UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

IMARX THERAPEUTICS, INC.

(Name of Registrant as Specified In Its Charter)

     

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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			(1	)		Title of each class of securities to which transaction applies:
			(2	)		Aggregate number of securities to which transaction applies:
			(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):
			(4	)		Proposed maximum aggregate value of transaction:
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			(4	)		Date Filed:

 

IMARX THERAPEUTICS, INC.
12277 134th Court NE, Suite 202
Redmond, Washington 98052
(425) 821-5501

 

Dear ImaRx Stockholder:

 

You are cordially invited to attend a special meeting (the “Special Meeting”) of the stockholders of ImaRx Therapeutics, Inc. (the “Company”) to be held on August 31, 2009 at 3:00 p.m., local time at the Company’s offices at 12277 134th Court NE, Suite 202, Redmond, Washington 98052. The telephone number at that location is (425) 821-5501. At the Special Meeting, the Company is seeking your approval for:

 

 

The Company’s Board of Directors has carefully reviewed and considered the terms and conditions of the Asset Purchase Agreement, the Asset Sale, the Amendment and the Reverse Stock Split and has concluded that the Asset Purchase Agreement, the Asset Sale, the Amendment and the Reverse Stock Split are all in the best interests of the Company and its stockholders. The Company’s Board of Directors therefore has approved these proposals and recommends that you vote FOR each of the proposals set forth in the accompanying Proxy Statement.

 

The Company urges you to read the accompanying Proxy Statement in its entirety and consider it carefully. Please pay particular attention to the “Risk Factors” beginning on page 9 for a discussion of the risks related to the Asset Sale and the Reverse Stock Split of the Company’s Common Stock.

 

It is important that your shares be represented at the Special Meeting, regardless of the size of your holdings. Accordingly, whether or not you expect to attend the Special Meeting, the Company urges you to vote promptly by returning the enclosed proxy card. You may revoke your proxy at any time before it has been voted.

 

Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the Special Meeting.

 

Sincerely,

 

Bradford A. Zakes

President and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Asset Sale or the Reverse Split, passed upon the merits or fairness of the Asset Sale or Reverse Split nor passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

THE ACCOMPANYING PROXY STATEMENT IS DATED JULY 31, 2009
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT JULY 31, 2009.

 

IMARX THERAPEUTICS, INC.
12277 134TH COURT NE, SUITE 202
REDMOND, WASHINGTON 98052
(425) 821-5501

 

Dear Stockholder:

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the “Special Meeting”) of ImaRx Therapeutics, Inc. (the “Company”) will be held on August 31, 2009 at 3:00 p.m., local time at the Company’s offices at 12277 134th Court NE, Suite 202, Redmond, Washington 98052, for the following purposes:

 

(1) to approve the sale of substantially all of the Company’s assets to WA 32609, Inc., a Delaware corporation, for a cash purchase price of $500,000 pursuant to and on the terms set forth in the Asset Purchase Agreement, attached as Annex A to the accompanying Proxy Statement (the “Asset Purchase Agreement”), as described in more detail in the accompanying Proxy Statement (collectively, the “Asset Sale”);

 

(2) to approve a reverse stock split of the issued and outstanding shares of Company’s common stock pursuant to an amendment to the Company’s fifth amended and restated certificate of incorporation, attached as Annex B to the accompanying Proxy Statement (the “Amendment”) described in the accompanying proxy statement (the “Reverse Stock Split”).

 

(3) to grant discretionary authority to the Company’s Board of Directors to adjourn the Special Meeting, regardless of whether a quorum is present, if necessary to solicit additional votes in favor of approval of: (i) the Asset Sale and/or (ii) the Reverse Stock Split; and

 

(4) to consider and transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof.

 

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

 

The Company’s Board of Directors recommends that you vote: (i) FOR the approval of the Asset Sale, (ii) FOR the Reverse Stock Split, and (iii) FOR the proposal to grant discretionary authority to the Board to adjourn the Special Meeting if necessary to solicit additional votes in favor of (a) the approval of the Asset Sale and/or (b) the Reverse Stock Split.

 

If the Asset Sale is not consummated, whether due to lack of stockholder approval or other reasons, we will attempt to secure an alternative strategic transaction as well as additional financing. We only have sufficient cash to sustain operations through the third quarter of 2009. As a result, it is unlikely that another strategic transaction can be identified and finalized or that alternative financing can be secured within this timeframe. Therefore, in the event the asset sale is not completed, we will likely engage in a wind down of operations and an associated corporate dissolution under which it is unlikely there would be funds available for distribution to our stockholders.

 

Only stockholders of record at the close of business on July 23, 2009 (the “Record Date”) are entitled to notice of and to vote at the Special Meeting or any adjournments or postponements thereof. The stock transfer books of the Company will remain open between the Record Date and the date of the Special Meeting.

To ensure your representation at the Special Meeting and the presence of a quorum at the Special Meeting, please vote as soon as possible, even if you plan to attend the Special Meeting. If a quorum is not reached, the Company may have the added expense of re-issuing these proxy materials. The Company urges you to promptly date, sign and return the enclosed proxy card. A reply envelope is enclosed for your convenience.

 

You may also vote by telephone or through the Internet by following the instructions on your proxy card. Should you receive more than one proxy card because your shares are registered in different names and addresses, each proxy card should be signed, dated and returned to ensure that all of your shares will be voted. If you hold your shares through a broker, bank or other nominee, promptly return the voting instruction card you receive; you may also be able to vote electronically via the Internet or by telephone if your broker, bank or other nominee offers such a program. Submitting your instructions by any of these methods will not affect your right to attend the Special Meeting to vote your shares in person. However, if you hold your shares through a broker, bank or other nominee, you must obtain a proxy from the record holder of your shares in order to vote in person at the Special Meeting. Your proxy is revocable in accordance with the procedures set forth in the accompanying Proxy Statement.

 

By Order of the Board of Directors,

 

 

Bradford A. Zakes

President and Chief Executive Officer

 

Redmond, Washington

July 31, 2009

 

IMPORTANT — PLEASE VOTE YOUR PROXY PROMPTLY. After reading the accompanying proxy statement, please mark, sign, date and return the enclosed proxy card in the accompanying reply envelope, or call the toll-free number or use the Internet by following the instructions included with your proxy card, whether or not you plan to attend the Special Meeting in person. Please vote as promptly as possible. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, VOTE VIA TELEPHONE OR INTERNET OR ATTEND THE SPECIAL MEETING IN PERSON.

 

If you have any questions or need assistance in voting your shares, please call our proxy solicitor, Georgeson, Inc., toll free at 1-888-867-7045.

TABLE OF CONTENTS

 

 

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To fully understand the proposed sale of substantially all of the Company’s assets, you should carefully read this entire proxy statement and the annexes attached to this proxy statement.

 

Asset Sale

 

On June 15, 2009, we entered into an asset purchase agreement with WA 32609, Inc., a Delaware corporation, or Buyer, which provides for the sale of substantially all of our assets to Buyer for $500,000 in cash. We are seeking stockholder approval for the asset sale. Below is a summary of the asset purchase agreement. For more detailed information regarding the principal provisions of the asset purchase agreement, see “Proposal No. 1: Approval of the Asset Sale — Principal Provisions of the Asset Purchase Agreement” beginning on page 23.

 

Required Vote

 

The affirmative vote of the holders of a majority of our common stock issued and outstanding and entitled to vote is required for the approval for the asset sale.

 

Summary of Terms of the Asset Sale

 

 

IMARX THERAPEUTICS, INC.
12277 134TH COURT NE, SUITE 202
REDMOND, WASHINGTON 98052
(425) 821-5501

 

This Proxy Statement is furnished in connection with the solicitation on behalf of the Board of Directors (the “Board of Directors” or the “Board”) of ImaRx Therapeutics, Inc., a Delaware corporation (the “Company”), of proxies in the enclosed form for use in voting at the Special Meeting of Stockholders (the “Special Meeting”) to be held on August 31, 2009 at 3:00 p.m., local time, or at any adjournments or postponements thereof, for the purposes set forth herein and in the accompanying Notice of Special Meeting of Stockholders. The Special Meeting will be held at our offices at 12277 134th Court NE, Suite 202, Redmond, Washington 98052. The telephone number at that location is (425) 821-5501. As used herein, the terms “we,” “us,” “our” and similar terms refer to the Company.

 

These proxy solicitation materials are being mailed on or about July 31, 2009 to all stockholders entitled to vote at the Special Meeting.

 

The first proposal to be acted upon at the Special Meeting is the approval of the sale of substantially all our assets to Buyer pursuant to the terms of the Asset Purchase Agreement, dated as of June 15, 2009 (the “Asset Purchase Agreement”), by and between us and WA 32609, Inc., a company organized under the laws of the state of Delaware (“Buyer”) and as further described therein (collectively, the “Asset Sale”). A copy of the Asset Purchase Agreement, which provides for the sale of substantially all our assets to Buyer for a purchase price of $500,000 in cash, is attached as Annex A to this Proxy Statement. We encourage you to read the Asset Purchase Agreement in its entirety. Pursuant to the Asset Purchase Agreement, we will sell to Buyer all our assets relating to our microsphere and ultrasound technology, including but not limited to, our clinical-stage SonoLysis product candidate, which involves the administration of our proprietary MRX-801 microspheres and ultrasonic device technologies to penetrate and break up blood clots and restore blood flow to oxygen deprived tissues (the “Technology”). The assets being sold in the Asset Sale are referred to as the “Purchased Assets” (See “Proposal No. 1: Approval of the Asset Sale” beginning on page 16 for a more complete description of the Asset Purchase Agreement). Buyer has a principal place of business at 6319 240th Way NE, Redmond, WA 98053.

 

The second proposal to be acted upon at the Special Meeting is the approval of a reverse stock split (“Reverse Stock Split”) of the issued and outstanding shares of our common stock pursuant to an amendment to our fifth amended and restated certificate of incorporation (the “Amendment”) (See “Proposal No. 2: Approval of Amendment to Fifth Amended and Restated Certificate of Incorporation to Effect a Reverse Stock Split of the Company’s Common Stock”). A copy of the Amendment is attached as Annex B to this Proxy Statement. We encourage you to read the Amendment in its entirety.

 

The Asset Sale is not conditioned upon the approval of the Reverse Stock Split and the Reverse Stock Split is not conditioned upon the approval of the Asset Sale.

 

If the Asset Sale is not completed, we will attempt to secure an alternative strategic transaction as well as additional financing. We only have sufficient cash to sustain operations through the third quarter of 2009. As a result, it is unlikely that another strategic transaction can be identified and finalized or that alternative financing can be secured within this timeframe. Therefore, in the event the asset sale is not completed, we will likely engage in a wind down of operations and an associated corporate dissolution under which it is unlikely there would be funds available for distribution to our stockholders.

 

If we do not have a quorum at the Special Meeting or if we do not have sufficient affirmative votes in favor of the foregoing proposals, we may, subject to stockholder approval as described below, adjourn the Special Meeting to a later time to permit further solicitation of proxies, if necessary, to obtain additional votes in favor of the foregoing proposals. We may adjourn the Special Meeting without notice, other than by the announcement made at

the Special Meeting. Under our bylaws, if a quorum is not present we can adjourn the Special Meeting by approval of the chairman of the meeting or the holders of a majority of our common stock having voting power present in person or represented by proxy. We are soliciting proxies to vote in favor of adjournment of the Special Meeting, regardless of whether a quorum is present, if necessary to provide additional time to solicit votes in favor of approval of the Asset Sale and/or approval and adoption of the Reverse Stock Split. Our Board of Directors recommends that you vote FOR the proposal to adjourn the Special Meeting.

 

Except as described in this Proxy Statement, our Board of Directors does not know of any other matters that may be brought before the Special Meeting. In the event that any other matter should come before the Special Meeting, the persons named on the proxy card will have discretionary authority to vote all proxies not marked to the contrary with respect to such matters in accordance with their best judgment. A proxy may be revoked at any time before being voted by written notice to such effect received by us at the address set forth above, Attn: Bradford A. Zakes, our President and Chief Executive Officer, by delivery of a subsequently dated proxy or by a vote cast in person at the Special Meeting. Presence at the Special Meeting does not, by itself, revoke the proxy.

 

Our Board of Directors has fixed the close of business on July 23, 2009 as the record date for the Special Meeting (the “Record Date”). Only stockholders of record on the Record Date are entitled to notice of and to vote at the Special Meeting. As of the close of business on the Record Date, we had 10,165,733 shares of common stock issued and outstanding. Our common stock is currently quoted on the Over the Counter Bulletin Board under the symbol “IMRX.OB”. From July 2007 to October 2008, our common stock was traded on the NASDAQ Capital Market under the symbol “IMRX.”

 

A list of stockholders entitled to vote at the Special Meeting will be available for examination by any stockholder, for any purpose germane to the Special Meeting, during ordinary business hours, at our offices at 12277 134th Court NE, Suite 202, Redmond, Washington 98052, for a period of 10 days prior to the Special Meeting and will also be available at the Special Meeting. Our telephone number is (425) 821-5501.

 

We will pay all costs for soliciting proxies. These costs will include the expenses of preparing and mailing proxy materials for the Special Meeting and reimbursement paid to brokerage firms and others for their expenses incurred in forwarding solicitation material regarding the Special Meeting to beneficial owners of our common stock. We have retained Georgeson, Inc. as our proxy solicitor for a base fee of $7,000 plus out-of-pocket costs and expenses, such as telephone calls to stockholders. As our proxy solicitor, Georgeson will review our proxy materials; solicit brokers, banks and institutional holders; and, at our option, make telephone calls to our stockholders. We may conduct further solicitation personally, telephonically, by Internet, by e-mail or by facsimile through our officers, directors and regular employees, none of whom will receive additional compensation for assisting with the solicitation of proxies.

 

You may vote by granting a proxy or, for shares held through a broker, bank or other nominee, by submitting voting instructions to your broker, bank or other nominee. You can also vote in person at the Special Meeting. You can vote by the following methods:

 

Proxies

 

If you hold shares in record name, you may submit your proxy by any one of the following methods:

 

By Mail — You may submit your proxy by mail by signing and dating your proxy card and mailing it in the enclosed pre-addressed envelope. Proxy cards properly executed, duly returned to us and not revoked will be voted in accordance with the specifications made in the proxy card.

 

By Internet — Use the Internet to transmit your voting instructions and for electronic delivery of information. Have your proxy card in hand when you access the website at http://proxy. georgeson. com. You will be prompted

to enter the Company Number and the Control Number , which are located below the voting instructions on your proxy card, to obtain your records and create an electronic proxy card for your voting instructions.

 

By Phone — Use any touch tone telephone to transmit your voting instructions by dialing telephone number 1-800-786-5337. Have your proxy card in hand when you call.

 

Voting Instruction Cards

 

If you hold your shares through a broker, bank or other nominee, you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Most of these organizations offer voting by telephone or Internet.

 

In Person at the Special Meeting

 

We will pass out written ballots to anyone who wants to vote at the Special Meeting. If your shares are held in “street name” and you wish to attend and vote at the Special Meeting, you must notify your broker, bank or other nominee and obtain the proper documentation to vote your shares at the Special Meeting.

 

Revocability of Proxies

 

You can change your vote at any time before proxies are voted at the Special Meeting. Proxies may be revoked by any of the following actions:

 

 

If your shares are held in “street name” by your broker, bank or other nominee, you must submit new voting instructions to your broker, bank or other nominee, or obtain the proper documentation from your broker, bank or other nominee to vote your shares at the Special Meeting.

 

Each share of our common stock is entitled to one vote on all matters. A majority of our common stock issued and outstanding and entitled to vote as of the Record Date, or 5,082,867 shares, must be present at the Special Meeting in person or by proxy in order to constitute a quorum for the transaction of business. Abstentions will be counted as present for purposes of determining whether the quorum requirement is satisfied.

 

Brokers who hold our common stock in “street name” for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approval on non-routine matters, such as the approval of the Asset Sale and approval and adoption of the Reverse Stock Split and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” Broker non-votes will be considered as “present” for purposes of determining a quorum but will have the effect of a vote against the Asset Sale and the Reverse Stock Split and will have no effect on the proposal to adjourn the Special Meeting, regardless of whether a quorum is present, if necessary to provide additional time to solicit votes in favor of approval of the Asset Sale and/or approval and adoption of the Reverse Stock Split. Your broker will send you information regarding how to instruct it on how to vote on your behalf. If you do not receive a voting instruction card from your broker, please contact your broker to get a voting instruction card. YOUR VOTE IS CRITICAL TO THE SUCCESS OF OUR PROPOSALS. We encourage all stockholders whose shares of our common stock are held in “street name” to provide their brokers with instructions on how to vote.

The affirmative vote of the holders of a majority of our common stock issued and outstanding and entitled to vote as of the Record Date is required for approval of Asset Sale and for approval and adoption of the Reverse Stock Split. Accordingly, abstentions and broker non-votes have the effect of negative votes on the proposals to approve each of the Asset Sale and to approve and adopt the Reverse Stock Split. Abstentions and broker non-votes will have no effect on the proposal to adjourn the Special Meeting.

 

If we do not have a quorum at the Special Meeting or if we do not have sufficient affirmative votes in favor of the proposals to approve the Asset Sale and approve and adopt the Reverse Stock Split, we may adjourn the Special Meeting to a later time to permit further solicitation of proxies, if necessary, to obtain additional votes in favor of the foregoing proposals. We may, subject to stockholder approval, adjourn the Special Meeting without notice, other than by the announcement made at the Special Meeting. Under our bylaws, if we do not have a quorum we can adjourn the Special Meeting by approval of the chairman of the meeting or the holders of a majority of our common stock having voting power present in person or represented by proxy at the Special Meeting. We are soliciting proxies to vote in favor of adjournment of the Special Meeting, regardless of whether a quorum is present, if necessary to provide additional time to solicit votes in favor of approval of the Asset Sale and/or approval and adoption of the Reverse Stock Split.

 

All proxies duly executed and received will be voted on all matters presented at the Special Meeting in accordance with the specifications made in such proxies. In the absence of specified instructions, proxies so received will be voted: (i) FOR the proposal to approve the Asset Sale, (ii) FOR the proposal to approve and adopt the Reverse Stock Split, (iii) FOR the proposal to vote to adjourn the Special Meeting, regardless of whether a quorum is present, if necessary in order to solicit additional affirmative votes in favor of the approval of the Asset Sale and the Reverse Stock Split, and (v) in the discretion of the proxies named on the proxy card with respect to any other matters properly brought before the Special Meeting.

 

This Proxy Statement contains certain forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from our expectations of future results, performance or achievements expressed or implied by such forward-looking statements. These risks include, but are not limited to, the risk that the Asset Sale will not be completed; that we will incur significant costs in connection with the Asset Sale, whether or not they are completed; that if the Asset Sale is not approved by our stockholders we may not be able find an alternative strategic transaction or to secure additional financing to continue our business; that the rehypothecation of shares of our common stock held by certain stockholders may make approval of the Asset Sale by our stockholders less likely; that our executive officers have interests in the Asset Sale other than, or in addition to, their interests as stockholders generally; that after completion of the Asset Sale, Buyer will not be obligated to make any future royalty or other payments to us or our stockholders, and our stockholders will not have any other right to participate in any value derived from the intellectual property sold by us pursuant to the Asset Purchase Agreement; that if our stockholders approve the Asset Sale, but vote against the other proposals, we intend to complete the Asset Sale and we will have transferred substantially all of our assets to Buyer with no material operations after the consummation of the Asset Sale; and that we will continue to incur the expenses of complying with public company reporting requirements, which may be economically burdensome.

 

Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future events or results. Except as may be required under federal law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur.

 

We cannot be sure if or when the Asset Sale will be completed.

 

The consummation of the Asset Sale is subject to the satisfaction of various conditions, many of which are beyond our control, including, but not limited to, the approval of the Asset Sale by our stockholders. We cannot guarantee that we will be able to satisfy the closing conditions set forth in the Asset Purchase Agreement. If we are unable to satisfy the closing conditions in the Asset Purchase Agreement, Buyer will not be obligated to complete the Asset Sale.

 

If the Asset Sale is not completed, we will attempt to secure an alternative strategic transaction as well as additional financing. We only have sufficient cash to sustain operations through the third quarter of 2009. As a result, it is unlikely that another strategic transaction can be identified and finalized or that alternative financing can be secured within this timeframe. Therefore, in the event the asset sale is not completed, we will likely engage in a wind down of operations and an associated corporate dissolution under which it is unlikely there would be funds available for distribution to our stockholders.

 

We will incur significant costs in connection with the Asset Sale, whether or not it is completed.

 

We currently expect to incur approximately $170,000 of costs related to the Asset Sale. These expenses include, but are not limited to, legal and accounting fees and expenses, employee expenses, filing fees, printing expenses, proxy solicitation and other related charges. We may also incur additional unanticipated expenses in connection with the Asset Sale. Approximately $160,000 of the costs related to the Asset Sale, such as legal, financial advisory and accounting fees, will be incurred regardless of whether the Asset Sale is completed. These expenses will decrease the remaining cash available for use in connection with any future operations in the business.

 

The Asset Sale will not be completed if it is not approved by our stockholders, and we may not be able to secure additional financing to continue our business.

 

As of March 31, 2009, we had $0.4 million of cash and cash equivalents. If the Asset Sale is not approved by our stockholders, we believe that our existing cash and cash equivalents would be sufficient to meet our operating and capital requirements (including payment of all costs related to the Asset Sale) into the third quarter of 2009. Assuming the Asset Sale is not consummated, unless we are able to promptly secure an alternative strategic transaction or obtain additional financing we will likely not be able to continue our operations beyond the third quarter of 2009. There are no assurances that funding will be available when we need it on terms that we find favorable, if at all. If the Asset Sale is not completed, we will attempt to secure an alternative strategic transaction as well as additional financing. It is unlikely that another strategic transaction can be identified and finalized or that alternative financing can be secured within this timeframe. Therefore, in the event the asset sale is not completed, we will likely engage in a wind down of operations and an associated corporate dissolution under which it is unlikely there would be funds available for distribution to our stockholders.

 

Our chief executive officer has an interest in the Asset Sale other than, or in addition to, their interests as our stockholders generally.

 

Our chief executive officer has an employment agreement that provides for full vesting of all unvested stock options if his employment is terminated by us without “cause” or due to the executive officer’s resignation with “good reason” in connection with a “change in control.” The consummation of the Asset Sale will be deemed a “change of control” under these agreements. The employment of our chief executive officer will likely be terminated following the consummation of the Asset Sale and Reverse Split. Such terminations will likely be deemed a termination without cause in connection with a change in control. There are 208,102 shares of common stock underlying unvested stock options held by our chief executive officer that will vest as a result of the Asset Sale. The weighted-average exercise price of those stock options is $3.93 per share. In addition, as a condition to the closing of the Asset Purchase, our chief executive officer will enter into an employment agreement with Buyer. See “Proposal No. 1: Approval of the Asset Sale — Interests of Certain Persons in the Asset Sale.”

After completion of the Asset Sale, Buyer will not be obligated to make any future royalty or other payments to us or our stockholders, and our stockholders will not have any other right to participate in any value derived from the assets sold by us pursuant to the Asset Purchase Agreement.

 

Our agreement with Buyer does not provide for the payment of any future royalties or other amounts to us or our stockholders based on the economic value derived by Buyer or other parties from the assets sold by us pursuant to the Asset Purchase Agreement. Accordingly, our stockholders will not have the right to participate, directly or indirectly, in any such value. The amount of the economic value that may be derived from Buyer or other parties from the use of such assets may be significant and may substantially exceed the amount of cash we receive from the Asset Sale. We and our stockholders will not have any right or recourse against Buyer or any other party with respect to any portion of the economic value that may be derived from their use of such assets.

 

If a Reverse Stock Split is implemented, the market price per share of our common stock after the Reverse Stock Split may not exceed or remain in excess of the current market price.

 

If the Reverse Stock Split is effected, there can be no assurance that the market price of the Company’s common stock after effecting such Reverse Stock Split will increase in proportion to the reduction in the number of shares of our common stock issued and outstanding before the reverse stock split. Further, the market price per share of the Company’s common stock following the effective time of the Reverse Stock Split may not be maintained for any period of time following the reverse stock split. For example, based on the closing price of our common stock on July 8, 2009 of $0.02 per share, if the Reverse Stock Split was implemented at 1 for 10, there can be no assurance that the post-split market price of our common stock would be $0.23, or even that it would remain above the pre-split market price.

 

 

 

 

 

Proxies

 

By Mail — You may submit your proxy by mail by signing and dating your proxy card and mailing it in the enclosed pre-addressed envelope. Proxy cards properly executed, duly returned to us and not revoked will be voted in accordance with the specifications made in the proxy card.

 

By Internet — Use the Internet to transmit your voting instructions and for electronic delivery of information. Have your proxy card in hand when you access the website at http://proxy.georgeson.com. You will be prompted to enter the Company Number and the Control Number, which are located below the voting instructions on your proxy card, to obtain your records and create an electronic proxy card for your voting instructions.

 

By Phone — Use any touch tone telephone to transmit your voting instructions by dialing telephone number 1-800-786-5337. Have your proxy card in hand when you call.

 

Voting Instructions

 

If you hold your shares through a broker, bank or other nominee, you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Most of these organizations offer voting by telephone or Internet.

 

 

 

Georgeson, Inc.
199 Water Street
New York, New York 10038
Banks & Brokers: 212-440-9800
All others call toll free: 888-867-7045

 

On May 26, 2009, our Board of Directors unanimously approved the sale of substantially all of our assets to WA 32609, Inc., a corporation headquartered in Redmond, Washington and formed for the purpose of acquiring the assets and furthering the development of the SonoLysis Technology. The Board also approved the Asset Purchase Agreement, dated as of June 15, 2009, by and between us and Buyer. A copy of the Asset Purchase Agreement is attached as Annex A to this Proxy Statement. The Asset Purchase Agreement provides for the sale of substantially all our assets to Buyer for $500,000 in cash. The material terms of the Asset Purchase Agreement are summarized below. This summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Asset Purchase Agreement. Stockholders are urged to read the Asset Purchase Agreement in its entirety.

 

General Background of the Events Leading to the Sale of Substantially All of Our Assets to WA 32609, Inc.

 

Since inception, we have been focused on the development of therapeutic uses of our SonoLysis technology which involves the use of our proprietary microsphere and ultrasound technology for the potential treatment of blood clots and the restoration of blood flow to oxygen deprived tissues. To this effect, throughout 2007, we were actively enrolling subjects in a Phase I/II, multinational study of our SonoLysis technology for the treatment of ischemic stroke. This clinical trial titled the TUCSON study was conducted during 2007 and was designed as a dose-ranging study to evaluate four increasing doses of our proprietary MRX-801 microspheres when administered in combination with external transcranial doppler ultrasound and the commercially approved dose of intravenous alteplase or tPA. Each dose cohort was comprised of 18 subjects, 12 of whom received MRX-801, ultrasound and tPA and a control group of 6 whom received standard of care tPA therapy alone. Subjects that were randomized to receive active treatment in the first dose cohort were administered one vial of MRX-801 microspheres. There was no incidence of symptomatic intracranial hemorrhage or sICH in the first dose cohort. Furthermore, there was a trend towards sustained complete recanalization, faster rate of recanalization and improvement in outcomes three months post treatment in those subjects that received active treatment compared to control subjects.

