subsidiary nor, to the knowledge of the Parent, any other
party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Parent, is threatened, which, after the giving of notice, with lapse of time,
or
otherwise, would constitute a breach or default by the Parent or any Subsidiary
or, to the knowledge of the Parent, any other party under such lease or
sublease;
(d) neither
the Parent nor any Subsidiary has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
and
(e) the
Parent is not aware of any Security Interest, easement, covenant or other
restriction applicable to the real property subject to such lease, except for
recorded easements, covenants and other restrictions which do not materially
impair the current uses or the occupancy by the Parent or a Subsidiary of the
property subject thereto.
(a) Section
3.16 of the Parent Disclosure Schedule lists the following agreements (written
or oral) to which the Parent or any Subsidiary is a party as of the date of
this
Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for
performance over a period of more than one year, (B) which involves more
than the sum of $10,000, or (C) in which the Parent or any Subsidiary has
granted manufacturing rights, “most favored nation” pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;
(iii) any
agreement establishing a partnership or joint venture;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $10,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement concerning confidentiality or noncompetition;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any officer, director or stockholder of the Parent or any
Affiliate thereof;
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Parent Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Parent or any Subsidiary
to indemnify any other party thereto (excluding indemnities contained in
agreements for the purchase, sale or license of products entered into in the
Ordinary Course of Business); and
(x) any
other
agreement (or group of related agreements) either involving more than $10,000
or
not entered into in the Ordinary Course of Business.
(b) The
Parent has delivered or made available to the Company a complete and accurate
copy of each agreement listed in Section 3.16 of the Parent Disclosure
Schedule. With respect to each agreement so listed: (i) the agreement is
legal, valid, binding and enforceable and in full force and effect;
(ii) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing
in
accordance with the terms thereof as in effect immediately prior to the Closing;
and (iii) neither the Parent nor any Subsidiary nor, to the knowledge of
the Parent, any other party, is in breach or violation of, or default under,
any
such agreement, and no event has occurred, is pending or, to the knowledge
of
the Parent, is threatened, which, after the giving of notice, with lapse of
time, or otherwise, would constitute a breach or default by the Parent or any
Subsidiary or, to the knowledge of the Parent, any other party under such
contract.
3.17Accounts
Receivable.
All
accounts receivable of the Parent and the Subsidiaries reflected on the Parent
Interim Balance Sheet are valid receivables subject to no setoffs or
counterclaims and are current and collectible (within 90 days after the date
on
which it first became due and payable), net of the applicable reserve for bad
debts on the Parent Interim Balance Sheet. All accounts receivable reflected
in
the financial or accounting records of the Parent that have arisen since the
Parent Interim Balance Sheet Date are valid receivables subject to no setoffs
or
counterclaims and are collectible (within 90 days after the date on which it
first became due and payable), net of a reserve for bad debts in an amount
proportionate to the reserve shown on the Parent Interim Balance Sheet
Date.
3.18Powers
of Attorney.
There
are no outstanding powers of attorney executed on behalf of the Parent or any
Subsidiary.
3.19Insurance.
Section 3.19 of the Parent Disclosure Schedule lists each insurance policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability and automobile insurance
policies and bond and surety arrangements) to which the Parent or any Subsidiary
is a party. Such insurance policies are of the type and in amounts customarily
carried by organizations conducting businesses or owning assets similar to
those
of the Parent and the Subsidiaries. There is no material claim pending under
any
such policy as to which coverage has been questioned, denied or disputed by
the
underwriter of such policy. All premiums due and payable under all such policies
have been paid, neither the Parent nor any Subsidiary may be liable for
retroactive premiums or similar payments, and the Parent and the Subsidiaries
are otherwise in compliance in all material respects with the terms of such
policies. The Parent has no knowledge of any threatened termination of, or
material premium increase with respect to, any such policy. Each such policy
will continue to be enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing.
3.20Warranties.
No
service sold or delivered by the Parent or any Subsidiary is subject to any
guaranty, warranty, right of credit or other indemnity other than the applicable
standard terms and conditions of sale of the Parent or the appropriate
Subsidiary.
3.21Employees.
(a) Section
3.21 of the Parent Disclosure Schedule contains a list of all employees of
the
Parent and each Subsidiary along with the position and the annual rate of
compensation of each such person. Section 3.21 of the Parent Disclosure Schedule
contains a list of all employees of the Parent or any Subsidiary who are a
party
to a non-competition agreement with the Parent or any Subsidiary; copies of
such
agreements have previously been delivered to the Company.
(b) Neither
the Parent nor any Subsidiary is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. The
Parent has no knowledge of any organizational effort made or threatened, either
currently or within the past two years, by or on behalf of any labor union
with
respect to employees of the Parent or any Subsidiary.
3.22Employee
Benefits.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i)“Employee
Benefit Plan” means any “employee pension benefit plan” (as defined in
Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii)“ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
(iii)“ERISA
Affiliate” means any entity which is, or at any applicable time was, a member of
(1) a controlled group of corporations (as defined in Section 414(b)
of the Code), (2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the Company
or a Subsidiary.
(b) Section 3.22(b)
of the Parent Disclosure Schedule contains a complete and accurate list of
all
Employee Benefit Plans maintained, or contributed to, by the Parent, any
Subsidiary or any ERISA Affiliate. Complete and accurate copies of (i) all
Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans)
all plan financial statements for the last five plan years for each Employee
Benefit Plan, have been delivered or made available to the Parent. Each Employee
Benefit Plan has been administered in all material respects in accordance with
its terms and each of the Parent, the Subsidiaries and the ERISA Affiliates
has
in all material respects met its obligations with respect to such Employee
Benefit Plan and has made all required contributions thereto. The Parent, each
Subsidiary, each ERISA Affiliate and each Employee Benefit Plan are in
compliance in all material respects with the currently applicable provisions
of
ERISA and the Code and the regulations thereunder (including without limitation
Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and
Sections 601 through 608 and Section 701 et seq. of ERISA). All
filings and reports as to each Employee Benefit Plan required to have been
submitted to the Internal Revenue Service or to the United States Department
of
Labor have been duly submitted.
(c) To
the
knowledge of the Parent, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(d) All
the
Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date
of
its most recent determination letter or application therefor in any respect,
and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required
to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been
tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(e) Neither
the Parent, any Subsidiary, nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(f) At
no
time has the Parent, any Subsidiary or any ERISA Affiliate been obligated to
contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(g) There
are
no unfunded obligations under any Employee Benefit Plan providing benefits
after
termination of employment to any employee of the Parent or any Subsidiary (or
to
any beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state law. The assets
of each Employee Benefit Plan which is funded are reported at their fair market
value on the books and records of such Employee Benefit Plan.
(h) No
act or
omission has occurred and no condition exists with respect to any Employee
Benefit Plan maintained by the Parent, any Subsidiary or any ERISA Affiliate
that would subject the Parent, any Subsidiary or any ERISA Affiliate to (i)
any
material fine, penalty, tax or liability of any kind imposed under ERISA or
the
Code or (ii) any contractual indemnification or contribution obligation
protecting any fiduciary, insurer or service provider with respect to any
Employee Benefit Plan.
(i) No
Employee Benefit Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of Section 501(c)(9)
of the Code.
(j) Each
Employee Benefit Plan is amendable and terminable unilaterally by the Parent
at
any time without liability to the Parent as a result thereof and no Employee
Benefit Plan, plan documentation or agreement, summary plan description or
other
written communication distributed generally to employees by its terms prohibits
the Parent from amending or terminating any such Employee Benefit
Plan.
(k) Section
3.22(k) of the Parent Disclosure Schedule discloses each: (i) agreement
with any stockholder, director, executive officer or other key employee of
the
Parent or any Subsidiary (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Parent or any Subsidiary of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other
benefits after the termination of employment of such director, executive officer
or key employee; (ii) agreement, plan or arrangement under which any person
may receive payments from the Parent or any Subsidiary that may be subject
to
the tax imposed by Section 4999 of the Code or included in the
determination of such person’s “parachute payment” under Section 280G of
the Code; and (iii) agreement or plan binding the Parent or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of
any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness and
disability expenses are accounted for on the Most Recent Balance Sheet and
are
adequate and properly reflect the expenses associated therewith in accordance
with generally accepted accounting principles.
(a) Each
of
the Parent and the Subsidiaries has complied with all applicable Environmental
Laws, except for violations of Environmental Laws that, individually or in
the
aggregate, have not had and would not reasonably be expected to have a Parent
Material Adverse Effect. There is no pending or, to the knowledge of the Parent,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request
by
any Governmental Entity, relating to any Environmental Law involving the Parent
or any Subsidiary, except for litigation, notices of violations, formal
administrative proceedings or investigations, inquiries or information requests
that, individually or in the aggregate, have not had and would not reasonably
be
expected to have a Parent Material Adverse Effect.
(b) Set
forth
in Section 3.23(b) of the Parent Disclosure Schedule is a list of all
documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Parent or a Subsidiary (whether conducted
by or on behalf of the Parent or a Subsidiary or a third party, and whether
done
at the initiative of the Parent or a Subsidiary or directed by a Governmental
Entity or other third party) which were issued or conducted during the past
five
years and which the Parent has possession of or access to. A complete and
accurate copy of each such document has been provided to the
Parent.
(c) The
Parent is not aware of any material environmental liability of any solid or
hazardous waste transporter or treatment, storage or disposal facility that
has
been used by the Parent or any Subsidiary.
3.24Permits.
Section
3.24 of the Parent Disclosure Schedule sets forth a list of all permits,
licenses, registrations, certificates, orders or approvals from any Governmental
Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) (“Parent Permits”) issued to or held by the Parent or any
Subsidiary. Such listed Permits are the only Parent Permits that are required
for the Parent and the Subsidiaries to conduct their respective businesses
as
presently conducted except for those the absence of which, individually or
in
the aggregate, have not had and would not reasonably be expected to have a
Parent Material Adverse Effect. Each such Parent Permit is in full force and
effect and, to the knowledge of the Parent, no suspension or cancellation of
such Parent Permit is threatened and there is no basis for believing that such
Parent Permit will not be renewable upon expiration. Each such Parent Permit
will continue in full force and effect immediately following the
Closing.
3.25Certain
Business Relationships With Affiliates.
No
Affiliate of the Parent or of any Subsidiary (a) owns any property or
right, tangible or intangible, which is used in the business of the Parent
or
any Subsidiary, (b) has any claim or cause of action against the Parent or
any Subsidiary, or (c) owes any money to, or is owed any money by, the
Parent or any Subsidiary. Section 3.25 of the Parent Disclosure Schedule
describes any transactions involving the receipt or payment in excess of $5,000
in any fiscal year between the Parent or a Subsidiary and any Affiliate thereof
which have occurred or existed since the beginning of the time period covered
by
the Parent Financial Statements, other than employment agreements.
3.26Tax-Free
Reorganization.
(a) The
Parent (i) is not an “investment company” as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present
plan or intention to liquidate the Surviving Corporation or to merge the
Surviving Corporation with or into any other corporation or entity, or to sell
or otherwise dispose of the stock of the Surviving Corporation which Parent
will
acquire in the Merger, or to cause the Surviving Corporation to sell or
otherwise dispose of its assets, all except in the ordinary course of business
or if such liquidation, merger, disposition is described in
Section 368(a)(2)(C) or Treasury Regulation Section 1.368-2(d)(4) or
Section 1368-2(k); (iii) has no present plan or intention, following
the Merger, to issue any additional shares of stock of the Surviving Corporation
or to create any new class of stock of the Surviving Corporation.
(b) The
Acquisition Subsidiary is a wholly-owned subsidiary of the Parent, formed solely
for the purpose of engaging in the Merger, and will carry on no business prior
to the Merger.
(c) Immediately
prior to the Merger, the Parent will be in control of Acquisition Subsidiary
within the meaning of Section 368(c) of the Code.
(d) Immediately
following the Merger, the Surviving Corporation will hold at least 90% of the
fair market value of the net assets and at least 70% of the fair market value
of
the gross assets held by the Company immediately prior to the Merger (for
purposes of this representation, amounts used by the Company to pay
reorganization expenses, if any, will be included as assets of the Company
held
immediately prior to the Merger).
(e) The
Parent has no present plan or intention to reacquire any of the Merger
Shares.
(f) The
Acquisition Subsidiary will have no liabilities assumed by the Surviving
Corporation and will not transfer to the Surviving Corporation any assets
subject to liabilities in the Merger.
(g) Following
the Merger, the Surviving Corporation will continue the Company’s historic
business or use a significant portion of the Company’s historic business assets
in a business as required by Section 368 of the Code and the Treasury
Regulations promulgated thereunder.
3.27Brokers’
Fees.
Neither
the Parent nor the Acquisition Subsidiary has any liability or obligation to
pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.28Disclosure.
No
representation or warranty by the Parent contained in this Agreement or in
any
of the Transaction Documentation, and no statement contained in the any
document, certificate or other instrument delivered or to be delivered by or
on
behalf of the Parent pursuant to this Agreement or therein, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
or
will be made, in order to make the statements herein or therein not
misleading.
The
Parent has disclosed to the Company all material information relating to the
business of the Parent or any Subsidiary or the transactions contemplated by
this Agreement.
3.29Interested
Party Transactions.
To the
knowledge of the Parent, no officer, director or stockholder of Parent or any
“affiliate” (as such term is defined in Rule 12b-2 under the Exchange Act)
or “associate” (as such term is defined in Rule 405 under the Securities Act) of
any such person has had, either directly or indirectly, (a) an interest in
any
person that (i) furnishes or sells services or products that are furnished
or
sold or are proposed to be furnished or sold by Parent or any Subsidiary or
(ii)
purchases from or sells or furnishes to Parent or any Subsidiary any goods
or
services, or (b) a beneficial interest in any contract or agreement to which
Parent or any Subsidiary is a party or by which it may be bound or affected.
Neither Parent or any Subsidiary has extended or maintained credit, arranged
for
the extension of credit, or renewed an extension of credit, in the form of
a
personal loan to or for any director or executive officer (or equivalent
thereof) of the Parent or any Subsidiary.
3.30Duty
to Make Inquiry.
To the
extent that any of the representations or warranties in this Section 3 are
qualified by “knowledge” or “belief,” Parent represents and warrants that it has
made due and reasonable inquiry and investigation concerning the matters to
which such representations and warranties relate, including, but not limited
to,
diligent inquiry by its directors, officers and key personnel.
3.31Accountants.
Braverman International, P.C. is and has been throughout the periods covered
by
such financial statements (a) a registered public accounting firm (as defined
in
Section 2(a)(12) of the Sarbanes-Oxley Act of 2002, (b) “independent” with
respect to Parent within the meaning of Regulation S-X and (c) in compliance
with subsections (g) through (l) of Section 10A of the Exchange Act and the
related rules of the Commission and the Public Company Accounting Oversight
Board. Schedule 3.31 lists all non-audit services performed by Braverman
International, P.C. for Parent and/or any of Subsidiary since January 1, 2001.
None of the reports of Braverman International, P.C. on the financial statements
of Parent for either of the past two fiscal years contained an adverse opinion
or a disclaimer of opinion, or was qualified as to uncertainty, audit scope,
or
accounting principles. During Parent’s two most recent fiscal years and the
subsequent interim periods, there were no disagreements with Braverman
International, P.C. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures. None of the
reportable events listed in Item 304(a)(1)(iv) of Regulation S-B occurred with
respect to Braverman International, P.C.
3.32Minute
Books.
The
minute books, if any, of Parent and each Subsidiary contain, in all material
respects, a complete and accurate summary of all meetings of directors and
stockholders or actions by written resolutions since the time of organization
of
each such corporation through the date of this Agreement, and reflect all
transactions referred to in such minutes and resolutions accurately, except
for
omissions which are not material. Parent has provided true and complete copies
of all such minute books, if any, to the Company’s representatives.