 

Based on the safety results from the first cohort of subjects, the TUCSON Data Safety and Monitoring Board (DSMB) approved proceeding to the second dose cohort in which the dose of MRX-801 was increased to two vials. Within the second dose cohort three patients that received active treatment experienced a symptomatic intracranial hemorrhage. The third and final reported case of sICH occurred in December 2007. Following the observance of the third sICH in December 2007, it was ultimately determined by the TUCSON study DSMB and management to suspend enrollment in the study in the best interest of patient safety and to evaluate whether the increased incidence of sICH was due to the increase in the dose of MRX-801 to two vials. Subsequent to halting the study, the U.S. Food and Drug Administration or FDA was notified of our decision to suspend enrollment and the investigational new drug application or IND for the trial was inactivated, ultimately leading to the termination of the study in January 2009.

 

Prior to the reported cases of sICH in Cohort 2, we engaged the investment bank Rodman and Renshaw in the third quarter of 2007 to pursue a $15-25 million convertible note or other form of debt financing to support further development of our technology. Proceeds from this financing were to be used to fund the completion of the TUCSON study, commence with the next phase of SonoLysis clinical trials under the SEDONA program in the second half of 2008 and fund the other ongoing operations of the Company. Based largely upon the disclosure of our decision to terminate the TUCSON study due to safety issues we were not successful in completing this financing under terms that the management team and Board of Directors considered acceptable at that time.

 

Based on the termination of the TUCSON study in January 2008 and our resulting inability to successfully finance the ongoing development of our SonoLysis technology, we announced on January 30, 2008 that we would

shift our business focus to our commercial product urokinase while we simultaneously pursued strategic alternatives for the ongoing development of our SonoLysis technology.

 

Urokinase is an FDA-approved thrombolytic, or clot-dissolving agent, indicated for the treatment of acute massive pulmonary embolism. We purchased an approximate four year supply of this product from Abbott Laboratories and had been selling the product since the second half of 2006. Proceeds from the sale of urokinase were largely being utilized to fund the ongoing TUCSON clinical trial and other operations of the Company. The urokinase inventory we purchased from Abbott Laboratories had various expiration dates up through August 2009. In order for us to continue selling the product past that date we would be required to perform additional stability studies to support an extended expiry date for the product. In the first quarter of 2008, we completed the required stability testing to support the extension of the expiration dating to September 2009 for the unsold urokinase that remained in inventory. These data were submitted to the FDA accompanied by a request to release three lots of urokinase with the extended dating for commercial distribution. In May of 2008, we received an Approvable Letter from the FDA indicating that additional testing would be required in order to address concerns held by the FDA relating to potential protein aggregation associated with the remaining inventory of unsold urokinase. In an attempt to address these concerns, we engaged expert consultants and conducted additional testing that began in May 2008 and extended through late September 2008.

 

As a direct consequence of this Approvable Letter, we were unable to generate ongoing revenue from commercial product sales of urokinase to fund the ongoing operations of the Company. As a result, we announced on June 11, 2008 that in order to preserve capital resources, a restructuring that included a significant workforce reduction in which all of the Company’s employees other than Bradford Zakes, the Company’s president and chief executive officer, and one additional employee would be terminated. In furtherance of the June 2008 restructuring we discontinued substantially all research and development activity and began an active campaign to identify strategic alternatives for our clinical-stage SonoLysis program, commercial urokinase product and other Company assets.

 

In late 2007, we entered into discussions with Microbix Biosystems relating to a potential urokinase manufacturing partnership. Microbix Biosystems had historically been interested in urokinase and at one time had plans to manufacture and sell a generic form of urokinase. On January 22, 2008, we announced that we had signed a Letter of Intent with Microbix for the manufacture and future development of the product. Under the terms of this Letter of Intent, we would transfer the NDA and manufacturing rights for the product to Microbix, who in turn would assume full responsibility and the associated costs for the long term manufacture and supply of urokinase. We would purchase newly manufactured product from Microbix at an agreed upon transfer price and retain the right to sell the product under its existing label claim as well as future vascular indications. Microbix would have the right to sell the product for catheter clearance and certain oncology and ophthalmologic indications. In March 2008, we were informed by Microbix that they were encountering difficulty raising the required funds to fulfill their obligations under a manufacturing partnership due to perceived limited upside potential on behalf of their investors. Microbix indicated that their investors would prefer a structure in which they owned the entire asset outright. As a result, Microbix proposed an acquisition of the entire urokinase asset.

 

Beginning in March 2008, we began negotiations with Microbix relating to the divestiture of the urokinase asset. On May 6, 2008, we entered into a second Letter of Intent with Microbix relating to the sale of the asset. Under the terms of this Letter of Intent, we agreed to sell Microbix the remaining unsold urokinase inventory and related assets for $17 million in cash. $12 million was to be paid upon closing the transaction with the remaining $5 million to be paid when we achieved an inventory stability milestone. In June 2008, Microbix informed us that they were unable to proceed with the transaction due to their inability to raise the necessary funds required to close the transaction. Microbix indicated that the receipt of the May 13, 2008 FDA Approvable Letter relating to the additional testing that would be required to extend the expiration dating of the unsold inventory of urokinase before additional lots could be released for commercial distribution was a contributing factor in their inability to raise the funds.

 

As a result, we announced that we had terminated the Letter of Intent with Microbix on June 10, 2008.

On June 19, 2008 Microbix contacted us to indicate that they remained interested in acquiring the urokinase asset; however, due to the additional uncertainty relating to the May 13, 2008 FDA Approvable Letter their offer would be less than the original purchase price agreed to in the May 6, 2008 Letter of Intent.

 

Starting in late June 2008, we began negotiations with Microbix pertaining to the acquisition of the urokinase inventory and related assets. On September 23, 2008 we signed an Asset Purchase Agreement with Microbix for the sale of the urokinase assets for $5 million. Under the terms of this agreement, we received $2 million in cash at closing and Microbix assumed $0.5 million in charge-back and product return liability for urokinase previously sold by us into the distribution channel. Also, under the terms of this agreement, we remained eligible to receive an additional $2.5 million dollar bonus payment upon successful release of the three lots with extended expiration dating that remained subject to the May 13, 2008 FDA Approvable Letter.

 

We applied the initial $2 million in cash proceeds from this transaction toward the payment of existing liabilities. The remainder of the funds have been used to support the reduced operations as we pursue strategic alternatives for our clinical stage SonoLysis development program.

 

To date, Microbix has been unsuccessful in obtaining lot release of the three lots of urokinase with extended expiration dating that remain subject to the May 13, 2008 FDA Approvable Letter. On December 17, 2008 the FDA rejected Microbix’s initial request for lot release. Following additional stability testing and submission of an amended request the FDA again rejected Microbix’ lot release request during a meeting on February 26, 2009. Based on submission of further stability testing, the FDA rejected Microbix’ most recent request for lot release in a letter dated April 28, 2009 stating that further testing to address the issue of potential protein aggregation is still required.

 

On June 5, 2008, Microbix informed us that it intended to formally appeal the FDA’s decision to not release the three lots of urokinase that remain subject to the May 13, 2008 FDA Approvable Letter. On June 15, 2009, we entered into an amendment agreement with Microbix under which we agreed to reduce the $2.5 million bonus due under the original agreement on release by the FDA of the three lots of urokinase to a sum of $200,000 which is due within 90 calendar days of the date of receipt by Microbix of written authorization from the FDA for the release of the urokinase lots should such authorization be received on or before September 1, 2010.

 

During the period in which negotiations were underway with Microbix, management and the Board of Directors solicited and evaluated two other offers relating to the sale of the urokinase asset.

 

One of these companies included a publicly held biopharmaceutical company that presented us with a term sheet on July 1, 2008 to acquire the urokinase assets through the issuance of restricted shares of their common stock. Under this term sheet this company would provide us with $5 million in value of their common stock contingent upon the three lots subject to the May 13, 2008 FDA Approvable Letter being released by the FDA with an expiration date of September 2009. Additionally, this company would issue $7.5 million in additional stock to us in the event they were successful in obtaining expiration date extensions for other unsold lots of urokinase up to at least September 30, 2011. Due to the contingent aspect of this transaction and the non-liquid nature of this company’s stock, the Board of Directors elected to reject this offer following thorough analysis.

 

The second company included a privately held energy optimization firm that was interested in conducting a reverse merger in order to gain access to our cash as well as the urokinase assets. On September 5, 2008, this company presented us with a Letter of Intent in which they proposed a transaction that would result in our shareholders holding 20% equity in the new entity post merger. Following thorough due diligence, it was ultimately decided by management and the Board of Directors to reject this offer based on significant reservations regarding the non-compatible nature of the urokinase and energy optimization businesses as well as the ability of this company to successfully finance its existing and future operations post merger. Furthermore, because this transaction excluded the SonoLysis assets, it placed into question how this asset would be best optimized to generate shareholder value.

 

During the period in which the urokinase divestiture negotiations were taking place, we also entered into discussion with Abbott Laboratories regarding the repayment of the $15 million non-recourse promissory note that was issued in connection with the acquisition of urokinase. As of March 31, 2008, the remaining balance due under the note net of funds that were held in escrow totaled approximately $10.8 million. On April 23, 2008, we

announced that we had entered into an agreement in which Abbott accepted a $5.2 million cash payment and the satisfaction of certain payment obligations relating to the storage of certain cell banks and recombinant samples at a contract research organization to satisfy our obligation under the $15 million non-recourse promissory note.

 

In parallel with the divestiture of the urokinase asset to Microbix, we were actively engaged in a campaign to identify a strategic development partner or source of financing to continue the ongoing development of our clinical-stage SonoLysis technology.

 

Beginning in January 2008, we began the process of meeting with multiple parties regarding the partnering, sale, license, merger or financing of our SonoLysis technology and other core assets. Parties have included venture capital firms, Biotech, pharmaceutical and medical device companies, investment banks, independent investors and investment funds.

 

On July 14, 2008, we entered into a non-binding term sheet with a privately held anti-infectives company relating to a stock-for-stock merger in which we would remain the surviving entity but the privately held company would thereby become a public reporting company and be in a better position to raise capital to support further product development efforts. It was proposed that we would receive 33% of the equity in the merged company in exchange for $5 million in cash. The terms of the proposed agreement also required that we divest ourselves of the SonoLysis technology. Ultimately, it was determined by the anti-infectives company that their development plans would exceed the $5 million in cash that we would contribute to the merger and negotiations were terminated by both parties.

 

On February 12, 2009, ImaRx entered into a non-binding Memorandum of Understanding or MOU with a medical device company for an exclusive license to our SonoLysis patents for all clinical vascular market applications excluding all ocular and neurovascular indications. Under the terms of this MOU, we would have been eligible to receive a payment of $250,000 upon closing and three milestone payments totaling $500,000. This transaction did not proceed beyond the due-diligence phase and both parties elected to terminate the non-binding MOU on April 27, 2009.

 

On April 24, 2009, we entered into a license agreement with Reflow Biomedical, Inc, for rights to our SonoLysis patents for ocular-related indications. Under the terms of this agreement, ImaRx is eligible to receive a 3% royalty on future product sales, annual payment for supply of MRX-801 and a one-time payment for access to ImaRx regulatory files. Additionally, we received 2% equity in Reflow Biomedical on a fully diluted basis.

 

During the period of January 2008 and June 2009, management has met with over 60 individual parties relating to the partnering, sale, license merger or financing of our SonoLysis technology. Whereas we were successful at entering into a license agreement with Reflow Biomedical, the terms of this agreement are not sufficient on its own to fund the ongoing development of SonoLysis within ImaRx.

 

Background of the Asset Sale to WA 32609, Inc.

 

On February 5, 2009, we entered into a Confidentiality Disclosure Agreement with a privately-held medical device company that currently manufactures and sells two FDA approved products. The agreement covered disclosures related to our SonoLysis technology.

 

On March 3, 2009, a meeting of our Board of Directors was held during which Mr. Zakes, our CEO provided the directors with an update on all efforts that were underway to secure a strategic transaction for the continued development of the SonoLysis technology. During this meeting, Mr. Zakes was authorized by our Board of Directors to negotiate and enter into a Letter of Intent with this medical device company.

 

On March 6, 2009, we entered into a non-binding Letter of Intent with this medical device company pertaining to a strategic transaction with respect to our SonoLysis stroke therapy program. Specific terms were not reflected in this Letter of Intent. Rather, the letter indicated that both parties would enter into due diligence and negotiations relating to a transaction that involved the sale of our SonoLysis assets including both owned and licensed intellectual property associated with our microbubble and ultrasonic device technologies. Furthermore, this Letter of Intent anticipated that Mr. Zakes and possibly one or two other individuals knowledgeable in the field of microbubble technology would join the medical device company following the completion of the transaction.

On April 1, 2009, this letter of intent was amended to broaden the confidentiality provision to include that we would not disclose any agreements, discussions, negotiations documents or terms related to a definitive agreement by and between the parties.

 

On April 3, 2009, we received a first draft of the Asset Purchase Agreement (“APA”) from the medical device company relating to the sale of substantially all of our SonoLysis assets.

 

On April 8, 2009, a meeting of our Board of Directors was held during which Mr. Zakes provided the directors with an update on all efforts that were underway to secure a strategic transaction for the continued development of the SonoLysis technology in addition to a summary of the key business terms contained in the April 3 version of the APA. During this meeting, legal counsel reviewed the Board’s fiduciary responsibilities and potential conflict of interest that existed due to a provision of the APA indicating that Mr. Zakes would join the medical device company following the completion of the transaction. Upon discussing this matter in detail, the Board authorized Mr. Zakes to continue to lead the negotiations relating to the proposed transaction with the medical device company with the expectation that the Board would be fully informed of the negotiations, and that any transaction with the medical device company would be approved by a majority of disinterested directors and Mr. Zakes would abstain from such a vote.

 

On April 13, 2009, we provided our initial comments relating to the April 3 draft of the APA back to the medical device company.

 

On April 16, 2009, a meeting of our Board of Directors was held during which Mr. Zakes provided the directors with an update on the status of negotiations with the medical device company to include a review of the terms of the APA. Following this update, legal counsel recommended that the Board go into an executive session to discuss the terms of the transaction without the participation of Mr. Zakes. During the executive session the directors agreed that Mr. Zakes should continue to lead the negotiations and made specific recommendations relating to the hold-back provision of the APA. While in executive session, the directors also agreed with management’s recommendation to obtain a valuation opinion relating to the transaction.

 

On April 21, 2009, we received comments from the medical device company relating to the April 13 draft of the APA.

 

On April 28, 2009, we provided our comments relating to the April 21 draft of the APA back to the medical device company.

 

On May 11, 2009, we received comments from the medical device company relating to the April 28 draft of the APA.

 

The terms as set forth in the May 11, 2009 version of the APA were generally viewed to be acceptable by both parties. Under the terms of this agreement, we were to receive $500,000 for the sale of substantially all of the assets of the Company related to the SonoLysis stroke therapy program. $400,000 was to be paid at closing and the balance of $100,000 was to be maintained in escrow during a five to six-month hold-back period.

 

On May 14, 2009, Mr. Zakes reviewed the terms of the May 11 APA with the Chairman of our Board, Richard Love. Mr. Love recommended that the full Board be assembled to review the final negotiated terms prior to executing the agreement.

 

On May 14, 2009, Mr. Zakes also received confirmation from the CEO of the medical device company that their Board of Directors was in the process of reviewing the terms of the May 11 APA and he anticipated having a final decision regarding approval no later than May 27, 2009.

 

On May 26, 2009, a meeting of our Board of Directors was held during which Mr. Zakes provided the directors with an update on the status of negotiations with the medical device company to include a review of the final negotiated terms of the APA. Additionally, the results of the valuation analysis relating to this transaction were presented to the Board. Taking into account factors such as development risk, financing risk, dilution and exit valuations, the results of the valuation analysis strongly supported proceeding with the transaction. Following a thorough review and discussion of the terms, a quorum of disinterested directors, excluding Mr. Zakes authorized management to proceed with executing the APA under terms materially similar to the May 11, 2009 version.

On May 27, 2009, Mr. Zakes received confirmation from the CEO of the medical device company that his Board did not approve proceeding with the transaction. However, Mr. Zakes was informed at this time that the CEO was willing to move forward with the transaction as an independent investor under the same deal terms. Rather than sell the SonoLysis assets to the medical device company, the CEO proposed establishing a new corporation to serve as the business entity to develop the technology.

 

Mr. Zakes apprised Mr. Love of this development on May 28, 2009 and the full board was provided an update via written correspondence on May 29, 2009.

 

Based on input received from our Board of Directors between May 29 and June 4, 2009, it was determined that Mr. Zakes would proceed with negotiating this transaction under the modified structure. It was further determined that if possible, Mr. Zakes would arrange a meeting between the CEO of the medical device company and Mr. Love.

 

The CEO of the medical device company established WA 32609, a Delaware corporation to serve as the business entity to acquire the SonoLysis assets from us.

 

On June 4, 2009 a meeting was held between Mr. Zakes, Mr. Love and the CEO of the medical device company. During this meeting, Mr. Love stressed the importance of the transaction and the CEO of the medical device company reaffirmed his commitment to closing the transaction. It was also agreed to during this meeting that WA 32609 would pay a $100,000 break-fee in the event the transaction did not close due to specific actions taken or not taken on behalf of WA 32609 or the company.

 

On June 15, 2009 we entered into an Asset Purchase Agreement with WA 32609 relating to the divestiture of the SonoLysis assets substantially on similar terms as those previously negotiated.

 

The management team and Board of Directors believe that the Company’s effort to identify a viable strategic alternative for the continued development of the SonoLysis technology has been both thorough and complete. Based on the current challenging financing environment combined with our limited cash, it is the Board of Directors recommendation to ImaRx shareholders to approve the divestiture of the SonoLysis assets to WA 32609.

 

Our Board of Directors unanimously:  (i) determined that the Asset Sale is fair, advisable and in the best interests of us and our stockholders, (ii) approved the Asset Purchase Agreement and the Asset Sale, and (iii) recommended that our stockholders vote in favor of the approval of the Asset Sale.

 

In the course of reaching that determination and recommendation, our Board of Directors considered a number of potentially supportive factors in its deliberations including:

 

 

 

 

Our Board of Directors also considered a number of potentially countervailing factors in its deliberations concerning the Asset Sale, including, but not limited to:

 

 

The preceding discussion is not meant to be an exhaustive description of the information and factors considered by our Board of Directors, but addresses the material information and factors considered. In view of the wide variety of factors considered in connection with its evaluation of the Asset Sale and the complexity of these matters, our Board of Directors did not quantify or otherwise attempt to assign relative weights to the various factors considered in reaching its determination. In considering the factors described above, individual members of our Board of Directors may have given different weight to different factors. After taking into account all of the factors set forth above, as well as others, our Board of Directors unanimously agreed that the benefits of the Asset Sale outweigh the risks.

 

The following is a summary of the principal provisions of the Asset Purchase Agreement. While we believe this description covers the material terms of the Asset Purchase Agreement, it may not contain all of the information that is important to you and is qualified in its entirety by reference to the Asset Purchase Agreement. The Asset Purchase Agreement is attached as Annex A to this Proxy Statement, and is considered part of this document. We urge you to carefully read the Asset Purchase Agreement in its entirety for a more complete understanding of the Asset Sale.

 

The Parties to the Asset Purchase Agreement

 

We are a clinical-stage biopharmaceutical company focused on the development of therapies for stroke and other vascular disorders, using our proprietary microsphere technology together with ultrasound. Our lead program, SonoLysis, involves the administration of our proprietary MRX-801 microspheres and ultrasound to break up blood clots and restore blood flow to oxygen deprived tissues.

 

Buyer is a privately-held company organized under the laws of the state of Delaware for the purpose of purchasing substantially all our assets and continuing the development of the Technology after the Asset Sale.

 

The Asset Sale

 

At the closing of the Asset Sale, we will transfer and convey to Buyer substantially all our assets and Buyer will assume specified liabilities related to such assets. The assets we are transferring to Buyer consist of the Acquired Assets (as defined below).

 

Acquired Assets

 

The “Acquired Assets” mean:

 

 

 

Excluded Assets

 

Buyer will not acquire the following assets, which we refer to as the “Excluded Assets”:

 

 

Assumed Liabilities

 

At the closing of the Asset Sale, Buyer has agreed to assume our liabilities relating to performance obligations arising: (i) after the closing date of the Asset Sale in connection with the liabilities under the Acquired Assets, (ii) certain taxes that Buyer has agreed to pay and (iii) all liabilities arising after the closing of the Asset Sale related to the research, development, marketing, manufacture, distribution, testing, sale or trials of the Technology.

 

Excluded Liabilities

 

Other than the Assumed Liabilities, all of our other liabilities and obligations will be retained by us, which liabilities and obligations we refer to as the “Excluded Liabilities,” and include, but are not limited to:

 

 

Purchase Price

 

At the closing of the Asset Sale, Buyer will pay us $400,000 in cash, by wire transfer of immediately available funds. An additional $100,000 will be held in escrow for a period of up to six months following the closing of the Asset Sale, after which time the $100,000, less any payments due to Buyer or pending claims made by Buyer against us, will be delivered to us.

Closing

 

If the Asset Purchase Agreement is approved by our stockholders, the closing of the Asset Sale is expected to take place shortly after the Special Meeting.

 

Representations and Warranties

 

The Asset Purchase Agreement contains certain representations and warranties made by us and by Buyer. We have made representations and warranties to Buyer relating to, among other things:

 

 

These representations and warranties have been made solely for the benefit of the parties to the Asset Purchase Agreement and are not intended to be relied on by any other person.

 

In addition, these representations and warranties are qualified by specific disclosures made to Buyer in connection with the Asset Purchase Agreement, are subject to the materiality standards contained in the Asset Purchase Agreement, which may differ from what may be viewed as material by investors, and were made only as of the date of the Asset Purchase Agreement or such other date as is specified in the Asset Purchase Agreement.

 

No Solicitation of Alternative Proposals

 

We have agreed not to, and will cause all of our officers, directors, employees, financial advisors, attorneys, accountants or other advisors or consultants retained by us not to, solicit, initiate, or encourage any inquiries with respect to, or the making of, any acquisition proposal, or engage in any negotiations or discussions with, furnish any information or data to, or enter into any letter of intent, agreement in principle, acquisition agreement or similar agreement with any party related to an acquisition proposal.

 

Notwithstanding the foregoing, in circumstances not involving a breach of the Asset Purchase Agreement, in response to a written and unsolicited acquisition proposal received from a third party prior to the date of our Special Meeting or its adjournment, we may engage in discussions or negotiations with, and furnish information and data to, any such party if:

 

 

Within 24 hours after receipt of any written acquisition proposal, we will provide Buyer with a copy of such acquisition proposal or, in connection with any non-written acquisition proposal, a written statement setting forth in reasonable detail the material terms and conditions of such acquisition proposal. We will furnish to Buyer copies of any written proposals and draft documentation or, if drafted, written summaries of any material oral inquiries or discussions involving the acquisition proposal.

 

Our Board of Directors has concluded that the Asset Purchase Agreement, the Asset Sale and the transactions contemplated thereby are in our best interests and the interests of our stockholders. However, if we receive a Favorable Third Party Offer, and our Board of Directors determines in good faith that to do otherwise would likely result in a breach of its fiduciary duties under Delaware law, our Board of Directors may fail to make, withdraw or modify its recommendation that the Asset Purchase Agreement, the Asset Sale and the transactions contemplated thereby are in the best interest of us and our stockholders (a “Change in Recommendation”).

 

In the event that our Board of Directors makes a determination to: (i) make a Change in Recommendation, or (ii) terminate the Asset Purchase Agreement in response to a unsolicited written acquisition proposal, we agree to provide Buyer with prior written notice of not less than three business days that we plan to take any of the foregoing actions.

 

Assignment of Intellectual Property

 

We have agreed to execute and deliver to Buyer any and all documents that Buyer reasonably requests that are necessary to vest full title to the intellectual property in Buyer. We and Buyer have agreed to each pay one-half of all of the costs related to the preparation, execution and registration of the assignment documents and for all actions and costs arising after the closing of the Asset Sale associated with the perfection of Buyer’s rights, title and interest in our intellectual property.

 

Transaction-Related Taxes

 

We and Buyer have agreed to each pay one-half of all the personal property taxes, sales, use, stamp, registration, ad valorem obligations and related taxes and fees payable in connection with the sale of the Acquired Assets.

Conditions to the Asset Sale

 

The obligations of Buyer to complete the Asset Sale are subject to certain additional conditions, including, but not limited to:

 

 

Our obligation to complete the Asset Sale is subject to certain conditions, including, but not limited to:

 

 

Termination of the Asset Purchase Agreement

 

The Asset Purchase Agreement may be terminated and the transactions contemplated thereby abandoned at any time prior to the closing of the Asset Sale, whether before or after the Asset Purchase Agreement has been approved by our stockholders, as follows:

 

 

Termination Fee and Payment of Expenses

 

We have agreed to pay Buyer the sum of $100,000 if the Asset Purchase Agreement is terminated in response to a Favorable Third Party Proposal or if the Board of Directors withdraws or amends its recommendation to the shareholders in a manner that is materially adverse to Buyer.

 

Buyer has agreed to pay us the sum of $100,000 if:  (i) Buyer breaches a representation or warranty resulting in a “Materially Adverse Effect” (as defined by the Asset Purchase Agreement); (ii) Buyer breaches a representation, warranty or covenant that is not curable or, if curable, cured within 30 days after written notice of such breach is received by us; and (iii) if the Asset Sale has not closed and all the conditions necessary to obligate Buyer to close the Asset Sale have been satisfied. If Buyer knowingly and intentionally breaches any of its covenants, Buyer will be liable to us for an amount up to $500,000.

 

Survival of Representations, Warranties and Agreements

 

In the event that the Asset Sale is consummated on or before July 15, 2009, the representations and warranties of both parties will remain in full force and effect for a period ending upon the earlier to occur of (i) the six month anniversary of the closing of the Asset Sale or (ii) December 15, 2009. In the event that the Asset Sale is consummated on or after July 15, 2009, the representations and warranties of both parties will remain in full force and effect for a period of five months from the closing of the Asset Sale.

 

However, certain of our representations and warranties, including those relating to our organization and authority, corporate approval, title to assets, intellectual property and solvency, shall survive indefinitely and all our covenants and agreements will survive until we fully perform.

 

Indemnity

 

We have agreed to indemnify Buyer from and against all losses related to: (i) any breach of a representation or warranty; (ii) any breach or violation of any covenants or agreements; any claim or liability with respect to any excluded liabilities; and (iv) any losses resulting from our operation or ownership of the Technology. Buyer will not be entitled to indemnification from us unless and until the aggregate amount of losses exceeds $10,000, in which case Buyer will be entitled to be paid the amount of all their losses. Our liability under the Asset Purchase Agreement is limited to $500,000 other than for losses arising from excluded liabilities or fraud.

 

Fees and Expenses

 

Other than the transaction related taxes described above, each party will bear its own costs and expenses with respect to the transactions contemplated by the Asset Purchase Agreement, whether or not such transaction is consummated.

 

Absence of Appraisal Rights

 

Under Delaware law, our stockholders are not entitled to appraisal rights for their shares of our common stock in connection with the transactions contemplated by the Asset Purchase Agreement or to any similar rights of dissenters under Delaware law.

 

We believe we will not incur any federal or state income taxes as a result of the Asset Sale because our net operating losses for the year will exceed the gain from the Asset Sale.

 

The affirmative vote of the holders of a majority of our common stock issued and outstanding and entitled to vote is required for approval of the Asset Sale.

 

No United States federal or state regulatory requirements must be complied with or approvals obtained as a condition to the Asset Sale.

 

Bradford A. Zakes

 

Mr. Bradford A. Zakes is our President and Chief Executive Officer and a member of our Board of Directors. On June 27, 2008, pursuant to the recommendation of our compensation committee and the approval of our Board of Directors, we entered into an amendment to Mr. Zakes Executive Employment Agreement (the “Zakes Agreement”). The Zakes Agreement removes any obligation we had to make cash severance payments to Mr. Zakes or to pay on Mr. Zakes’ behalf any premiums for medical, dental and vision insurance coverage upon termination of his employment with us. Furthermore, if Mr. Zakes is terminated without cause or he resigns for good reason, Mr. Zakes will receive accelerated vesting for 12 months from the date of his termination of employment for all stock options granted by us to Mr. Zakes before or after the date of the Agreement, and extension of the option exercise period for an additional 12 months beyond the period set forth in the governing option documents for such exercise. In the event a change-in-control transaction occurs and Mr. Zakes’ employment is terminated in the 12-month period preceding or following the change-in-control by us without cause or by Mr. Zakes for good reason, 100% of Mr. Zakes’ unvested options shall automatically vest and the exercise period for all such options shall be extended an additional 12 months. The consummation of the Asset Sale will be deemed a change in control. Mr. Zakes’ employment with us will be terminated at some point without cause during the wind down of our operations.

 

Assuming the Asset Sale is consummated as of September 17, 2009, the following unvested options held by Mr. Zakes shall become immediately vested and exercisable:

 

 

In addition, as a condition to closing the Asset Sale, Mr. Zakes will enter into an employment agreement with Buyer with terms to be negotiated by the Buyer and Mr. Zakes in good faith.

 

At a meeting on May 26, 2009, our Board of Directors unanimously (i) determined that the Asset Sale, and the other transactions contemplated by the Asset Sale, are fair to, advisable and in the best interests of us and our stockholders, (ii) approved in all respects, the Asset Sale and the other transactions contemplated by the Asset Sale, and (iii) recommended that our stockholders vote “FOR” the approval of the Asset Purchase Agreement and the Asset Sale.

 

At the special meeting stockholders, our stockholders will be asked to approve an amendment to our fifth amended and restated certificate of incorporation effecting a Reverse Stock Split of the issued and outstanding shares of our common stock. It is anticipated that the reverse stock split ration will be at a ratio of one share for every ten shares of our common stock outstanding. Upon the effectiveness of the amendment to the fifth amended and restated certificate of incorporation effecting the reverse stock split, or the split effective time, the issued and outstanding shares of our common stock immediately prior to the split effective time will be reclassified into a

smaller number of shares such that a current stockholder will own one new share of our common stock for each ten shares of issued common stock held by that stockholder immediately prior to the split effective time.

 

The following table provides estimates of the number of shares of our common stock authorized, issued and outstanding, reserved for issuance and authorized but neither issued nor reserved for issuance at the following times:

 

 

 

 

 

Our Board of Directors may determine to effect the reverse stock split, if it is approved by the stockholders, even if the other proposals to be acted upon at the meeting are not approved, including the Asset Sale.

 

The form of the amendment to the fifth amended and restated certificate of incorporation of the Company to effect the reverse stock split, as more fully described below, will effect the Reverse Stock Split but will not change the number of authorized shares of common stock or preferred stock, or the par value of the Company common stock or preferred stock.

 

Our Board of Directors approved the proposal approving the Amendment of the Company effecting the Reverse Stock Split for the following reasons:

 

 

If the Reverse Stock Split successfully increases the per share price of the Company’s common stock, the Company Board of Directors believes this increase may facilitate future strategic transactions by the Company and further enhance stockholder value.

 

If the Asset Sale and the Reverse Stock Split is approved and consummated, the board may consider entering into a strategic transaction with a public or private company in lieu of liquidating and distributing cash to the shareholders. The form of the transaction could take the form of a straight forward merger or potentially a reverse merger transaction with a private company that desires to become a public reporting company. As described below, the Board of Directors believes an investment in a company with lower priced securities and a high number of outstanding shares would be less attractive to investors. The Reverse Stock Split may make the company a more attractive for a strategic transaction because it would have fewer issued and outstanding shares and potentially a higher trading price.

 

On July 8, 2009, our common stock closed at $.02 per share. An investment in our common stock may not appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks.

 

There are risks associated with the Reverse Stock Split, including that the Reverse Stock Split may not result in an increase in the per share price of our common stock.

 

We cannot predict whether the Reverse Stock Split will increase the market price for our common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

 

 

The market price of our common stock will also be based on other factors, some of which are unrelated to the number of shares outstanding. If the Reverse Stock Split is effected and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a reverse stock split. Furthermore, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.

 

The amendment to the fifth amended and restated certificate of incorporation effecting the Reverse Stock Split is set forth in Annex B to this proxy statement. The Reverse Stock Split will be effected simultaneously for all outstanding shares of our common stock. The Reverse Stock Split will affect all of our stockholders uniformly and will not affect any stockholder’s percentage ownership interests in us, except to the extent that the Reverse Stock Split results in any of our stockholders owning a fractional share. Common stock issued pursuant to the Reverse Stock Split will remain fully paid and nonassessable. The Reverse Stock Split will not affect our continuing to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

 

If the our stockholders approve the Amendment effecting the reverse stock split, and if our Board of Directors still believes that a Reverse Stock Split is in our and our stockholders best interests, we will file the Amendment with the Secretary of State of the State of Delaware at such time as our Board of Directors has determined to be the appropriate split effective time. Our Board of Directors may delay effecting the Reverse Stock Split without resoliciting stockholder approval. Beginning at the split effective time, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.

 

As soon as practicable after the split effective time, stockholders will be notified that the Reverse Stock Split has been effected. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by us. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split

shares. Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) unless and until requested to do so.

 

No fractional shares will be issued in connection with the reverse stock split. Stockholders of record who otherwise would be entitled to receive fractional shares because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares for which each post-split share is to be reclassified, will be entitled, upon surrender to the exchange agent of certificates representing such shares, to a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common stock on the Over the Counter Bulletin Board on the date immediately preceding the split effective time. The ownership of a fractional interest will not give the holder thereof any voting, dividend, or other rights except to receive payment therefor as described herein. At June 30, 2009, there were approximately 307 stockholders of record. We expect that at the effective time of the reverse stock split, there will be approximately 305 stockholders of record.

 

Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where the Company is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by the Company or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.

 

The Reverse Stock Split will not affect the stockholders’ equity on the Company balance sheet. However, because the par value of the Company common stock will remain unchanged on the effective date of the split, the components that make up the common stock capital account will change by offsetting amounts. The stated capital component will be reduced from its present amount, and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of the Company will be increased because there will be fewer shares of the Company common stock outstanding. Prior periods’ per share amounts will be restated to reflect the Reverse Stock Split.

 

Potential Anti-Takeover Effect

 

Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of our Board of Directors or contemplating a tender offer or other transaction for the combination of the company with another company, the Reverse Stock Split proposal is not being proposed in response to any effort of which the company is aware to accumulate shares of the our common stock or obtain control of the company nor is it part of a plan by management to recommend a series of similar amendments to the our Board of Directors and stockholders. Other than the proposals being submitted to our stockholders for their consideration at the special meeting, our Board of Directors does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change control of the company.

 

The following discussion summarizes the material U.S. federal income tax consequences of the Reverse Stock Split that are expected to apply generally to the Company stockholders as a result of the reverse stock split. This summary is based upon current provisions of the Internal Revenue Code of 1986, as amended, or the Code, existing Treasury Regulations and current administrative rulings and court decisions, all of which are subject to change and to differing interpretations, possibly with retroactive effect.

This summary only applies to a stockholder that is a “U.S. person,” defined to include:

 

 

Any Company stockholder other than a “U.S. person” as so defined is, for purposes of this discussion, a “non-U.S. person.”

 

This summary assumes that the Company stockholders hold their shares of Company common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). No attempt has been made to comment on all U.S. federal income tax consequences of the Reverse Stock Split that may be relevant to particular holders, including holders:

 

 

If a partnership holds the Company common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding the Company common stock, you should consult your tax advisor.

 

In addition, the following discussion does not address the tax consequences of the Reverse Stock Split under state, local or foreign tax laws. Furthermore, the following discussion does not address any of the tax consequences of transactions effectuated before, after or at the same time as the reverse stock split, whether or not they are in connection with the Reverse Stock Split.

 

Accordingly, holders of our common stock should consult their tax advisers regarding the U.S. federal income tax consequences of the Reverse Stock Split to them in light of their personal circumstances and the consequences of the Reverse Stock Split under state, local and foreign tax laws.

 

Other than the cash payments for fractional shares discussed below, no gain or loss should be recognized by a Company stockholder upon such stockholder’s exchange of pre-split shares for post-split shares pursuant to the Reverse Stock Split. The aggregate tax basis of the post-split shares received in the Reverse Stock Split, including any fraction of a post-split share deemed to have been received, will be the same as the Company stockholder’s aggregate tax basis in the pre-split shares that are exchanged.

 

In general, a the Company stockholder who receives cash upon the deemed sale of such stockholder’s fractional share interests in the post-split shares as a result of the Reverse Stock Split will recognize gain or loss equal to the difference between the stockholder’s basis in the fractional share and the amount of cash received. Recognized gain or loss should constitute a capital gain or loss. A Company stockholder’s holding period for the

post-split shares will include the period during which the stockholder held the pre-split shares surrendered in the reverse stock split. If a the Company stockholder recognizes a capital gain or loss as a result of receiving cash upon the deemed sale of the stockholder’s fractional share interests in the post-split shares, such gain or loss will constitute a long-term capital gain or loss if the stockholder’s holding period in the stock exchanged is more than one year as of the closing date of the reverse stock split. Net capital gain (in other words, the excess of net long-term capital gain over net short-term capital loss) will be subject to tax at reduced rates for non-corporate stockholders who receive cash. The deductibility of capital losses is subject to various limitations for corporate and non-corporate holders.

 

For purposes of the above discussion of bases and holding periods, stockholders who acquired different blocks of stock at different times for different prices must calculate their gains and losses and holding periods separately for each identifiable block of such stock exchanged in the Reverse Stock Split.

 

Certain non-corporate Company stockholders may be subject to backup withholding, at a rate of 28% on cash received pursuant to the reverse stock split. Backup withholding will not apply, however, to a Company stockholder who furnishes a correct taxpayer identification number and certifies that the Company stockholder is not subject to backup withholding on IRS Form W-9 or a substantially similar form, or is otherwise exempt from backup withholding. If a the Company stockholder does not provide a correct taxpayer identification number on IRS Form W-9 or a substantially similar form, the Company stockholder may be subject to penalties imposed by the IRS. Amounts withheld, if any, are generally not an additional tax and may be refunded or credited against the Company stockholder’s federal income tax liability, provided that the Company stockholder timely furnishes the required information to the IRS.

 

THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL OF THE REVERSE STOCK SPLIT’S POTENTIAL TAX EFFECTS. THE COMPANY STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT, INCLUDING TAX RETURN REPORTING REQUIREMENTS, AND THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS.

 

The affirmative vote of holders of a majority of the outstanding shares of our common stock having voting power outstanding on the record date for the special meeting is required to approve the amendment to the fifth amended and restated certificate of incorporation effecting the Reverse Stock Split.

 

At a meeting on May 26, 2009, our Board of Directors unanimously (i) determined that the Reverse Stock Split is fair to, advisable and in the best interests of us and our stockholders, (ii) approved in all respects, the Reverse Stock Split, and (iii) recommended that our stockholders vote “FOR” the approval of the Amendment and the Reverse Stock Split.

 

If, at the special meeting, our Board of Directors determines it is necessary or appropriate to adjourn the special meeting, the Board of Directors intends to move to adjourn the special meeting. For example, if the number of our stockholders represented and voting in favor of Proposal 1 regarding the sale of the assets at the special meeting is insufficient to adopt that proposal, the Board of Directors may determine to adjourn the special meeting in order to enable the Board of Directors to solicit additional proxies in respect of such proposal. If our Board of Directors determines that adjournment is necessary or appropriate, we will ask the stockholders in attendance at the special

meeting, in person or by proxy, to vote only upon the adjournment proposal, and not the proposal regarding Asset Sale.

 

Accordingly, under this proposal we are asking you to authorize the holder of any proxy solicited by the Board of Directors to vote in favor of adjournment of the special meeting to another time and place. If the stockholders approve the adjournment proposal, we could adjourn the special meeting and any adjourned session of the special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders who have previously voted. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against the proposals set forth above, we could adjourn the special meeting without a vote on the proposals and seek to convince those stockholders to change their votes to votes in favor of adoption of the proposals.

 

The adjournment proposal relates only to an adjournment of the special meeting occurring for purposes of soliciting additional proxies for approval of the Asset Sale and the Reverse Stock Split proposals in the event that there are insufficient votes to approve the proposals. The Company’s Board of Directors retains full authority to the extent set forth in the Company’s Bylaws and under Delaware law to postpone the special meeting before it is convened, without the consent of any the Company’s stockholders.

 

The proposal to adjourn the special meeting will be approved if the votes cast in favor of the proposal by the holders of our common stock, present in person or represented by proxy and entitled to vote on the subject matter, exceed the votes cast against the proposal with each share of common stock entitled to one vote. No proxy that is specifically marked “AGAINST” adoption of Proposal 1 with respect to the Asset Sale will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the adjournment proposal.

 

The Company’s Board of Directors recommends that you vote “FOR” the adjournment proposal.

 

For a description of our business, see the Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as amended (the “Form 10-K”), which is attached as Annex C to this Proxy Statement, and the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 (the “Form 10-Q”) attached as Annex D to this Proxy Statement. The Form 10-K and the Form 10-Q, which are attached to this Proxy Statement as annexes, do not include the exhibits originally filed with such reports.

 

For a description of our properties, see the Form 10-K, which is attached as Annex C to this Proxy Statement, and the Form 10-Q, which is attached as Annex D to this Proxy Statement.

 

For a description of our legal proceedings, see the Form 10-K, which is attached as Annex C to this Proxy Statement, and the Form 10-Q, which is attached as Annex D to this Proxy Statement.

 

Our financial statements are included in the Form 10-K, which is attached as Annex C to this Proxy Statement, and in the Form 10-Q, which is attached as Annex D to this Proxy Statement.

 

Management’s discussion and analysis of financial condition and results of operations is included in the Form 10-K, which is attached as Annex C to this Proxy Statement, and in the Form 10-Q, which is attached as Annex D to this Proxy Statement.

 

There were no changes in or disagreements with accountants on matters of accounting principles or practices or financial disclosures for the periods covered by the Form 10-K, which is attached as Annex C to this Proxy Statement, and the Form 10-Q, which is attached as Annex D to this Proxy Statement.

 

Our quantitative and qualitative disclosures about market risk are included in the Form 10-K, which is attached as Annex C to this Proxy Statement, and in the Form 10-Q, which is attached as Annex D to this Proxy Statement.

 

Our common stock is currently quoted on the Over the Counter Bulletin Board under the symbol “IMRX.OB”. From July 2007 to October 2008, our common stock was traded on the NASDAQ Capital Market under the symbol “IMRX”. Prior to that time, there was no public market for our common stock. The following table sets forth, for the periods indicated, the quarterly high and low sales prices per share of our common stock as reported by NASDAQ through October 22, 2008 and the Over the Counter Bulletin Board after October 22, 2008.

 

 

At June 30, 2009, there were approximately 307 stockholders of record. We expect that at the effective time of the Reverse Stock Split, there will be approximately 305 stockholders of record.

 

We have never declared or paid cash dividends on capital stock. We intend to retain any future earnings to finance growth and development and therefore do not anticipate paying cash dividends in the foreseeable future.

 

The following table shows information known to us about beneficial ownership (as defined under the regulations of the SEC) of our common stock by:

 

 

Unless otherwise indicated, the information is as of June 30, 2009.

Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security, and includes shares underlying options and warrants that are currently exercisable or exercisable within 60 days after the measurement date. This table is based on information supplied by officers, directors and principal stockholders. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, based on the information each of them has given to us or that is otherwise publicly available, have sole investment and voting power with respect to their shares, except where community property laws may apply.

 

Options and warrants to purchase shares of our common stock that are exercisable within 60 days after June 30, 2009 are deemed to be beneficially owned by the persons holding these options and warrants for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person’s ownership percentage.

 

 

 

 

If we do hold an annual meeting of stockholders, because the date of such meeting would be changed by more than 30 days from our 2007 annual meeting, proposals intended to be presented at that meeting would be required to be received by us at our corporate headquarters, located at 12277 134th Court NE, Suite 202, Redmond, Washington, within a reasonable time before we begin to print and send our proxy materials to be eligible for inclusion in our proxy statement and form of proxy for that meeting. To be considered for presentation at our next annual meeting of stockholders, if held, but not for inclusion in our proxy statement and form of proxy for that meeting, under our bylaws no business may be brought before an Annual Meeting of Stockholders unless it is specified in the notice of the Annual Meeting of Stockholders or is otherwise brought before the Annual Meeting of Stockholders by or at the direction of our Board of Directors or by a stockholder entitled to vote who has delivered written notice to our Corporate Secretary (containing certain information specified in our bylaws about the stockholder and the proposed action) not later than 10 days following the day on which public announcement of the date of such meeting is first made by us. In addition, any stockholder who wishes to submit a nomination to our Board of Directors must deliver written notice of the nomination within this time period and comply with the information requirements in our bylaws relating to stockholder nominations. These requirements are separate from and in addition to the SEC’s requirements that a stockholder must meet in order to have a stockholder proposal included in our proxy statement.

 

We are subject to the reporting requirements of the Exchange Act and we file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy the reports, proxy statements and other information that we file at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our filings are also available free of charge at the SEC’s website at http://www.sec.gov.

 

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to Be Held on August 31, 2009.

 

The proxy materials are also available at www.imarx.com/ImaRx/investor 4_0. We encourage you to access and review all of the important information contained in the proxy materials before voting.

 

You should rely only on the information contained in this Proxy Statement. No one has been authorized to provide you with information that is different from what is contained in this Proxy Statement. The date of this Proxy Statement is July 31, 2009. You should not assume that the information contained in this Proxy Statement is accurate as of any date other than that date. The mailing of this Proxy Statement will not create any implication to the contrary.

 

Our Board of Directors does not presently intend to bring any other business before the Special Meeting, and, so far as is known to our Board of Directors, no matters are to be brought before the Special Meeting except as specified in the Notice of the Special Meeting. As to any business that may properly come before the Special Meeting, however, it is intended that proxies, in the form enclosed, will be voted in respect thereof in accordance with the judgment of the persons voting such proxies.

 

By Order of the Board of Directors

 

Bradford A. Zakes
President and Chief Executive Officer

 

Redmond, Washington

July 31, 2009

 

IMPORTANT

 

Whether or not you plan to attend the Special Meeting, please vote as promptly as possible. If a quorum is not reached, we will have the added expense of re-issuing these proxy materials. If you attend the Special Meeting and so desire, you may withdraw your proxy and vote in person.

 

Thank you for acting promptly.

 

ANNEX A

 

 

ASSET PURCHASE AGREEMENT
By and Among
WA 32609, Inc., a Delaware corporation,
and
ImaRx Therapeutics, Inc., a Delaware corporation
June 15, 2009

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is dated as of the 15th day of June, 2009, by and among WA 32609, Inc., a Delaware corporation (“Buyer”) and ImaRx Therapeutics, Inc., a Delaware corporation (“Seller”). Each of Buyer and Seller are a “Party”, and collectively, the “Parties”.

 

WHEREAS, Seller wishes to sell to Buyer the Acquired Assets and Assumed Liabilities (each as defined below), and Buyer wishes to purchase such assets from Seller and to assume such liabilities subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, Buyer and Seller hereby agree as follows:

 

 

“Acquired Assets” has the meaning set forth in Section 2.1.

 

“Affiliates” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.

 

“Agreement” means this Asset Purchase Agreement.

 

“Allocation” means Buyer’s and Seller’s allocation of the Purchase Price and the Assumed Liabilities among the Acquired Assets.

 

“Assumed Contracts” means the Contracts set forth on Schedule 2.1(b).

 

“Assigned Intellectual Property” has the meaning set forth in Section 2.1(a)(i).

 

“Assumed Liabilities” has the meaning set forth in Section 3.1.

 

“Audited Balance Sheets” means the audited consolidated balance sheets of Seller and its subsidiaries as of December 31, 2007 and 2008.

 

“Audited Financials” means the Audited Balance Sheets and related consolidated statements of operations and cash flows of Seller and its subsidiaries for the fiscal years ended December 31, 2007, and 2008.

 

“Bill of Sale” means the Bill of Sale in substantially the form attached hereto as Exhibit A.

 

“Business Day” means a day other than a Saturday, a Sunday or a day on which commercial banking institutions in the State of Washington are authorized or obligated by law to close.

 

“Closing” means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Section 5.

 

“Closing Date” means the date of the Closing specified in Section 5.

 

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder, or any subsequent legislative enactment thereof, as in effect from time to time.

 

“Contract” or “contract” means and includes every material agreement or understanding of any kind, written or oral, enforceable or not and specifically includes (i) contracts and other agreements for the provision of products or services by Seller; (ii) contracts and other agreements for the sale of any of Seller’s assets or properties other than in the Ordinary Course of Business or for the grant to any person of any preferential rights to purchase any of Seller’s assets or properties; (iii) joint venture agreements relating to the Program or by or to which any of the Acquired Assets are affected or subject; and (iv) any other contract or other agreement not made in the Ordinary Course of Business.

 

“Domain Name Assignment” means the domain name assignment to be entered into between Seller and Buyer in substantially the form attached hereto as Exhibit B.

“Employee Benefit Plans” means any pension, retirement, profit sharing, deferred compensation, vacation, severance, bonus, stock option, share appreciation right, incentive, medical, vision, dental, disability, life insurance or other employee benefit plan whether formal or informal, written or oral, for the benefit of any director, officer, consultant or employee, whether active or terminated, that provides benefits to employees of Seller.

 

“Encumbrances” has the meaning set forth in Section 6.9.

 

“Environmental Laws” means the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the Federal Water Pollution Control Act, the Solid Waste Disposal Act, as amended, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder, as in effect from time to time.

 

“Excluded Assets” has the meaning set forth in Section 2.2.

 

“Excluded Liabilities” has the meaning set forth in Section 3.2.

 

“Financial Statements” means collectively, the Audited Balance Sheets, the Audited Financials, the Interim Balance Sheet and the Interim Financials.

 

“Governmental Authorization” means all licenses, permits, certificates, waivers, amendments, consents, franchises, exemptions, variances, expirations and terminations of any waiting period requirements, other actions by, and notices, applications, filings, registrations, qualifications, declarations and designations with, and other authorizations and approvals issued by or obtained from a Governmental Body or pursuant to any Legal Requirement that are related to or necessary for the conduct of the Program.

 

“Governmental Body” means any domestic, foreign, federal, territorial, state or local governmental authority, quasi-governmental authority, instrumentality, court, government or self-regulatory organization, commission, tribunal or organization, or any regulatory, administrative or other agency or any political or other subdivision, department or branch of any of the foregoing with competent jurisdiction.

 

“Hazardous Substances” means any toxic substance, oil or hazardous material or other chemical or substance (including, without limitation, asbestos in any form, urea formaldehyde or polychlorinated biphenyls) regulated by any Environmental Laws.

 

“Indebtedness” of any Person means, without duplication, (i) the principal of, accrued interest of, premium (if any) in respect of and prepayment and other penalties, premiums, charges, expenses and fees associated with (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person (but excluding trade accounts payable and other accrued current Liabilities arising in the Ordinary Course of Business); (iii) all obligations of such Person under leases required to be capitalized in accordance with GAAP; (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction; (v) all obligations of such Person under interest rate or currency swap transactions (valued at the termination value thereof); (vi) the liquidation value, accrued and unpaid dividends; prepayment or redemption premiums and penalties (if any), unpaid fees or expenses and other monetary obligations in respect of any redeemable preferred stock of such Person; (vii) all obligations of the type referred to in clauses (i) through (vi) of any other Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations; and (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons secured by (or for which the holder of such obligations has an existing right, contingent or otherwise, to be secured by) any Encumbrance, other than a Permitted

Encumbrance, on any property or asset of such Person (whether or not such obligation is assumed by such Person).

 

“Intellectual Property” shall mean any and all patents and patent applications (including all provisionals, reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof); trademarks, service marks, trade names, trade dress (including all goodwill associated with the foregoing), mask works, domain names, logos, business and product names, slogans, copyrights, software, content, Internet web sites and similar rights; and registrations and applications to register or renew the registration of any of the foregoing; trade secrets; all other intellectual property and proprietary rights.

 

“Intellectual Property Licenses” means any and all licenses, contracts and other arrangements providing in whole or in part for the use of, limiting the use of, transferring, indemnifying with respect to or otherwise relating to any Intellectual Property.

 

“Intellectual Property Rights” means any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries including, without limitation, invention disclosures; (ii) all trade secrets and other rights in know-how and confidential or proprietary information; (iii) all copyrights, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) mask works, mask work registrations and applications therefor, and all other rights corresponding thereto throughout the world; (vi) all rights in World Wide Web addresses, uniform resource locators and domain names and applications and registrations therefor; (vii) all rights in all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world; and (viii) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world.

 

“Interim Balance Sheet” means the unaudited consolidated balance sheet of Seller and its subsidiaries as of March 31, 2009.

 

“Interim Financials” means the Interim Balance Sheet and related unaudited consolidated statements of operations and cash flows of Seller and its subsidiaries for the period ended March 31, 2009.

 

“Knowledge of Seller” or “knowledge of Seller” means the actual knowledge of Bradford A. Zakes of a particular fact, circumstance, event or matter, or knowledge of such fact, circumstance, event or matter that would have been obtained after making reasonable inquiry.

 

“Legal Requirement” means any federal, state, local, municipal, foreign, international, and multinational or other constitution, law, ordinance, principle of common law, code, regulation, statute or treaty.

 

“Liabilities” means liabilities or obligations of any nature whatsoever, known or unknown, fixed or contingent, statutory, contractual or otherwise, disclosed or undisclosed, whether or not accrued.

 

“Licensed Intellectual Property” has the meaning set forth in Section 2.1(a)(ii).

 

“Licensor Intellectual Property” has the meaning set forth in Section 2.1(a)(iii).

 

“Losses” means any damages, losses, charges, liabilities, demands, claims, actions, suits, proceedings, payments, judgments, settlements, assessments, Taxes, interest, penalties and costs and expenses (including reasonable expenses of investigations, enforcement and collection, reasonable attorneys’ and accountants’ fees and reasonable out of pocket disbursements).