3.33Board
Action.
The
Parent’s Board of Directors (a) has unanimously determined that the Merger is
advisable and in the best interests of the Parent’s stockholders and is on terms
that are fair to such Parent stockholders and (b) has caused the Parent, in
its
capacity as the sole shareholder of the Acquisition Subsidiary, and the Board
of
Directors of the Acquisition Subsidiary, to approve the Merger and this
Agreement by written consent.
ARTICLE
IV
COVENANTS
4.1Closing
Efforts.
Each of
the Parties shall use its best efforts, to the extent commercially reasonable
(“Reasonable Best Efforts”), to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement, including without limitation using its Reasonable Best Efforts to
ensure that (i) its representations and warranties remain true and correct
in all material respects through the Closing Date and (ii) the conditions
to the obligations of the other Parties to consummate the Merger are
satisfied.
4.2Governmental
and Third-Party Notices and Consents.
(a) Each
Party shall use its Reasonable Best Efforts to obtain, at its expense, all
waivers, permits, consents, approvals or other authorizations from Governmental
Entities, and to effect all registrations, filings and notices with or to
Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement.
(b) The
Company shall use its Reasonable Best Efforts to obtain, at its expense, all
such waivers, consents or approvals from third parties, and to give all such
notices to third parties, as are required to be listed in Section 2.4 of
the Disclosure Schedule.
4.3Current
Report.
(a) As
soon
as reasonably practicable after the execution of this Agreement, the Parties
shall prepare a current report on Form 8-K relating to this Agreement and the
transactions contemplated hereby (the “Current Report”). Each of the Company and
Parent shall use its reasonable efforts to cause the Current Report to be filed
with the SEC within four business days of the execution of this Agreement and
to
otherwise comply with all requirements of applicable federal and state
securities laws. Further, the Parties shall prepare and file with the SEC an
amendment to the Current Report within four business days after the Closing
Date.
4.4Operation
of Business.
Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company shall (and shall cause each
Subsidiary to) conduct its operations in the Ordinary Course of Business and
in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees
and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not
be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Company shall not (and shall cause
each Subsidiary not to), without the written consent of the Parent:
(a) issue
or
sell, or redeem or repurchase, any stock or other securities of the Company
or
any rights, warrants or options to acquire any such stock or other securities
(except pursuant to the conversion or exercise of convertible securities or
Options or Warrants outstanding on the date hereof), or amend any of the terms
of (including without limitation the vesting of) any such convertible securities
or Options or Warrants;
(b) split,
combine or reclassify any shares of its capital stock; declare, set aside or
pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to,
or
investments in, any other person or entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay
any
bonus or other benefit to its directors, officers or employees;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets
in
the Ordinary Course of Business;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its
charter, by-laws or other organizational documents;
(i) change
in
any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
(j) enter
into, amend, terminate, take or omit to take any action that would constitute
a
violation of or default under, or waive any rights under, any material contract
or agreement;
(k) institute
or settle any Legal Proceeding;
(l) take
any
action or fail to take any action permitted by this Agreement with the knowledge
that such action or failure to take action would result in (i) any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue or (ii) any of the conditions to the Merger set forth in
Article V not being satisfied; or
(m) agree
in
writing or otherwise to take any of the foregoing actions.
4.5Access
to Information.
(a) The
Company shall (and shall cause each Subsidiary to) permit representatives of
the
Parent to have full access (at all reasonable times, and in a manner so as
not
to interfere with the normal business operations of the Company and the
Subsidiaries) to all premises, properties, financial and accounting records,
contracts, other records and documents, and personnel, of or pertaining to
the
Company and each Subsidiary.
(b) Each
of
the Parent and the Acquisition Subsidiary (i) shall treat and hold as
confidential any Company Confidential Information (as defined below),
(ii) shall not use any of the Company Confidential Information except in
connection with this Agreement, and (iii) if this Agreement is terminated
for any reason whatsoever, shall return to the Company all tangible embodiments
(and all copies) thereof which are in its possession. For purposes of this
Agreement, “Company Confidential Information” means any confidential or
proprietary information of the Company or any Subsidiary that is furnished
in
writing to the Parent or the Acquisition Subsidiary by the Company or any
Subsidiary in connection with this Agreement and is labeled confidential or
proprietary; provided,
however,
that it
shall not include any information (A) which, at the time of disclosure, is
available publicly, (B) which, after disclosure, becomes available publicly
through no fault of the Parent or the Acquisition Subsidiary, (C) which the
Parent or the Acquisition Subsidiary knew or to which the Parent or the
Acquisition Subsidiary had access prior to disclosure, (D) which the Parent
or the Acquisition Subsidiary rightfully obtains from a source other than the
Company or a Subsidiary or (E) which either party is required to disclose as
a
matter of law.
4.6Operation
of Business.
Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Parent shall (and shall cause each
Subsidiary to) conduct its operations in the Ordinary Course of Business and
in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees
and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not
be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Parent shall not (and shall cause
each Subsidiary not to), without the written consent of the
Company:
(a) issue
or
sell, or redeem or repurchase, any stock or other securities or any rights,
warrants or options to acquire any such stock or other securities (except
pursuant to the conversion or exercise of convertible securities or Options
or
Warrants outstanding on the date hereof), or amend any of the terms of
(including without limitation the vesting of) any such convertible securities
or
Options or Warrants, except as contemplated by, and in connection with, the
Bridge Loan Documents;
(b) split,
combine or reclassify any shares of its capital stock; declare, set aside or
pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, excluding any split to
reduce the Parent’s issued and outstanding shares of Common Stock to
1,000,000;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to,
or
investments in, any other person or entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay
any
bonus or other benefit to its directors, officers or employees;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets
in
the Ordinary Course of Business;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its
charter, by-laws or other organizational documents;
(i) change
in
any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
(j) enter
into, amend, terminate, take or omit to take any action that would constitute
a
violation of or default under, or waive any rights under, any material contract
or agreement;
(l) take
any
action or fail to take any action permitted by this Agreement with the knowledge
that such action or failure to take action would result in (i) any of the
representations and warranties of the Parent and/or the Acquisition Subsidiary
set forth in this Agreement becoming untrue or (ii) any of the conditions
to the Merger set forth in Article V not being satisfied; or
(m) agree
in
writing or otherwise to take any of the foregoing actions.
4.7Access
to Information.
(a) The
Parent shall (and shall cause each Subsidiary to) permit representatives of
the
Company to have full access (at all reasonable times, and in a manner so as
not
to interfere with the normal business operations of the Parent and the
Subsidiaries) to all premises, properties, financial and accounting records,
contracts, other records and documents, and personnel, of or pertaining to
the
Parent and each Subsidiary.
(b) The
Company (i) shall treat and hold as confidential any Parent Confidential
Information (as defined below), (ii) shall not use any of the Parent
Confidential Information except in connection with this Agreement, and
(iii) if this Agreement is terminated for any reason whatsoever, shall
return to the Parent all tangible embodiments (and all copies) thereof which
are
in its possession. For purposes of this Agreement, “Parent Confidential
Information” means any confidential or proprietary information of the Parent or
any Subsidiary that is furnished in writing to the Company by the Parent or
the
Acquisition Subsidiary in connection with this Agreement and is labeled
confidential or proprietary; provided,
however,
that it
shall not include any information (A) which, at the time of disclosure, is
available publicly, (B) which, after disclosure, becomes available publicly
through no fault of the Company, (C) which the Company knew or to which the
Company had access prior to disclosure or (D) which the Company rightfully
obtains from a source other than the Parent or the Acquisition Subsidiary or
(E)
which either party is required to disclose as a matter of law.
4.8Expenses.
The
costs and expenses (including legal fees and expenses of Parent and the Company)
incurred in connection with this Agreement and the transactions contemplated
hereby shall be payable at Closing from the proceeds of a bridge loan financing
of an aggregate of $15,000,000 to the Parent from Highgate House Funds, Ltd.
and
Prentice Capital Management, LP (the “OXFV Bridge Loan”).