 

“Material Adverse Effect” means any change, development, event, state of facts, or occurrence that has, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect on (i) the Acquired Assets, (ii) the Program, or (iii) Seller’s ability to perform its obligations under this Agreement or the consummation by Seller of the transactions contemplated hereby, taken as a whole; provided, however, that in no event shall any of the following occurring after the date hereof, alone or in combination, be deemed to constitute a Material Adverse Effect: (A) any change in any Legal Requirement (to the extent Seller is not

disproportionately affected by such change in Legal Requirement relative to similarly situated companies in the biotechnology industry) or GAAP after the date hereof, (B) any failure by the Seller to meet internal projections or published revenue or earnings projections, in and of itself, for any period ending (or for which revenues or earnings are released) on or after the date hereof, (C) any effect that results from changes affecting the biotechnology industry (to the extent such effect is not disproportionate with respect to the Seller) or the United States economy generally (to the extent such effect is not disproportionate with respect to Seller), (D) any effect that results from changes affecting general worldwide economic or capital market conditions (to the extent such effect is not disproportionate with respect to Seller), (E) any effect resulting from compliance with the terms and conditions of this Agreement, (F) any effect caused by an impact to Seller’s relationships with its employees, customers, suppliers or partners directly attributable to the announcement of this Agreement, or (G) any declaration of war, military crisis or conflict, civil unrest, act of terrorism, or act of God.

 

“Material Contract” or “Material Contracts” means any Contract relating to the Program.

 

“Off-the-Shelf Software” means all software that is commercially available off-the-shelf software that has not been modified and costing less than $5,000 to replace with equivalent functionality.

 

“Ordinary Course” or “Ordinary Course of Business” means an action taken by a Person consistent in nature, scope and magnitude with the past practices of such Person and taken in the ordinary course of the normal, day-to-day operations of such Person.

 

“Permitted Encumbrances” has the meaning set forth in Section 6.9.

 

“Personal Property” means all of the machinery, equipment, manufacturing tools, plant, inventory, spare parts, supplies and other tangible and intangible personal property, that are owned, licensed or leased by Seller and used in or related to the Program, plus such additions thereto and deletions therefrom arising in the Ordinary Course of Business and permitted by this Agreement between the date hereof and the Closing Date, but in all cases only to the extent such Personal Property is used in or related to the Program.

 

“Person” means an individual, partnership, corporation, business trust, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture or other entity or a Governmental Body.

 

“Program” means Seller’s therapy programs for the treatment of ischemic stroke as well as a broad variety of other vascular disorders associated with blood clots, including but not limited to, Seller’s clinical-stage SonoLysis product candidate, which involves the administration of Seller’s proprietary MRX-801 microspheres, a proprietary formulation of a lipid shell encapsulating an inert biocompatible gas, and ultrasonic device technologies to penetrate and break up blood clots and restore blood flow to oxygen deprived tissues.

 

“Purchase Price” has the meaning set forth in Section 4.1.

 

“Seller Transaction Expenses” has the meaning set forth in Section 14.1.

 

“Solvent” means, when used with respect to any Person, that, as of the Closing and after giving effect to the consummation the transactions contemplated hereby, (a) the amount of the “fair saleable value” of the assets of such Person will, as of such date, exceed (i) the value of all “liabilities of such Person, including contingent and other liabilities,” as of such date, as such quoted terms are generally determined in accordance with applicable Legal Requirements governing determinations of the insolvency of debtors; and (ii) the amount that will be required to pay the probable liabilities of such Person on its existing debts (including contingent and other liabilities) as such debts become absolute and mature; (b) such Person will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it intends to engage or propose to be engaged following the Closing Date; and (c) such Person will be able to pay its liabilities, including contingent and other liabilities, as they mature. For purposes of this definition, “not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged” and “able to pay its liabilities, including contingent and other liabilities, as they mature” means that, as of the Closing and immediately after consummating the transactions contemplated hereby, the relevant

Person will be able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its obligations as they become due.

 

“Tax” (and with the correlative meaning “Taxes”) means all federal, state, local or foreign net income, franchise, gross income, sales, use, ad valorem, property, gross receipts, license, capital stock, payroll, withholding, excise, severance, transfer, employment, alternative or add-on minimum, stamp, occupation, premium, environmental or windfall profits taxes, and all other taxes, charges, fees, levies, imposts, customs, duties, licenses or other assessments of any kind, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority, and any Liabilities with respect to any of the foregoing payable by reason of being or ceasing to be a member of an affiliated, combined, unitary, or similar group for any period (including pursuant to Treasury Regulations Section 1.1502-6 or comparable provisions of state, local or foreign law) or under any contract, agreement, assumption, transferee liability, operation of law or otherwise.

 

“Trademark Assignment” means the trademark assignment to be entered into between Seller and Buyer in substantially the form attached hereto as Exhibit C.

 

“Transaction Documents” has the meaning set forth in Section 6.1.

 

 

2.1.  Acquired Assets.  Subject to the terms and conditions set forth in this Agreement, at the Closing referred to in Section 5 hereof, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase, acquire and take assignment and delivery of, free and clear from all Encumbrances (other than Permitted Encumbrances), all right, title, and interest of Seller in and to the following assets of Seller related to the Program, whether real, personal, tangible, intangible or otherwise, and whether now existing or hereinafter acquired (other than the Excluded Assets) (collectively, the “Acquired Assets”):

 

(a) (i) all Intellectual Property used in and related to the Program, including without limitation, the domain names, domain name registration applications, contents of websites hosted at the aforementioned domain names, copyrights, copyright applications, trademarks, trademark applications, patents and patent applications that are owned by Seller as of the Closing set forth on Schedule 2.1(a)(i) hereto (the “Assigned Intellectual Property”); and

 

(ii) all Intellectual Property used in or relating to the Program, including without limitation, the logos (whether or not registered) and associated artwork and typeface, trade names, certification marks and service marks that are licensed, used or held for use by Seller as of the Closing set forth on Schedule 2.1(a)(ii) hereto (the “Licensed Intellectual Property”);

 

(iii) each Contract pursuant to which Seller has licensed or authorized others to use any Intellectual Property used in or related to the Program as set forth on Schedule 2.1(a)(iii) hereto (the “Licensor Intellectual Property”).

 

(b) all of Seller’s rights under the Contracts set forth on Schedule 2.1(b) (collectively, the “Assumed Contracts”), including any and all rights to receive payment, goods or services thereunder, and to assert claims and take other actions thereunder, but excluding any rights to receive payments with respect to services performed on or prior to the Closing Date;

 

(c) all Governmental Authorizations, including any permits, licenses, agreements, waivers and authorizations and any pending applications therefore or renewals thereof, held or used by Seller in connection with, or required for, the Program, to the extent their transfer is permitted by law set forth on Schedule 2.1(c) hereto;

 

(d) all of Seller’s right, title and interest to the Personal Property set forth on Schedule 2.1(d) hereto;

 

(e) all rights to claims, demands, lawsuits and judgments with respect to the Program or the ownership, use or value of any Acquired Assets with respect to all periods following the Closing Date;

(f) all goodwill relating to the Program;

 

(g) all technical and investor relations materials and presentations, research and research-related materials, vendor and supplier lists, service provider lists, catalogs, data and laboratory books, media records, technical information, blueprints, technology, technical designs, drawings, specifications and other development records (including those relating to development costs) owned, used, associated with or employed by Seller relating to the Program and including but not limited to those related to Seller’s clinical-stage SonoLysis product candidate;

 

(h) all of Seller’s books, documents and records relating to the Acquired Assets.

 

2.2.  Excluded Assets.  Notwithstanding the provisions of Section 2.1 or any other provision hereof of any schedule or exhibit thereto, Seller is not selling and Buyer is not purchasing, pursuant to this Agreement, and the term “Acquired Assets” shall not include, any of the following assets or rights of Seller (collectively, the “Excluded Assets”):

 

(a) the rights of Seller under this Agreement, the Transaction Documents or from the consummation of the transactions contemplated by this Agreement;

 

(b) Seller’s tax assets, including without limitation, Seller’s right to refunds of Taxes and other governmental charges of whatever nature;

 

(c) cash, bank accounts or similar cash and cash equivalents, accounts receivable, notes and investments;

 

(d) Seller’s rights under all Contracts other than the Assumed Contracts, to the extent such rights do not relate to the Program, including, without limitation, all employment agreements, loan agreements and notes; provided, however, that this exclusion shall not exclude from the Acquired Assets to be acquired by Buyer hereunder any rights, title, interest or benefits to which Seller may be entitled under any such Contract relating to Intellectual Property, which rights, title, interest and benefits shall be included among the Acquired Assets notwithstanding that Buyer will not be assuming any Liabilities under such Contracts;

 

(e) all rights to receive payments with respect to services performed on or prior to the Closing Date under any of the Assumed Contracts;

 

(f) all minute books and stock records and corporate seals;

 

(g) all Intellectual Property and Intellectual Property Rights of Seller or Seller’s Affiliates of any kind not related to or used in the Program;

 

(h) all personal property of Seller other than the Personal Property as set forth on Schedule 2.1(d);

 

(i) the rights to claims, demands, lawsuits and judgments with respect to the Program or the ownership, use or value of any Acquired Assets with respect to the period ending on or before the Closing Date;

 

(j) all insurance policies and insurance benefits owned by Seller, including rights and proceeds, arising from or relating to the Assets or Assumed Liabilities prior to the Closing;

 

(k) all assets, tangible or intangible, not expressly included in the Acquired Assets.

 

 

3.1  Assumed Liabilities.  Subject to the limitations and provisions set forth in Section 3.2, at the Closing, Buyer shall assume the following Liabilities of Seller (the “Assumed Liabilities”) relating exclusively to the Acquired Assets:

 

(a) all Liabilities under the Assigned Intellectual Property, the Licensed Intellectual Property, the Licensor Intellectual Property, the Assumed Contracts and the Governmental Authorizations, from and after the Closing;

(b) any Taxes that Buyer has agreed to pay in accordance with Section 14.1 of this Agreement and all Taxes attributable to the Acquired Assets attributable to any period or partial period beginning after the Closing; and

 

(c) all Liabilities arising after the Closing Date related to the research, development, marketing, manufacture, distribution, testing, sale or trials of the Program.

 

3.2  Excluded Liabilities.  Notwithstanding anything in this Agreement to the contrary, Buyer shall not and none of Buyer’s Affiliates shall assume, and shall not be deemed to have assumed, any Liabilities of Seller whatsoever not otherwise an Assumed Liability, including without limitation the following unassumed Liabilities (collectively, the “Excluded Liabilities”):

 

(a) any Liabilities for accounts payable or for Indebtedness of Seller;

 

(b) any Liabilities under any Contracts other than the Assumed Contracts;

 

(c) any Liabilities relating to the Acquired Assets or to the operation of the Program prior to the Closing Date;

 

(d) any Liabilities for Taxes (including any amounts payable under Section 11.4 (Transaction-Related Taxes));

 

(e) any Liabilities in connection with or relating to all actions, suits, claims, proceedings, demands, warranty claims, assessments and judgments, costs, losses, damages, deficiencies and expenses (whether or not arising out of third party claims), including, without limitation, the matters set forth on Schedule 6.7 and any interest, penalties, reasonable attorney and accountant fees and all amounts paid in investigation, defense or settlement of any of the foregoing, to the extent such liability arises out of injuries, actions, omissions, conditions or events that occurred or existed prior to the Closing in connection with the Acquired Assets or to the operation of the Program;

 

(f) any Liabilities arising in connection with the employment or termination of employment of any Persons affiliated with Seller prior to the Closing, including any workers’ compensation claims relating to events which transpired prior to the Closing, any employee grievances, any Liabilities with respect to any Employee Benefit Plan, or arising as a result of the consummation of the transactions contemplated by this Agreement;

 

(g) any Liabilities of Seller under this Agreement, the Transaction Documents or from the consummation of the transactions contemplated by this Agreement;

 

(h) any Liability of Seller under any Contract that is not an Assumed Liability;

 

(i) any Liabilities relating to employees of Seller;

 

(j) any Seller Transaction Expenses;

 

(k) all other Liabilities of Seller existing at the Closing Date; and

 

(l) any Liabilities arising out of any actual or alleged non-compliance with any Environmental Laws.

 

 

4.1  Purchase Price.  Subject to the terms and conditions hereof, Buyer shall pay to Seller, by wire transfer of immediately available funds to the account previously designated in writing by Seller to Buyer, a purchase price for the Acquired Assets equal to $500,000 (Five-Hundred Thousand Dollars) (the “Purchase Price”) payable as follows:

 

(a) $400,000 (Four-Hundred Thousand Dollars) at the Closing (the “Closing Purchase Price”); and

 

(b) $100,000 (One-Hundred Thousand Dollars) (the “Holdback”) to be delivered to the Escrow Agent for deposit into an escrow account an amount equal to secure Seller’s obligations under Section 12. The Holdback shall be held in an escrow account and applied pursuant to the terms of an Escrow Agreement, substantially in the form reasonably satisfactory to the Parties and the Escrow Agent at the

Closing. On the Expiration Date, the Holdback, together with the interest thereon, then remaining in the escrow account less any payments due to Buyer or pending claims made by Buyer pursuant to Section 12, shall be delivered to Seller.

 

4.2  Allocation of Purchase Price.  Prior to the Closing, Buyer shall submit to Seller the Allocation for Seller’s review and approval (not to be unreasonably withheld, conditioned or delayed). The Allocation shall be consistent with Exhibit D and may be amended by Buyer from time to time as payments under Section 12 (if any) are made, provided that each such amended Allocation shall be consistent with Exhibit D.  At any time, the then most recent Allocation shall be binding on Seller and Buyer for all Tax purposes (including filing of IRS Form 8594). Seller shall cooperate with Buyer in Buyer’s preparation of all Allocations, including providing such information as Buyer may reasonably request. The Allocation will be made in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder. Seller and Buyer shall comply with the applicable information requirements of Section 1060 of the Code and shall file all information and Tax returns (and any amendments thereto) in a manner consistent with the Allocation (including, without limitation, filing Form 8594 with their United Stated federal income Tax return for the Taxable year that includes he date of the Closing). If, contrary to the intent of Buyer and Seller as expressed in this Section 4.2, any Taxing authority makes or proposes an allocation different from that determined in accordance with the terms of this Section 4.2, Buyer and Seller shall cooperate with each other in good faith to contest such Taxing authority’s allocation (or proposed allocation); provided, however, that after consultation with the Parties adversely affected by such allocation (or proposed allocation), the other Parties hereto may file such protective claims or returns as may reasonably be required to protect their interests.

 

 

5.1.  Time and Place.  The closing of the transfer and delivery of all documents and instruments necessary to consummate the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of the Seller, 12277 134th Court NE, Suite 202, Redmond, WA 98052 at 10:00 a.m. on a mutually acceptable date agreed to by the parties hereto not more than two (2) Business Days after the satisfaction of all conditions set forth in Sections 9 and 10 hereof (the date of the Closing, the “Closing Date”).

 

5.2.  Closing Deliveries by Seller.  At the Closing, Seller shall cause to be delivered to Buyer:

 

(a) a duly executed Bill of Sale, assignment and general conveyance, in substantially the form attached hereto as Exhibit A, dated the Closing Date, with respect to the Acquired Assets, and such other instruments of assignment and transfer with respect to the Acquired Assets as Buyer may reasonably request and/or as may reasonably be necessary to vest in Buyer valid and enforceable title to all of the Acquired Assets;

 

(b) a duly executed Assignment and Assumption Agreement, in substantially the form attached hereto as Exhibit E, dated the Closing Date, pursuant to which Seller shall assign the Assumed Liabilities;

 

(c) such duly executed documents and instruments of ownership transfer and assignment as Buyer shall request and provide to Seller (the “National Assignment Documents”), substantially in the form reasonably acceptable to Buyer, requesting the commissioners of the United States Patent and Trademark Office, the European Patent Office and the other national patent offices wherein the Intellectual Property was issued or is pending (a “National Patent Authority”), to transfer ownership and issue the same to Buyer, it successors, legal representatives and assigns, in accordance with the terms of the applicable National Assignment Document.

 

(d) a duly executed Trademark Assignment, in substantially the form attached hereto as Exhibit C, dated as of the Closing Date.

 

(e) a duly executed Domain Name Assignment, in substantially the form attached hereto as Exhibit B, dated the Closing Date.

 

(f) a certificate contemplated by Section 9.9 hereof;

(g) true and complete copies, certified by a duly authorized officer of Seller, of the resolutions duly and validly adopted by the Board of Directors of Seller evidencing its authorization of the execution and delivery of this Agreement, the Transaction Documents and all other documents to be delivered hereunder or thereunder and the consummation of the transactions contemplated by this Agreement;

 

(h) the executed Transaction Documents;

 

(i) the executed Required Consents; and

 

(i) the legal opinion of Seller’s counsel contemplated by Section 9.13 hereof, addressed to Buyer and dated as of the Closing Date, substantially in the form attached hereto as Exhibit F; and

 

(j) such other documents or instruments as Buyer may reasonably request.

 

5.3.  Closing Deliveries by Buyer.  At the Closing, Buyer shall cause to be delivered to Seller:

 

(a) the Closing Purchase Price set forth in Section 4.1(a);

 

(b) true and complete copies, certified by a duly authorized officer of Buyer, of the resolutions duly and validly adopted by the Board of Directors of Buyer evidencing its authorization of the execution and delivery of this Agreement, the Transaction Documents and all other documents to be delivered hereunder or thereunder and the consummation of the transactions contemplated by this Agreement;

 

(c) the executed Transaction Documents; and

 

(d) such other documents or instruments as Seller may reasonably request.

 

5.4.  Required Consents.

 

(a) If any of the Required Consents (as defined in Section 8.1.11) have not yet been obtained (or otherwise are not in full force and effect) as of the Closing, in the case of each Acquired Asset as to which such Required Consents were not obtained (or otherwise are not in full force and effect) (the “Restricted Material Contracts”), Buyer may waive Buyer’s closing condition as to any such Required Consent and, if Seller waives the condition to closing set out in Section 10.7, either:

 

(i) elect to have Seller continue its efforts for a period of three (3) months to obtain the Required Consents; or

 

(ii) elect to have Seller retain that Restricted Material Contract and all Liabilities arising therefrom or relating thereto.

 

If, pursuant to this Section 5.4, Buyer elects to have Seller continue its efforts to obtain any Required Consents and the Closing occurs, notwithstanding Sections 2 and 3 hereof, neither this Agreement nor any assignment and assumption agreement nor any other document related to the consummation of the transactions contemplated by this Agreement shall constitute a sale, assignment, assumption, transfer, conveyance or delivery or an attempted sale, assignment, assumption, transfer, conveyance or delivery of the Restricted Material Contracts, and following the Closing, the Parties shall use their commercially reasonable efforts, and cooperate with each other, to obtain the Required Consent relating to each Restricted Material Contract as quickly as practicable. Pending the obtaining of such Required Consents relating to any Restricted Material Contract, the Parties shall cooperate with each other in any reasonable and lawful arrangements designed to provide to Buyer the benefits of use of the Restricted Material Contract for its term (or any right or benefit arising thereunder, including the enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereunder). Once a Required Consent for the sale, assignment, assumption, transfer, conveyance and delivery of a Restricted Material Contract is obtained, Seller shall promptly assign, transfer, convey and deliver such Restricted Material Contract to Buyer, and Buyer shall assume the obligations under such Restricted Material Contract assigned to Buyer from and after the date of assignment to Buyer pursuant to a special-purpose assignment and assumption agreement (which special-purpose agreement the Parties shall prepare, execute and deliver in good faith at the time of such transfer, all at no additional cost to Buyer).

(b) If there are any consents other than the Required Consents necessary for the assignment and transfer of any Acquired Assets to Buyer (the “Nonmaterial Consents”) which have not yet been obtained (or otherwise are not in full force and effect) as of the Closing, Buyer shall elect at the Closing, in the case of each of the Acquired Assets as to which such Nonmaterial Consents were not obtained (or otherwise are not in full force and effect) (the “Restricted Nonmaterial Contracts”), whether to:

 

(i) accept the assignment of such Restricted Nonmaterial Contract, in which case, as between Buyer and Seller, such Restricted Nonmaterial Contract shall, to the maximum extent practicable and notwithstanding the failure to obtain the applicable Nonmaterial Consent, be transferred at the Closing to Buyer under this Agreement; or

 

(ii) reject the assignment of such Restricted Nonmaterial Contract, in which case, notwithstanding Sections 2 and 3 of this Agreement, (A) neither this Agreement nor any assignment and assumption agreement nor any other document related to the consummation of the transactions contemplated by this Agreement shall constitute a sale, assignment, assumption, conveyance or delivery or an attempted sale, assignment, assumption, transfer, conveyance or delivery of such Restricted Nonmaterial Contract, and (B) Seller shall retain such Restricted Nonmaterial Contract and all Liabilities arising therefrom or relating thereto.

 

6.  REPRESENTATIONS AND WARRANTIES OF SELLER.  As a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated hereby, Seller represents and warrants as of the date of this Agreement and as of the Closing Date that the statements in this Section 6 are true, correct and complete except as set forth in Seller’s disclosure schedules (each a “Schedule” and collectively, the “Schedules”). The Schedules have been arranged for purposes of convenience in separately titled sections corresponding to the provisions of this Section 6; however, each section of the Schedules shall be deemed to incorporate by reference all information disclosed in any other section of the Schedules to the extent it is reasonably apparent on its face to a reader unfamiliar to the Company or the Company’s business that such information is relevant to such other section of the Schedules.

 

6.1.  Organization of Seller; Authority.  Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller is duly qualified and in good standing as a foreign corporation in all jurisdictions in which the character of the properties owned or leased or the nature of the activities conducted by it makes such qualification necessary, except where any such failure would not reasonably be expected to have a Material Adverse Effect. Seller is not in violation of any term of its Certificate of Incorporation. Seller has all requisite corporate power and corporate authority to own and hold the Acquired Assets owned or held by it, to carry on the Program as such program is now conducted and to execute and deliver this Agreement and the other documents, instruments and agreements contemplated hereby or thereby (collectively, the “Transaction Documents”) to which it is a party and to carry out all actions required of it pursuant to the terms of the Transaction Documents.

 

6.2.  Corporate Approval; Binding Effect.  Seller has obtained all necessary authorizations and approvals from its Board of Directors and required for the execution and delivery of the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. As of the Closing, Seller shall have obtained all necessary authorizations and approvals from its stockholders required for the execution and delivery of this Agreement, the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. Each of the Transaction Documents has been duly executed and, when delivered by Seller in accordance with the terms hereof and thereof, will constitute the legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms, except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity.

 

6.3.  Non-Contravention.  The execution and delivery by Seller of the Transaction Documents and, subject to receipt of required stockholder approvals, the consummation by Seller of the transactions contemplated hereby and thereby will not (a) violate or conflict with any provision of the Certificate of Incorporation or By-Laws of Seller; or (b) constitute a violation of, or be in conflict with, or constitute or create a default under, or result in the creation or imposition of any Encumbrance upon any property of Seller (including

without limitation any of the Acquired Assets) pursuant to (i) any agreement or instrument to which Seller is a party or by which Seller or any of its properties (including without limitation any of the Acquired Assets) is bound or to which Seller or any of such properties is subject, or (ii) any Legal Requirement applicable to Seller, except in the case of clause (b) for such violations, conflicts, defaults and Encumbrances as could not reasonably be expected to have a Material Adverse Effect.

 

6.4.  Governmental Consents; Transferability of Licenses, Etc.  Except as set forth on Schedule 6.4, no consent, approval or authorization of, or registration, qualification or filing with, any governmental agency or authority, including but not limited to the Food and Drug Administration, is required for the execution and delivery by Seller of the Transaction Documents or for the consummation by Seller of the transactions contemplated hereby or thereby, other than such as have been obtained or made. Seller has and maintains, and the Governmental Authorizations listed on Schedule 2.1(c) hereto include, all licenses, permits and other authorizations from all Governmental Bodies as are (x) necessary for the conduct of the Program as it is now being conducted or in connection with the ownership or current use of the Acquired Assets or (y) required to be in compliance with all Legal Requirements applicable to the Acquired Assets, except for such licenses, permits and other authorizations the lack of which would not reasonably be expected to have a Material Adverse Effect. The Governmental Authorizations are in full force and effect in accordance with their terms, and there have been no material violations of such Governmental Authorizations, no proceedings are pending or, to Seller’s Knowledge, threatened, which could result in their revocation or limitation and all steps have been taken and filings made on a timely basis with respect to each Governmental Authorization and its renewal; in each case, except as would not reasonably be expected to have a Material Adverse Effect on the Acquired Assets. Except as expressly designated on Schedule 6.4, all of the Governmental Authorizations listed on Schedule 2.1(c) are transferable to Buyer, and true and complete copies of the Governmental Authorizations listed on Schedule 2.1(c) have previously been delivered or made available to Buyer.

 

6.5.  Financial Statements.  Seller has delivered the Financial Statements to Buyer. Each of the Financial Statements have been prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”), consistently applied; during the periods involved (except (i) as may be otherwise indicated in the Financial Statements or the notes thereto, or (ii) in the case of Interim Financials, to the extent that they may not include notes, may be condensed or summary statements or may conform to the Securities and Exchange Commission’s (“SEC”) rules and instructions for Reports on Form 10-Q). Each of the Audited Balance Sheets and the Interim Balance Sheets fairly presents the consolidated financial condition of Seller and its subsidiaries as of its respective date; and each of the statements of operations and cash flows included in the Audited Financials and the Interim Financials fairly presents the consolidated results of operations and cash flows of Seller and its subsidiaries for the periods then ended (subject, in the case of Interim Financials, to normal recurring year-end adjustments).

 

6.6.  Absence of Certain Changes.  Except as set forth on Schedule 6.6 or except as would not reasonably be expected to have a Material Adverse Effect, since the date of the Interim Financials, there has not been with respect to the Program: (a) any change in the assets, Liabilities, income or business of Seller, or in its relationships with suppliers, other than changes in the Ordinary Course of Business; (b) any acquisition or disposition by Seller of any asset or property other than in the Ordinary Course of Business; (c) any damage, destruction or loss, whether or not covered by insurance, adversely affecting, in the aggregate, the property or business of Seller; (d) any entry by Seller into any transaction other than in the Ordinary Course of Business; (e) any incurrence by Seller of any Liabilities, whether absolute, accrued, contingent or otherwise (including, without limitation, Liabilities as a guarantor or otherwise with respect to obligations of others), other than Liabilities incurred in the Ordinary Course of Business; or (f) any Encumbrance on any of the Acquired Assets, other than in the Ordinary Course of Business.

 

6.7.  Litigation.  Except as set forth on Schedule 6.7 hereto, no action, suit, proceeding or investigation is pending or, to the knowledge of Seller, threatened, relating to or affecting any of the Acquired Assets or the Program, nor, to the knowledge of Seller, has any event occurred that is reasonably likely to give rise to or serve as a basis for the commencement of any such action, suit, proceeding or investigation. No action, suit, proceeding or investigation is pending or, to the knowledge of Seller, threatened, which questions the validity of the Transaction Documents or challenges any of the transactions contemplated hereby or thereby, nor, to the

knowledge of Seller, has any event occurred that is reasonably likely to give rise to or serve as a basis for the commencement of any such action, suit, proceeding or investigation.

 

6.8.  Conformity to Law.  Except as set forth on Schedule 6.8 or except where any such noncompliance has been cured or would not reasonably be expected to have a Material Adverse Effect, Seller has complied with, and is in compliance with (a) all Legal Requirements, including all laws, statutes, governmental regulations and all judicial or administrative tribunal orders, judgments, writs, injunctions, decrees or similar commands applicable to the Program or any of the Acquired Assets (including, without limitation, any labor, environmental, occupational health, zoning or other law, regulation or ordinance) and (b) all terms and provisions of all contracts, agreements and indentures of the Program to which Seller is a party, or by which the Program or any of the Acquired Assets is subject. Except as set forth in Schedule 6.8 hereto, Seller has not committed, been charged with, or, to the knowledge of Seller, is or has been under investigation with respect to, nor to the knowledge of Seller does there exist, any violation of any provision of any Legal Requirement which would reasonably be expected to have a Material Adverse Effect.

 

6.9.  Title to Acquired Assets.  Except as set forth on Schedule 6.9, Seller has valid and enforceable title or interest in or to all of the Acquired Assets, and has the full right to sell, convey, transfer, assign and deliver the Acquired Assets, without the need to obtain the consent or approval of any third party. Except for Permitted Encumbrances (as defined below), all of the Acquired Assets are free and clear of any security interests, liens, claims, charges, options, mortgages, debts, leases (or subleases), conditional sales agreements, title retention agreements, encumbrances of any kind, material defects as to title or restrictions against the transfer or assignment thereof (collectively, “Encumbrances”). Except as set forth on Schedule 6.9, all of the Acquired Assets are in good condition and repair (reasonable wear and tear excepted) and are adequate in all material respects to carry on the Program as presently conducted. At and as of the Closing, Seller will convey the Acquired Assets to Buyer by bills of sale, certificates of title and other instruments of assignment and transfer effective in each case to vest in Buyer, and Buyer will have, valid and enforceable title or interest in or to all of the Acquired Assets, free and clear of all Encumbrances other than (a) those identified in Schedule 6.9; (b) those for Taxes and other governmental assessments or charges not yet due and payable; and (c) any other Encumbrances which in the aggregate relate to claims totaling less than $5,000, do not materially detract from the value or transferability of the property or assets subject thereto or materially interfere with the present use and have no arisen other than in the Ordinary Course of Business (“Permitted Encumbrances”).

 

6.10.  Environmental Matters.  Except as set forth on Schedule 6.10, Seller is in material compliance with all Environmental Laws to the extent such compliance or lack thereof would have any impact on the Program or Seller’s ability to consummate the transactions contemplated herein in accordance with the terms hereof, which compliance includes the possession by Seller of all material permits and other Governmental Authorizations required under Environmental Laws and compliance with the terms and conditions thereof. Seller has not received any written notice or other written communication, whether from any Governmental Body, citizens groups, employee or otherwise, that alleges that Seller is not in compliance with any Environmental Law. All Governmental Authorizations currently held by Seller pursuant or in connection with any Environmental Law are in full force and effect, Seller is in compliance in all respects with all of the terms of such Governmental Authorizations to the extent such compliance or lack thereof would reasonably be expected to have a Material Adverse Effect, and no other Governmental Authorizations material to the Program are required by Seller. Except as set forth on Schedule 6.10, the management, handling, storage, transportation, treatment and disposal by Seller of all Hazardous Substances have been in compliance in all respects with all applicable Environmental Laws to the extent such compliance or lack thereof would reasonably be expected to have a Material Adverse Effect.

 

6.11.  Personal Property.  Schedule 2.1(d) hereto sets forth a complete and accurate list of all of the Personal Property existing as of the date hereof. Except as set forth in Schedule 6.11, Seller owns or has the sole and exclusive right to use all the Personal Property and upon the consummation of the transactions contemplated by this Agreement, Buyer shall own or have the sole and exclusive right to use the Personal Property. All of the Personal Property held by Seller to be transferred to Buyer is in good condition and repair (reasonable wear and tear excepted), except as would not reasonably be expected to have a Material Adverse Effect.

6.12.  Assumed Contracts.  Schedule 2.1(b) sets forth a complete and accurate list of all Assumed Contracts with respect to or relating to the Program to which Seller is a party or by which Seller is bound or to which Seller or any of the Acquired Assets is subject. Seller has made available to Buyer true, correct and complete copies of all such Assumed Contracts, together with all modifications and supplements thereto. Each of the Assumed Contracts is in full force and effect in accordance with its terms, Seller is not in breach of any of the material provisions of any such contract, nor, to the knowledge of Seller, is any other party to any such contract in default thereunder, nor does any event or condition exist which with notice or the passage of time or both would constitute a material default thereunder. Seller has performed all material obligations required to be performed by it to date under each Assumed Contract. Subject to obtaining any necessary consents of the other party or parties to any such Assumed Contract (the requirement of any such consent being reflected on Schedule 2.1(b)) and except as set out in Schedule 2.1(b) no such contract (a) includes any provision the effect of which would be to enlarge or accelerate any obligations of Buyer to be assumed thereunder or give additional rights to any other party thereto or will adversely affect the Program as presently conducted by Seller, or (b) contains any material provision which would terminate or lapse by reason of the transactions contemplated by this Agreement.

 

6.13  Material Contracts.

 

(a) Except as set forth on Schedule 6.13, Seller is not a party to or bound by:

 

(i) any Material Contract relating to Indebtedness (whether incurred, assumed, guaranteed or secured by any asset);

 

(ii) any joint venture, partnership, limited liability company or other similar Material Contract or arrangement (including any agreement relating to the Program providing for joint research, development or marketing);

 

(iii) any Material Contract or series of related Material Contracts, including any option agreement, relating to the acquisition or disposition of any business, a material amount of stock or assets of any other Person or any material real property (whether by merger, sale of stock, sale of assets or otherwise);

 

(iv) any Material Contract (A) that limits the freedom of Seller to compete in the Program, including, without limitation, with any Person in the Program or in any area or (B) contains exclusivity obligations or restrictions binding on Seller;

 

(v) any Intellectual Property License or series of related Intellectual Property Licenses (other than shrink wrap licenses for Off-the-Shelf Software);

 

(vi) any Material Contract pursuant to which the Company has agreed to indemnify any Person against any claim of infringement relating to the Assigned Intellectual;

 

(vii) any Material Contract with any current individual officer, director, employee, consultant or independent representative of Seller or former individual officer, director, employee, consultant or independent representative thereof under which there exists any present or future liability;

 

(viii) any Material Contract that grants any exclusive rights, rights of first refusal, rights of first negotiation or similar rights to any person; or

 

(ix) any other Material Contract or series of related Material Contracts, that (A) is not made in the Ordinary Course of Business and (B) involves a payment (whether fixed, contingent or otherwise) of more than $50,000 in the aggregate.

 

(b) Each Material Contract disclosed on Schedule 6.13 or required to be disclosed thereon is a valid and binding agreement of Seller, is in full force and effect in accordance with its terms, and Seller is not in breach of any of the material provisions of any such contract, nor, to the knowledge of Seller, is any other party to any such contract in default thereunder, nor does any event or condition exist which with notice or the passage of time or both would constitute a material default thereunder. Seller has performed all material obligations required to be performed by it to date under each Material Contract. Except as set out in Schedule 6.13 no such Contract (a) includes any provision the effect of which would be to enlarge or accelerate any obligations

of Buyer to be assumed thereunder or give additional rights to any other party thereto or will adversely affect the Program as presently conducted by Seller, or (b) contains any material provision which would terminate or lapse by reason of the transactions contemplated by this Agreement. Seller has made available to Buyer true, correct and complete copies of all such Material Contracts (including all modifications and amendments thereto and waivers thereunder). All Material Contracts are in written form.

 

6.14.  Intellectual Property.

 

(a) (i) Schedule 2.1(a)(i) hereto sets forth a complete and accurate list of the Assigned Intellectual Property; (ii) Schedule 2.1(a)(ii) hereto sets forth a complete and accurate list of the Licensed Intellectual Property; and (iii) Schedule 2.1(a)(iii) hereto sets forth a complete and accurate list of the Licensor Intellectual Property.

 

(b) Except as set forth in Schedule 6.14(b) and except as would not have a Material Adverse Effect, Seller owns or has the sole and exclusive right to use all Assigned Intellectual Property and has the right to use the Licensed Intellectual Property used in the Ordinary Course of the Program. Upon the consummation of the transactions contemplated by this Agreement, and subject to receipt of all consents required to assign to Buyer (i) all Assigned Intellectual Property and (ii) all licenses or other authorizations to use the Licensed Intellectual Property, Buyer shall have the right to use the Assigned Intellectual Property and Licensed Intellectual Property in the Ordinary Course of the Program as presently conducted. Seller agrees to cooperate in placing the Assigned Intellectual Property in the name of Buyer. No claims have been asserted against Seller, and to the knowledge of Seller no claims are pending, by any Person that may affect the use of any Assigned Intellectual Property or Licensed Intellectual Property, or challenging or questioning the validity or effectiveness of any material license or agreement pertaining to the Assigned Intellectual Property, and, except as set forth in Schedule 6.14(b), to the knowledge of Seller, there is no basis for such claim. Except as set forth in Schedule 6.14(b), the use by Seller of the Assigned Intellectual Property and the Licensed Intellectual Property in the Ordinary Course of the Program does not infringe on the rights of any Person, and no claims have been asserted against Seller, and to the knowledge of Seller no claims are pending, by any Person alleging that the use by Seller of any Assigned Intellectual Property or Licensed Intellectual Property infringes on the rights of any Person.

 

(c) Seller has the legal right to grant licenses or sublicenses with respect to all the Licensor Intellectual Property that Seller has licensed or authorized others to use. All licenses or other agreements pursuant to which Seller has granted licenses or authorized others to use any Licensor Intellectual Property are, unless they have expired according to their terms, in full force and effect, and, to the knowledge of Seller, there is no default by any party thereto. To Seller’s knowledge, the licenses granted by Seller with respect to the Licensor Intellectual Property do not infringe on the rights of any person.

 

(d) Except as set forth in Schedule 6.14(d) and except as would not have a Material Adverse Effect, all of the Assigned Intellectual Property has been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights, or the corresponding offices of other jurisdictions as identified on Schedule 2.1(a)(i), and has been maintained and renewed in accordance with all applicable provisions of law and administrative regulations of the United States and each such other jurisdiction.

 

(e) Except as set forth in Schedule 6.14(e), Seller has taken commercially reasonable steps to establish and preserve its Intellectual Property Rights with respect to the Assigned Intellectual Property. Except as set forth in Schedule 6.14(e), Seller has required all professional and technical employees employed with respect to the Program, and other such employees and consultants having access to valuable nonpublic information of Seller, to execute agreements under which such employees or consultants are required to convey to Seller ownership of all inventions and developments conceived or created by them in the course of their employment or engagement with Seller and to maintain the confidentiality of all such information of Seller. Except as set forth in Schedule 6.14(e), Seller has not made such information available to any person other than employees or consultants of Seller, except pursuant to written agreements requiring the recipients to maintain the confidentiality of such information and appropriately restricting the use thereof.

6.15.  Suppliers.  Schedule 6.15 hereto sets forth the five (5) largest suppliers of the Program based on purchases by the Program, for the period ending on December 31, 2008. The relationships of Seller with such suppliers are, to Seller’s knowledge, good commercial working relationships and, except as set forth on Schedule 6.15, no supplier of material importance to the Program has cancelled or otherwise terminated, or threatened in writing to cancel or otherwise to terminate, its relationship with Seller or has during the last twelve (12) months decreased materially, or threatened in writing to decrease or limit materially, its services, supplies or materials for use in the Program, except for normal cyclical changes related to such suppliers’ businesses. Except as set forth on Schedule 6.15, to the knowledge of Seller, no such supplier intends to cancel or otherwise substantially modify its relationship with Seller or to decrease materially or limit its services, supplies or materials to Seller, and to the knowledge of Seller, the consummation of the transactions contemplated hereby would not reasonably be expected to materially adversely affect the post-Closing relationship of Buyer with any supplier of Seller relating to the Program.

 

6.16.  Adequacy of Acquired Assets.  The Acquired Assets are reasonably adequate to conduct the Program on substantially the same basis as currently conducted by Seller.

 

6.17.  Solvency.  Seller is, individually and together with its subsidiaries on a consolidated basis and after giving effect to the incurrence of all obligations being incurred in connection herewith, Solvent.

 

6.18.  No Undisclosed Liabilities.  Except to the extent (a) reflected or reserved against in the Interim Balance Sheet, (b) incurred in the Ordinary Course of Business after the date of the Interim Balance Sheet, or (c) described on any Schedule hereto, Seller is not subject to any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise in connection with the Program (including without limitation as guarantors or otherwise with respect to obligations of others), other than liabilities and obligations in connection with the Program that would not be required to be reflected or reserved against on a balance sheet prepared in accordance with GAAP.

 

6.19.  Taxes.  Seller has duly filed (or have obtained an extension of time within which to file) with the appropriate government agencies all of the income, sales, use, employment and other Tax returns and reports required to be filed by it. No waiver of any statute of limitations relating to Taxes has been executed or given by Seller. All Taxes, assessments, fees and other governmental charges upon Seller or upon any of its properties, assets, revenues, income and franchises which are owed by Seller with respect to any period ending on or before the Closing Date have or will be paid, other than those the non-payment of which would not reasonably be expected to have a Material Adverse Effect. Seller has withheld and paid all Taxes required to be withheld or paid in connection with amounts paid or owing to any employee, creditor, independent contractor or third party. No federal Tax return of Seller is currently under audit by the IRS, and no other Tax return of Seller is currently under audit by any other Taxing authority. Neither the IRS nor any other Taxing authority is now asserting or, to Seller’s knowledge, threatening to assert against Seller any deficiency or claim for additional Taxes or interest thereon or penalties in connection therewith or any adjustment that would have Material Adverse Effect.

 

6.20.  Broker.  Seller has not retained, utilized or been represented by any broker, agent, finder or intermediary in connection with the negotiation or consummation of the transactions contemplated by this Agreement, and Seller has not incurred or become liable for any broker’s commission or finder’s fee relating to or in connection with the transactions contemplated by this Agreement.

 

6.21  Insurance.  Set forth on Schedule 6.21 is a list of all insurance policies (including fidelity bonds and other similar instruments) relating to the Acquired Assets or the Program or for which Seller is an insured party (including policies providing property, fire, theft, casualty, liability and workers’ compensation coverage, but excluding policies relating to Employee Benefit Plans) (the “Insurance Policies”), which are in full force and effect in all material respects and have not been terminated and which provide for coverages which are reasonable for the Program as to both amount and scope. Complete copies of the Insurance Policies have been made available for review by Buyer. Such policies (or other policies providing substantially similar insurance coverage) have been in effect continuously since the date indicated on Schedule 6.21 for such policy. All premiums due in respect of the Insurance Policies have been paid by Seller and Seller is otherwise in material compliance with the terms of such policies. There has not been any threatened termination of, pending

premium increase (other than with respect to customary annual premium increases) with respect to, or alteration of coverage under, any Insurance Policy. To the Knowledge of Seller, there are no pending or threatened claims against the Insurance Policies as to which the applicable insurer has questioned, disputed or denied liability and there exist no material claims that have not been timely submitted by Seller to the applicable insurer.

 

6.22  Disclosure.  Subject to Section 6.23 below, no representation or warranty by Seller in this Section 6 contains at the time made any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading.

 

6.23.  No Other Representations and Warranties.  Except for the representations and warranties of Seller contained in this Section 6, Seller makes no other representations and warranties, written or oral, statutory, express, or implied. Buyer acknowledges that except as expressly provided in this Agreement, Seller has not made, and Seller hereby expressly disclaims and negates, and Buyer hereby expressly waives, any representation or warranty, express or implied, at common law, by statute, or otherwise relating to, and Buyer hereby expressly waives and relinquishes any and all rights, claims and causes of action against Seller and its representatives in connection with the accuracy, completeness or materiality of, any information, data or other information (written or oral) heretofore furnished to Buyer and its representatives by and on behalf of Seller.

 

7.  REPRESENTATIONS AND WARRANTIES OF THE BUYER.  As a material inducement to Seller to enter into this Agreement and consummate the transactions contemplated hereby, Buyer represents and warrants as of the date of this Agreement and as of the Closing Date, to Seller as follows, except as specifically contemplated by this Agreement and/or the Transaction Documents:

 

7.1.  Organization of Buyer; Authority.  Buyer is a corporation duly organized, validly existing and presently subsisting under the laws of the state of Washington. Buyer is not in violation of any term of its Articles of Incorporation. Buyer has all requisite corporate power and corporate authority to own and hold all property owned or held by it, to carry on its business as such business is now conducted and to execute and deliver this Agreement and the Transaction Documents to which it is a party, and to carry out all actions required of it pursuant to the terms of the Transaction Documents, except where any such failure would not reasonably be expected to have a Material Adverse Effect.

 

7.2.  Corporate Approval; Binding Effect.  Buyer has obtained all necessary authorizations and approvals from its Board of Directors required for the execution and delivery of the Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. Each of the Transaction Documents to which Buyer is a party has been duly executed and delivered by Buyer, and constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity.

 

7.3.  Non-Contravention.  The execution and delivery by Buyer of the Transaction Documents to which it is a party and the consummation by Buyer of the transactions contemplated hereby and thereby will not (a) violate or conflict with any provisions of the Articles of Incorporation or By-Laws of Buyer, each as amended to date; or (b) constitute a violation of, or be in conflict with, constitute or create a default under, or result in the creation or imposition of any Encumbrance upon any property of Buyer pursuant to (i) any agreement or instrument to which Buyer is a party or by which Buyer or any of its properties is bound or to which Buyer or any of its properties is subject, or (ii) any statute, judgment, decree, order, regulation or rule of any court or governmental authority to which Buyer is subject, except in the case of clause (b) for such violations, conflicts, defaults and Encumbrances as could not reasonably be expected to have a Material Adverse Effect.

 

7.4.  Litigation.  No action, suit, proceeding or investigation is pending or, to the knowledge of Buyer, threatened, against Buyer in which an adverse decision could reasonably be expected to have a Material Adverse Effect, nor, to the knowledge of the Buyer, has any event occurred that is reasonably

likely to give rise to or serve as a basis for the commencement of any such action, suit, proceeding or investigation.

 

7.5  Conformity to Law.  Except where any such noncompliance has been cured or would not reasonably be expected to have a Material Adverse Effect, Buyer has complied with, and is in compliance with (a) all laws, statutes, governmental regulations and all judicial or administrative tribunal orders, judgments, writs, injunctions, decrees or similar commands applicable to its business (including, without limitation, any labor, environmental, occupational health, zoning or other law, regulation or ordinance) and (b) all terms and provisions of all contracts, agreements and indentures of its business to which Buyer is a party, or by which its business or its properties are subject. Buyer has not committed, been charged with, or, to the knowledge of Buyer, is or has been under investigation with respect to, nor to the knowledge of Buyer does there exist, any violation of any provision of any federal, state or local law or administrative regulation which would reasonably be expected to have a Material Adverse Effect.

 

7.6.  Broker.  Buyer has not retained, utilized or been represented by any broker, agent, finder or other intermediary in connection with the negotiation or consummation of the transactions contemplated by this Agreement, and Buyer has not incurred or become liable for any broker’s commission or finder’s fee relating to or in connection with the transactions contemplated by this Agreement.

 

7.7  No Other Representations and Warranties.  Except for the representations and warranties of Buyer contained in this Section 7, Buyer make no other representations and warranties, written or oral, statutory, express, or implied, Seller acknowledge that except as expressly provided in this Agreement, Buyer has not made, and Buyer hereby expressly disclaim and negate, and Seller hereby expressly waives, any representation or warranty, express or implied, at common law, by statute, or otherwise relating to, and Seller hereby expressly waives and relinquishes any and all rights, claims and causes of action against Buyer and its representatives in connection with the accuracy, completeness or materiality of, any information, data or other information (written or oral) heretofore furnished to Seller and each of its representatives by and on behalf of Buyer.

 

8.  COVENANTS AND AGREEMENTS

 

8.1.  Conduct of the Program by Seller Pending Closing.  Seller covenants and agrees that, from and after the date of this Agreement and until the Closing, except as otherwise specifically consented to or approved by Buyer in writing or except as contemplated by this Agreement and/or the Transaction Documents:

 

8.1.1  Full Access.  Seller shall afford to Buyer and its authorized representatives full access during normal business hours to all properties, assets, books, records, Tax returns, financial information, contracts and documents of Seller and a full opportunity to make such reasonable investigations as they shall desire to make of Seller or with respect to the Acquired Assets, and Seller shall furnish or cause to be furnished to Buyer and its authorized representatives all such information with respect to the Program and with respect to the Acquired Assets as Buyer may reasonably request.

 

8.1.2.  Carry on in Ordinary Course.  Seller shall maintain the Acquired Assets in their current state of repair and condition, excepting normal wear and tear or failure to replace consistent with Seller’s past practice, and shall carry on the Program in the Ordinary Course and shall not make or institute any unusual or novel methods of manufacture, purchase, sale, lease, management, accounting or operation.

 

8.1.3.  Contracts and Commitments.  Seller shall not incur any Indebtedness other than in connection with purchases of capital assets not in violation of Section 8.1.4 under lines of credit existing prior to the date of this Agreement, enter into any contract or commitment or engage in any transaction with respect to the Program not in the Ordinary Course of Business (other than this Agreement and the Transaction Documents and the transactions contemplated hereunder and thereunder), or for which disclosure would be required under Schedule 6.6 or 6.13.

 

8.1.4.  Purchase and Sale of Capital Assets.  Other than pursuant to this Agreement, Seller shall not sell, transfer, assign or otherwise dispose of, or enter into, or commit to enter into, any Contract to sell, transfer, assign or otherwise dispose of, any capital asset constituting part of the Acquired Assets.

8.1.5.  Insurance.  Seller shall maintain with financially sound and reputable insurance companies, funds or underwriters adequate insurance for the Program of the kinds, covering such risks and in such amounts and with such deductibles and exclusions as are customary for similarly situated companies in Seller’s industry.

 

8.1.6.  Preservation of Business Relationships.  Seller shall use its commercially reasonable efforts to preserve for Buyer the present relationships of Seller’s suppliers, customers, independent contractors and others having business relations with Seller in respect of the Program.

 

8.1.7.  No Default.  Seller shall not do any act or omit to do any act, or permit any act or omission to act, which will cause a material breach of any contract, commitment or obligation of Seller material to the Program, including without limitation any of the Governmental Authorizations or Assumed Contracts.

 

8.1.8.  Compliance with Laws.  Seller shall comply in all material respects with all Legal Requirements and orders material to the Program or the Acquired Assets, or as may be reasonably required for the valid and effective transfer of the Acquired Assets.

 

8.1.9.  Notice of Material Adverse Effect.  Seller will promptly notify Buyer in writing of any Material Adverse Effect.

 

8.1.10.  Exclusive Dealing.  Prior to the Closing:

 

(a) Seller shall not directly or indirectly, solicit, initiate, or encourage submission of proposals or offers from any persons relating to any liquidation, dissolution, recapitalization, sale of stock representing 50% or more of the combined voting power of Seller’s voting equity securities, merger, consolidation or acquisition of all or substantially all of the assets of Seller, or purchase of any equity interest in Seller representing 50% or more of the combined voting equity power of the voting securities of Seller, or any other similar transaction or business combination. Seller shall cease immediately and cause to be terminated all contracts (other than confidentiality and nondisclosure agreements to which Seller is a party as of the date hereof (each, an “Existing NDA”)), negotiations and communications with third parties with respect to the foregoing, if any, existing on the date hereof.

 

(b) Seller shall not participate, directly or indirectly, in any negotiations regarding, or furnish to any other person, any information with respect to, or otherwise cooperate in any way with, or assist, any effort or attempt by any other person to do or seek any of the activities referred to in Section 8.1.10(a). Except to the extent prohibited by an Existing NDA, and the material terms and conditions thereof, should Seller receive any proposal, inquiry or contact about any of the activities referred to in Section 8.1.10(a), Seller shall by the close of the next Business Day following give oral or written notice thereof to Buyer and also promptly provide Buyer with the name of the person making such proposal, inquiry or contact.

 

(c) Notwithstanding the foregoing or any other provision of this Agreement or the Transaction Documents, at any time prior to the date on which this Agreement is approved by the stockholders of Seller, in the event that the Board of Directors of Seller determines in good faith by a majority vote, based on the advice of its outside legal counsel, that there is a reasonable basis requiring Seller to consider a Favorable Third Party Offer (as defined below) to comply with its fiduciary duties, Seller may furnish non-public information with respect to Seller and its subsidiaries to the person who made the Favorable Third Party Offer pursuant to a confidentiality agreement and participate in discussions or negotiations with such person regarding the Favorable Third Party Offer. The Board of Directors of Seller may after the third Business Day following Seller’s written notice to Buyer that specifies the material terms and conditions of the Favorable Third Party Proposal, terminate this Agreement (and concurrently with such termination, if it so chooses, cause Seller to enter into any agreement with respect to the Favorable Third Party Proposal) and withdraw any recommendation to the stockholders of Seller to approve the transactions contemplated by this Agreement and the Transaction Documents.

(d) As used in this Agreement, “Favorable Third Party Proposal” means a written proposal from a credible, bona fide third party relating to any direct or indirect acquisition or purchase of all or substantially all of the assets of Seller and its subsidiaries, taken as a whole, or 50% or more of the equity securities of Seller, any tender offer or exchange offer that if consummated would result in any Person beneficially owning 50% or more of the combined voting power of Seller’s voting equity securities, or any merger, consolidation, business combination, share exchange, recapitalization, liquidation, dissolution or similar transaction involving Seller or combined voting power of Seller, and otherwise on terms which the Board of Directors of Seller determines in its good faith judgment, taking into account legal, financial, regulatory and other aspects of the proposal deemed appropriate by the Board of Directors of Seller, to be more favorable to the stockholders of Seller than the transactions contemplated by this Agreement (taking into account any amendments to this Agreement proposed by Buyer in response to the receipt by Buyer of information about the proposal).

 

(e) Nothing contained in this Section 8.1.10 shall (i) prohibit Seller from at any time taking and disclosing to its stockholders a position contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or making any disclosure required by Rule 14a-9 promulgated under the Exchange Act; or (ii) prohibit or limit Seller from at any time engaging in the activities and transactions referred to in Section 8.1.10(a) in connection with the development and implementation of Seller’ post-Closing business plan (assuming completion of the sale of the Acquired Assets and the Program to Buyer), including but not limited to soliciting, initiating, encouraging submissions of proposals or offers for the sale, transfer, disposition, restructuring or similar transactions relating to Seller’s existing business and/or other Excluded Assets.

 

8.1.11.  Consents of Third Parties.  Seller will employ its commercially reasonable efforts to secure, before the Closing Date, the consent, in form and substance reasonably satisfactory to Buyer and Buyer’s counsel, to the consummation of the transactions contemplated by this Agreement by each party to any of the Assumed Contracts, Licensed Intellectual Property and transferable Governmental Authorizations as set forth by Buyer on Schedule 8.1.11 (the “Required Consents”).