(a) The
Parent shall not, for a period of three years after the Effective Time, take
any
action to alter or impair any exculpatory or indemnification provisions now
existing in the Certificate of Incorporation or Bylaws of the Company for the
benefit of any individual who served as a director or officer of the Company
at
any time prior to the Effective Time, except for any changes which may be
required to conform with changes in applicable law and any changes which do
not
affect the application of such provisions to acts or omissions of such
individuals prior to the Effective Time.
(b) From
and
after the Effective Time, the Parent agrees that it will, and will cause the
Surviving Corporation to, indemnify and hold harmless each present and former
director and officer of the Company (the “Indemnified Executives”) against any
costs or expenses (including attorneys’ fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under the DGCL
and
Nevada law (and the Parent and the Surviving Corporation shall also advance
expenses as incurred to the fullest extent permitted under DGCL and Nevada
law,
provided the Indemnified Executive to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Executive is not entitled to indemnification).
4.10Listing
of Merger Shares.
The
Parent shall take whatever steps are necessary to cause the Merger Shares to
be
eligible for quotation on the NASD’s OTC Bulletin Board.
4.11Name
Change.
As soon
as practicable following the Effective Time, the Parent shall take whatever
steps are necessary to enable it to change its corporate name to Uluru, Inc.
or
such other name as the Company shall determine.
4.12Breakup.
In
recognition of the time energy and effort of the Parent in negotiating, drafting
and working towards a Closing, the Company agrees to pay a breakup fee to the
Parent if the Closing does not occur by the Closing Date. The breakup fee shall
consist of $1.44 million and is payable upon demand.
ARTICLE
V
CONDITIONS
TO CONSUMMATION OF MERGER
5.1Conditions
to Each Party’s Obligations.
The
respective obligations of each Party to consummate the Merger are subject to
the
satisfaction of the following conditions:
(a) this
Agreement and the Merger shall have received the Requisite Company Shareholder
Approval;
(b) the
completion of up to $13,000,000 in financing under the Bridge Loan;
(c) the
completion of up to $10,700,000 in financing under the OXFV Bridge
Loan;
(d) the
completion of the sale of certain pharmaceutical assets, as set forth in Exhibit
D, to the Company from Access Pharmaceuticals, Inc.; and
(e) satisfactory
completion by Parent and Company of all necessary legal due
diligence.
5.2Conditions
to Obligations of the Parent and the Acquisition Subsidiary.
The
obligation of each of the Parent and the Acquisition Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Parent) of the
following additional conditions, except for any the failure of which to obtain
or effect would not have a Company Material Adverse Effect or affect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement:
(a) the
number of Dissenting Shares shall not exceed 10% of the number of outstanding
Company Shares as of the Effective Time;
(b) the
Company and the Subsidiaries shall have obtained (and shall have provided copies
thereof to the Parent) all of the waivers, permits, consents, approvals or
other
authorizations, and effected all of the registrations, filings and notices,
referred to in Section 4.2 which are required on the part of the Company or
the Subsidiaries;
(c) the
representations and warranties of the Company set forth in this Agreement shall
be true and correct as of the date of this Agreement and shall be true and
correct as of the Effective Time as though made as of the Effective Time, except
to the extent that the inaccuracy of any such representation or warranty is
the
result of events or circumstances occurring subsequent to the date of this
Agreement and any such inaccuracies, individually or in the aggregate, would
not
have a Company Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement (it being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether
any
such inaccuracies would have a Company Material Adverse Effect for purposes
of
this Section 5.2(c));
(d) the
Company shall have performed or complied in all material respects with its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(e) no
Legal
Proceeding shall be pending wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have, individually or in the aggregate, a Company
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(f) the
Company shall have delivered to the Parent and the Acquisition Subsidiary a
certificate (the “Company Certificate”) to the effect that each of the
conditions specified in clauses (a) and (c) of Section 5.1 and clauses
(a) through (e) (insofar as clause (e) relates to Legal Proceedings
involving the Company or a Subsidiary) of this Section 5.2 is satisfied in
all respects; and
(g) the
Parent shall have received from McGuireWoods LLP, counsel to the Company, an
opinion with respect to the matters set forth in Exhibit B
attached
hereto, addressed to the Parent and dated as of the Closing Date.
5.3Conditions
to Obligations of the Company.
The
obligation of the Company to consummate the Merger is subject to the
satisfaction of the following additional conditions, except for any the failure
of which to obtain or effect would not have a Parent Material Adverse Effect
or
affect on the ability of the Parties to consummate the transactions contemplated
by this Agreement:
(a) the
Parent shall have effected all of the registrations, filings and notices
referred to in Section 4.2 which are required on the part of the
Parent;
(b) the
representations and warranties of the Parent set forth in this Agreement shall
be true and correct as of the date of this Agreement and shall be true and
correct as of the Effective Time as though made as of the Effective Time, except
to the extent that the inaccuracy of any such representation or warranty is
the
result of events or circumstances occurring subsequent to the date of this
Agreement and any such inaccuracies, individually or in the aggregate, would
not
have a Parent Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement (it being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether
any
such inaccuracies would have a Parent Material Adverse Effect for purposes
of
this Section 5.3(b));
(c) each
of
the Parent and the Acquisition Subsidiary shall have performed or complied
with
its agreements and covenants required to be performed or complied with under
this Agreement as of or prior to the Effective Time;
(d) no
Legal
Proceeding shall be pending wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have, individually or in the aggregate, a Parent
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(e) the
Parent shall have delivered to the Company a certificate (the “Parent
Certificate”) to the effect that each of the conditions specified in
clauses (a) through (d) (insofar as clause (d) relates to Legal
Proceedings involving the Parent) of this Section 5.3 is satisfied in all
respects;
(f) the
Company shall have received from Gottbetter & Partners, LLP, counsel to the
Parent and the Acquisition Subsidiary, an opinion with respect to the matters
set forth in Exhibit
C
attached
hereto, addressed to the Company and dated as of the Closing Date;
(g) the
Parent shall have declared and enacted a split of its shares of Common Stock
such that the total number of shares of Parent Common Stock issued and
outstanding immediately prior to the Effective Time shall equal 1,000,000 and
the number of shares of Parent Common Stock issued and outstanding immediately
following the Effective Time shall equal 12,000,000
(h) Kerry
P.
Gray shall have executed an employment agreement reasonably satisfactory to
Kerry P. Gray; and
(i) the
Company shall have received a certificate of Parent’s transfer agent and
registrar certifying that as of the Closing Date there are 1,000,000 shares
of
Common Stock issued and outstanding.
ARTICLE
VI
INDEMNIFICATION
6.1Indemnification
by the Company Shareholders.
The
Indemnifying Shareholders receiving the Merger Shares pursuant to
Section 1.5 shall indemnify the Parent in respect of, and hold it harmless
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due
or
to become due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators,
fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) (“Damages”) incurred or suffered by the
Surviving Corporation or the Parent or any Affiliate thereof resulting from,
relating to or constituting:
(a) any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement or the Company
Certificate;
(b) any
failure of any Company Shareholder to have good, valid and marketable title
to
the issued and outstanding Company Shares issued in the name of such Company
Shareholder, free and clear of all Security Interests; or
(c) any
claim
by a shareholder or former shareholder of the Company, or any other person
or
entity, seeking to assert, or based upon: (i) ownership or rights to
ownership of any shares of stock of the Company; (ii) any rights of a
shareholder (other than the right to receive the Merger Shares pursuant to
this
Agreement or appraisal rights under the applicable provisions of the DGCL),
including any option, preemptive rights or rights to notice or to vote;
(iii) any rights under the Certificate of Incorporation or Bylaws of the
Company; or (iv) any claim that his, her or its shares were wrongfully
repurchased by the Company.
6.2Indemnification
by the Parent.
(a) The
Parent shall indemnify the Indemnifying Shareholders in respect of, and hold
them harmless against, any and all Damages incurred or suffered by the
Indemnifying Shareholders resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Parent or the Acquisition Subsidiary contained in this
Agreement or the Parent Certificate.
(b) The
post-Closing adjustment mechanism set forth in Section 1.13 is intended to
secure the indemnification obligations of the Parent under this Agreement and
shall be the exclusive means for the Indemnifying Shareholders to collect any
Damages for which they are entitled to indemnification under this Article VI.
6.3Indemnification
Claims by the Parent.
(a) In
the
event the Parent is entitled, or seeks to assert rights, to indemnification
under Section 6.1, Parent shall give written notification to the Indemnifying
Shareholders of the commencement of any suit or proceeding relating to a third
party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Parent of notice of such suit or proceeding, and shall describe in
reasonable detail (to the extent known by the Parent) the facts constituting
the
basis for such suit or proceeding and the amount of the claimed damages;
provided, however, that no delay on the part of the Parent in notifying the
Indemnifying Shareholders shall relieve the Indemnifying Shareholders of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Shareholders may, upon written
notice thereof to the Parent, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Parent; provided that
(i) the Indemnifying Shareholders may only assume control of such defense
if (A) it acknowledges in writing to the Parent that any damages, fines, costs
or other liabilities that may be assessed against the Parent in connection
with
such suit or proceeding constitute Damages for which the Parent shall be
indemnified pursuant to this Article VI and (B) the ad damnum is less than
or equal to the amount of Damages for which the Indemnifying Shareholders is
liable under this Article VI and (ii) the Indemnifying Shareholders may not
assume control of the defense of a suit or proceeding involving criminal
liability or in which equitable relief is sought against the Parent. If the
Indemnifying Shareholders do not so assume control of such defense, the Parent
shall control such defense. The party not controlling such defense (the
“Non-controlling Party”) may participate therein at its own expense; provided
that if the Indemnifying Shareholders assume control of such defense and the
Parent reasonably concludes that the Indemnifying Shareholders and the Parent
have conflicting interests or different defenses available with respect to
such
suit or proceeding, the reasonable fees and expenses of counsel to the Parent
shall be considered “Damages” for purposes of this Agreement. The party
controlling such defense (the “Controlling Party”) shall keep the
Non-controlling Party advised of the status of such suit or proceeding and
the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of
such
suit or proceeding. The Indemnifying Shareholders shall not agree to any
settlement of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Parent, which shall not
be
unreasonably withheld or delayed; provided that the consent of the Parent shall
not be required if the Indemnifying Shareholders agree in writing to pay any
amounts payable pursuant to such settlement or judgment and such settlement
or
judgment includes a complete release of the Parent from further liability and
has no other adverse effect on the Parent. The Parent shall not agree to any
settlement of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Indemnifying Shareholders,
which shall not be unreasonably withheld or delayed.
(b) In
order
to seek indemnification under this Article VI, Parent shall give written
notification (a “Claim Notice”) to the Indemnifying Shareholders which contains
(i) a description and the amount (the “Claimed Amount”) of any Damages incurred
or reasonably expected to be incurred by the Parent, (ii) a statement that
the
Parent is entitled to indemnification under this Article VI for such
Damages and a reasonable explanation of the basis therefor, and (iii) a demand
for payment (in the manner provided in paragraph (c) below) in the amount
of such Damages. The Indemnifying Shareholders shall deliver a copy of the
Claim
Notice to the Escrow Agent.
(c) Within
20
days after delivery of a Claim Notice, the Indemnifying Shareholders shall
deliver to the Parent a written response (the “Response”) in which the
Indemnifying Shareholders shall: (i) agree that the Parent is entitled to
receive all of the Claimed Amount (in which case the Indemnifying Shareholders
and the Parent shall deliver to the Escrow Agent, within three days following
the delivery of the Response, a written notice executed by both parties
instructing the Escrow Agent to distribute to the Parent such number of Escrow
Shares as have an aggregate Value (as defined below) equal to the Claimed
Amount), (ii) agree that the Parent is entitled to receive part, but not
all, of the Claimed Amount (the “Agreed Amount”) (in which case the Indemnifying
Shareholders and the Parent shall deliver to the Escrow Agent, within three
days
following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Parent such number
of
Escrow Shares as have an aggregate Value (as defined below) equal to the Agreed
Amount) or (iii) dispute that the Parent is entitled to receive any of the
Claimed Amount. If the Indemnifying Shareholders in the Response disputes its
liability for all or part of the Claimed Amount, the Indemnifying Shareholders
and the Parent shall follow the procedures set forth in Section 6.3(d) for
the resolution of such dispute (a “Dispute”). For purposes of this
Article VI, the “Value” of any Escrow Shares delivered in satisfaction of
an indemnity claim shall be $1.00 per Escrow Share (subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or similar event affecting the Parent Common Stock since the Closing Date),
multiplied by the number of such Escrow Shares.
(d) During
the 60-day period following the delivery of a Response that reflects a Dispute,
the Indemnifying Shareholders and the Parent shall use good faith efforts to
resolve the Dispute. If the Dispute is not resolved within such 60-day period,
the Indemnifying Shareholders and the Parent shall discuss in good faith the
submission of the Dispute to a mutually acceptable alternative dispute
resolution procedure (which may be non-binding or binding upon the parties,
as
they agree in advance) (the “ADR Procedure”). In the event the Indemnifying
Shareholders and the Parent agree upon an ADR Procedure, such parties shall,
in
consultation with the chosen dispute resolution service (the “ADR Service”),
promptly agree upon a format and timetable for the ADR Procedure, agree upon
the
rules applicable to the ADR Procedure, and promptly undertake the ADR Procedure.
The provisions of this Section 6.3(d) shall not obligate the Indemnifying
Shareholders and the Parent to pursue an ADR Procedure or prevent either such
party from pursuing the Dispute in a court of competent jurisdiction; provided
that, if the Indemnifying Shareholders and the Parent agree to pursue an ADR
Procedure, neither the Indemnifying Shareholders nor the Parent may commence
litigation or seek other remedies with respect to the Dispute prior to the
completion of such ADR Procedure. Any ADR Procedure undertaken by the
Indemnifying Shareholders and the Parent shall be considered a compromise
negotiation for purposes of federal and state rules of evidence, and all
statements, offers, opinions and disclosures (whether written or oral) made
in
the course of the ADR Procedure by or on behalf of the Indemnifying
Shareholders, the Parent or the ADR Service shall be treated as confidential
and, where appropriate, as privileged work product. Such statements, offers,
opinions and disclosures shall not be discoverable or admissible for any
purposes in any litigation or other proceeding relating to the Dispute (provided
that this sentence shall not be construed to exclude from discovery or admission
any matter that is otherwise discoverable or admissible). The fees and expenses
of any ADR Service used by the Indemnifying Shareholders and the Parent shall
be
shared equally by the Indemnifying Shareholders and the Parent. The Parent
and
the Indemnifying Shareholders shall deliver to the Escrow Agent, promptly
following the resolution of the Dispute (whether by mutual agreement, pursuant
to an ADR Procedure, as a result of a judicial decision or otherwise), a written
notice executed by both parties instructing the Escrow Agent as to what (if
any)
portion of the Escrow Shares shall be distributed to the Parent (which notice
shall be consistent with the terms of the resolution of the
Dispute).
(e) Notwithstanding
the other provisions of this Section 6.3, if a third party asserts (other
than by means of a lawsuit) that the Parent is liable to such third party for
a
monetary or other obligation which may constitute or result in Damages for
which
such Parent may be entitled to indemnification pursuant to this Article VI,
and the Parent reasonably determines that it has a valid business reason to
fulfill such obligation, then (i) Parent shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying
Shareholders, (ii) Parent may subsequently make a claim for
indemnification in accordance with the provisions of this Article VI, and
(iii) Parent shall be reimbursed, in accordance with the provisions of
this Article VI, for any such Damages for which it is entitled to
indemnification pursuant to this Article VI (subject to the right of the
Indemnifying Shareholders to dispute the Parent’s entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VI).
(f) For
purposes of this Section 6.3 and the last two sentences of
Section 6.4, any references to the Indemnifying Shareholders (except
provisions relating to an obligation to make or a right to receive any payments
provided for in Section 6.3 or Section 6.4) shall be deemed to refer
to the Indemnification Representatives. The Indemnification Representatives
shall have full power and authority on behalf of each Indemnifying Stockholder
to take any and all actions on behalf of, execute any and all instruments on
behalf of, and execute or waive any and all rights of, the Indemnifying
Shareholders under this Article VI. The Indemnification Representatives
shall have no liability to any Indemnifying Stockholder for any action taken
or
omitted on behalf of the Indemnifying Shareholders pursuant to this
Article VI.
(g) The
limit
on the aggregate number of shares of the Company’s common stock that the Parent
can seek to receive as indemnification under this Section 6.3 is limited to
1,200,000 shares, including the Escrow Shares.
6.4Survival
of Representations and Warranties.
All
representations and warranties contained in this Agreement, the Company
Certificate or the Parent Certificate shall (a) survive the Closing and any
investigation at any time made by or on behalf of Parent or the Indemnifying
Shareholders and (b) shall expire on the date two years following the
Closing Date. If Parent delivers to an Indemnifying Shareholders, before
expiration of a representation or warranty, either a Claim Notice based upon
a
breach of such representation or warranty, or a notice that, as a result a
legal
proceeding instituted by or written claim made by a third party, the Parent
reasonably expects to incur Damages as a result of a breach of such
representation or warranty (an “Expected Claim Notice”), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. If the legal proceeding or
written claim with respect to which an Expected Claim Notice has been given
is
definitively withdrawn or resolved in favor of the Parent, the Parent shall
promptly so notify the Indemnifying Shareholders; and if the Parent has
delivered a copy of the Expected Claim Notice to the Escrow Agent and Escrow
Shares have been retained in escrow after the Termination Date (as defined
in
the Escrow Agreement) with respect to such Expected Claim Notice, the
Indemnifying Shareholders and the Parent shall promptly deliver to the Escrow
Agent a written notice executed by both parties instructing the Escrow Agent
to
distribute such retained Escrow Shares to the Indemnifying Shareholders in
accordance with the terms of the Escrow Agreement.
8.1Termination
by Mutual Agreement.
This
Agreement may be terminated at any time by mutual consent of the parties hereto,
provided that such consent to terminate is in writing and is signed by each
of
the parties hereto.
8.2Termination
for Failure to Close.
This
Agreement shall be automatically terminated if the Closing Date shall not have
occurred by December 6, 2005.
8.3Termination
by Operation of Law.
This
Agreement may be terminated by any party hereto if there shall be any statute,
rule or regulation that renders consummation of the transactions contemplated
by
this Agreement (the “Contemplated Transactions) illegal or otherwise prohibited,
or a court of competent jurisdiction or any government (or governmental
authority) shall have issued an order, decree or ruling, or has taken any other
action restraining, enjoining or otherwise prohibiting the consummation of
such
transactions and such order, decree, ruling or other action shall have become
final and nonappealable.
8.4Termination
for Failure to Perform Covenants or Conditions.
This
Agreement may be terminated prior to the Effective Time:
(a) by
the
Parent and the Acquisition Subsidiary if: (i) any of the representations
and warranties made in this Agreement by the Company shall not be materially
true and correct, when made or at any time prior to consummation of the
Contemplated Transactions as if made at and as of such time; (ii) any of
the conditions set forth in Section 5.2 hereof have not been fulfilled in all
material respects by the Closing Date; (iii) the Company shall have failed
to observe or perform any of its material obligations under this Agreement;
or
(iv) as otherwise set forth herein; or
(b) by
the
Company if: (i) any of the representations and warranties of the Parent or
the Acquisition Subsidiary shall not be materially true and correct when made
or
at any time prior to consummation of the Contemplated Transactions as if made
at
and as of such time; (ii) any of the conditions set forth in Section 5.3
hereof have not been fulfilled in all material respects by the Closing Date;
(iii) the Parent or the Acquisition Subsidiary shall have failed to observe
or perform any of their material respective obligations under this Agreement;
or
(iv) as otherwise set forth herein.
8.5Effect
of Termination or Default; Remedies.
In the
event of termination of this Agreement as set forth above, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto, provided that such party is a Non-Defaulting Party (as defined below).
The foregoing shall not relieve any party from liability for damages actually
incurred as a result of such party’s breach of any term or provision of this
Agreement.
8.6Remedies;
Specific Performance.
In the
event that any party shall fail or refuse to consummate the Contemplated
Transactions or if any default under or beach of any representation, warranty,
covenant or condition of this Agreement on the part of any party (the
“Defaulting Party”) shall have occurred that results in the failure to
consummate the Contemplated Transactions, then in addition to the other remedies
provided herein, the non-defaulting party (the “Non-Defaulting Party”) shall be
entitled to seek and obtain money damages from the Defaulting Party, or may
seek
to obtain an order of specific performance thereof against the Defaulting Party
from a court of competent jurisdiction, provided that the Non-Defaulting Party
seeking such protection must file its request with such court within forty-five
(45) days after it becomes aware of the Defaulting Party’s failure, refusal,
default or breach. In addition, the Non-Defaulting Party shall be entitled
to
obtain from the Defaulting Party court costs and reasonable attorneys’ fees
incurred in connection with or in pursuit of enforcing the rights and remedies
provided hereunder.
9.1Press
Releases and Announcements.
No
Party shall issue any press release or public announcement relating to the
subject matter of this Agreement without the prior written approval of the
other
Parties; provided,
however,
that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide
them
with a copy of the proposed disclosure prior to making the
disclosure).
9.2No
Third Party Beneficiaries.
This
Agreement shall not confer any rights or remedies upon any person other than
the
Parties and their respective successors and permitted assigns; provided,
however,
that
(a) the provisions in Article I concerning issuance of the Merger
Shares and Article VI concerning indemnification are intended for the
benefit of the Company Shareholders and (b) the provisions in
Section 4.9 concerning indemnification are intended for the benefit of the
individuals specified therein and their successors and assigns.
9.3Entire
Agreement.
This
Agreement (including the documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements
or representations by or among the Parties, written or oral, with respect to
the
subject matter hereof.
9.4Succession
and Assignment.
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests or obligations
hereunder without the prior written approval of the other Parties; provided
that
the Acquisition Subsidiary may assign its rights, interests and obligations
hereunder to an Affiliate of the Parent.
9.5Counterparts
and Facsimile Signature.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile signature.
9.6Headings.
The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
9.7Notices.
All
notices, requests, demands, claims, and other communications hereunder shall
be
in writing. Any notice, request, demand, claim or other communication hereunder
shall be deemed duly delivered four business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent for next business day delivery via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
Any
Party
may give any notice, request, demand, claim or other communication hereunder
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been
duly
given unless and until it actually is received by the party for whom it is
intended. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
9.8Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York without giving effect to any choice or conflict
of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of Delaware.
9.9Amendments
and Waivers.
The
Parties may mutually amend any provision of this Agreement at any time prior
to
the Effective Time; provided,
however,
that
any amendment effected subsequent to the Requisite Parent Stockholder Approval
shall be subject to any restrictions contained in the Nevada Revised Statutes.
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver of any right
or
remedy hereunder shall be valid unless the same shall be in writing and signed
by the Party giving such waiver. No waiver by any Party with respect to any
default, misrepresentation or breach of warranty or covenant hereunder shall
be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
9.10Severability.
Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability
of
the remaining terms and provisions hereof or the validity or enforceability
of
the offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent jurisdiction
declares that any term or provision hereof is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to limit the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term
or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified.
9.11Submission
to Jurisdiction.
Each of
the Parties (a) submits to the jurisdiction of any state or federal court
sitting in the County of Los Angeles in the State of Delaware in any action
or
proceeding arising out of or relating to this Agreement, (b) agrees that
all claims in respect of such action or proceeding may be heard and determined
in any such court, and (c) agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other Party with respect thereto. Any Party may
make service on another Party by sending or delivering a copy of the process
to
the Party to be served at the address and in the manner provided for the giving
of notices in Section 9.7. Nothing in this Section 9.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
(a) The
language used in this Agreement shall be deemed to be the language chosen by
the
Parties to express their mutual intent, and no rule of strict construction
shall
be applied against any Party.
(b) Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise.
We
have
audited the accompanying statements of the net assets of the Topical Business
Component of Access Pharmaceuticals, Inc. and Subsidiaries (a Delaware
corporation) as of December 31, 2004 and 2003, and the related statements of
operations and cash flows for each of the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that
it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our 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.
The
accompanying audited financial statements were prepared to present the statement
of the net assets of the Topical Business Component of Access Pharmaceuticals,
Inc. and Subsidiaries, and the results of its operations and cash flows for
the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission.
Access
Pharmaceuticals, Inc. entered into an asset sales agreement on October 11,2005,
with Uluru, Inc. in which Uluru, Inc. agreed to acquire the assets of the
topical component of Access Pharmaceuticals, Inc. and assume related liabilities
of that component which exist at a closing date to be determined.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Topical Business Component
of
Access Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2004 and 2003,
and the results of its operations and its cash flows for each of the years
then
ended, in conformity with accounting principles generally accepted in the United
States of America.
ULURU
Inc. is a Delaware corporation in the development stage. It is a diversified
emerging pharmaceutical company engaged in the development of novel therapeutics
based primarily on the adaptation of existing therapeutic agents using its
proprietary drug delivery platforms.
Topical
(the “Business”) represents a component of the consolidated operations of Access
Pharmaceuticals Inc. and its subsidiary companies, a Delaware corporation (API
or the “Company”). The Business consists of three patented drug delivery
technologies from which three products have been approved for marketing in
various global markets. In addition, numerous products are under development
utilizing the mucoadhesive film and nanoparticle aggregate technologies. The
Business’ customer base consists of numerous strategic alliances with partners
throughout the world to manufacture and market our products. Continuing
operations of the Business include a research and development facility in
Dallas, Texas, a third party distribution arrangement for the sale of a product
in the United States and the network of strategic partners
globally.
Uluru,
Inc. entered into an Asset Purchase Agreement (the “Agreement”) with API. The
Agreement provides for the sale of the topical product assets and the assumption
of certain capital lease obligations associated with equipment used by the
Business. Under the terms of the Agreement, the Company will sell all assets
used in the Topical component including inventory, capital equipment and
intellectual property that could be specifically identified as associated with
the Topical component. The sale is to exclude all liabilities of the Company
except the assumed capital and operating leases applicable to the assets to
be
sold, and all non-equipment related debt. The sale was consummated on October12, 2005.
Note
2 - Summary of significant accounting policies:
Basis
of Financial Statement Presentation
Throughout
the period covered by the accompanying financial statements, the Business’
operations are accounted for as a part of the Company. The accompanying
financial statements have been carved out from the Company’s historical
accounting records. Certain operations of the Business include a sharing of
facilities, personnel and other resources with other Company operations. These
financial statements should be read in conjunction with the Company’s
consolidated financial statements and notes thereto contained in the Company’s
Form 10-KSB for the years ended December 31, 2004.
The
Company’s financial systems are not entirely aligned on a basis that is specific
to the Business, and thus are not designed to separately track all
assets/liabilities and receipts/payments related to the Business. Cash
requirements of the Business are provided directly by the Company and cash
generated by the Business is remitted directly to the Company, in a manner
that
is commingled with that of non-Business operations. Transaction systems (e.g.
payroll, employee benefits, accounts payable) for Business and non-Business
operations used to record and account for cash disbursements are provided by
centralized systems of the Company.
The
statements of the net assets of the Topical component were prepared to show
the
net assets of that component and omit any equity by or liability to the Company.
However, to prepare the statements of cash flows for the Business, funds
provided by or to the Company in connection with the affairs of the Topical
component were included therein as a financing activity in arriving at the
zero
cash balances existing on the statements of Topical net assets as of December31, 2004, 2003 and 2002.
The
accompanying financial statements of the Business were prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission wherein Uluru, Inc. is required to file the Business’s audited
financial statements in connection with a pending merger. The presentation
of
these financial statements reflects historic cost values of the
Business.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is provided using the
straight-line method over estimated useful lives ranging from three to seven
years.
Deferred
Charge
From
time
to time fees are payable to the Federal Drug Administration in connection with
new drug applications submitted by the Company. Such fees are considered
deferred charges since they are not recoverable unless the related drug is
accepted and approved by the FDA for use or sale by the Company to the general
public. Such fees are being amortized ratably over the period of 12 months
beginning with the month such fees were paid.
Patents
and Applications
We
expense internal patent and application costs as incurred because, even though
we believe the patents and underlying processes have continuing value, the
amount of future benefits to be derived therefrom are uncertain. Purchased
patents are capitalized and amortized over the lives of the
patents.
Allowance
for Doubtful Accounts
The
company estimates the collectibility of its trade accounts receivable. In order
to assess the collectibility of these receivables, the Company monitors the
current creditworthiness of each customer and analyzes the balances aged beyond
the customer’s credit terms. Theses evaluations may indicate a situation in
which a certain customer cannot meet its financial obligations due to
deterioration of its financial viability, credit ratings or bankruptcy. The
allowance requirements are based on current facts and are reevaluated and
adjusted as additional information is received. Trade accounts receivable are
subject to an allowance for collection when it is probable that the balance
will
not be collected. As of December 31, 2004 and 2003, no allowance for
collectibility was needed.
Pursuant
to SFAS No. 2, “Accounting
for Research and Development Costs,”
our
research and development costs are expensed as incurred. Research and
development expenses include, but are not limited to, payroll and related
expense, lab supplies, preclinical, development cost, clinical trial expense,
outside manufacturing and consulting. The cost of materials and equipment or
facilities that are acquired for research and development activities and that
have alternative future uses are capitalized when acquired. As of December31,2004 and 2003, there were no such capitalized materials, equipment or
facilities.
Use
of
Estimates and Assumptions
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent 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.
In addition, the accompanying financial statements include allocations that
Company management believes to be reasonable under the circumstances. However,
the results of these allocations are not necessarily indicative of the actual
results of operations that would have been obtained if the business had been
operated as a separate entity during the periods presented, and do not present
expectations of the future operating results of the business.
Inventory
Raw
materials and finished goods inventories are directly attributable to the
Business. Inventories are stated at the lower of cost or market value. Raw
material inventory cost is determined on the first-in, first-out method. Costs
of finished goods are determined by an actual cost method.
Revenue
Recognition
Net
sales
in the accompanying statement of operations are specifically attributable to
the
Business. The Business recognizes revenue and related costs from the sale of
its
products at the time the products are shipped to the customer. Licensing
revenues are recognized over the period of our performance obligation. Licensing
agreements generally require payments of fees on executing the agreement with
milestone payments based on regulatory approvals and cumulative sales. Some
agreements allow for the return of a portion of the initial execution fee if
regulatory approvals are not received. In these cases the refundable balance
is
included as deferred revenue. Many of our agreements are for ten years with
automatic extensions. Sponsored research and development revenues are recognized
as research and development activities are performed under the terms of research
contracts. Advance payments received are recorded as deferred revenue until
the
related research activities are performed. Royalty income is recognized as
earned at the time the licensed product is sold. Option revenues are recognized
when the earnings process is completed pursuant to the terms of the respective
contracts.
Cost
of
goods sold includes direct materials, labor and overhead costs specifically
attributable to the Business.
General
and Administrative Expenses
General
and administrative expenses include costs specifically identifiable to the
Business and allocated corporate overhead expenses. All corporate overhead,
including expenses such as salaries, insurance, data processing and professional
fees, are allocated based primarily upon relative activities of the Business
in
relation to total activities of the Company.
Depreciation
Depreciation
expense is specifically attributable to property and equipment used in
operations of the Business.
Restricted
Cash
Restricted
cash is cash that is committed for a particular purpose. We have restricted
cash
as of December 31, 2004 and 2003, amounting to $839,356 and $342,068,
respectively. Pursuant to a license agreement, the licensee advanced the stated
amounts for which an underlying letter of credit to the licensee was issued
to
ensure that such funds were available for refund in the event the licensee
was
unable to obtain regulatory authority in any or all of seven countries specified
in the agreement. To date no regulatory authority was obtained.
The
restricted cash amounts have been adjusted to reflect the value refundable
in
Euros, the functional currency of the licensee. Accordingly, as of December31,2004 and 2003, the U. S. currency received was adjusted to the Euro amounts
owed
at those dates, resulting in a currency translation exchange loss of $58,342
and
gain of $47,064, respectively.
Interest
Interest
expense is allocated based on net capital employed associated with operations
of
the Business.
Financial
Instruments and Concentration of Credit Risk
The
financial instruments that potentially subject the Business to concentrations
of
credit risk are trade receivables. Trade receivables are unsecured; however,
management seeks to control concentration of credit risk by establishing and
continuously monitoring credit limits. In addition, the credit risk
concentration is limited due to the geographic dispersion of
customers.
Income
Taxes
API
had
no reported income taxes applicable to operations as it had incurred losses
since inception. All deferred tax assets were completely offset by valuation
allowances.
The
financial statements of the Business are a “carve out” component of API and as
such, no income taxes would be applicable since it does not comport to be a
separate entity for which income taxes would apply. In addition, the historical
results of operations for the Business were losses, therefore, no income taxes
would be attributable to such losses, except for deferred taxes which would
be
offset completely by a valuation allowance, since it is more likely than not
that such deferred taxes would be realized in the subsequent year.
Interest
expense is allocated based on net capital employed associated with operations
of
the Business.
Note
3 - Recent Accounting Pronouncement
SFAS
123R
Accounting for Stock Based Compensation
On
December 16, 2004, the FASB issued FAS 123R, “Share-Based
Payment - And Amendment of FASB Statements No. 123 and 95”,
(FAS
123R) which is effective for public companies in periods beginning after June15, 2005. We will be required to implement the proposed standard no later than
the quarter that begins July1, 2005. The cumulative effect of adoption, if
any,
applied on a modified prospective basis, would be measured and recognized on
July 1, 2005. FAS 123R addresses the accounting for transactions in which an
enterprise receives employee services in exchange for (a) equity instruments
of
the enterprise or (b) liabilities that are based on the fair value of the
enterprise’s equity instruments or that may be settled by the issuance of such
equity instruments. FAS 123R would eliminate the ability to account for
share-based compensation transactions using APB 25, and generally would require
instead that such transactions be accounted for using a fair-valued based
method. Companies will be required to recognize an expense for compensation
cost
related to share-based payment arrangements including stock options and employee
stock purchase plans.
Note
4 - Patent Acquisition
On
July22, 2002, the Company acquired from GlaxoSmithKline the patents, trademarks
and
technology covering the use of amlexanox for the treatment of mucosal and skin
disorders. The two major components of the acquisition are the US marketing
rights to amlexanox 5% paste which is currently marketed for the treatment
of
canker sores under the trademark Aphthasol(R), and the remaining worldwide
marketing rights for this indication which were the subject of a prior licensing
agreement between the companies. Under the terms of the agreement, the Company
made an initial upfront payment of $750,000 and an additional payment of
$250,000 on January 22, 2003. The balance of $250,000 was forgiven as part
of
the settlement agreement with Block Drug Company as further described in Note
9.
We
amortize the cost of the above patent and related licenses totaling $1,586,403
over their useful lives of approximately 9 years. The amortization annually
for
2004 and 2003, was $169,593. Accumulated amortization at those dates was
$485,468 and $315,875, respectively. For the next 5 years amortization expense
would be $169,593.
Depreciation
and amortization on property and equipment was $41,967 and $31,155 for the
years
ended December 31, 2004 and 2003, respectively.
Note
7- 401(k) Plan
We
have
tax-qualified employee savings and retirement plan (the “401(k) Plan”) covering
all our employees. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation
by up to the statutorily prescribed annual limit ($13,000 in 2004 and $12,000
in
2003) and to have the amount of such reduction contributed to the 401(k) Plan.
We have a 401(k) matching program whereby we contribute for each dollar a
participant contributes a like amount, with a maximum contribution of 2% of
a
participant’s earnings. The 401(k) Plan is intended to qualify under Section 401
of the Internal Revenue Code so that contributions by employees or by
the
Company to the 401(k) Plan, and income earned on 401(k) Plan contributions,
are
not taxable to employees until withdrawn form the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by us when made. At
the
direction of each participant, we invest the assets of the 401(k) Plan in any
of
23 investment options. Company contributions under the 401(k) Plan were $19,322
in 2004 and $22,315 in 2003.
The
statements of Net Assets of the Business omit a receivable from the FDA
amounting to $573,500 which originated from the required payment by the Company
to the FDA in connection with a Topical drug application which was supposed
to
be refunded in its entirety once the underlying approval of the drug and its
related information was submitted and accepted by them. As of December 31,2004
the drug was approved, however, the refund had been in process for over a year
and to date the FDA has not refunded or approved all of the information
submitted by the Company. Accordingly this receivable has been omitted in the
accompanying financial statements based on the questionable collection of the
amount at the dates thereof.
Note
9 - Settlement With Block Drug Company
On
July22, 2002the Company entered into a Supply Agreement whereby Block Drug Company
(Block) was required to produce Aphthasol(R) for us for a defined period of
time
at its Puerto Rico facility. Subsequently we were advised by Block that it
was
unable to produce Aphthasol(R) for us pursuant to the Supply Agreement. In
May
2003, we reached a settlement with Block relating to this matter whereby Block
made a one-time cash payment to us of $2,280,000 which is included in
Miscellaneous Income for the year ended December 31, 2003. Block was relieved
of
its obligations under the Supply Agreement and the related Asset Sale Agreement,
pursuant to which we had purchased certain assets relating to amlexanox and
Aphthasol(R) from Block. The Company was relieved from certain future
obligations under the Asset Sale Agreement.
As
of
March 30, 2005, the Company executed a securities purchase agreement with
Cornell Capital Partners and Highgate House Funds. Under the securities purchase
agreement, upon closing Cornell Capital Partners and Highgate House Funds are
obligated to purchase an aggregate of $2,633,000 principal amount of secured
convertible debentures from the Company (net proceeds to the Company of
$2,360,000). The secured convertible debentures accrue interest at a rate of
7%
per year and mature 12 months from the issuance date with scheduled monthly
repayment commencing on November 1, 2005 to the extent that the secured
convertible debenture has not been converted to common stock. The secured
convertible debenture is convertible into the Company's common stock at the
holder's option any time up to maturity at a conversion price equal to $4.00.
The secured convertible debentures are secured by all of the assets of the
Company even though such debentures are not included in the accompanying
financial statements. The Company has the right to redeem the secured
convertible debentures upon 3 business days notice for 110% of the amount
redeemed. Pursuant to the securities purchase agreement, the Company is required
to issue to the holders an aggregate of 50,000 shares of common stock of the
Company.
On
May11, 2005 pursuant to an asset purchase agreement between Uluru, Inc. and the
Company, the security interests of both Kerry Gray (president of the Company
whose severance from the Company included a junior security interest in all
of
the assets of the Company), and Cornell Capital Partners were
released.
We
consent to the use in this Information Statement on Schedule 14C of our report
dated November 18, 2005, relating to the financial statements of The Topical
Business Component of Access Pharmaceuticals, Inc. as of December 31, 2004
and
2003, appearing in this Information Statement.
We
also
consent to the use of our report dated April 11, 2005, relating to the financial
statements of Oxford Ventures, Inc. as of December 31, 2004, incorporated herein
by reference.
We
also
consent to the reference to us under the heading "Experts" in such Information
Statement.