 

8.1.12.  Reasonable Best Efforts.  Except to the extent that the Parties’ obligations are specifically set forth elsewhere in this Agreement, upon the terms and subject to the conditions set forth in this Agreement, each of the Parties shall use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to consummate, in the most expeditious manner practicable, the Closing including the execution and delivery of any additional instruments reasonably necessary to consummate the Closing and to fully carry out the purposes of this Agreement. Buyer and its Affiliates shall not (i) amend or otherwise change any of its organization documents, or (ii) enter into any transaction or take any action, including asset sales, divestitures or other distributions, or payment of dividends or other distributions, or any merger, acquisition, investment, joint venture, lease, contract or financing that in the case of clause (i) or (ii) could reasonably be expected to cause a material delay in the satisfaction of the conditions contained in Section 10 hereof.

 

8.1.13  8-K Obligation.  Within four (4) Business Days of the date hereof, Seller shall issue a press release and file a report on Form 8-K each in the form previously agreed upon by Seller and Buyer disclosing the execution of this Agreement and the transaction contemplated herein and attaching such press release and this Agreement (the “8-K Filing”).

 

8.1.14  Proxy Statement; Stockholder Approval.

 

(a) As promptly as reasonably practicable following the date hereof, Seller, acting through its Board of Directors, shall, subject to and in accordance with applicable Legal Requirements and its Certificate of Incorporation and Bylaws, and in all cases subject to Section 8.1.10(c) above, (i) duly call, give notice of and hold a special meeting of the holders of Seller’s voting equity securities for the purpose of voting to approve the principal terms of the transactions contemplated hereby and adopt and approve this Agreement; (ii) recommend to the stockholders of Seller that they vote in favor of the matters described

in the preceding clause (i); (iii) include in the proxy statement with respect to such meeting (the “Proxy Statement”) such recommendation; and (iv) take all reasonable and lawful action to solicit and obtain such vote in favor of the matters described in clause (i) above. The Proxy Statement will comply as to form in all material respects with the applicable provisions of Schedule 14A of the Exchange Act.

 

(b) Seller will use its commercially reasonably efforts, and Buyer will use its commercially reasonable efforts to cooperate with it, to, as promptly as reasonably practicable and in any event no later than 30 days following the date hereof, cause a preliminary Proxy Statement to be filed with the SEC and, following clearance thereof by the SEC, cause a definitive Proxy Statement to be mailed to Seller stockholders. Buyer shall use its commercially reasonably efforts to promptly respond to requests from Seller to assist Seller in responding to SEC comments on information regarding Buyer required to be included in the Proxy Statement under applicable law or regulation.

 

(c) Buyer shall provide to Seller such information for inclusion in the Proxy Statement regarding Buyer’s business, financial condition, operations and prospects as Seller and its counsel reasonably determines is required under applicable rules and regulations of the SEC. Any such information shall not contain any untrue statement of a material fact omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not false or misleading.

 

(d) Buyer shall promptly inform Seller if any of the information supplied by Buyer for inclusion in the Proxy Statement to be mailed to the stockholders of Seller in connection with the special meeting will, on the date the Proxy Statement (or any supplement or amendment thereto) is first mailed to Seller stockholders or at the time of the special meeting, contain any untrue statement of a material fact omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not false or misleading.

 

(e) At or prior to the Closing, Seller shall deliver to Buyer a certificate of its Secretary setting forth the voting results from its stockholder meeting.

 

8.1.15  Compliance with Bulk Sales Law Requirements.  Buyer hereby waives compliance with any applicable bulk sales transfer laws in connection with the consummation of the transactions contemplated by this Agreement, including the bulk transfer provisions of the Uniform Commercial Code, with indemnification from Seller against claims or Liabilities arising from such noncompliance as provided in Section 12.2.

 

9.  CONDITIONS PRECEDENT TO BUYER’S OBLIGATIONS.  The obligation of Buyer to consummate the Closing shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (to the extent noncompliance is not waived in writing by Buyer):

 

9.1.  Representations and Warranties.  The representations and warranties made by Seller in Section 6 of this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties had been made or given at and as of the Closing Date (without regard to any materiality qualifications included therein and except where such representation and warranty is made as of a specific date and except as contemplated by this Agreement).

 

9.2.  Compliance with Agreement.  Seller shall have performed and complied in all material respects with all of its obligations under this Agreement to be performed or complied with by it on or prior to the Closing Date.

 

9.3.  No Change.  From the date of this Agreement through the date of the Closing there shall not have occurred any change or changes concerning the Program or the Acquired Assets that individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect.

 

9.4  Board, Stockholder and Other Approvals.  Seller shall have obtained all necessary authorizations and approvals from its Board of Directors, its stockholders and any other approvals required for the completion of the transaction contemplated hereunder and the actions contemplated by Section 8.1.14 shall have occurred as and when required by such Section.

9.5  8-K Filing and Press Release.  The actions contemplated by Section 8.1.13 shall have occurred as and when required by such Section.

 

9.6  University License Agreement.  The Board of Regents (“Board”) of The University of Texas System, an agency of the State of Texas, on behalf of the University of Texas Health Science Center at the University of Houston shall have executed and delivered the License Agreement by and between Board and Buyer, in form and substance reasonably satisfactory to Buyer (the “University License Agreement”).

 

9.7  Consulting Agreement.  Andrei Alexandrov shall have executed and delivered his Consulting Agreement with Buyer, in form and substance reasonably satisfactory to Buyer (the “Alexandrov Consulting Agreement”).

 

9.8  Employment Agreements.  Each of Bradford A. Zakes and Dilip Worah shall have executed and delivered his respective employment agreement with Buyer, each in form and substance substantially consistent with the term sheets attached hereto as Exhibit G (the “Employee Term Sheets”).

 

9.9.  Seller’s Certificate.  Seller shall have delivered to Buyer in writing, at and as of the Closing, one or more certificates duly executed by Seller, in form and substance reasonably satisfactory to Buyer and Buyer’s counsel, certifying that the conditions in each of Section 9.1, 9.2 and 9.3 have been satisfied and attaching copies of the certified resolutions of Seller’s Board of Directors approving the transactions contemplated hereby. Buyer shall have also received the certificate referenced in Section 8.1.14(e).

 

9.10.  No Litigation.  No restraining order or injunction shall prevent the transactions contemplated by this Agreement and no action, suit or proceeding shall be pending or threatened before any court or administrative body in which it will be or is sought to restrain or prohibit or obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby.

 

9.11  Required Consents.  Seller shall have obtained and delivered to Buyer the Required Consents in writing.

 

9.12  Delivery of Acquired Assets.  Buyer shall have taken delivery of all tangible Acquired Assets at each such Acquired Asset’s current location.

 

9.13  Opinion of the Seller’s Counsel.  Buyer shall have received an opinion dated the Closing Date of Stoel Rives LLP, counsel to Seller, in substantially the form attached hereto as Exhibit F.

 

10.  CONDITIONS PRECEDENT TO SELLER’S OBLIGATIONS.  The obligation of Seller to consummate the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions (to the extent noncompliance is not waived in writing by Seller):

 

10.1.  Representations and Warranties.  The representations and warranties made by Buyer in Section 7 of this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same effect as though such representations and warranties had been made or given at and as of the Closing Date (without regard to any materiality qualifications included therein and except where such representations and warranty is made as of a specific date and except as contemplated by this Agreement).

 

10.2.  Compliance with Agreement.  Buyer shall have performed and complied in all material respects with all of its obligations under this Agreement that are to be performed or complied with by it at or prior to the Closing.

 

10.3.  No Change.  From the date of this Agreement through the date of the Closing there shall not have occurred any change or changes concerning the respective businesses of or properties owned by Buyer that individually or in the aggregate has had or would reasonably be expected to have a Material Adverse Effect.

10.4  Approvals.  All corporate and other approvals of Buyer in connection with the transactions contemplated by this Agreement shall have been obtained and copies of the minutes or resolutions reflecting such approvals shall have been delivered to Seller.

 

10.5.  Employment Agreements.  Buyer shall have executed and delivered the employment agreements with each of Bradford A. Zakes and Eilip Worah, each in form and substance substantially consistent with the Employee Term Sheets.

 

10.6.  Closing Certificate.  Buyer shall have delivered to Seller in writing, at and as of the Closing, a certificate duly executed by an officer of Buyer, in form and substance reasonably satisfactory to Seller’s counsel, to the effect that the conditions in each of Sections 10.1, 10.2 and 10.3 have been satisfied.

 

10.7  No Litigation.  No restraining order or injunction shall prevent the transactions contemplated by this Agreement and no action, suit or proceeding shall be pending or threatened before any court or administrative body in which it will be or is sought to restrain or prohibit or obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby.

 

10.8  Closing Purchase Price.  Buyer shall have delivered to Seller the Closing Purchase Price as provided in Section 4.1(a).

 

11.  CERTAIN COVENANTS.

 

11.1.  Confidential Information.  Any and all information disclosed by Buyer to Seller or by any Seller to Buyer as a result of the negotiations leading to the execution of this Agreement that is to remain the confidential information of such party, or in furtherance thereof, which information was not already known to Seller or Buyer shall remain confidential to Seller and Buyer and their respective employees, agents and investors until the Closing Date and, if the Closing occurs, in Seller’s case, from and after the Closing Date. If the Closing does not take place for any reason, Seller and Buyer agree to return (or certify that it has destroyed) all copies, summaries and excerpts of such information to the disclosing party, and agrees not to further divulge or disclose any such information at any time in the future unless it has otherwise become public or its disclosure is required by law. The information intended to be protected hereby is confidential or proprietary data of Seller and Buyer which shall include, but not be limited to, financial information, customers, sales representatives, and anything else having an economic or pecuniary benefit to Buyer or Seller, respectively.

 

11.2  Non-Competition.  For a period of two (2) years after the Closing Date, Seller shall not directly or indirectly invest in, own, manage, operate, finance, control, advise, render services to or guarantee the obligations of any Person that directly competes with Buyer in respect of the Program; provided however, that this covenant shall not prohibit, or be interpreted as prohibiting, Seller from purchasing or otherwise acquiring up to (but not more than) five percent (5%) of any class of the securities of any Person (but may not otherwise participate in the activities of such Person) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act.

 

11.3  Non-Solicitation.  For a period of two (2) years after the Closing Date, Seller shall not, directly or indirectly:

 

(a) solicit the business of any Person who is a customer of Buyer;

 

(b) cause, induce or attempt to cause or induce any customer, supplier, licensee, licensor, franchisee, employee, consultant or other business relation of Buyer to cease doing business with Buyer, to deal with any competitor of Buyer or materially and adversely interfere with its relationship with Buyer; or

 

(c) hire, retain or attempt to hire or retain any employee or independent contractor of Buyer or materially and adversely interfere with the relationship between Buyer and any of its employees or independent contractors.

 

11.4  Transaction-Related Taxes.  Buyer and Seller shall each pay one-half of all personal property taxes, sales, use, stamp, registration, ad valorem obligations and such Taxes and fees (including any penalties,

interest and filing expenses) which are due and payable in connection with the sale of the Acquired Assets pursuant to this Agreement, and Seller will prepare and file all necessary Tax Returns and other documentation with respect to all such documentary, sales, use, stamp, registration and other taxes and fees, and, if required by applicable Legal Requirements, Buyer will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation upon 10 day prior written notice and reasonable approval by Seller.

 

11.5  Assignment of Intellectual Property.  Seller agrees that it will execute and deliver to Buyer any and all additional documents and/or instruments that may be reasonably requested by Buyer and necessary to vest full and complete legal and equitable title to the Intellectual Property in Buyer, without further consideration than now paid. Buyer and Seller shall each pay one-half of all costs related to the preparation, execution and registration of the National Assignment Documents referred to in 5.2(c) and for all actions and all costs whatsoever, including attorney’s fees, arising after the Closing Date and associated with the perfection of rights, title, and interest in and to the Intellectual Property.

 

11.6  Notice of Developments.  Seller shall promptly inform Buyer in writing of any event that would render any of the representations and warranties contained in Section 6 above inaccurate or incomplete in any respect or any breach of any covenant or obligation of Seller contained in this Section 11. No such disclosure by Seller pursuant to this Section 11.6, however, shall be deemed to cure any breach of any representation or warranty or covenant contained herein except to the extent specifically provided for in the following two sentences. From time to time commencing on the date of this Agreement and until the Closing Date, Seller shall, only with respect to any matter hereafter arising (promptly after discovery thereof) which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in the disclosure Schedules with respect to any of the representations or warranties set forth in Section 6 of this Agreement, deliver to Buyer (in accordance with Section 14.2 and prominently labeled “Schedule Supplement”) written notice of any event or development (promptly after discovery thereof) that would render any statement, representation or warranty of the Seller in this Agreement, including the Schedules attached hereto, inaccurate or incomplete in any respect (each a “Schedule Supplement”); provided that each such Schedule Supplement shall be detailed with a level of specificity that is consistent with other disclosures on the Schedules attached hereto to the reasonable satisfaction of Buyer. For purposes of determining representations and warranties were accurate for purposes of satisfaction of the condition set forth in Section 9.1 the Schedules delivered by Seller hereunder shall be deemed to exclude any information contained in any such Schedule Supplement (such that no Schedule Supplement item shall cure a breach for purposes of Section 9.1; provided, however, that if Seller acknowledges in writing that as a result of such Schedule Supplement that Buyer could terminate this Agreement pursuant to Section 13(a)(vi), then if and to the extent Buyer waives its right to terminate the Agreement arising out of such Schedule Supplement, following the Closing the Buyer Indemnified Parties shall not be entitled to indemnification pursuant to Section 12 with respect to any Losses arising out of the Schedule Supplement).

 

12.  INDEMNIFICATION.

 

12.1  Survival of Representations and Warranties.

 

(a) In the event that the Closing occurs on or before July 15, 2009, The representations and warranties of Seller in Section 6 and Buyer in Section 7 of this Agreement shall survive the Closing and remain in full force and effect for a period ending upon the earlier to occur of:

 

(i) the six (6) month anniversary of the Closing; or

 

(ii) December 15, 2009;

 

(b) In the event that the Closing occurs after July 15, 2009, the representations and warranties of Seller in Section 6 and Buyer in Section 7 of this Agreement shall survive the Closing and remain in full force and effect for a period of five (5) months from the Closing Date.

 

The expiration date of such survival periods referred to in this Section 12.1, as applicable, shall be referred to the “Expiration Date”.

Notwithstanding any other provision herein, the survival period relating to (i) Section 6.1 (Organization of Seller; Authority), Section 6.2 (Corporate Approval; Binding Effect) Section 6.9 (Title to Acquired Assets), Section 6.14 (Intellectual Property) and Section 6.17 (Solvency), Excluded Liabilities and fraud which shall survive the Closing indefinitely and (ii) all covenants, agreements and undertakings of the Parties contained in this Agreement shall survive until fully performed or fulfilled.

 

12.2.  Indemnity by Seller.

 

(a) Subject to the conditions and limitations set forth in this Section 12.2, Seller agrees to indemnify and hold Buyer and its Affiliates, officers, directors, shareholders, accountants, employees, agents, successors and assigns (collectively, the “Buyer Indemnified Parties”) harmless from, against and with respect to any and all Losses imposed on, sustained, incurred or suffered by, or asserted against, any of the Buyer Indemnified Parties, whether in respect of third party claims, claims between the parties hereto, or otherwise, related to or arising out of:

 

(i) any breach of any representation or warranty made by Seller in this Agreement, the Transaction Documents, or any other certificate or document signed by Seller delivered or required to be delivered pursuant to this Agreement;

 

(ii) any breach or violation of, or failure by Seller to perform any covenant, agreement undertaking or obligation in this Agreement, the Transaction Documents, or any other certificate or document delivered or required to be delivered pursuant to this Agreement;

 

(iii) any claim or liability with respect to any of the Excluded Liabilities and any other liability of Seller other than Assumed Liabilities; and

 

(iv) any and all Losses resulting from Seller’s operation or ownership of the Program or Acquired Assets prior to the Closing Date;

 

(b) For purposes of calculating the amount of Losses (but not determining the existence of a breach), any limitation as to materiality or Material Adverse Effect contained in the representations and warranties will be ignored.

 

(c) No Buyer Indemnified Party will be entitled to indemnification under this Section 12 unless and until the aggregate amount of such Buyer Indemnified Parties’ Losses exceeds $10,000 (the “Threshold Amount”), in which case the Buyer Indemnified Party shall be entitled to be paid the aggregate amount of all such Losses (including all such Losses up to $10,000); provided, that Losses related to the following will not be subject to the Threshold Amount:

 

(i) a claim relating to fraud;

 

(ii) a breach or violation of, or failure to perform, any covenant, agreement, undertaking or obligation of Seller contained in Section 2; or

 

(iii) breaches of the representations or warranties contained in Section 6.1 (Organization of Seller; Authority), Section 6.2 (Corporate Approval; Binding Effect), Section 6.9 (Title to Acquired Assets), Section 6.14 (Intellectual Property) and Section 6.17 (Solvency) (the “Specified Representations”),

 

In each case, shall not be subject to the Threshold Amount. Notwithstanding any other provision herein, the aggregate liability of Seller under this Agreement shall be limited to $500,000; provided that there should be no such limitation with respect to Excluded Liabilities or claims related to fraud.

 

12.3.  Indemnity by Buyer.

 

(a) Subject to the conditions and limitations set forth in this Section 12.3, from and after the Closing, Buyer agrees to indemnify and hold Seller and its Affiliates, officers, directors, stockholders, accountants, employees, agents, successors and assigns (collectively, the “Seller Indemnified Parties” and together with the Buyer Indemnified Parties, the “Indemnified Parties”) harmless from, against and with respect to any and all Losses imposed on, sustained, incurred or suffered by, or asserted against, any of the Seller Indemnified

Parties, whether in respect of third party claims, claims between the parties hereto, or otherwise, related to or arising out of:

 

(i) any breach of any representation or warranty made by Buyer in this Agreement, the Transaction Documents or any other certificate or document signed by an officer of Buyer delivered or required to be delivered pursuant to this Agreement;

 

(ii) any breach or violation of, or failure by Buyer to perform any covenant, agreement, undertaking or obligation in this Agreement, the Transaction Documents or any other certificate or document signed by an officer of Buyer delivered or required to be delivered pursuant to this Agreement;

 

(iii) the conduct of the Program and the ownership and operation of the Acquired Assets after the Closing Date, except to the extent any Losses in this clause (a): (x) relate to, arise out of or result from a breach by Seller of any representation or warranty contained in this Agreement, (y) are an Excluded Liability or (z) are Losses to which the Buyer Indemnified Parties are entitled to indemnification under Section 12.2, in each case, including without limitation with respect to Third Party Claims; or

 

(iv) any claim or liability with respect to any of the Assumed Liabilities, except to the extent any Losses in this clause (d) (x) relate to, arise out of or result from a breach by Seller of any representation or warranty contained in this Agreement, or (y) are Losses to which the Buyer Indemnified Parties are entitled to indemnification under Section 12.2, in each case, including without limitation with respect to Third Party Claims.

 

(b) For purposes of calculating the amount of Losses (but not determining the existence of a breach), any limitation as to materiality or Material Adverse Effect contained in the representations and warranties will be ignored.

 

(c) No Seller Indemnified Party will be entitled to indemnification under this Section 12 with respect to breaches of representations and warranties unless and until the aggregate amount of such Seller Indemnified Parties’ Losses exceeds the Threshold Amount, in which case the Seller Indemnified Party shall be entitled to be paid the aggregate amount of all such Losses, (including all such Losses up to $10,000); provided, that any Losses relating to breaches of representations or warranties contained in Section 7.1 (Organization of Buyer; Authority) and Section 7.2 (Corporate Approval; Binding Effect) will not be subject to the Threshold Amount. Notwithstanding any other provision herein, the aggregate liability of Buyer under this Agreement shall be limited to $500,000.

 

12.4.  Claims.

 

(a)  Notice.  An Indemnified Party shall promptly notify the other party or parties hereto from whom such Indemnified Party is entitled or may reasonably be entitled to indemnification hereunder of any action, suit, proceeding, demand or breach (a “Claim”) with respect to which the Indemnified Party claims indemnification hereunder, provided that failure of the Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations under this Section 12 except to the extent, if at all, that such Indemnifying Party shall have been prejudiced thereby.

 

(b)  Third Party Claims.  If such Claim relates to any, suit or proceeding instituted in any tribunal or governmental authority against the Indemnified Party by a third party (a “Third Party Claim”), the Indemnifying Party shall be entitled to participate in the defense of such Third Party Claim after receipt of notice of such claim from the Indemnified Party. Within thirty (30) days after receipt of notice of a particular matter from the Indemnified Party, the Indemnifying Party may assume the defense of such Third Party Claim, in which case the Indemnifying Party shall have the authority to negotiate compromise and settle such Third Party Claim at their expense and through counsel of their choice, if and only if the following conditions are satisfied:

 

(i) the Indemnifying Party shall have confirmed in writing that it is obligated hereunder to indemnify the Indemnified Party with respect to such Third Party Claim;

(ii) the Indemnified Party shall not have given the Indemnifying Party written notice that it has determined, in the exercise of its reasonable discretion, that matters of corporate or management policy or a conflict of interest make separate representation by the Indemnified Party’s own counsel advisable; and

 

(iii) such Third Party Claim involves only monetary damages and does not seek an injunction or other equitable relief.

 

The Indemnified Party shall retain the right to employ its own counsel and to participate in the defense of any Third Party Claim, the defense of which has been assumed by the Indemnifying Party pursuant hereto, but the Indemnified Party shall bear and shall be solely responsible for its own costs and expenses in connection with such participation.

 

12.5.  Method and Manner of Paying Claims.  In the event of any claims under this Section 12, the claimant shall advise the party or parties who are required to provide indemnification therefor in writing of the amount and circumstances surrounding such claim. With respect to liquidated claims, if within thirty days the other party has not contested such claim in writing, the other party will pay the full amount thereof within ten days after the expiration of such period. Any amount owed by an Indemnifying Party hereunder with respect to any Claim may be set-off by the Indemnified Party against any amounts owed by the Indemnified Party to any Indemnifying Party.

 

13.  TERMINATION; ALTERNATIVE TRANSACTION.

 

(a) This Agreement (other than the provisions of Section 11.1 and Sections 13 and 14 hereof) may be terminated at any time prior to the Closing:

 

(i) by mutual written consent of all Parties to this Agreement;

 

(ii) by Seller, pursuant to the provisions of Section 8.1.10(c);

 

(iii) by either Buyer or Seller, if the approval of the stockholders of Seller required by Section 9.4 shall not have been obtained at a meeting duly convened therefor or any adjournment thereof (unless, in the case of any such termination pursuant to this Section 13(a)(iv), the failure to obtain such stockholder approval shall have been caused by the action or failure to act of the party (or its subsidiaries) seeking to terminate this Agreement, which action or failure to act constitutes a breach of this Agreement);

 

(iv) by either Buyer or Seller, if any permanent injunction or action by any governmental entity of competent jurisdiction preventing the consummation of transactions contemplated by this Agreement shall have become final and nonappealable; provided, however, that the party seeking to terminate this Agreement pursuant to this Section 13(a)(v) shall have used all commercially reasonable efforts to remove such injunction or overturn such action;

 

(v) by Buyer, if (A) there has been a breach of any representations or warranties (as of the time such representations or warranties were made) of Seller set forth herein the effect of which, individually or together with all other such breaches, constitutes a Material Adverse Effect, (B) there has been a breach in any material respect of any of the representations, warranties, covenants or agreements set forth in this Agreement on the part of Seller, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Buyer to Seller, or (C) the Board of Directors of Seller (x) withdraws or amends or modifies in a manner materially adverse to Buyer its recommendation or approval in respect of this Agreement, (y) makes a recommendation with respect to any transaction arising out of a Favorable Third Party Proposal (including making no recommendation or stating an inability to make a recommendation), other than a recommendation to reject such transaction, or (z) takes any action that is prohibited by Section 8.1.10(a);

 

(vi) by Seller, if (A) there has been a breach of any representations or warranties (as of the time such representations or warranties were made) of Buyer set forth herein the effect of which, individually or together with all other such breaches, constitutes a Material Adverse Effect, (B) there has been a breach in any material respect of any of the representations, warranties, covenants or agreements set forth in this Agreement on the part of Buyer, which breach is not curable or, if curable, is not cured within

30 days after written notice of such breach is given by Seller to Buyer, or (C) if, except such conditions that, by their nature, can only be satisfied at Closing, all conditions set forth in Section 9 hereof have been satisfied and the Closing shall not have occurred (other than as a result of Seller’s refusal to close in violation of this Agreement);

 

(b) In the event of termination of this Agreement pursuant to this Section 13, the transactions contemplated by this Agreement shall be deemed abandoned and this Agreement shall forthwith become void, without liability on the part of any party hereto, except as provided in Section 13(c); provided, however, that, subject to Sections 12.2(c)(iii) and 12.3(c) herein, no such termination (or any provision of this Agreement) shall relieve any Party from liability for any damages (including, in the case of Seller, claims for damages based on the consideration that would have otherwise been payable to the stockholders of Seller, and, in the case of Buyer, claims for damages based on loss of the economic benefits of the transaction) for a knowing and intentional breach of any covenant hereunder.

 

(c) If this Agreement shall have been terminated pursuant to Sections 13(a)(iii) or (vi)(C), then, in any of such cases, Seller shall pay to Buyer a termination fee equal to $100,000 as liquidated damages and not as a penalty. If this Agreement shall have been terminated pursuant to Section 13(a)(vi), then, in any of such cases, Buyer shall pay to Seller a termination fee equal to $100,000 as liquidated damages and not as a penalty. Any amounts payable under this Section 13(c) shall be paid in same day funds no later than two Business Days after a termination described in this Section.

 

(d) The Parties acknowledge and agree that the agreements contained in this Section 13 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the Parties would not enter into this Agreement. If a Party fails to promptly pay the amount due by it pursuant to this Section 13, interest shall accrue on such amount from the date such payment was required to be paid pursuant to the terms of this Agreement until the date of payment at the rate of 8% per annum. If, in order to obtain such payment, the other Party commences a suit that results in judgment for such Party for such amount, the defaulting Party shall pay the other Party its reasonable costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with such suit. Notwithstanding anything to the contrary in this Agreement, the parties agree that the monetary remedies set forth in Section 13 shall be the sole and exclusive remedies of (A) Seller against Buyer and any of their respective former, current or future general or limited partners, stockholders, managers, employees, representatives, members, directors, officers, Affiliates or agents for any loss suffered as a result of the failure of the Closing to be consummated except in the case of fraud or with respect to Buyer, a knowing and intentional breach as described in Section 13(b), and upon payment of such amount, neither Buyer nor any of its respective former, current or future general or limited partners, stockholders, managers, employees, representatives, members, directors, officers, Affiliates or agents shall have any further liability or obligation relating to or arising out of this Agreement or the transactions contemplated hereby except in the case of fraud or, with respect to Buyer, a knowing and intentional breach as described in Section 13(b); and (B) Buyer against Seller and any of their respective former, current or future stockholders, managers, employees, representatives, members, directors, officers, Affiliates or agents for any loss suffered as a result of the failure of the Closing to be consummated except in the case of fraud or with respect to Seller, a knowing and intentional breach as described Section 13(b), and upon payment of such amount, neither Seller nor any of its respective former, current or future stockholders, managers, employees, representatives, members, directors, officers, Affiliates or agents shall have any further liability or obligation relating to or arising out of this Agreement or the transactions contemplated hereby except in the case of fraud or, with respect to Seller, a knowing and intentional breach as described in Section 13(b).

 

14.  GENERAL.

 

14.1.  Expenses.  Except as provided in Section 11.4 (Transaction-Related Taxes) and Section 11.5 (Assignment of Intellectual Property), Seller, on the one hand, and Buyer, on the other hand, shall bear their respective expenses, costs and fees (including attorneys’ and accountants’ fees) in connection with the transactions contemplated hereby, including the preparation, negotiation, execution and performance of this Agreement, the Transaction Documents and the Closing, including all fees and expenses of its representatives

(the “Seller Transaction Expenses”), whether or not the transactions contemplated hereby shall be consummated.

 

14.2.  Notices.  All notices, demands and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally; when transmitted, if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery by recognized overnight delivery service; and upon receipt, by certified or registered mail, return receipt requested. In each case such notice shall be sent to:

 

If to Seller or either of them, to:

 

ImaRx Therapeutics, Inc.
12277 134th Court NE, Suite 202
Redmond, WA 98052
Attention: Bradford A. Zakes
Fax: (425) 821-1404
Email: bzakes@imarx.com

 

with a copy sent contemporaneously to:

 

Stoel Rives LLP
201 South Main Street, Suite 1100
Salt Lake City, Utah 84111
Attention: Kevin Ontiveros
Fax: 801-578-6999
Email: kjontiveros@stoel.com

 

If to Buyer, to:

 

WA 32609, Inc.
20001 North Creek Parkway
Bothell, WA 98011
Attention: Gerald McMorrow

 

or such other place and with such other copies as any party may designate as to itself by written notice to the others.

 

14.3.  Entire Agreement.  This Agreement together with the other Transaction Documents and the Schedules contains the entire understanding of the parties, supersede all prior agreements and understandings relating to the subject matter hereof and shall not be amended except by a written instrument hereafter signed by all of the parties hereto.

 

14.4.  Governing Law.  The validity and construction of this Agreement shall be governed by the internal laws (and not the choice-of-law rules) of the State of Washington. Each party hereto irrevocably and unconditionally (a) agrees that any suit, action or other legal proceeding arising out of this Agreement may be brought and adjudicated in the federal or the state courts of Washington situated in King County, (b) submits to the jurisdiction of any such court for the purposes of any such suit and (c) waives and agrees not to assert by way of motion, as a defense or otherwise in any such suit, any claim that it, he or she is not subject to the jurisdiction of the above courts, that such suit is brought in an inconvenient forum or that the venue of such suit is improper.

 

14.5.  Sections and Section Headings.  The headings of sections and subsections are for reference only and shall not limit or control the meaning thereof.

 

14.6.  Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Neither this Agreement nor the obligations of any party hereunder shall be assignable or transferable by any party without the prior written consent of the other parties hereto.

14.7.  Severability.  In the event that any covenant, condition, or other provision herein contained is held to be invalid, void, or illegal by any court of competent jurisdiction, the same shall be deemed to be severable from the remainder of this Agreement and shall in no way affect, impair, or invalidate any other covenant, condition, or other provision contained herein.

 

14.8.  Further Assurances.  The parties agree to take such reasonable steps and execute such other and further documents as may be necessary or appropriate to cause the terms and conditions contained herein to be carried into effect.

 

14.9.  Tax Treatment.  Buyer and Seller shall treat and report the transactions contemplated by this Agreement in all respects consistently for purposes of any foreign, federal, state or local Tax, including without limitation with respect to calculation of gain, loss and basis with reference to the Allocation determined in accordance with Section 4.2 hereof.

 

14.10.  No Implied Rights or Remedies.  Nothing herein expressed or implied is intended or shall be construed to confer upon or to give any person, firm or corporation, other than Seller and Buyer and their successors and permitted assigns, any rights, remedies or claims under or by reason of this Agreement and this Agreement shall not be interpreted or enforced as a third party beneficiary contract.

 

14.11.  Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

14.12.  Public Statements or Releases.  Each of the parties hereto agrees that prior to the consummation of the Closing no party to this Agreement will make, issue or release any public announcement, statement or acknowledgment of the existence of, or reveal the status of, this Agreement or the transactions provided for herein, without first obtaining the consent of the other parties hereto (which consent shall not be unreasonably withheld). Nothing contained in this Section 14.12 shall prevent any party from making such disclosures as such party may consider reasonably necessary to satisfy such party’s legal or contractual obligations, or to comply with the requirements of applicable laws and regulations (in which case the party so obligated to make such disclosure shall advise the other parties in advance).

 

14.13.  Business Records.  Seller acknowledge that business records of Seller relating to the operations of the Program prior to the Closing will not be conveyed to Buyer as part of the Acquired Assets, and that Buyer may from time to time require access to or copies of such records in connection with claims arising with respect to operations of the Program prior to the Closing, and Seller agrees that upon reasonable prior notice from Buyer, it will, during normal business hours, provide Buyer with either access to or, at Seller’s option, copies of such records for such purposes prior to the Closing. Buyer agrees to hold any confidential information so provided in confidence and to use such information only for the purposes described above. Seller agrees that it will not within eighteen (18) months after the Closing Date destroy any business records prepared prior to the Closing without first notifying Buyer and affording it the opportunity to remove or copy them. For purposes of the preceding sentence, any notice from Seller delivered in accordance with Section 14.2 shall be deemed to be adequate notice if not responded to in writing by Buyer within five (5) Business Days.

 

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Asset Purchase Agreement to be duly executed and delivered as a sealed instrument as of the date and year first above written.

 

IMARX THERAPEUTICS, INC.

 

Bradford A. Zakes

President and Chief Executive Officer

 

WA 32609, Inc.

 

Name:     Gerald McMorrow

ANNEX B

 

CERTIFICATE OF AMENDMENT TO THE
FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF IMARX THERAPEUTICS, INC.

 

ImaRx Therapeutics, Inc., a corporation organized and existing under the General Corporation law of the State of Delaware does hereby certify:

 

ONE:  The date of filing the original Certificate of Incorporation of this company with the Secretary of State of the State of Delaware was June 23, 2000 as amended on April 12, 2001, October 8, 2002, January 22, 2003, March 26, 2004, January 25, 2006, April 12, 2006, September 7, 2006, May 4, 2007 and July 31, 2007.

 

TWO:  The Board of Directors of the Company, acting in accordance with the provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Fifth Amended and Restated Certificate of Incorporation as follows:

 

Article IV shall be amended to add the following provisions in their entirety to the existing provisions of Article IV:

 

“Effective at 5:00 p.m. Eastern time, on the date of filing of this Certificate of Amendment to the Fifth Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Effective Time”), the shares of the Corporation’s Common Stock, par value $0.0001 per share, issued and outstanding immediately prior to the Effective Time and the shares of Common Stock issued and held in the treasury of the Corporation immediately prior to the Effective Time shall be combined into a smaller number of shares such that each ten (10) shares of issued Common Stock immediately prior to the Effective Time are combined into one validly issued, fully paid and nonassessable share of Common Stock, par value $0.0001 per share. Notwithstanding the immediately preceding sentence, no fractional shares shall be issued and, in lieu thereof, upon surrender after the Effective Time of a certificate which formerly represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time, any person who would otherwise be entitled to a fractional share of Common Stock as a result of the combination, following the Effective Time (after taking into account all fractional shares of Common Stock otherwise issuable to such holder), shall be entitled to receive a cash payment equal to the fraction to which such holder would otherwise be entitled multiplied by the then fair value of the Common Stock as determined by the Board of Directors.

 

Each stock certificate that, immediately prior to the Effective Time, represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been combined (as well as the right to receive cash in lieu of fractional shares of Common Stock after the Effective Time), provided, however, that each person of record holding a certificate that represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall receive, upon surrender of such certificate, a new certificate evidencing and representing the number of whole shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been combined.”

 

THREE:  Thereafter, pursuant to a resolution by the Board of Directors of the Corporation, this Certificate of Amendment was submitted to the stockholders of the corporation for their consideration and was duly adopted and approved in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware at a special meeting of the stockholders.

In Witness Whereof, ImaRx Therapeutics, Inc. has caused this Certificate of Amendment to the Fifth AMENDED AND RESTATED CERTIFICATE OF INCORPORATION to be signed by its President and Chief Executive Officer this   day of          , 2009.

 

IMARX THERAPEUTICS, INC.

 

Bradford A. Zakes

President and Chief Executive Officer

 

ANNEX C

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

Form 10-K

 

 

 

Commission File Number 001-33043

 

 

ImaRx Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

(425) 821-5501

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.0001 par value

(Title of Each Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES o     NO þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.  YES þ     NO o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o     NO þ

 

As of February 24, 2009, there were 10,165,733 shares of the Registrant’s Common Stock outstanding. As of the last day of the most recently completed second fiscal quarter (June 30, 2008), the aggregate market value of the Common Stock of the Registrant held by non-affiliates was approximately $1.4 million, based on the closing price per share of the Registrant’s Common Stock on such date. This amount excludes an aggregate of 1,516,847 shares of Common Stock held by officers and directors and each person known by the Registrant to own 10% or more of the outstanding Common Stock. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, directly or indirectly, to direct or cause the direction of the management or policies of the Registrant, or that the Registrant is controlled by or under common control with such person.

 

 

TABLE OF CONTENTS

 

 

 

Overview

 

ImaRx Therapeutics, Inc., is a development stage biopharmaceutical company whose research and development efforts have focused on the development of therapies for stroke and other vascular disorders, using our proprietary microsphere technology together with ultrasound. Our lead program, SonoLysis, involves the administration of our proprietary MRX-801 microspheres and ultrasound to break up blood clots and restore blood flow to oxygen deprived tissues. We were previously engaged in the commercialization of one drug approved by the Food and Drug Administration or FDA, urokinase. Urokinase is an FDA-approved thrombolytic, or clot-dissolving agent, indicated for the treatment of acute massive pulmonary embolism. We purchased the product from Abbott Laboratories and had been selling the product since 2006 until we sold all rights to that product to Microbix Biosystems, Inc., or Microbix, in the third quarter of 2008.

 

On June 11, 2008, in order to preserve capital resources, we announced a restructuring that included a significant workforce reduction in which all of our employees other than Bradford Zakes, our president and chief executive officer, and one additional employee were terminated. In furtherance of the June 2008 restructuring we discontinued substantially all research and development activity and are now exploring strategic alternatives for our clinical-stage SonoLysis program and other Company assets.

 

On September 23, 2008, we divested our urokinase business to Microbix. Under the terms of the agreement, Microbix acquired the remaining urokinase inventory and related assets and assumed full responsibility for ongoing commercial and regulatory activities associated with the product. Microbix paid to us an upfront payment of $2.0 million and assumed up to $0.5 million in chargeback and other liabilities for commercial product currently in the distribution channel. If the assumed chargeback and other liabilities paid by Microbix are less than $0.5 million, Microbix will issue payment to us for the difference. An additional $2.5 million payment will be made to us upon release by the FDA of three lots of urokinase that are currently subject to a May 2008 Approvable Letter. Microbix is presently working with the FDA to secure the release of the three lots of urokinase. There can be no assurances that Microbix will be successful in securing such release in a timely manner or at all. If Microbix is unable to secure the release of the three lots we will not entitled to the additional $2.5 million payment.

 

We are seeking strategic alternatives that would enable the continued development of our SonoLysis program and are preserving our cash resources in order to provide sufficient resources to accomplish this objective. Historically, one of our primary sources of cash has been the sale of our urokinase product. Due to the sale of the urokinase asset to Microbix, we do not currently have any significant source of cash.

 

Our Development Stage Programs

 

SonoLysis Program.  Our SonoLysis program involves the administration of our proprietary MRX-801 microspheres and ultrasound to break up blood clots and restore blood flow to oxygen deprived tissues. Our MRX-801 microspheres are a proprietary formulation of a lipid shell encapsulating an inert biocompatible gas. We believe the sub-micron size of our MRX-801 microspheres allows them to penetrate a blood clot, so that when ultrasound is applied their expansion and contraction, or cavitation, can break the clot into very small particles. We believe that our SonoLysis product candidate has the potential to treat ischemic stroke as well as a broad variety of other vascular disorders associated with blood clots.

 

Our initial therapeutic focus for our SonoLysis program has been ischemic stroke. Approximately 795,000 adults in the U.S., or one every 40 seconds, are afflicted with, and 150,000 die as a result of, some form of stroke each year. Stroke is currently the third leading cause of death, and the leading cause of disability, in the United States. Approximately 3 million Americans are currently disabled from stroke. The American Stroke Association estimates that approximately $68.9 billion was spent in the U.S. in 2009 for stroke-related medical costs and disability. The vast majority of strokes, approximately 87% according to the American Stroke Association, are ischemic in nature, meaning that they are caused by blood clots, while the remainder are the

more deadly hemorrhagic strokes caused by bleeding in the brain. However, available treatment options for ischemic stroke are subject to significant therapeutic limitations. For example, the most widely used treatment for ischemic stroke is a clot-dissolving, or thrombolytic, drug that can be administered only during a narrow time window and poses a risk of bleeding, resulting in 7% or less of ischemic stroke patients receiving such treatment. We believe that our SonoLysis program, which involves the administration of our proprietary MRX-801 microspheres and ultrasound to break up blood clots and restore blood flow to oxygen deprived tissues, has the potential to expand this narrow treatment window, thus increasing the number of stroke patients eligible to receive this therapy.

 

The only FDA approved drug for the treatment of ischemic stroke is tPA. The FDA has restricted tPA’s use only to patients who are able to begin treatment within three hours of onset of symptoms of ischemic stroke and who do not have certain risk factors for bleeding, such as recent surgery or taking medications that prevent clotting. To administer our SonoLysis therapy, MRX-801 microspheres are injected intravenously into the bloodstream, disperse naturally throughout the body and are carried to the site of the blood clot. Ultrasound is then administered to the site of the blood clot, and the energy from the ultrasound causes the MRX-801 microspheres to expand and contract vigorously, or cavitate. We believe this cavitation both mechanically breaks up the blood clot and helps to enhance the body’s natural clot dissolving processes. The gas released by the MRX-801 microspheres is then cleared from the body by exhaling, and the lipid shell is processed like other fats in the body. Because SonoLysis therapy has the potential to be used without a thrombolytic drug and its associated risk of bleeding, we believe SonoLysis therapy may offer advantages over existing treatments for ischemic stroke, including extending the treatment window beyond three hours from onset of symptoms and broadening treatment availability to patients for whom thrombolytic drugs are contraindicated due to risk of bleeding.

 

In January 2008, we suspended enrollment in our Phase I/II randomized, placebo controlled clinical trial designed to evaluate the safety, tolerability and activity of escalating doses of MRX-801microspheres and ultrasound as an adjunctive therapy to tPA treatment in subjects with acute ischemic stroke. Because the safety data following the second cohort indicated that there were a greater number of intracranial hemorrhage events observed in subjects receiving treatment relative to controls in the second cohort, we concluded the study based on these findings. This effect was not observed in subjects treated in the first cohort. We have not yet conducted any clinical trials using our proprietary MRX-801 microspheres with ultrasound to treat blood clot indications without a thrombolytic drug. We estimate that if approved by the FDA over 200,000 ischemic stroke patients in the U.S. could be eligible for SonoLysis therapy.

 

In furtherance of the June 2008 restructuring we discontinued substantially all research and development activity and are now evaluating strategic alternatives for funding and continuation of our clinical-stage SonoLysis program and for our other Company assets.

 

Additional Research Stage Opportunities.  Following our recent restructuring and significant workforce reduction, we suspended all ongoing research stage programs and are also evaluating strategic alternatives for the funding and continuation of these programs.

 

Our Business Strategy

 

Our goal is to become a leading provider of therapies for vascular disorders. In order to achieve this objective, our business strategy includes the following key elements:

 

 

Industry Background

 

The formation of a blood clot is a natural process by which blood thickens and coagulates into a mass of blood cells, platelets and strands of fibrin. Thrombosis occurs when a blood clot, or thrombus, begins to block

a blood vessel. Formation of a clot is the body’s primary mechanism for obstructing blood flow and curtailing bleeding from wounds or other injuries to blood vessels. Blood clots can be caused by a variety of factors other than injury or trauma, such as the rupture of vulnerable plaque in a vessel. Blood clots can also arise in connection with surgical and other medical procedures, such as catheter-based administration of dialysis or other treatments, which can lead to clotting around the site of an incision or within a penetrated blood vessel. An embolism occurs if all or part of a blood clot breaks away and lodges in another part of the body. When a blood clot blocks normal blood flow within the body, it can have a variety of undesirable effects, such as causing pain and swelling, ischemia or tissue damage, stroke, or even death.

 

Over 8 million people in the U.S. are afflicted each year with complications related to blood clots. Our business is currently focused on the treatment of ischemic stroke, in which safe and rapid removal of blood clots is essential.

 

Ischemic Stroke

 

Approximately 795,000 adults in the U.S., or one every 40 seconds, are afflicted with, and 150,000 die as a result of, some form of stroke each year. Stroke is currently the third leading cause of death, and the leading cause of disability, in the United States. Approximately 3 million Americans are currently disabled from stroke. The American Stroke Association estimates that approximately $68.9 billion will be spent in the U.S. in 2009 for stroke related medical costs and disability.

 

The vast majority of strokes, approximately 87% according to the American Stroke Association, are ischemic strokes, meaning that they are caused by blood clots, while the remainder are hemorrhagic strokes, caused by bleeding in the brain, and are more deadly. However, available treatment options for ischemic stroke are subject to significant therapeutic limitations. For example, the most widely used treatment for ischemic stroke is a clot-dissolving, or thrombolytic, drug that can be administered only during a narrow time window and poses a risk of bleeding, resulting in 7% or less of ischemic stroke patients receiving such treatment.

 

When blood clots block arteries that supply blood to the brain, they reduce the oxygen supply to brain tissues, a condition known as cerebral ischemia which can gradually degrade the oxygen-deprived tissues and result in long-term impairment of brain functions. More than 600,000 Americans have an ischemic stroke each year. Approximately 80% of U.S. ischemic stroke patients reach an emergency room within 24 hours after the onset of stroke symptoms, according to Datamonitor; but by contrast, only about 28% of U.S. ischemic stroke patients reach an emergency room within the FDA-mandated three-hour time window for treatment with the currently approved thrombolytic drug, tPA. Due to this three-hour treatment window and other limitations, according to Datamonitor only 1.6% to 2.7% of patients with ischemic stroke in community hospitals, and only 4.1% to 6.3% in academic hospitals or specialized stroke centers, are treated with thrombolytic therapy.

 

Existing Blood Clot Therapies and Their Limitations

 

Various different treatments currently exist for the prevention and treatment of blood clots. Aspirin and other anti-platelets as well as heparin and other anticoagulants are commonly used to prevent or reduce the incidence of blood clots, but have no effect in eliminating such blood clots once they have formed. We focus on the treatment of blood clots once they have formed. Currently available therapeutic approaches for dissolving or otherwise eradicating blood clots before they cause serious medical consequences or death fall into two categories: clot-dissolving drugs, or thrombolytics, and mechanical devices and procedures.

 

Thrombolytic Drugs

 

Thrombolytic drugs dissolve blood clots by breaking up fibrin, the protein that provides the structural scaffold of blood clots. The most widely used thrombolytic drug today is a form of tissue plasminogen activator, commonly referred to as tPA. tPA is marketed in several different formulations that are approved for a variety of specific vascular disorders and is the only thrombolytic drug currently approved for the treatment of ischemic stroke.

Thrombolytic drugs involve a variety of risks and potential side effects that can limit their usefulness:

 

 

Mechanical Devices and Procedures

 

There are several mechanical means for removing or destroying blood clots. Thrombectomy, or surgical clot removal procedures are invasive and entail delays, costs and risks that accompany any major surgery. Although these procedures are less suitable for removing blood clots from the brain, there are devices approved for these cranial surgical procedures.

 

In addition, there are some mechanical devices that can be introduced through a catheter-based delivery system to mechanically break up a blood clot, or to ensnare and retract a clot through the vascular system and out of the body. These mechanical devices are generally not found outside of major medical centers, as they require a catheter laboratory and skilled personnel to administer the procedure. While they do not cause the same bleeding risk as thrombolytic drugs, these mechanical interventions pose some risk of damaging other tissues during treatment, as well as a risk of breaking off a piece of the clot that can itself become the cause of a stroke or embolism in some other part of the body.

 

Manufacturing

 

We have contracted with a third party to produce the necessary quantities of our MRX-801 microspheres for clinical research purposes.

 

Our contract manufacturers will be subject to unannounced inspections by the FDA and corresponding foreign and state agencies to ensure strict compliance with the FDA’s current Good Manufacturing Practices, or cGMP, and other applicable governmental quality control and record-keeping regulations. We do not have control over and cannot ensure third-party manufacturers’ compliance with these regulations and standards. If one of our manufacturers fails to maintain compliance, the production of our product candidates could be interrupted, which could result in substantial delays, and additional costs.

 

Competition

 

The market for therapies to treat vascular disorders associated with blood clots is highly competitive. Numerous companies are developing competing treatments for ischemic stroke. Many of these competitors have significantly greater financial reserves than we do, and have access to greater resources. We expect that our competitors will continue to pursue the development of new or improved treatments for ischemic stroke.

Although we are unaware of any other companies that are developing microsphere technologies for therapeutic use in vascular disorders, there are two principal groups of competitors offering treatments to break up or remove blood clots: thrombolytic drug companies, and vendors of mechanical thrombectomy or similar devices.

 

Thrombolytic Drug Competitors

 

The U.S. market for thrombolytic drugs is dominated by Genentech, Inc., which manufactures tPA, the most widely used thrombolytic drug. Whereas, we are aware that other thrombolytic drugs have been under development for the treatment of ischemic stroke, Genentech’s tPA is currently the only thrombolytic drug that has been approved by the FDA for this indication. Other companies also offer or are developing thrombolytic drugs for treatment of blood clots associated with myocardial infarction and peripheral vascular occlusions, but since we view thrombolytic drugs as complementary to our SonoLysis therapy, we do not consider those product offerings or programs to be competitive with our current business strategy.

 

Device Competitors

 

One of the primary device-based treatments for ischemic stroke is the Mechanical Embolus Removal in Cerebral Ischemia retrieval system or the MERCI system, which is an intravascular catheter-based therapy marketed by Concentric Medical, Inc. This device is used to engage the clot and retract it through the catheter and out of the body. On January 7, 2008, Penumbra, Inc. announced 510(k) clearance of the Penumbra System which is also used for the revascularization of patients with acute ischemic stroke. The Penumbra System is comprised of an aspiration platform containing multiple devices that are size-matched to the specific neurovascular anatomy allowing clots to be aspirated out of intracranial vessels.

 

Patents and Proprietary Rights

 

Our success depends in part on our ability to develop a competitive advantage in the market through the use of microspheres and ultrasound for treatment of blood clots and vascular diseases in various parts of the body. Our ability to obtain intellectual property that protects our MRX-801 microspheres and ultrasound treatment in the presence or absence of drugs will be important to our success. Our strategy is to protect our proprietary positions by, among other things, filing U.S. and foreign patent applications related to our technology, inventions and improvements that are directed to the development of our business and our competitive advantages. Our strategy also includes developing know-how and trade secrets, and licensing technology related to bubbles and ultrasound from third parties.

 

The U.S. patents that we own cover certain applications related to microsphere compositions and methods of making and using such microspheres with ultrasound for the treatment of blood clots. Patents that cover our core technology expire between 2009 and 2024.

 

We have several pending patent claims, including allowed claims that have not yet issued, that cover additional elements of our microsphere technology. We plan to file additional patent applications on inventions that we believe are patentable and important to our business and intend to aggressively pursue and defend patent protection on our proprietary technologies.

 

Our ability to operate without infringing the intellectual property rights of others and to prevent others from infringing our intellectual property rights will also be important to our success. To this end, we have reviewed all patents owned by third parties of which we are aware that are related to microsphere technology and gas filled vesicles, in the presence or absence of ultrasound, and thrombolysis using gas filled vesicles, and believe that our current products do not infringe any valid claims of the third party patents that we have analyzed. There are a large number of patents directed to therapies for blood clots, and there may be other patents or pending patent applications of which we are currently unaware that may impair our ability to operate. We are currently not aware of any third parties infringing our issued claims.

When appropriate, we actively seek protection for our products, technologies, know-how and proprietary information by licensing intellectual property from third parties. We have obtained rights relating to our product candidates and future development programs from third parties as appropriate.

 

Government Regulation

 

We are subject to extensive regulation by the FDA and comparable regulatory agencies in state, local and foreign jurisdictions in connection with the development, manufacture and commercialization of our product candidates.

 

Categories of Regulation

 

In some cases, our product candidates may fall into multiple categories and require regulatory approval in more than one category. For example, our SonoLysis therapy involves a combination of drug and device, which would require approval as a combination product before we could market either of these therapies. Our proprietary MRX-801 microspheres, which are injected into the bloodstream, have been designated as a drug by the FDA. Outside the U.S., our product candidates are also subject to regulation as drugs or medical devices, and must meet similar regulatory hurdles as in the U.S. to gain approval and reach the market.

 

Drug Regulation

 

The process required by the FDA before drug candidates may be marketed in the U.S. generally involves the following:

 

 

Prior to commencing the first human clinical trial, we must submit an IND application to the FDA. The IND application automatically becomes effective 30 days after receipt by the FDA, unless the FDA within such period raises concerns or questions about the preclinical drug testing or nonclinical safety evaluation in animals, or the design or conduct of the first proposed clinical trial. In such a case, the IND application sponsor and the FDA must resolve any outstanding concerns before the clinical trial may begin. A separate submission must be made for each successive clinical trial conducted during product development. The FDA must not object to the submission before each clinical trial may start and continue. Further, an independent Institutional Review Board, or IRB, for investigations in human subjects within each medical center in which an investigator wishes to participate in the clinical trial must review and approve the preclinical drug testing and nonclinical safety evaluation and efficacy in animals or prior human clinical trials as well as the design and goals of the proposed clinical trial before the clinical trial commences at that center. Regulatory authorities, an IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

 

For purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that may overlap. Moreover, the objectives of each phase may be split or combined, leading to Phase I/II and other similar trials that may be used to satisfy the requirements of otherwise separate clinical trials as follows:

 

Phase I:  Phase I clinical trials are usually conducted in normal, healthy volunteers or a limited patient population to evaluate the product candidate for safety, dosage tolerance, absorption, metabolism, distribution and excretion.

Phase II:  Phase II clinical trials are conducted in a limited patient population, the population for which the indication applies, to further identify and measure possible adverse effects or other safety risks, to determine the efficacy of the product candidate for the specific targeted disease and to determine dosage tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted to obtain information prior to beginning Phase III clinical trials.

 

Phase III:  When Phase II clinical trials demonstrate that a dose range of the product candidate appears to be effective and has an acceptable safety profile, Phase III clinical trials are undertaken in a larger patient population to confirm clinical efficacy and to further evaluate safety at multiple, and often internationally located, clinical trial sites.

 

Phase II or III studies of drugs are generally required to be listed in a public clinical trials registry, such as www.clinicaltrials.gov. The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase IV clinical studies may be made a condition to be satisfied after a drug receives approval. The results of Phase IV clinical studies may confirm the effectiveness of a product and may provide important safety information to augment the FDA’s voluntary adverse drug reaction reporting system.

 

The results of product development, preclinical testing and clinical trials are submitted to the FDA as part of an NDA . The submission of an NDA must be accompanied by a user fee of several hundred thousand dollars, unless a particular waiver applies. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied or for any other reason, or it may require additional clinical data or an additional Phase III clinical trial. Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years.

 

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the products. The FDA also closely regulates the marketing and promotion of commercialized products. A company is permitted to make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

 

Medical Device Regulation

 

The process required by the FDA before medical devices may be marketed in the U.S. pursuant to clearance or approval generally involves FDA review of the following:

 

 

Unless an exemption applies, each medical device distributed commercially in the U.S. requires either prior 510(k) clearance or pre-market approval, referred to as a PMA, from the FDA. The FDA classifies medical devices into one of three classes. Class I devices are subject only to general controls, such as establishment registration and device listing, labeling, medical devices reporting, and prohibitions against adulteration and misbranding. Class II medical devices require prior 510(k) clearance before they may be commercially marketed in the U.S. The FDA will clear marketing of a medical device through the 510(k) process if the FDA is satisfied that the new product has been demonstrated to have the same intended use and is substantially equivalent to another legally marketed device, including a 510(k)-cleared, or predicate, device, and otherwise meets the FDA’s requirements. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a predicate device, are placed in Class III, generally requiring submission of a PMA supported by clinical trial data. Currently we have one shaker device that is a Class I device that we use to form our MRX-801 microspheres.

To obtain 510(k) clearance, a notification must be submitted to the FDA demonstrating that a proposed device is substantially equivalent to a predicate device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of a PMA application. The FDA’s 510(k) clearance process generally takes from three to 12 months from the date the application is submitted, but can take significantly longer. If the FDA determines that the device, or its intended use, is not substantially equivalent to a previously-cleared device or use, the device is automatically placed into Class III, requiring the submission of a PMA. Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, in connection with safety and effectiveness, a PMA.

 

Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. To perform a clinical trial in the U.S. for a significant risk device, prior submission of an application for an Investigational Device Exemption, or IDE to the FDA is required. An IDE amendment must also be submitted before initiating a new clinical study under an existing IDE, such as initiating a pivotal clinical trial following the conclusion of a feasibility clinical trial. The FDA responds to an IDE or an IDE amendment for a new clinical trial within 30 days. The FDA may approve the IDE or amendment, grant an approval with certain conditions, or identify deficiencies and request additional information. It is common for the FDA to require additional information before approving an IDE or amendment for a new clinical trial, and thus final FDA approval on a submission may require more than the initial 30 days. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, and any available data on human clinical experience, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The animal and laboratory testing must meet the FDA’s good laboratory practice requirements.

 

Clinical trials are subject to extensive recordkeeping and reporting requirements. Our clinical trials must be conducted under the oversight of an IRB for the relevant clinical trial sites and must comply with FDA regulations, including but not limited to those relating to good clinical practices. We, the FDA or the IRB may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Even if a clinical trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA approval to market the product in the U.S. Similarly, in Europe the clinical study must be approved by a local ethics committee and in some cases, including studies with high-risk devices, by the ministry of health in the applicable country.

 

Once a device is in commercial distribution, we or our agents are subject to ongoing regulatory compliance including Quality System Regulation and cGMP compliance, recordkeeping, adverse experience reporting, and conformity of promotion and advertising materials to the approved instructions for use.

 

Regulatory Enforcement

 

Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA or state authorities, which may include any of the following sanctions:

 

 

Employees

 

We have two full-time employees who are engaged in executive, administrative, accounting and business development functions. None of our employees is covered by a collective bargaining agreement.

 

Available Information

 

Our Internet website address is www.imarx.com. We provide free access to various reports that we file with, or furnish to, the United States Securities and Exchange Commission, or SEC, through our website, as soon as reasonably practicable after they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports. Our SEC reports can be accessed through the investor relations section of our website, or through www.sec.gov. Also available on our website are printable versions of ImaRx’s Code of Conduct and charters of the Audit, Compensation, and Nominating and Governance Committees of our Board of Directors. Information on our website does not constitute part of this annual report on Form 10-K or any other report we file or furnish with the SEC.

 

 

The following important factors, among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time.

 

Risks Related to Our Business and Industry

 

Unless we are able to generate sufficient product or other revenue, we will continue to incur losses from operations and may never achieve or maintain profitability.

 

We have a history of net losses and negative cash flow from operations since inception. As of December 31, 2008, we had an accumulated deficit of $91.3 million. We have incurred losses in each year since our inception. Our net losses applicable to common stockholders for the fiscal years ended December 31, 2008 and 2007 were $10.1 million and $18.6 million, respectively. We currently do not have sufficient cash resources to further product development activities. However, if and when we are successful in obtaining such resources, we expect our product development expenses to increase in connection with our ongoing and future product development initiatives. Because of the numerous risks and uncertainties associated with developing new medical drugs and devices, we are unable to predict the extent of any future losses or when we will become profitable, if ever.

 

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

 

We have received an audit report from our independent registered accounting firm containing an explanatory paragraph stating that our historical recurring losses from operations which has resulted in an accumulated deficit of $91.3 million at December 31, 2008 raises substantial doubt about our ability to continue as a going concern.

 

We will need additional capital to fund our present operations beyond the third quarter 2009. If we are unable to identify or consummate an attractive strategic transaction for our SonoLysis program or our other assets in a timely manner we may be forced to delay, reduce or eliminate these activities and we may be unable to timely pay our debts.

 

We do not currently have sufficient cash resources to fund any product development activities. Our current activities are directed toward securing an attractive strategic transaction for our SonoLysis program and our other assets. We believe that our cash and cash equivalents will be sufficient to fund these activities and

other demands and commitments into the third quarter 2009. Our funding requirements will, however, depend on numerous factors, including:

 

 

We cannot be certain that we will generate any additional funding. We may be forced to accept terms on a strategic transaction that are highly dilutive or otherwise disadvantageous to our existing stockholders. If we are unable to secure adequate financing, we could be required to liquidate the remaining assets.

 

Our competitors generally are larger than we are, have greater financial resources available to them than we do and may have a superior ability to develop and commercialize competitive products. In addition, if our competitors have products that are approved in advance of ours, marketed more effectively or demonstrated to be safer or more effective than ours, our commercial opportunity will be reduced or eliminated and our business will be harmed.

 

Our industry sector is intensely competitive, and we expect competition to continue to increase. Many of our actual or potential competitors have substantially longer operating histories and greater financial, research and development and marketing capabilities than we do. Many of them also have substantially greater experience than we have in undertaking preclinical studies and clinical trials, obtaining regulatory approvals and manufacturing and distributing products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies. In addition, academic institutions, government agencies and other public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for product development and marketing. We may not be able to develop products that are more effective or achieve greater market acceptance than our competitors’ products. Any company that brings competitive products to market before us may achieve a significant competitive advantage.

 

We believe that the primary competitive factors in the market for treatments of vascular disorders include safety and efficacy, access to and acceptance by leading physicians, cost-effectiveness, physician relationships and sales and marketing capabilities. We may be unable to compete successfully on the basis of any one or more of these factors, which could have a material adverse effect on our business, financial condition and results of operations.

 

If we are unable to develop, manufacture and commercialize our product candidate, we may not generate sufficient revenue to continue our business.

 

The process to develop, obtain regulatory approval for and commercialize potential drug candidates is long, complex and costly. Our proprietary SonoLysis microsphere technology has not been used in clinical trials other than our concluded Phase I/II clinical trial. As a result, our business in the near term is substantially dependent upon our ability to complete development, obtain regulatory approval for and commercialize our SonoLysis product candidate in a timely manner. If we are unable to commercialize or license our SonoLysis product candidates, we may not be able to earn sufficient revenue to continue our business.

We do not plan to manufacture any of our product candidates and will depend on commercial contract manufacturers to manufacture our products.

 

We do not have our own manufacturing facilities, have no experience in large-scale product manufacturing, and do not intend to develop such facilities or capabilities. Our ability to conduct clinical trials and commercialize our product candidates will depend, in part, on our ability to manufacture our products through contract manufacturers. For all of our product candidates, we or our contract manufacturers will need to have sufficient production and processing capacity to support human clinical trials, and if those clinical trials are successful and regulatory approvals are obtained, to produce products in commercial quantities. Delays in providing or increasing production or processing capacity could result in additional expense or delays in our clinical trials, regulatory submissions and commercialization of our products. In addition, we will be dependent on such contract manufacturers to adhere to the FDA’s current Good Manufacturing Practices, or cGMP, and other regulatory requirements.

 

Establishing contract manufacturing is costly and time-consuming and we cannot be certain that we will be able to engage contract manufacturers who can meet our quantity and quality requirements in a timely manner and at competitive costs. The manufacturing processes for our product candidates have not yet been tested at commercial levels, and it may not be possible to manufacture such materials in a cost-effective manner. Further, there is no guarantee that the components of our proposed drug product candidates will be available to our manufacturers when needed on terms acceptable to us.

 

Our product candidates may never achieve market acceptance.

 

We cannot be certain that our products will achieve any degree of market acceptance among physicians and other health care providers and payers, even if necessary regulatory approvals are obtained. We believe that recommendations by physicians and other health care providers and payers will be essential for market acceptance of our products, and we cannot be certain we will ever receive any positive recommendations or reimbursement. Recently, the labels of certain microspheres currently being commercialized as contrast agents for use in echocardiography were revised by the FDA to include warnings with respect to certain serious cardiopulmonary reactions, including fatalities observed when the bubbles were administered during echocardiography. One of the microspheres marketed under the brand name Definity^® is similar in composition to our MRX-801 microsphere. As a result, our MRX-801 microsphere, if approved, may receive a similar warning that could negatively impact use of our product by physicians and may require us to conduct additional clinical tests, which would increase our development costs and may delay commercialization of our product. Physicians will not recommend our products unless they conclude, based upon clinical data and other factors, that our products are safe and effective. We are unable to predict whether any of our product candidates will ever achieve market acceptance, either in the U.S. or internationally. A number of factors may limit the market acceptance of our products, including:

 

 

If our products are not commercialized, our business will be materially harmed.

Technological change and innovation in our market sector may cause our products to become obsolete shortly after or even before such products reach the market.

 

New products and technological development in the pharmaceutical and medical device industries may adversely affect our ability to complete required regulatory requirements and introduce our product candidates into the market or may render our products obsolete. The markets into which we plan to introduce our products are characterized by constant and sometimes rapid technological change, new and improved product introductions, changes in regulatory requirements, and evolving industry standards. Our ability to execute our business plan will depend to a substantial extent on our ability to identify new market trends and develop, introduce and support our candidate products on a timely basis. If we fail to develop and commercialize our product candidates on a timely basis, we may be unable to compete effectively. If we eventually succeed at obtaining regulatory approval for commercial sale of our product candidate, competitive developments may have diminished our product opportunities, which would have an adverse impact on our business prospects and financial condition.

 

We intend to rely heavily on third parties to implement critical aspects of our business strategy, and our failure to enter into and maintain these relationships on acceptable business terms, or at all, would materially adversely affect our business.

 

We intend to rely on third parties for certain critical aspects of our business, including:

 

 

We do not currently have agreements in place for all of these services. Although we use a third party manufacturer to produce MRX-801 microspheres for our research purposes on a purchase order basis, that third party may not have the capacity to produce the volume of MRX-801 microspheres necessary for commercial sales. To the extent that we are unable to maintain the relationships we have in place or to enter into any one or more of the additional relationships necessary to conduct our business on commercially reasonable terms, or at all, or to eliminate the need for any such relationship by establishing our own capabilities in a particular functional area in a timely manner, we could experience significant delays or cost increases that could have a material adverse effect on our ability to develop, manufacture and commercialize our product and product candidates.

 

We rely on third party products, technology and intellectual property, which could negatively affect our ability to sell our MRX-801 microspheres or other products commercially or could adversely affect our ability to derive revenue from such products.

 

Our SonoLysis program may require the use of multiple proprietary technologies, including commercially available ultrasound devices and patented technologies. Manufacturing our products or customizing related ultrasound devices may also require licensing technologies and intellectual property from third parties. Obtaining and maintaining licenses for these technologies may require us to make royalty payments or other payments to several third parties, potentially reducing our revenue or making the cost of our products commercially prohibitive. We cannot be certain that we will be able to establish any or all of the partnering relationships and technology licenses that may be necessary for the pursuit of our business strategy, or, even if such relationships can be established, that they will be on terms favorable to us or that they can be managed in a way that will assist us in executing our business plan.

We have only two full-time employees and consulting relationships with certain key consultants to provide necessary services. We may not have sufficient personnel to effectively identify or consummate an attractive strategic transaction for our clinical-stage SonoLysis program and other Company assets in a timely manner, or at all.

 

Our success depends substantially on the services of our two employees and key consultants. The loss of the services of one or more of these persons could have a material adverse effect on our business. Each of these persons may terminate his or her relationship with us without notice and without cause or good reason. Our ability to identify or consummate an attractive strategic transaction for our clinical-stage SonoLysis program and other Company assets is substantially dependent on these persons and without them we cannot be certain that we will be able to do accomplish our business objectives.

 

We may be unable to manage our company’s growth effectively.

 

If we engage in a pivotal clinical trial or commercialization efforts in the future, our business will undergo significant growth. For example, we may have to expand existing operations in order to conduct a pivotal trial and additional clinical trials, increase our contract manufacturing capabilities, hire and train new personnel to handle the marketing and sales of our products, assist in obtaining reimbursement for the use of our products, and create and develop new applications for our technology. Such growth may place significant strain on our management, financial and operational resources. Successful growth is also dependent upon our ability to implement appropriate financial and management controls, systems, and procedures. Our ability to effectively manage growth depends on our success in attracting and retaining highly qualified personnel, for which the competition may be intense. If we fail to manage these challenges effectively, our business could be harmed.

 

We depend on patents and other proprietary rights, some of which are uncertain and unproven. Further, our patent portfolio and other intellectual property rights are expensive to maintain, protect against infringement claims by third parties, and enforce against third party infringements, and are subject to potential adverse claims.

 

Because we are developing product candidates that rely on advanced and innovative technologies, our ability to execute our business plan will depend in large part on our ability to obtain and effectively use patents and licensed patent rights, preserve trade secrets and operate without infringing upon the proprietary rights of others.

 

The patent position of pharmaceutical, medical device and biotechnology companies in general is highly uncertain and involves complex legal and factual questions. Effective intellectual property protection may also be unavailable or limited in some foreign countries. We have not pursued foreign patent protection in all jurisdictions or for all of our patentable intellectual property. As a result, our patent protection for our intellectual property will likely be less comprehensive if and when we commence international sales.

 

There are also companies that are currently commercializing FDA approved microspheres-based products for diagnostic uses. These companies may promote these products for off-label uses which may directly compete with our products when and if approved. Additionally, physicians may prescribe the use of such products for off-label indications which could have the impact of reducing our revenues for our product candidates when and if approved.

 

In the U.S. and internationally, enforcing intellectual property rights against infringing parties is often costly. Pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or sell our products or in countries where others develop, manufacture and sell products using our technologies. Patents issued to us may be challenged and subsequently narrowed, invalidated or circumvented. In February 2005, a third party filed an opposition claim to one of our patents in Europe that relates to targeted bubbles for therapeutic and diagnostic use. The third party agreed to voluntarily dismiss and terminate this claim, but other such conflicts could occur and could limit the scope of the patents that we may be able to obtain or may result in the denial of our patent applications. If a third party were to obtain intellectual property protection for any of the technologies upon which our business strategy is based, we

could be required to challenge such protections, terminate or modify our programs that rely on such technologies or obtain licenses for use of these technologies. For example, in July 2003 we received a notice from a third party who owns a patent relating to the administration of ultrasound to break up blood clots indicating that we may need a license to its patent if we intend to administer our therapies according to its patented method. Although we do not intend to administer our therapies according to the third party’s patented method, other similar third party patents, if valid, could require us to seek a license that may not be available on terms acceptable to us or at all, could impose limitations on how we administer our therapies, and may require us to adopt restrictions or requirements as to the manner of administration of our products that we might not otherwise adopt to avoid infringing patents of others. Moreover, we may not have the financial resources to protect our patent and other intellectual property rights and, in that event, our patents may not afford meaningful protection for our technologies or product candidates, which would materially adversely affect our ability to develop and market our product candidates and to generate licensing revenue from our patent portfolio.

 

Additional risks related to our patent rights and other proprietary rights include:

 

 

If any of these events occurs, our business may be harmed.

 

Other companies may claim that we infringe their patents or trade secrets, which could subject us to substantial damages.

 

A number of third parties, including certain of our competitors, have developed technologies, filed patent applications or obtained patents on technologies and compositions that are related to aspects of our business, including thrombolytic drug therapy, microspheres and ultrasound. Such third parties may sue us for infringing their patents. If we face an infringement action, defending against such an action could require substantial resources that may not be available to us. In the event of a successful claim of infringement against us, we may be required to:

 

 

Any claims of infringement could cause us to incur substantial costs and could divert management’s attention away from our business in defending against the claim, even if the claim is invalid. A party making a claim could secure a judgment that requires us to pay substantial damages. A claim of infringement could also

be used by our competitors to delay market introduction or acceptance of our products. If we are sued for infringement, we could encounter substantial delays in development, manufacture and commercialization of our product candidates. Any litigation, whether to enforce our patent rights or to defend against allegations that we infringe third party rights, will be costly and time consuming and will likely distract management from other important tasks.

 

Our rights to develop and commercialize our SonoLysis product candidate is subject to the terms and conditions of licenses or sublicenses granted to us by third parties, including other pharmaceutical companies, that contain restrictions that may limit our ability to capitalize on this product.

 

Our SonoLysis therapy product candidate is based in part on patents and other intellectual property that we license or sublicense from third parties. Our rights to develop and commercialize this product candidate using intellectual property licensed from UNEMED Corporation may terminate, in whole or in part, if we fail to pay royalties to third party licensors, or if we fail to comply with certain restrictions regarding our development activities. In the event of an early termination of any such license or sublicense agreement, rights licensed and developed by us under such agreements may be extinguished, and our rights to the licensed technology may revert back to the licensor. Any termination or reversion of our rights to develop or commercialize any such product candidate may have a material adverse effect on our business.

 

We are party to an agreement with Bristol-Myers Squibb that restricts us from using our bubble technology for non-targeted diagnostic imaging applications. Bristol-Myers Squibb also has a right of first negotiation should we wish to license to a third party any of our future products or technology related to the use of bubbles for targeted imaging of blood clots, or breaking up blood clots with ultrasound and bubbles. Bristol-Myers Squibb has waived its rights under this agreement with respect to our current generation of MRX-801 microspheres that we are developing for breaking up blood clots, as well as a new generation of MRX-802 microspheres that we are developing for breaking up blood clots that include targeting mechanisms to cause the bubbles to attach to blood clots. This right of first negotiation for future technology we may develop in these applications could adversely impact our ability to attract a partner or acquirer for SonoLysis therapy.

 

In addition, we have been awarded various government funding grants and contracts from The National Institutes of Health and other government agencies. These grants include provisions that provide the U.S. government with the right to use the technologies developed under such grants for certain uses, under certain circumstances. If the government were to exercise its rights, our ability to commercialize such technology would likely be impaired.

 

We could be exposed to significant product liability claims, which could be time consuming and costly to defend, divert management attention and adversely impact our ability to obtain and maintain insurance coverage. The expense and potential unavailability of insurance coverage for our company or our customers could adversely affect our ability to sell our products, which would negatively impact our business.

 

We face a risk of product liability exposure related to the testing of our product candidates in clinical trials and will face even greater risks upon any commercialization by us of our product candidates. Thrombolytic drugs are known to involve certain medical hazards, such as risks of bleeding or immune reactions. Our product candidates may also involve presently unknown medical risks of equal or even greater severity. Product liability claims or other claims related to our products, or their off-label use, regardless of their merits or outcomes, could harm our reputation in the industry, and reduce our product sales. Additionally, any lawsuits or product liability claims against us may divert our management from pursuing our business strategy and may be costly to defend. Further, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forego further commercialization of one or more of our products. A product liability related claim or recall could be materially detrimental to our business. Our current product liability insurance, which provides us with $10 million of coverage in the aggregate, may be insufficient. We may not be able to obtain or maintain such insurance in adequate amounts, or on acceptable terms, to provide coverage against potential liabilities. The product liability coverage we currently have for our

clinical trials may be insufficient to cover fully the costs of any claim or any ultimate damages we may be required to pay. Our inability to obtain or maintain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products we develop, and could leave us exposed to significant financial losses relating to any products that we do develop and commercialize.

 

If we use hazardous or biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

 

Our research and development activities involve the controlled use of potentially hazardous substances, including toxic chemical and biological materials. Our operations produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous and biological materials. While we believe that we are currently in compliance with these laws and regulations, continued compliance may be expensive, and current and future environmental regulations may impair our research, development and manufacturing efforts. In addition, if we fail to comply with these laws and regulations at any point in the future, we may be subject to criminal sanctions and substantial civil liabilities and could be required to suspend or modify our operations. Even if we continue to comply with all applicable laws and regulations regarding hazardous materials, we cannot eliminate the risk of accidental contamination or discharge and our resultant liability for any injuries or other damages caused by these accidents. Although we maintain general liability insurance, this insurance may not fully cover potential liabilities for these damages, and the amount of uninsured liabilities may exceed our financial resources and materially harm our business.

 

The FDA approval process for drugs involves substantial time, effort and financial resources, and we may not receive any new approvals for our product candidates on a timely basis, or at all.

 

The process required by the FDA before product candidates may be marketed in the U.S. generally involves the following:

 

 

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any new approvals for our product candidates will be granted on a timely basis, if at all. We have failed in the past, and may in the future fail, to make timely submissions of required reports or modifications to clinical trial documents, and such delays as well as possible errors or omissions in such submissions could endanger regulatory acceptance of clinical trial results or even our ability to continue with our clinical trials.

 

The results of product development, preclinical tests and clinical trials are submitted to the FDA as part of an NDA, or as part of an NDA supplement. The FDA may deny approval of an NDA or NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplement does not satisfy the criteria for approval. The FDA may move to withdraw product approval, once issued, if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect

of approved products which have been commercialized, and the FDA may move to prevent or limit further marketing of a product based on the results of these post-marketing programs.

 

Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Government regulation may delay or prevent marketing of product candidates for new indications for a considerable period of time and impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant approvals for new indications for our product candidates on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Data obtained from clinical trials is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain, additional regulatory approvals for our products would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

 

The FDA’s policies may change and additional government regulations may be enacted, which could prevent or delay regulatory approval of our product candidates or approval of new indications for our product candidates. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or internationally.

 

If we or our contract manufacturers fail to comply with applicable regulations, sales of our products could be delayed and our revenue could be harmed.

 

Every medical product manufacturer is required to demonstrate and maintain compliance with cGMP. We and any third party manufacturers or suppliers with whom we enter into agreements will be required to meet these requirements. Our contract manufacturers will be subject to unannounced inspections by the FDA and corresponding foreign and state agencies to ensure strict compliance with cGMP and other applicable government quality control and record-keeping regulations. In addition, transfer of ownership of products triggers a mandatory manufacturing inspection requirement from the FDA. We cannot be certain that we or our contract manufacturers will pass any of these inspections. If we or our contract manufacturers fail one of these inspections in the future, our operations could be disrupted and our manufacturing and sales delayed significantly until we can demonstrate adequate compliance. If we or our contract manufacturers fail to take adequate corrective action in a timely fashion in response to a quality system regulations inspection, the FDA could shut down our or our contract manufacturers’ manufacturing operations and require us, among other things, to recall our products, either of which would harm our business.

 

Failure to comply with cGMP or other applicable legal requirements can lead to federal seizure of violative products, injunctive actions brought by the federal government, and potential criminal and civil liability on the part of a company and its officers and employees. Because of these and other factors, we may not be able to replace our manufacturing capacity quickly or efficiently in the event that our contract manufacturers are unable to manufacture our products at one or more of their facilities. As a result, the sale and marketing of our products could be delayed or we could be forced to develop our own manufacturing capacity, which would require substantial additional funds and personnel and compliance with extensive regulations.

 

Our products will remain subject to ongoing regulatory review even if they receive marketing approval. If we fail to comply with applicable regulations, we could lose these approvals, and the sale of our products could be suspended.

 

Even if we receive regulatory approval to market a particular product candidate, the FDA or foreign regulatory authority could condition approval on conducting additional and costly post-approval clinical trials or could limit the scope of approved labeling. Moreover, the product may later cause adverse effects that limit

or prevent its widespread use, force us to withdraw it from the market or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, the manufacturer of the product and its facilities will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing approval, the FDA imposes extensive regulatory requirements on the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping related to the product. We may not promote or advertise any future FDA-cleared or approved products for use outside the scope of our product’s label or make unsupported promotional claims about the benefits of our products. If the FDA determines that our claims are outside the scope of our label or are unsupported, it could require us to revise our promotional claims, correct any prior statements or bring an enforcement action against us. Moreover, the FDA or other regulatory authorities may bring charges against us or convict us of violating these laws, and we could become subject to third party litigation relating to our promotional practices and there could be a material adverse effect on our business.

 

If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities or discover previously unknown problems with our products, manufacturers or manufacturing processes, we could be subject to administrative or judicially imposed sanctions, including:

 

 

If we were subject to any of the foregoing actions by the FDA, our sales could be delayed, our revenue could decline and our reputation among clinicians, doctors, inventors and research and academic institutions could be harmed.

 

Marketing and reimbursement practices and claims processing in the pharmaceutical and medical device industries are subject to significant regulation in the U.S.

 

In addition to FDA restrictions on marketing of pharmaceutical products, several other state and federal laws have been applied to regulate certain marketing practices in the pharmaceutical and medical device industries in recent years, in particular anti-kickback statutes and false claims statutes.

 

The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from potential liability, the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our future practices may not in all cases meet the criteria for safe harbor protection from anti-kickback liability.

 

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false

statement to have a false claim paid. For example, several pharmaceutical and other health care companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the company’s marketing of the product for unapproved, and thus non-reimbursable, uses. The majority of states also have statutes or regulations similar to the federal anti-kickback and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment.

 

Because of the breadth of these laws and the limited safe harbors, it is possible that some of our commercial activities in the future could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business.

 

If we seek regulatory approvals for our products in foreign jurisdictions, we may not obtain any such approvals.

 

We may market our products outside the U.S., either with a commercial partner or alone. To market our products in foreign jurisdictions, we will be required to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and jurisdictions and can involve additional testing, and the time required to obtain foreign approvals may differ from that required to obtain FDA approval. We have no experience with obtaining any such foreign approvals. Additionally, the foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA. We may not be able to submit applications for regulatory approvals and may not receive necessary approvals to commercialize our products in any market. The failure to obtain these approvals could materially adversely affect our business, financial condition and results of operations.

 

Risks Related to Our Common Stock

 

Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over our affairs.

 

Our executive officer, current directors and holders of five percent or more of our common stock own a significant portion of our common stock. These stockholders significantly influence the composition of our Board of Directors, retain the voting power to approve some matters requiring stockholder approval and continue to have significant influence over our operations. The interests of these stockholders may be different than the interests of other stockholders on these matters. This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common stock.

 

If our stock price is volatile, purchasers of our common stock could incur substantial losses.

 

Our stock price is likely to be volatile. The stock market in general and the market for small healthcare companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The price for our common stock may be influenced by many factors, including: