defm14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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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)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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IMARX
THERAPEUTICS, INC.
12277 134th Court NE,
Suite 202
Redmond, Washington 98052
(425) 821-5501
SPECIAL
MEETING OF STOCKHOLDERS YOUR VOTE IS
IMPORTANT
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
Companys 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:
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(1)
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the sale of substantially all of the Companys assets to WA
32609, Inc., a Delaware corporation, for a cash purchase price
of $500,000 (the Asset Sale), pursuant to and on the
terms set forth in an Asset Purchase Agreement dated
June 15, 2009 (the Asset Purchase Agreement);
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(2)
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an amendment to the Companys fifth amended and restated
certificate of incorporation (the Amendment) in
order to effect a reverse stock split of the issued and
outstanding shares of Companys common stock described in
the accompanying proxy statement (the Reverse Stock
Split).
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(3)
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the grant of discretionary authority to the Companys 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
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(4)
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consideration and transaction of such other business as may
properly come before the Special Meeting or any adjournments or
postponements thereof.
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The Companys 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
Companys 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 Companys 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
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD AUGUST 31, 2009
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 Companys 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
Companys 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 Companys common stock pursuant to an
amendment to the Companys 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 Companys
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 Companys 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
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ANNEX A ASSET PURCHASE AGREEMENT BETWEEN
WA 32609, INC. AND IMARX THERAPEUTICS, INC.
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A-1
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ANNEX B AMENDMENT TO THE COMPANYS FIFTH
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
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B-1
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ANNEX C ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
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C-1
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ANNEX D QUARTERLY REPORT ON
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009
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D-1
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SUMMARY
TERM SHEET
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 Companys 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
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The Parties |
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ImaRx |
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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. |
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WA 32609, Inc. |
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WA 32609, Inc., or Buyer, is a privately held Delaware
corporation formed by an independent investor on June 26,
2009 for the purposes of purchasing our assets and pursuing the
further development of the SonoLysis Technology. Neither Buyer
or its principals have any prior affiliation with ImaRx. |
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Assets Proposed to be Transferred to Buyer |
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We have agreed to transfer the following assets to Buyer: |
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all intellectual property related to our ultrasound
and microbubble technology including our 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, our clinical-stage SonoLysis product candidate,
which involves the administration of our 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 (the
Technology);
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all contracts pursuant to which we have licensed or
authorized others to use any intellectual property used in or
related to the Technology;
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all contracts pursuant to which we have acquired
rights to intellectual property of third parties related to the
Technology;
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all regulatory filings, data and results of studies
related to the Technology;
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all of our rights under contracts related to the
Technology, including any and all rights to receive payment,
goods or services thereunder, and to assert claims and take
other actions thereunder;
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all permits, licenses, agreements, waivers and
authorizations, including any pending applications or renewals,
held or used by us in connection with, or required for, the
Technology;
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all goodwill relating to the Technology; and
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books, records, files and documents related to
acquired assets.
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Liabilities Proposed to be Assumed by Buyer |
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Buyer has agreed to assume our liabilities relating to the
assets purchased by Buyer. These liabilities include: |
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all liabilities and performance obligations arising
under the intellectual property and contracts assigned to Buyer
accruing with respect to the period commencing, as applicable,
after the closing date of the asset sale; and
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all other liabilities related to the research,
development, marketing, manufacture, distribution, testing, sale
or trials of the assets purchased by Buyer, to the extent
incurred after the closing date.
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Conditions to the Closing of the Asset Sale |
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The obligations of the parties to complete the asset sale are
subject to conditions, such as the approval of the asset sale by
our stockholders. |
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The obligations of Buyer to complete the asset sale are subject
to additional conditions at closing, such as: |
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the absence of any event or development of a state
of circumstances that, individually or in the aggregate, has
had, or could reasonably be expected to result in, a material
adverse effect on us; and
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the execution and delivery of a certain license
agreement with the University of Texas Health Science Center at
the University of Houston, employment agreements with Bradford
A. Zakes and Dilip Worah and a consulting agreement with Andrei
Alexandrov.
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Material Income Tax Consequences of the Asset Sale |
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We believe that we will not incur any material federal or state
income taxes as a result of the asset sale because our basis in
the assets being sold exceeds the sale proceeds that will be
received from Buyer. |
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Liabilities Retained by ImaRx |
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Other than the liabilities assumed by Buyer, we will remain
responsible for all of our other liabilities, such as tax
liabilities, liabilities relating to employment matters,
liabilities related to the operations of our business not
related to the Technology, and liabilities existing prior to the
closing of the asset sale relating to the assets purchased by
Buyer. |
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Restrictions on Our Ability to Solicit Third Party Proposals;
Ability to Enter into a Superior Proposal |
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The asset purchase agreement contains a restriction
on our ability to solicit third party proposals and on our
ability to provide
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information and engage in discussions and negotiations with
unsolicited third parties, which we refer to as a no shop
restriction. |
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The no shop restriction is subject to an exception
that allows us to provide information and participate in
discussions and negotiations with respect to unsolicited third
party acquisition proposals submitted after the date of the
asset purchase agreement that our Board of Directors determines
in good faith may result in a superior acquisition proposal.
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Our Board of Directors may terminate the asset
purchase agreement and agree to a superior acquisition proposal,
so long as we comply with the terms and subject to the
circumstances set forth in the asset purchase agreement and pay
Buyer a termination fee.
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Termination of the Asset Purchase Agreement |
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The asset purchase agreement may be terminated: |
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by mutual consent of the parties;
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by us if we enter into an agreement related to a
superior acquisition proposal as discussed in Restrictions
on Our Ability to Solicit Third Party Proposals; Ability to
Enter into a Superior Proposal above or if Buyer breaches
any material representations, warranties or covenants set forth
in the asset purchase agreement; and
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by either Buyer or us if stockholder approval of the
Asset Sale is not obtained by us.
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by Buyer if our Board of Directors changes its
recommendation in favor of such asset sale or if we breach any
material representations, warranties, covenants or agreements
set forth in the asset purchase agreement.
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Termination Fee |
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We have agreed to pay Buyer the sum of $100,000 if: |
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we terminate the asset purchase agreement upon
entering into an agreement related to a superior acquisition
proposal; and
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Buyer terminates the asset purchase agreement upon
our Board of Directors changing its recommendation in favor of
such asset sale.
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Buyer has agreed to pay us a termination fee of $100,000 if: |
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we terminate the asset purchase agreement upon
Buyers material breach of any of its representations,
warranties or covenants set forth in the asset purchase
agreement; and
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we terminate the asset purchase agreement in the
event that the asset sale has not closed and all the conditions
requiring the Buyer to close the asset purchase have been
satisfied.
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Indemnification |
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We have agreed to indemnify Buyer against any losses resulting
from any breach of a representation, warranty, covenant or
agreement we make in the asset purchase agreement if the
aggregate amount of Buyers losses exceeds $10,000, in
which case Buyer would be entitled to be paid the aggregate
amount of all such losses. Our indemnification obligations
survive the closing for a period of up to six months. Our
aggregate liability to Buyer is $500,000 other than for claims
related to fraud or certain other excluded liabilities. |
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Holdback Amount |
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We have agreed to allow Buyer to hold back $100,000 of the
$500,000 purchase price to secure our indemnification
obligations described above. This holdback amount will be
released by Buyer to us upon the expiration date of our
indemnification obligations, which could be for a period of up
to six months following the closing of the asset sale. |
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IMARX
THERAPEUTICS, INC.
12277 134TH COURT NE,
SUITE 202
REDMOND, WASHINGTON 98052
(425) 821-5501
PROXY
STATEMENT FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 2009
General
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 Companys 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
5
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.
Record
Date; Voting Securities
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.
Solicitation
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.
Voting
Procedures
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
6
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:
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delivering a written notice to Bradford A. Zakes, our President
and Chief Executive Officer, at 12277 134th Court NE,
Suite 202, Redmond, Washington 98052, that you are revoking
your proxy;
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submitting new voting instructions using any of the methods
described above; or
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attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not, by itself, revoke a
proxy).
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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.
Voting
and Quorum; Broker Non-Votes
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.
7
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.
CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
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.
8
RISK
FACTORS
Risks
Related to the Asset Sale
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 officers 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.
9
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.
Risks
Related to the Reverse Stock Split
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 Companys 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 Companys
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.
10
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING
The
Proposals to Be Voted On
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Q:
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What proposals will be voted on at the Special
Meeting?
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A:
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The following four proposals will be voted on at the Special
Meeting:
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to approve the sale of substantially all of the Companys
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) (See Proposal No. 1:
Approval of the Asset Sale beginning on page 16 of
this Proxy Statement for a more detailed description of the
transaction with Buyer);
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to approve a reverse stock split of the issued and outstanding
shares of Companys common stock pursuant to an amendment
to the Companys 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) (See Proposal No. 2: Approval
of an Amendment to Fifth Amended and Restated Certificate of
Incorporation to Effect a Reverse Stock Split of the
Companys Common Stock beginning on page 29 of
this Proxy Statement for a more detailed description of the
Amendment and the Reverse Stock Split).
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to grant discretionary authority to the Companys 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
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to consider and transact such other business as may properly
come before the Special Meeting or any adjournments or
postponements thereof.
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See Notice of Special Meeting of Stockholders.
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Recommendation
of the Board of Directors
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Q:
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What is the Board of Directors recommendation with
respect to the Asset Sale proposal and the Reverse Stock Split
proposal?
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A:
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Our Board has unanimously:
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determined that the Asset Sale and the other transactions
contemplated by the Asset Sale, are fair to, advisable and in
the best interests of the Company and our stockholders;
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approved in all respects the Asset Sale and the other
transactions contemplated by the Asset Sale;
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recommended that our stockholders vote FOR the
approval of the Asset Sale; and
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recommended that our stockholders vote FOR the
approval of the Reverse Stock Split.
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One member of our Board of Directors, Bradford A. Zakes,
abstained from voting on the Asset Sale due to a potential
conflict of interest arising as a result of an employment
agreement with Buyer, which will be entered into at the closing
of the Asset Sale consistent with the terms negotiated by Buyer
and Mr. Zakes in good faith.
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Accordingly, our Board of Directors recommends a vote
FOR approval of the Asset Sale, FOR
approval of the Reverse Stock Split and FOR the
adjournment of the Special Meeting, regardless of whether a
quorum is present, if necessary to solicit additional votes in
favor of the Asset Sale and/or the Reverse Stock Split.
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11
The Asset
Sale and Reverse Stock Split
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Q:
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What will happen if the Asset Sale is approved?
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A:
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If the Asset Sale is approved, we will consummate the Asset Sale
subject to satisfaction of the closing conditions set forth in
the Asset Purchase Agreement. We anticipate that the
transactions will close shortly after the Special Meeting.
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Q:
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Why did we enter into the Asset Purchase Agreement?
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A:
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After due consideration of all other alternatives reasonably
available to us, our Board of Directors concluded that the
completion of the sale of substantially all of our assets to
Buyer for an aggregate of $500,000 in cash was the only
alternative reasonably likely to enable us to satisfy our
outstanding obligations and to maximize value to our
stockholders.
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Q:
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Who is the Buyer?
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A:
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Buyer is a privately-held Delaware corporation formed by an
independent investor for the purpose of entering into the Asset
Purchase Agreement and to consummate the Asset Sale. Upon
closing of the Asset Sale, Buyer intends to raise additional
capital and recommence the development of the Technology.
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Q:
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What is the purchase price for the assets being sold in
the Asset Sale?
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A:
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Buyer will pay us an aggregate amount of $500,000 in cash for
the assets to be sold.
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Q:
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What assets are being sold to Buyer?
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A:
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The assets we propose to sell to Buyer consist of substantially
all of 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). In addition, we propose to sell to
Buyer all our contracts related to the Technology, all of our
permits and licenses, our goodwill relating to the Technology
and all our books records, files and documents related to the
assets.
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Q:
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What assets are not being sold to Buyer?
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A:
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We are not selling our cash and cash equivalents, accounts
receivable, potential tax refunds, and certain other immaterial
assets.
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Q:
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What liabilities will be assumed by Buyer?
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A:
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Buyer will assume only certain specified liabilities related to
the assets purchased. All other liabilities will remain our
obligation, including, but not limited to employee-related plans
and agreements.
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Q:
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What will happen if the Asset Sale is not approved?
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A:
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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 will be sufficient to meet our operating and capital
requirements (including payment of all costs related to the
Asset Sale) through the third quarter of 2009, although changes
in our business, whether or not initiated by us, may affect the
rate at which we deplete our cash and cash equivalents.
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Assuming the Asset Sale is not consummated, 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.
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Q:
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What are the other conditions to closing the Asset
Sale?
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A:
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Conditions to closing of the Asset Sale include, but are not
limited to, the absence of any event or development of a state
of circumstances that, individually or in the aggregate, has
had, or could reasonably be expected to result in, a
Material Adverse Effect as that term is defined in
the Asset Purchase Agreement, the execution and delivery of a
certain license agreement with the University of Texas Health
Science Center at the University of Houston, employment
agreements with Bradford A. Zakes and Dilip Worah and a
consulting agreement with Andrei Alexandrov.
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Q:
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What are the federal and state income tax consequences to
us of the Asset Sale and the Reverse Stock Split?
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A:
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We believe that we will not incur any federal or state income
taxes as a result of the Asset Sale. The Reverse Stock Split
will not result in a taxable transaction except that those
shareholders that would hold fractional shares after the Reverse
Stock Split will receive cash for their shares and will be
subject to taxes only to the extent such amount exceeds their
cost basis in such shares.
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Q:
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What is the Reverse Stock Split and why is it
necessary?
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A:
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The outstanding shares of the Companys common stock will
be reclassified and combined into a lesser number of shares to
be determined by the Companys Board of Directors and
publicly announced by the Company. The Company is proposing the
Reverse Stock Split in order to prepare the Company for a
possible reverse merger transaction with a private company
seeking to merge with the Company after the closing of the Asset
Sale. The Board of Directors believes that a stock split is
necessary to reduce the number of shares outstanding to make the
Company attractive to a potential merger candidate.
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Voting
Matters
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Q:
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What vote is required?
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A:
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The proposals to approve the Asset Sale and the Reverse Stock
Split require the affirmative vote of a majority of the
outstanding shares of our common stock entitled to vote on such
proposals. Since the affirmative vote of a majority of the
outstanding shares of our common stock is required for each of
these proposals, it is critical that as many stockholders as
possible vote their shares.
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Q:
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What happens if we do not have a quorum or enough
affirmative votes at the Special Meeting?
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A:
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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,
we may seek to 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 items. We may seek to
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 the shares of our common stock present in person or
represented by proxy at the Special Meeting and entitled to
vote. 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 each of the Asset Sale and/or the
other proposals. If adjourning the Special Meeting does not
enable a quorum to be established, the proposals will not pass.
Further, if adjourning the Special Meeting does not enable us to
attract sufficient affirmative votes in favor of one or more of
the proposals, such proposals will not pass.
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Q:
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What do you need to do now?
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A:
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You should read the information contained in this Proxy
Statement carefully and promptly submit your proxy card in the
enclosed pre-addressed envelope (or vote by telephone or
Internet) or promptly submit your voting instruction card to
your broker, banker or other nominee (or vote by telephone or
Internet if your broker, bank or other nominee offers such
options) to ensure that your vote is counted at the Special
Meeting.
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Q:
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Do you have to attend the Special Meeting in order to
vote?
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A:
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No. If you want to have your vote count at the Special
Meeting, but not actually attend the Special Meeting in person,
you may vote by granting a proxy by submitting a proxy card or
by voting by telephone or the Internet or, for shares held
through a broker, bank or other nominee, by submitting voting
instructions to your broker, bank or other nominee. If you hold
your shares in street name, most brokerage firms,
banks and other nominees offer telephone and Internet voting
options. Check the information forwarded by your bank, broker or
other nominee to see which options are available to you. You can
vote by the following methods:
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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.
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Q:
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What happens if you do not return a proxy card, vote by
Internet, vote by phone or vote in person at the Special
Meeting?
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A:
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The failure to vote will have the same effect as voting AGAINST
approval of the Asset Sale and approval and adoption of the
Reverse Stock Split and will have no effect on the proposal to
adjourn the Special Meeting 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.
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Q:
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What happens if you vote to ABSTAIN?
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A:
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A vote to abstain will have the same effect as a vote AGAINST
the Asset Sale and the Reverse Stock Split proposals and will
have no effect on the proposal to adjourn the Special Meeting if
necessary to provide additional time to solicit votes in favor
of approval of the Asset Sale and/or approval of the Reverse
Stock Split.
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Q:
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What happens if you return a signed proxy card, but do not
indicate how to vote your shares?
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A:
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If you do not include instructions on how to vote your properly
signed and dated proxy, your shares will be voted FOR the
proposals.
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Q:
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Can you change your vote after you have mailed your signed
proxy or voting instruction card?
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A:
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Yes. 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:
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delivering a written notice to Bradford A. Zakes, our President
and Chief Executive Officer, at 12277 134th Court NE,
Suite 202, Redmond, Washington 98052, that you are revoking
your proxy;
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submitting new voting instructions using any of the methods
described above; or
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attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not, by itself, revoke a
proxy).
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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.
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Q:
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If your shares are held in street name by your
broker, bank or other nominee, will your broker, bank or other
nominee vote your shares on your behalf?
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A:
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If your shares are held in a stock brokerage account or by a
bank or other nominee, then you are considered the beneficial
owner of shares held in street name, and these proxy
materials are being forwarded to you by your broker, bank or
other nominee. As the beneficial owner, you have the right to
direct your broker, bank or other nominee on how to vote and are
also invited to attend the Special Meeting. However, since you
are not the stockholder of record, you may not vote these shares
in person at the Special Meeting, unless you request a proxy
from your broker, bank or other nominee. Your broker, bank or
other nominee has enclosed a voting instruction card for you to
use in directing it on how to vote your shares.
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Brokers who hold shares in street name for customers
have the authority to vote on routine proposals when
they have not received voting instructions from beneficial
owners. However, brokers are precluded from exercising their
voting discretion with respect to approval of 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, however, be considered as present for purposes
of determining a quorum. Broker non-votes will have the effect
of a vote AGAINST proposals 1, and 2 and will have no
effect on proposal 3. 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, bank or other nominee, please contact your broker to get
the voting instruction card. YOUR VOTE IS CRITICAL TO THE
SUCCESS OF OUR PROPOSALS. We encourage all stockholders
whose shares are held in street name to provide
their broker, bank or other nominee with instructions on how to
vote.
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Q:
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Can you still sell your shares of common stock?
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A:
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Yes. 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.
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Q:
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Do you have any appraisal rights in connection with the
Asset Sale or the Reverse Stock Split?
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A:
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No. Our stockholders do not have appraisal rights in
connection with the Asset Sale or the Reverse Stock Split.
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Stockholder
Questions
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Q:
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Who can help answer your questions?
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A:
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If you have any questions about the Special Meeting or the
proposals to be voted on at the Special Meeting, or if you need
additional copies of this Proxy Statement or copies of any of
our public filings referred to in this Proxy Statement, you
should contact our proxy solicitor, Georgeson, Inc., at:
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Georgeson, Inc.
199 Water Street
New York, New York 10038
Banks & Brokers: 212-440-9800
All others call toll free: 888-867-7045
15
PROPOSAL NO. 1
APPROVAL OF THE ASSET SALE
General
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.
Background
of the Asset Sale
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
16
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
Companys employees other than Bradford Zakes, the
Companys 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.
17
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
Microbixs 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 FDAs 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 companys 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
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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.
19
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 Boards 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
managements 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.
20
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
Companys 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.
Reasons
for the Asset Sale
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:
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the determination by management and our Board of Directors,
after evaluating various strategic alternatives and conducting
an extensive review of our financial condition, results of
operations and business prospects, that continuing to operate as
a going concern was not reasonably likely to create greater
value for our stockholders as compared to the value obtained for
our stockholders pursuant to the Asset Sale and the Reverse
Stock Split due primarily to the following reasons:
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our need to obtain significant additional capital to finance our
operations and the lack of availability of such capital at this
time;
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our limited ability to raise such capital through equity
financings before exhausting our cash resources without
significant dilution to our stockholders, including limited
near-term prospects for financing small-cap public companies due
to current general economic and market conditions;
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insufficient cash resources available to continue funding the
operations of the Company beyond the third quarter 2009;
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the results of a valuation analysis performed by an outside
third party evaluating the value of the SonoLysis technology
should we elect to keep the assets and attempt to finance the
Company or should we elect to sell the assets now;
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the extent of negotiations with Buyer indicated that we obtained
the highest consideration that Buyer was willing to pay or that
we were likely to obtain from any other potential buyers;
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the marketing process conducted by management in seeking
potential buyers, and the fact that aside from the Buyer
proposal, no other bona fide inquiries or proposals to acquire
us or our assets were received;
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the marketing process conducted by management in seeking
potential buyers indicated a low likelihood that a third party
would offer a higher price than Buyer;
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the consideration for the Asset Sale is in cash and will provide
our stockholders with greater certainty than if we continue
operations as a going concern or if the consideration included
equity;
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the belief by our Board of Directors that the cash to be
received by us from the Asset Sale would be the best available
way to provide additional time to enhance value to our
stockholders;
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the lack of a financing condition on the obligations of Buyer;
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the Asset Sale is subject to the approval of our stockholders;
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the provisions in the Asset Purchase Agreement allowing our
Board of Directors to withdraw its recommendation that our
stockholders vote in favor of the Asset Sale if our Board of
Directors receives a favorable third party proposal (as defined
in the Asset Purchase Agreement) subject to certain
confidentiality and notice provisions;
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the provisions in the Asset Purchase Agreement allowing our
Board of Directors to terminate the Asset Purchase Agreement in
order to accept a superior proposal subject to certain
conditions contained in the Asset Purchase Agreement and the
payment to Buyer of a termination fee of $100,000; and
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the conclusion of our Board of Directors that such termination
fees and transaction expenses were reasonable in light of the
benefits of the Asset Sale and were at customary levels for
termination fees and transaction expenses for comparable sized
transactions.
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Our Board of Directors also considered a number of potentially
countervailing factors in its deliberations concerning the Asset
Sale, including, but not limited to:
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the restrictions on the conduct of our business prior to
completion of the Asset Sale, including, but not limited to,
requiring us to conduct our business only in the ordinary
course, subject to specific limitations or Buyers consent,
which may delay or prevent us from undertaking business
opportunities that may arise pending completion of the Asset
Sale;
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conditions to closing that must be satisfied or waived,
including, but not limited to, obtaining a third party
acknowledgement outside our control;
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the expenditure of significant cash resources in legal,
accounting and other costs associated with preparing and mailing
the proxy statement and the fact that if the Asset Sale does not
close there likely will not be sufficient capital resources to
continue operations;
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interests of our chief executive officer in the transaction
contemplated by the Asset Sale (for information regarding
interests of certain executive officers and directors in the
Asset Sale, see Proposal No. 1: Approval of the
Asset Sale Interests of Certain Persons in the Asset
Sale);
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the risk of diverting management focus and resources from other
strategic opportunities and from operational matters while
working to implement the Asset Sale;
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the restrictions on our ability to solicit or engage in
discussions or negotiations with a third party regarding
specified transactions and the requirement that we pay Buyer a
termination fee of $100,000, if the Asset Purchase Agreement is
terminated under certain circumstances; and
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the requirement that $100,000 of the consideration to be paid to
the Company from Buyer be held back for a period of up to six
months after the closing of the Asset Sale and the requirement
that certain representations and warranties survive for periods
beyond six months after the closing of the Asset Sale.
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22
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.
Principal
Provisions of the Asset Purchase Agreement
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:
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all intellectual property related to our 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, our clinical-stage SonoLysis product
candidate, which involves the administration of our 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 (the
Technology), including all intellectual property
that is owned or licensed, used or held by us as of the closing
date;
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all contracts pursuant to which we have licensed or authorized
others to use any intellectual property used in or related to
the Technology;
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all of our rights under contracts related to the Technology,
including any and all rights to receive payment, goods or
services thereunder, and to assert claims and take other actions
thereunder;
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all permits, licenses, agreements, waivers and authorizations,
including any pending applications or renewals, held or used by
us in connection with, or required for, the Technology;
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certain personal property;
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all rights to claims, demands, lawsuits and judgments with
respect to the Technology or the ownership, use or value of the
Acquired Assets arising after the closing of the Asset Sale;
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all goodwill relating to the Technology;
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all technical and investor relations materials, research
materials, vendor and supplier lists and other related documents
relating to the Technology; and
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books, records, files and documents related to acquired assets.
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Excluded
Assets
Buyer will not acquire the following assets, which we refer to
as the Excluded Assets:
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all of our tax assets, including any refunds of taxes paid by us
or other governmental charges;
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all of our cash, bank accounts, cash equivalents and accounts
receivable;
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all of our rights arising under any contracts not assumed by
Buyer that do not relate to the Technology;
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any of our minute books, stock ledgers and corporate seals;
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any intellectual property rights not related to the Technology;
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all rights to claims, demands, lawsuits and judgments with
respect to the Technology or the ownership, use or value of the
Acquired Assets arising before the closing of the Asset Sale;
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all insurance policies and insurance benefits arising prior to
the closing of the Asset Sale; and
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all assets not expressly included in the Acquired Assets.
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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:
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any liabilities for accounts payable or for our other
indebtedness;
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any liabilities arising under contracts that are not included in
the Acquired Assets;
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any liabilities related to the operation of the program prior to
the closing of the Asset Sale;
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any liability for taxes;
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any liabilities arising in connection with the employment or
termination of any person, including any employee benefit
plans; and
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any liabilities arising out of non-compliance with environmental
laws.
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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.
24
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:
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corporate organization, good standing and corporate power to
operate our business;
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corporate power and authority to enter into the Asset Purchase
Agreement and to consummate the Asset Sale;
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the adoption and recommendation by our Board of Directors of the
Asset Sale in accordance with our organizational documents and
Delaware law;
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our valid and binding obligations regarding the Asset Purchase
Agreement, except to the extent that enforceability is limited
by law;
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the absence of any conflict or breach of our organizational
documents or applicable law as a result of our entering into the
Asset Purchase Agreement and the consummation of the Asset Sale;
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the absence of any consent, approval or authorization of any
governmental agency or authority other than such as have been
obtained;
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delivery of our financial statements to Buyer;
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the absence of any certain changes, other than in the ordinary
course of business, that could reasonably expected to have a
Material Adverse Effect;
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the absence of any law suit, proceeding or investigation
affecting any of the Acquired Assets or questions the validity
of the transactions contemplated by the Asset Purchase Agreement;
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the absence of any violation of any applicable law or any
notification by a governmental authority informing us that our
activities were or are in violation of any applicable law or the
subject of any investigation; and
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sufficiency of and title to the Acquired Assets and the absence
of the creation or imposition of any lien upon any Acquired
Asset arising out of consummation of the transactions
contemplated by the Asset Purchase Agreement;
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the absence of any consent, approval or authorization of any
party to the assumed contracts other than such as have been
obtained;
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the contemplated use of all transferred or licensed intellectual
property by Buyer shall not conflict with the intellectual
property rights of third parties;
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absence of any cancellations or termination of any material
supplier to the Technology;
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adequacy of the Acquired Assets to conduct the
Technology; and
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our solvency.
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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.
25
Additional
Agreements and Obligations
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:
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our Board of Directors determines in good faith that such
acquisition proposal will, or is reasonably likely to, result in
an acquisition proposal for all of our stock or substantially
all of our assets that is superior to our stockholders from a
financial point of view (a Favorable Third Party
Proposal); and
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our Board of Directors, based on the advice of outside legal
counsel, determines in good faith that the failure to take such
action would be inconsistent with our Board of Directors
fiduciary duties under applicable law;
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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
Buyers 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.
26
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:
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the accuracy of the representations and warranties made by us to
Buyer;
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the performance of our obligations under the Asset Purchase
Agreement;
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the absence of any event or development of a state of
circumstances that, individually or in the aggregate, has had,
or could reasonably be expected to result in a Material
Adverse Effect, as that term is defined in the Asset
Purchase Agreement;
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the receipt by Buyer of a certificate of our good standing from
the State of Delaware, and a certificate from one of our
officers certifying that the conditions to the obligations of
Buyer to complete the Asset Sale have been satisfied and that
the execution and delivery of the Asset Purchase Agreement is
validly authorized and executed;
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the approval of the Asset Sale by our stockholders;
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the execution and delivery of a license agreement by and between
The University of Texas System, an agency of the University of
Texas Health Science Center at the University of Houston;
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the execution and delivery of a consulting agreement by Andrei
Alexandrov with Buyer;
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the execution and delivery of an employment agreement between
Bradford A. Zakes and Buyer; and
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the execution and delivery of a employment agreements between
Dilip Worah and Buyer;
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Our obligation to complete the Asset Sale is subject to certain
conditions, including, but not limited to:
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the accuracy of the representations and warranties made by Buyer
to us; and
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the performance of Buyer s obligations under the Asset
Purchase Agreement;
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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:
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upon mutual written agreement;
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by us pursuant to a Favorable Third Party Proposal described
above;
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by Buyer or us if we fail to obtain stockholder approval for the
Asset Sale;
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by Buyer or us if a permanent injunction or action by a
governmental entity prevents the consummation of the
transactions contemplated by the Asset Purchase Agreement;
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by Buyer if we breach a representation or warranty resulting in
a Materially Adverse Effect (as defined in the Asset
Purchase Agreement), breach 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
Buyer, if the Board of Directors withdraws or amends its
recommendation for approval of the Asset Purchase Agreement;
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by us if Buyer breaches a representation or warranty resulting
in a Materially Adverse Effect (as defined in the
Asset Purchase Agreement), if 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, or if the Asset Sale has not closed and all the
conditions necessary to obligate Buyer to close the Asset Sale
have been satisfied.
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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.
Material
Federal and State Income Tax Consequences of the Asset
Sale
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.
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 approval of the Asset Sale.
28
Regulatory
Approvals
No United States federal or state regulatory requirements must
be complied with or approvals obtained as a condition to the
Asset Sale.
Interests
of Certain Persons in 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:
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Number of
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Securities
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Option
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Underlying Unexercised
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Exercise
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Name
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Options: Unexercisable
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Price ($)
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Bradford A. Zakes
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154,687
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2.10
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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.
Recommendation
of Our Board of Directors
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.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO FIFTH AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF
THE COMPANYS COMMON STOCK
General
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
29
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:
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prior to the Reverse Stock Split and closing of the
merger; and
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giving effect to a
one-for-ten
reverse stock split.
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Number of Shares
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Authorized but
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Number of
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Number of
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Number of
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Neither Issued
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Shares
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Shares Issued and
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Shares Reserved
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nor Reserved for
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Authorized
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Outstanding(1)
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for Issuance(1)
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Issuance(1)
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Prior to the Reverse Stock Split and closing of the merger:
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100,000,000
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10,165,733
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1,605,992
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88,228,275
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Giving effect to a
one-for-ten
Reverse Stock Split
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100,000,000
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1,016,573
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160,599
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98,822,828
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(1) |
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These estimates assume 10,165,733 shares of Company common
stock issued and outstanding as of May 12, 2009, 732,079
reserved for issuance upon the exercise of outstanding stock
options and 873,913 reserved for issuance upon the exercise of
outstanding warrants to acquire shares of our common stock. |
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.
Purpose
Our Board of Directors approved the proposal approving the
Amendment of the Company effecting the Reverse Stock Split for
the following reasons:
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the Board of Directors believes effecting the Reverse Stock
Split may be an effective means of preparing the company for a
possible strategic transaction including a merger transaction
with a private or public company; and
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the Board of Directors believes that the reverse split may
result in a higher stock price which may help generate investor
interest in the Company.
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If the Reverse Stock Split successfully increases the per share
price of the Companys common stock, the Company Board of
Directors believes this increase may facilitate future strategic
transactions by the Company and further enhance stockholder
value.
Potential
Strategic Transaction
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.
30
Potential
Increased Investor Interest
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:
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the market price per share of our common stock after the Reverse
Stock Split will rise in proportion to the reduction in the
number of shares of common stock outstanding before the reverse
stock split;
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the Reverse Stock Split will result in a per share price that
will attract brokers and investors who do not trade in lower
priced stocks; or
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the Reverse Stock Split will result in a per share price that
will increase the our ability to enter into a strategic
transaction.
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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.
Principal
Effects of 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
stockholders 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.
Procedure
for Effecting Reverse Stock Split and Exchange of Stock
Certificates
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 stockholders 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
31
shares. Stockholders should not destroy any stock
certificate(s) and should not submit any certificate(s) unless
and until requested to do so.
Fractional
Shares
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.
Accounting
Matters
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.
Material
U.S. Federal Income Tax Consequences of the Reverse Stock
Split
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.
32
This summary only applies to a stockholder that is a
U.S. person, defined to include:
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a citizen or resident of the United States;
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a corporation created or organized in or under the laws of the
United States, or any political subdivision thereof (including
the District of Columbia);
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; and
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a trust if either a court within the United States is able to
exercise primary supervision over the administration of such
trust and one or more U.S. persons have the authority to
control all substantial decisions of such trust, or the trust
has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. person for
U.S. federal income tax purposes.
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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:
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who are subject to special treatment under U.S. federal
income tax rules such as dealers in securities, financial
institutions,
non-U.S. persons,
mutual funds, regulated investment companies, real estate
investment trusts, insurance companies, or tax-exempt entities;
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who are subject to the alternative minimum tax provisions of the
Code;
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who are or hold their shares through partnerships,
S corporations or other pass-through entities;
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who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions;
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who hold their shares as qualified small business stock within
the meaning of Section 1202 of the Code; or
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who hold their shares as part of an integrated investment such
as a hedge or as part of a hedging, straddle or other risk
reduction strategy.
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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 stockholders 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 stockholders 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 stockholders 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 stockholders basis in the fractional share and
the amount of cash received. Recognized gain or loss should
constitute a capital gain or loss. A Company stockholders
holding period for the
33
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 stockholders fractional share interests in the
post-split shares, such gain or loss will constitute a long-term
capital gain or loss if the stockholders 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 stockholders 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 SPLITS
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.
Required
Vote
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.
Recommendation
of Board of Directors
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.
PROPOSAL NO. 3
AUTHORITY TO ADJOURN THE SPECIAL MEETING
The
Adjournment Proposal
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
34
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 Companys Board of Directors
retains full authority to the extent set forth in the
Companys Bylaws and under Delaware law to postpone the
special meeting before it is convened, without the consent of
any the Companys stockholders.
Required
Vote and Board Recommendation
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
Companys Board of Directors recommends that you vote
FOR the adjournment proposal.
IMPORTANT
INFORMATION CONCERNING IMARX
Description
of Business
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.
Description
of Property
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.
Legal
Proceedings
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.
Financial
Statements
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.
35
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Managements 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.
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
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.
Quantitative
and Qualitative Disclosures about Market Risk
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.
Market
Price of our Common Stock
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.
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High
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Low
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2009
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First Quarter
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$
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0.04
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$
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0.01
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2008
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Fourth Quarter
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$
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0.10
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$
|
0.04
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Third Quarter
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0.33
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0.04
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Second Quarter
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0.84
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|
0.16
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First Quarter
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2.17
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0.36
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2007
|
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Fourth Quarter
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$
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3.45
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$
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1.51
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Third Quarter (beginning July 26, 2007)
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4.90
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3.25
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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.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information known to us about
beneficial ownership (as defined under the regulations of the
SEC) of our common stock by:
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Each person we know to be the beneficial owner of at least five
percent of our common stock;
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Each current director;
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Each person that was one of our five most highly compensated
individuals in 2008; and
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All current directors and executive officers as a group.
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Unless otherwise indicated, the information is as of
June 30, 2009.
36
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 persons ownership
percentage.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
Number of
|
|
|
Percent of
|
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
|
Total
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
Saints Capital Everest, L.P.(1)
|
|
|
1,176,471
|
|
|
|
11.6
|
%
|
475 Sansome Street, Suite 1850
|
|
|
|
|
|
|
|
|
San Francisco, CA 94111
|
|
|
|
|
|
|
|
|
Berg & Berg Enterprises, LLC(2)
|
|
|
570,588
|
|
|
|
5.6
|
%
|
10050 Bandley Drive
|
|
|
|
|
|
|
|
|
Cupertino, CA 95014
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers(10)
|
|
|
|
|
|
|
|
|
Richard Love(3)
|
|
|
66,476
|
|
|
|
*
|
|
Richard Otto(4)
|
|
|
46,476
|
|
|
|
*
|
|
Thomas W. Pew(5)
|
|
|
128,586
|
|
|
|
1.3
|
%
|
Philip Ranker(6)
|
|
|
46,476
|
|
|
|
*
|
|
James M. Strickland(7)
|
|
|
130,571
|
|
|
|
1.3
|
%
|
Bradford A. Zakes(8)
|
|
|
210,415
|
|
|
|
2.0
|
%
|
Greg Cobb
|
|
|
0
|
|
|
|
0
|
%
|
Kevin J. Ontiveros
|
|
|
0
|
|
|
|
0
|
%
|
All Directors and Executive Officers as a Group
(8 persons)(9)
|
|
|
629,000
|
|
|
|
5.8
|
%
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
The number of shares of common stock for Saints Capital Everest,
L.P. is based solely on the information contained in the
Schedule 13G filed with the Commission on
September 17, 2008. |
|
(2) |
|
Represents information provided in connection with our initial
public offering completed in July 2007. The reporting person has
not updated this information since that time. At that time the
reporting person disclosed that Mr. Carl E. Berg is the
manager and a member of Berg & Berg Enterprises LLC
and that he may be deemed to have shared voting and dispositive
power with respect to the shares held by such entity. |
|
(3) |
|
Includes 17,666 shares of common stock issuable to
Mr. Love upon exercise of options. |
|
(4) |
|
Includes 17,666 shares of common stock issuable to
Mr. Otto upon exercise of options. |
|
(5) |
|
Includes 17,666 shares of common stock issuable to
Mr. Pew upon exercise of options and 12,689 shares of
common stock issuable upon exercise of warrants. |
|
(6) |
|
Includes 17,666 shares of common stock issuable to
Mr. Ranker upon exercise of options. |
|
(7) |
|
Includes 17,666 shares of common stock issuable to
Mr. Strickland upon exercise of options, 1,000 shares
of common stock issuable upon exercise of warrants and
79,095 shares of common stock held by Coronado Venture
Fund IV, LP. With regard to Coronado Venture Fund IV,
LP, Coronado Venture Management LLC is the sole general partner
of and may be deemed to have voting and dispositive power over
shares held by Coronado Venture Fund IV, LP.
Mr. Strickland is a managing director of Coronado Venture
Management LLC. |
37
|
|
|
|
|
Mr. Strickland disclaims beneficial ownership of the shares
held by Coronado Venture Fund IV, LP, except to the extent
of his direct pecuniary interest therein. |
|
(8) |
|
Includes 201,041 shares of common stock issuable to
Mr. Zakes upon exercise of options and rights to acquire
9,374 shares of common stock within 60 days. |
|
(9) |
|
Includes shares described in Footnotes (3) through
(8) above. |
|
(10) |
|
The address for the officers and directors listed is
c/o ImaRx
Therapeutics, Inc., 12277 134th Court NE, Suite 202,
Redmond, Washington. |
Stockholder
Proposals
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 SECs requirements
that a stockholder must meet in order to have a stockholder
proposal included in our proxy statement.
Where You
Can Find More Information
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 SECs 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 SECs
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.
38
OTHER
BUSINESS
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.
39
ANNEX A
ASSET
PURCHASE AGREEMENT
By and Among
WA 32609, Inc., a Delaware corporation,
and
ImaRx Therapeutics, Inc., a Delaware corporation
June 15, 2009
A-1
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 Buyers and
Sellers 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 Sellers 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 Sellers 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.
A-2
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, bankers 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
A-3
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) Sellers
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
A-4
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
Sellers 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 Sellers 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, Sellers clinical-stage
SonoLysis product candidate, which involves the administration
of Sellers 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
A-5
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.
|
SALE AND PURCHASE OF ASSETS
|
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 Sellers 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 Sellers 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;
A-6
(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 Sellers clinical-stage
SonoLysis product candidate;
(h) all of Sellers 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) Sellers tax assets, including without limitation,
Sellers 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) Sellers 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 Sellers 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.
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3.
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ASSUMPTION OF CERTAIN LIABILITIES.
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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;
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(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
Buyers 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
Sellers 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
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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 Sellers 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 Buyers 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 authoritys 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;
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(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 Sellers 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 Buyers 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).
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(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 Sellers 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 Companys 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
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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
Sellers 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
Commissions (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
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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 Sellers
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.
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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
A-14
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
Sellers 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.
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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 Sellers 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 Sellers
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
brokers commission or finders 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
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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
A-17
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
brokers commission or finders 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
Sellers 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.
A-18
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 Sellers industry.
8.1.6. Preservation of Business
Relationships. Seller shall use its
commercially reasonable efforts to preserve for Buyer the
present relationships of Sellers 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 Sellers 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 Sellers 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.
A-19
(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
Sellers 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 Sellers
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 Buyers 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 Sellers 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
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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 Buyers
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 BUYERS
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.
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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. Sellers
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 Buyers 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 Sellers 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 Assets
current location.
9.13 Opinion of the Sellers
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 SELLERS
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.
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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 Sellers 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
Sellers 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,
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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
attorneys 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.
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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 Sellers
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
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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;
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(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 Partys 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
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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
Sellers 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
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(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.
A-29
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 partys 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 Sellers 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]
A-30
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.
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By:
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/s/ Bradford
A. Zakes
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Bradford A. Zakes
President and Chief Executive Officer
WA 32609, Inc.
Name: Gerald McMorrow
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Title:
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President and Founder
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A-31
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 Corporations 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.
B-1
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
B-2
ANNEX C
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission File Number
001-33043
ImaRx Therapeutics,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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86-0974730
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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12277
134th
Court NE, Suite 202, Redmond, WA
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98052
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(Address of Principal Executive
Offices)
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(Zip Code)
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(425) 821-5501
(Registrants 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 Registrants 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):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(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 Registrants 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
Registrants 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.
C-1
PART I
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
C-3
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 tPAs 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 bodys 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:
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Obtain additional funding
and/or enter
into strategic partnerships to gain access to the required
operating capital to continue the development of our SonoLysis
program, and;
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Execute on our development plan to incrementally advance our
SonoLysis program towards commercialization.
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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
C-4
a blood vessel. Formation of a clot is the bodys 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.
C-5
Thrombolytic drugs involve a variety of risks and potential side
effects that can limit their usefulness:
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Risk of Bleeding Thrombolytic drugs dissolve
blood clots, including those formed naturally as a protective
response to vessel injury, which can result in bleeding. The
risk of bleeding increases relative to the dosage and duration
of treatment and differs among the various thrombolytic drugs.
Patients who are already taking other medications to prevent
formation of clots, such as anticoagulants or antiplatelets,
also may not be good candidates for the use of thrombolytic
drugs, due to the increased difficulty of controlling bleeding.
As a result, thrombolytic drugs are approved by the FDA subject
to strict limitations on when, how long and in what dosages they
can be administered.
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Time Window for Administration Due to the
risk of bleeding, which increases over time, tPA is only
approved for administration to ischemic stroke patients within
three hours after the onset of stroke symptoms. This
three-hour
window is considered to be one of the primary limiting factors
in treating ischemic stroke. Approximately 28% of ischemic
stroke patients in the U.S. recognize their symptoms and
reach an emergency room within the
three-hour
window. However, due to other limitations, fewer than 7% of
U.S. ischemic stroke patients ultimately receive treatment
with a thrombolytic drug.
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Possible Immune Response Some patients
experience an immune response due to the continued
administration of thrombolytic drugs. For example, thrombolytic
drugs that are based on non-human biological material, such as
streptokinase, which is produced using streptococcus bacteria,
may stimulate such an immune reaction.
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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 FDAs 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.
C-6
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, Genentechs 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.
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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:
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preclinical laboratory and animal tests;
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submission and approval of an Investigational New Drug
application, or IND application;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of proposed drugs for their intended use
and safety, purity and potency of biologic products for their
intended use;
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preapproval inspection of manufacturing facilities, company
regulatory files and selected clinical investigators;
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for drugs, FDA approval of a new drug application, or NDA, or
FDA approval of an NDA supplement in the case of a new
indication if the product is already approved for another
indication.
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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.
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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 FDAs 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:
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product design, development and manufacture;
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product safety, testing, labeling and storage;
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preclinical testing in animals and in the laboratory; and
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clinical investigations in humans.
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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 FDAs
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.
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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 FDAs 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 FDAs 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:
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warning letters, fines, injunctions, consent decrees and civil
penalties;
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product recalls or market withdrawals;
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customer notifications, repair, replacement, refunds, recall or
seizure of our products;
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operating restrictions, partial suspension or total shutdown of
production;
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refusal to grant new regulatory approvals;
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withdrawing NDAs, 510(k) clearance or PMA that have already been
granted; and
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criminal prosecution.
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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 ImaRxs 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
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other demands and commitments into the third quarter 2009. Our
funding requirements will, however, depend on numerous factors,
including:
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whether Microbix is successful in obtaining lot release from the
FDA with respect to the three lots currently subject to an FDA
Approvable Letter:
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the timing and amount of revenue from a strategic transaction
for our clinical-stage SonoLysis program and our other assets;
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personnel, facilities and equipment requirements; and
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the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other patent-related
costs, including litigation costs, if any, and the result of any
such litigation.
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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.
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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 FDAs 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:
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the timing and scope of regulatory approvals of our products and
market entry compared to competitive products;
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the safety and efficacy of our products, including any
inconveniences in administration, as compared to alternative
treatments;
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the rate of adoption of our products by hospitals, doctors and
nurses and acceptance by the health care community;
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the product labeling and marketing claims permitted or required
by regulatory agencies for each of our products;
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the competitive features of our products, including price, as
compared to competitive products;
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the availability of sufficient third party coverage or
reimbursement for our products;
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the extent and success of our sales and marketing
efforts; and
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possible unfavorable publicity concerning our products or any
similar products.
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If our products are not commercialized, our business will be
materially harmed.
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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:
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manufacturing of our MRX-801 and other proprietary microspheres;
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conducting clinical trials;
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conducting preclinical studies;
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preparing, submitting and maintaining regulatory records
sufficient to meet the requirements of the FDA; and
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customer logistics and distribution of our products.
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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.
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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 companys 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
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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 partys 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:
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challenge, invalidation, circumvention or expiration of issued
patents already owned by or licensed to us;
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claims by our consultants, key employees or other third parties
that our products or technologies are the result of
technological advances independently developed by them and,
therefore, not owned by us;
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our failure to pay product development costs, license fees,
royalties, milestone payments or other compensation required
under our technology license and technology transfer agreements,
and the subsequent termination of those agreements;
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failure by our licensors or licensees to comply with the terms
of our license agreements;
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misrepresentation by technology owners of the extent to which
they have rights to the technologies that we purport to acquire
or license from them; and
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loss of rights that we have licensed due to our failure or
decision not to fund further research or failure to achieve
required development or commercialization milestones or
otherwise comply with our obligations under the license and
technology transfer agreements.
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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:
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pay substantial damages;
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stop using infringing technologies and methods;
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stop certain research and development efforts;
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develop non-infringing products or methods; and
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obtain one or more licenses from third parties.
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Any claims of infringement could cause us to incur substantial
costs and could divert managements 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
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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
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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:
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preclinical laboratory and animal testing;
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submission of an IND application which must become effective
before clinical trials may begin;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of proposed drugs or biologics for their
intended use;
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pre-approval inspection of manufacturing facilities, company
regulatory files and selected clinical investigators; and
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FDA approval of a new drug application, or NDA, or FDA approval
of an NDA supplement in the case of a new indication if the
product is already approved for another indication.
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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
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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 FDAs 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
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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 products 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:
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restrictions on the products, manufacturers or manufacturing
processes;
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warning letters;
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civil or criminal penalties or fines;
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injunctions;
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product seizures, detentions or import bans;
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voluntary or mandatory product recalls and publicity
requirements;
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suspension or withdrawal of regulatory approvals;
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total or partial suspension of production; and
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refusal to approve pending applications of marketing approval of
new drugs or supplements to approved applications.
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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
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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 companys 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
manufacturers 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:
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results of our clinical trials;
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announcements of technological innovations or new products by us
or our competitors;
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delays in obtaining regulatory approvals for clinical trials or
commercial marketing efforts;
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the success rate of our discovery efforts, animal studies and
clinical trials;
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developments or disputes concerning patents or proprietary
rights, including announcements of infringement, interference or
other litigation regarding these rights;
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the willingness of collaborators to commercialize our products
and the timing of commercialization;
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ability to manufacture our products;
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changes in our strategic relationships which adversely affect
our ability to acquire or commercialize products;
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announcements concerning our competitors or the health care
industry in general;
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public concerns over the safety of our products or our
competitors products;
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changes in governmental regulation of the health care industry;
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litigation or other disputes with third parties;
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actual or anticipated fluctuations in our operating results from
period to period;
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variations in our quarterly results;
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changes in financial estimates or recommendations by securities
analysts;
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changes in accounting principles;
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the loss of any of our key personnel;
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sales or anticipated sales of our common stock;
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investors perceptions of us;
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general economic, industry and market conditions.
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A decline in the market price of our common stock could cause
investors to lose some or all of their investment and may
adversely impact our ability to attract and retain employees and
raise capital. In addition, stockholders may initiate securities
class action lawsuits if the market price of our stock drops
significantly, which may cause us to incur substantial costs and
could divert the time and attention of our management.
We are
at risk of securities class action litigation due to our stock
price volatility.
We are at risk of being subject to securities class action
lawsuits if our stock price declines substantially. Securities
class action litigation has often been brought against other
companies following a decline in the market price of its
securities. While no securities class action claims have been
brought against us, it is possible that lawsuits will be filed
based on such stock price declines naming our company,
directors, and officers. Securities litigation could result in
substantial costs, divert managements attention and
resources, and seriously harm our business, financial condition
and results of operations.
If
there are substantial sales of common stock, our stock price
could decline.
If our existing stockholders sell a large number of shares of
common stock or the public market perceives that existing
stockholders might sell shares of common stock, the market price
of our common stock could decline significantly.
The
financial reporting obligations of being a public company and
other laws and regulations relating to corporate governance
matters place significant demands on our management and cause
increased costs.
The laws and regulations affecting public companies, including
the provisions of the Sarbanes-Oxley Act of 2002 and new rules
adopted or proposed by the Securities and Exchange Commission,
will result in ongoing costs to us as we comply with new and
existing rules and regulations and respond to requirements under
such rules and regulations. We are required to comply with many
of these rules and regulations, and
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will be required to comply with additional rules and regulations
in the future. With limited capital and human resources,
managements time and attention will be diverted from our
business in order to ensure compliance with these regulatory
requirements. This diversion of managements time and
attention as well as ongoing legal and compliance costs may have
a material adverse effect on our business, financial condition
and results of operations.
Failure
of our internal control over financial reporting could harm our
business and financial results.
Our management is responsible for establishing and maintaining
effective internal control over financial reporting. Internal
control over financial reporting is a process to provide
reasonable assurance regarding the reliability of financial
reporting for external purposes in accordance with accounting
principles generally accepted in the U.S. Internal control
over financial reporting includes: (i) maintaining
reasonably detailed records that accurately and fairly reflect
our transactions; and (ii) providing reasonable assurance
that we (a) record transactions as necessary to prepare the
financial statements, (b) make receipts and expenditures in
accordance with management authorizations, and (c) would
timely prevent or detect any unauthorized acquisition, use or
disposition of our assets that could have a material effect on
the financial statements. As a result of the restructuring plan
initiated in June 2008 management believes that there have been
changes in our internal control environment that have materially
affected our internal control over financial reporting. Based on
that evaluation, our principal executive officer and principal
financial officer concluded that our internal control over
financial reporting was ineffective as of the end of the period
covered by this report.
Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute
assurance that we would prevent or detect a misstatement of our
financial statements or fraud. Any failure to maintain an
effective system of internal control over financial reporting
could limit our ability to report financial results accurately
and timely or to detect and prevent fraud. A significant
financial reporting failure could cause an immediate loss of
investor confidence in our management and a sharp decline in the
market price of our common stock.
If we
do not achieve our projected business goals in the time frames
we announce and expect, our stock price may
decline.
From time to time, we estimate and publicly announce
expectations for future financial results and the anticipated
timing of the accomplishment of various clinical, regulatory and
product development goals. These statements, which are
forward-looking statements, include but are not limited to our
estimates regarding cash use, operating losses, progress and
timing of our clinical trials, when trial data will be publicly
disclosed, and when we expect to obtain FDA approval for or
begin to receive revenue from any of our products. These
estimates are, and must necessarily be, based on a variety of
assumptions. The timing of the actual achievement of these
milestones may vary dramatically compared to our estimates, in
some cases for reasons beyond our control. Our failure to meet
any publicly-announced goals may be perceived negatively by the
public markets, and, as a result, our stock price may decline.
Anti-takeover
defenses that we have in place could prevent or frustrate
attempts to change our direction or management.
Provisions of our amended and restated certificate of
incorporation and bylaws and applicable provisions of Delaware
law may make it more difficult or impossible for a third party
to acquire control of us without the approval of our Board of
Directors. These provisions:
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limit who may call a special meeting of stockholders;
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establish advance notice requirements for nominations for
election to our Board of Directors or for proposing matters that
can be acted on at stockholder meetings;
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prohibit cumulative voting in the election of our directors,
which would otherwise permit holders of less than a majority of
our outstanding shares to elect directors;
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prohibit stockholder action by written consent, thereby
requiring all stockholder actions to be taken at a meeting of
our stockholders; and
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provide our Board of Directors the ability to designate the
terms of and issue new series of preferred stock without
stockholder approval.
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In addition, Section 203 of the Delaware General
Corporation Law generally prohibits us from engaging in any
business combination with certain persons who own 15% or more of
our outstanding voting stock or any of our associates or
affiliates who at any time in the past three years have owned
15% or more of our outstanding voting stock. These provisions
may have the effect of entrenching our management team and may
deprive stockholders of the opportunity to sell their shares to
potential acquirers at a premium over prevailing prices. This
potential inability to obtain a control premium could reduce the
price of our common stock.
We do
not intend to pay cash dividends on our common stock in the
foreseeable future.
We have never declared or paid any cash dividends on our common
stock or other securities, and we do not anticipate paying any
cash dividends in the foreseeable future. Accordingly, our
stockholders will not realize a return on their investment
unless the trading price of our common stock appreciates. Our
common stock price has depreciated significantly since our
initial public offering and may continue to depreciate in value.
The price of our common stock may never appreciate and our
stockholders may never realize gain on their purchase of shares
of our common stock.
Our current facilities are located in a leased building in
Redmond, Washington. Our corporate headquarters is
3,335 square feet, is subject to a ten-month lease at
approximately $31,250 and terminates on October 31, 2009.
We also lease approximately 900 square feet of laboratory
space at the same facility as the corporate headquarters for a
total of $2,640 until October 31, 2009.
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ITEM 3.
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Legal
Proceedings
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From time to time, we may be involved in litigation relating to
claims arising out of our operations. We are not currently
subject to any material legal proceedings and are also not aware
of any pending legal, arbitration or governmental proceedings
against us that may have material effects on our financial
position or results of operations.
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ITEM 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during
the fourth quarter of 2008.
C-24
PART II
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ITEM 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Our common stock is currently quoted on the Over the Counter
Bulletin Board under the symbol IMRX.OB. From
July 2007 to October 2008, our common stock was traded on the
NASDAQ Capital Market under the symbol IMRX. Prior
to that time, there was no public market for our common stock.
The following table sets forth, for the periods indicated, the
quarterly high and low sales prices per share of our common
stock as reported by NASDAQ through October 22, 2008 and
the Over the Counter Bulletin Board after October 22,
2008.
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High
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Low
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2008
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Fourth Quarter
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$
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0.10
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$
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0.04
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Third Quarter
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0.33
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0.04
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Second Quarter
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0.84
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0.16
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First Quarter
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2.17
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0.36
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2007
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Fourth Quarter
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$
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3.45
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$
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1.51
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Third Quarter (beginning July 26, 2007)
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4.90
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3.25
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At February 24, 2009, there were 258 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.
Use of
Proceeds.
Our initial public offering of common stock was effected through
a Registration Statement on
Form S-1
(File
No. 333-142646),
which was declared effective by the Securities and Exchange
Commission on July 25, 2007.
We received net proceeds of $12.4 million from the
offering. As of December 31, 2008, all of the net proceeds
were used to fund SonoLysis development and urokinase
commercialization activities, pay the non-recourse note to
Abbott Laboratories and working capital and other general
corporate purposes.
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ITEM 7.
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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The following discussion and analysis should be read in
conjunction with our audited financial statements and notes
thereto that appear elsewhere in this report. This discussion
contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. Actual
results may differ materially from those discussed in these
forward-looking statements due to a number of factors, including
those set forth in the section entitled Risk Factors
and elsewhere in this report.
The statements contained in this Annual Report on
Form 10-K,
including statements under this section titled
Managements Discussion and Analysis of Financial
Condition and Results of Operations, include
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, including, without limitation, statements regarding our
or our managements expectations, hopes, beliefs,
intentions or strategies regarding the future. The words
believe, may, will,
estimate, continue,
anticipate, intend, expect,
plan, and similar expressions may identify
forward-looking statements, but the absence of these words does
not mean that a statement is not forward-looking. The
forward-looking statements contained in this Annual Report on
Form 10-K
are based on our current expectations and beliefs concerning
future developments and their potential effects on us. There can
be no assurance that future developments affecting us will be
those that we
C-25
have anticipated. These forward-looking statements involve a
number of risks, uncertainties or other assumptions that may
cause actual results or performance to be materially different
from those expressed or implied by these forward-looking
statements. These risks and uncertainties include those factors
described in greater detail in Item IA of Part I,
Risk Factors. Should one or more of these risks or
uncertainties materialize, or should any of our assumptions
prove incorrect, actual results may vary in material respects
from those anticipated in these forward-looking statements. We
undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable
securities laws.
Overview
We are a 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 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 otherliabilities paid by Microbix are
less than the $0.5 million assumed, 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 the 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.
Product
Sales, Research and Development Revenue
Our primary source of revenue was derived from sales of our
urokinase product which commenced in October 2006 upon our
purchase from Abbott Laboratories and will be eliminated as the
product was sold to Microbix on September 23, 2008. As a
result of the sale of the urokinase assets and inventory to
Microbix, future revenues will no longer be recognized once the
product currently held at the wholesale distributors is sold
through to the end user. In addition to our commercial product
sales, we also generated a limited amount of revenue by
providing research services for projects funded under various
government grants. We currently have no outstanding grants under
which we are receiving revenue. We may apply for similar
government grants in future periods.
C-26
All product sales
recorded-to-date
relate to sales of urokinase in the United States. Due to our
limited returns history and the fact that customers may return
expired urokinase product that is in its original, unopened
cartons within 12 months past the product expiration date,
we currently account for these product shipments using a
deferred revenue recognition model. We do not recognize revenue
upon product shipment to a wholesale distributor but rather, we
defer the recognition of revenue until the right of return no
longer exists or when the product is sold to the end user as is
stipulated by SFAS No. 48, Revenue Recognition When
the Right of Return Exists. We record product sales net of
chargebacks, distributor fees, discounts paid to wholesale
distributors, and administrative fees paid to Group Purchasing
Organizations (GPOs). The allowances are based on historical
information and other pertinent data. As of December 31,
2008, we had deferred revenue of $0.2 million which will be
recognized as the limited amount of inventory at our wholesale
distributors is pulled through and then there will be zero.
Cost
of Product Sales
Cost of product sales had been determined using a
weighted-average method and includes the acquisition cost of the
inventory as well as additional labeling costs we incur to bring
the product to market. Our product pricing is fixed, but could
include a variable sales or cash discount depending on the
nature of the sale. Our gross margins are affected by
chargebacks, discounts and administrative fees paid to the
wholesalers and GPOs. Due to the divestiture of our urokinase
product, we will cease to have cost of product sales once all
vials at the wholesale distributors have been sold to a hospital
or other end user or have expired.
Research
and Development Expenses
We classify our research and development expenses into four
categories of activity, namely: research, development, clinical
and regulatory. Our research and development efforts were
focused primarily on product candidates from our SonoLysis
program. As part of our restructuring effort announced in June
2008, we have ceased substantially all research related
activities.
General
and Administrative Expenses
General and administrative expenses consist primarily of
personnel-related expenses and other costs and fees associated
with our general corporate activities, such as business
development, public reporting and corporate compliance, as well
as a portion of our overhead expenses. Although these expenses
will be at reduced levels, we have incurred and will continue to
incur expenses in the areas of legal compliance, accounting and
corporate governance as a public company.
Critical
Accounting Policies and Significant Judgments and
Estimates
Our managements discussion and analysis of our financial
condition and results of operations are based on our financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosed amounts of contingent
assets and liabilities and our reported revenue and expenses.
Significant management judgment was previously required to make
estimates in relation to inventory and intangible asset
valuation, chargebacks and administrative fee accruals, clinical
trial costs and costs associated with transitioning to a public
reporting company. We evaluate our estimates, and judgments
related to these estimates, on an ongoing basis. We base our
estimates of the carrying values of assets and liabilities that
are not readily apparent from other sources on historical
experience and on various other factors that we believe are
reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
We believe that the following accounting policies are critical
to a full understanding of our reported financial results. Our
significant accounting policies are more fully described in
Note 1 of our financial statements.
C-27
Inventory
and Inventory Subject to Return
Inventory of urokinase was comprised of finished goods and is
stated at the lower of cost or market value. Inventory value was
initially determined as a result of the purchase price
allocation from the acquisition of this product from Abbott
Laboratories in 2006.
On September 23, 2008, we divested the urokinase assets and
sold the entire remaining urokinase inventory to Microbix. As
such, the inventory value at September 30, 2008 was zero.
As of December 31, 2008, all of the vials in inventory held
by our wholesale distributors, or $12,596 in inventory value
will expire at various times up to September 2009. Once labeled
inventory expires it cannot be relabeled and sold.
Long-lived
and Intangible Assets
We account for long-lived assets in accordance with the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This Statement
requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability is measured by comparing the carrying amount of
an asset to the expected future net cash flows generated by the
asset. If it is determined that the asset may not be recoverable
and if the carrying amount of an asset exceeds its estimated
fair value, an impairment charge is recognized to the extent of
the difference. SFAS 144 requires companies to separately
report discontinued operations, including components of an
entity that either have been disposed of (by sale, abandonment
or in a distribution to owners) or classified as held for sale.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
At June 30, 2008, we evaluated our intangible assets for
impairment due to the receipt of the Approvable Letter from the
FDA and determined that all of the intangible assets were
impaired. As such, these intangibles were written off by
recording a $1.3 million impairment. We also initiated a
plan to sell a portion of our laboratory equipment, which we
valued at fair value and recorded a $0.5 million
impairment. The assets were classified as held for sale. We
completed the sale of $152,000 of assets held for sale for cash
of $115,000 and the termination of a lease agreement, which
resulted in a reduction of future lease payments of $16,000. We
recorded an additional loss on the sale of equipment in this
transaction in the amount of $21,000.
Revenue
Recognition
Revenue from product sales is recognized pursuant to Staff
Bulletin No. 104 (SAB 104), Revenue
Recognition in Financial Statements. Accordingly, revenue is
recognized when all four of the following criteria are met:
(i) persuasive evidence that an arrangement exists;
(ii) delivery of the products has occurred; (iii) the
selling price is both fixed and determinable; and
(iv) collectability is reasonably assured. We apply
SFAS No. 48, Revenue Recognition When the Right of
Return Exists, which among other criteria requires that
future returns can be reasonably estimated in order to recognize
revenue. The amount of future returns is uncertain due to the
insufficiency of returns history data. Due to the uncertainty of
returns, we are accounting for these product shipments to
wholesale distributors using a deferred revenue recognition
model. Under this model, we do not recognize revenue upon
product shipment to wholesale distributors; therefore,
recognition of revenue is deferred until the product is sold by
the wholesale distributor to the end user.
Our customers consisted primarily of large pharmaceutical
wholesaler distributors who sell directly to hospitals and other
healthcare providers. Provisions for product returns and
exchanges, sales discounts, chargebacks, managed care and
Medicaid rebates and other adjustments have been established as
a reduction of product sales revenues at the time such revenues
are recognized. These deductions from gross revenue have been
established by us as our best estimate at the time of sale
adjusted to reflect known changes in the factors that impact
such reserves.
C-28
Historically, we provided research services under certain grant
agreements, including federal grants from the National
Institutes of Health. We recognized revenue for these research
services as the services were performed. Revenue from grants was
recognized over the contractual period of the related award.
Stock-Based
Compensation
Effective January 1, 2006, we adopted Statement of
Financial Accounting Standards, or SFAS, No. 123R,
Share-Based Payment or SFAS 123R, which revises
SFAS 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principles Board Opinion, or APB,
No. 25, Accounting for Stock Issued to Employees.
SFAS 123R requires that share-based payment
transactions with employees be recognized in the financial
statements based on their value and recognized as compensation
expense over the requisite service period. Prior to
SFAS 123R, we disclosed the pro forma effects of
SFAS 123 under the minimum value method. We adopted
SFAS 123R effective January 1, 2006, prospectively for
new equity awards issued subsequent to December 31, 2005.
Pursuant to SFAS 123R, our estimate of share-based
compensation expense requires a number of complex and subjective
assumptions including our stock price volatility, employee
exercise patterns, and future forfeitures. The value of a stock
option is derived from its potential for appreciation. The more
volatile the stock, the more valuable the option becomes because
of the greater possibility of significant changes in stock
price. The most significant assumptions are our estimates of the
expected volatility and the expected term of the award. Because
we recently completed our initial public offering, or IPO in
July 2007, we have limited historical information on our stock
price volatility. In accordance with the implementation guidance
in SFAS 123R, we have therefore calculated expected
volatility based on the average volatilities of similar
companies that are transitioning from newly public to more
mature companies with more stock price history. For purposes of
identifying similar entities, we have considered factors such as
industry, company age, stage of life cycle, and size. The
expected term of options granted represents the periods of time
that options granted are expected to be outstanding. The
expected option term also has a significant effect on the value
of the option. The longer the term, the more time the option
holder has to allow the stock price to increase without a cash
investment and thus, the more valuable the option. Furthermore,
lengthier option terms provide more opportunity to exploit
market highs. However, historical data demonstrates that
employees, for a variety of reasons, typically do not wait until
the end of the contractual term of a nontransferable option to
exercise. When establishing an estimate of the expected term of
an award, we have elected to use the simplified method of
determining expected term as permitted by SEC Staff Accounting
Bulletin 107. As a result of using estimates, when factors
change and we use different assumptions, our share-based
compensation expense could be materially different in the
future. We review our valuation assumptions at each grant date
and, as a result, from time to time we will likely change the
valuation assumptions we use to estimate the value of
share-based awards granted in future periods.
Results
of Operations
Twelve
Months Ended December 31, 2007 Compared to
2008
Product Sales, Research and Development
Revenue. Our revenue-producing activities during
2007 and 2008 consisted of sales of our urokinase product and
services provided under research grants and contracts. Our total
revenues decreased from $8.4 million in 2007 to
$6.7 million in 2008, primarily as a result of the decline
in revenue recognized which accounted for $7.8 million of
our revenue in 2007 and $6.5 million in 2008. The
$1.3 million decrease in urokinase sales from 2007 to 2008
is due to a decrease in inventory in the channel and the lack of
current dated inventory to replenish the channel.
Our grant and other revenue decreased from $0.5 million in
2007 to $0.2 million in 2008, primarily due to the wind
down of research and development activities in 2008.
Cost of Product Sales. Cost of product sales
was $3.5 million in 2007 and $3.1 million in 2008. The
decrease in cost of product sales was due to the decrease in
inventory in the channel and the lack of current dated inventory
to replenish the channel. The cost of product sales includes the
price paid to acquire the product as well as labeling costs that
are directly incurred in bringing the product to market.
C-29
Research and Development Expenses. Research
and development expenses decreased from $7.4 million in
2007 to $3.0 million in 2008. This decrease was principally
a result of lower clinical trial costs and consulting costs
associated with the wind down of our clinical trial and reduced
salaries and pre-clinical trial costs as a result of
restructuring activities.
General and Administrative Expenses. General
and administrative expenses increased from $6.1 million in
2007 to $6.4 million in 2008. This increase is principally
a result of severance costs associated with our June 2008
restructuring, an increase in costs associated with maintaining
public company infrastructure and increased marketing costs
associated with the rebranding of the urokinase asset offset
partially by a decrease in patent maintenance, board of director
expenses and amortization.
Asset Impairment. The asset impairment of
$10.0 million includes a $9.5 million impairment
related to the write-down and sale of our urokinase assets and a
$0.5 million impairment of all laboratory equipment that
was classified as available for sale in the second quarter of
2008.
Interest and Other Income. Interest and other
income decreased from $0.5 million in 2007 to
$0.1 million in 2008, as a result of a lower cash balance
throughout the year.
Interest Expense. Interest expense decreased
from $0.9 million in 2007 to $0.2 million in 2008, due
to the extinguishment of a note payable in April 2008.
Gain on Settlement of Accounts Payable. In the
fourth quarter of 2008, we settled various accounts payable for
amounts less than those invoiced for a total gain of
$0.2 million.
Gain on Extinguishment of Debt. In May 2007,
we extinguished a debt for patent costs that resulted in a gain
of $0.2 million. In April 2008, we extinguished a note
payable to Abbott for the purchase of the urokinase assets that
resulted in a gain of $5.6 million.
Liquidity
and Capital Resources
Sources
of Liquidity
We have incurred losses since our inception. At
December 31, 2008, we had an accumulated deficit of
$91.3 million. We have historically financed our operations
principally through the public offering and private placement of
shares of our common and preferred stock and convertible notes,
government grants, and, more recently, product sales of
urokinase, which commenced in October 2006. During the year
ended December 31, 2007, we received net proceeds of
$12.4 million from the issuance of shares of our common
stock. At December 31, 2008, we had $0.8 million in
cash and cash equivalents.
On July 25, 2007, 3,000,000 shares of common stock
were sold on the Companys behalf at an initial public
offering price of $5.00 per share, resulting in aggregate cash
proceeds of approximately $12.4 million, net of
underwriting discounts commissions and offering expenses. Upon
the completion of the Companys initial public offering in
July 2007, all of the Companys previously outstanding
preferred shares converted into an aggregate of
4,401,129 shares of the Companys common stock.
In April 2006, we acquired from Abbott Laboratories the assets
related to urokinase, including the remaining inventory of
finished product, all regulatory and clinical documentation,
validated cell lines, and intellectual property rights,
including trade secrets and know-how relating to the manufacture
of urokinase using the tissue culture method. The purchase price
for the assets was $20.0 million, which was paid in the
form of $5.0 million in cash and the issuance of a
$15.0 million non-recourse promissory note with an initial
maturity date of December 31, 2007, which was extended to
March 31, 2008. On April 17, 2008, we entered into a
satisfaction, waiver and release agreement with Abbott
Laboratories regarding payment of the note. Under the terms of
the agreement, we were required to pay Abbott Laboratories
$5.2 million in cash and upon payment of the funds, the
debt obligation was deemed to be indefeasibly paid in full by us
and the note was cancelled and returned to us.
On September 23, 2008, we divested our urokinase business
to Microbix. Through this transaction, Microbix acquired the
remaining urokinase inventory and related assets and assumed
full responsibility for
C-30
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 the
$0.5 million assumed, 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 the three lots of
urokinase that are currently subject to a May 2008 Approvable
Letter.
Cash
Flows
Net Cash Used in or provided by Operating
Activities. Net cash provided by operating
activities was $1.9 million for the year ended
December 31, 2007 and net cash used in operating activities
was $8.4 million for the year ended December 31, 2008.
The cash provided by operations in 2007 primarily reflects our
cash from product sales and changes in working capital. Net cash
used in 2008 primarily reflects the net loss offset in part by
the gain on extinguishment of debt, asset impairment charges and
changes in woking capital.
Net Cash Used in or provided by Investing
Activities. Net cash used in investing activities
was $0.6 million for the year ended December 31, 2007
and net cash provided by investing activities was
$2.2 million in 2008. Net cash used in investing activities
in 2007 primarily reflects purchases of property and equipment,
including manufacturing, information technology, laboratory and
office equipment and intangible assets. Net cash provided by
investing activities in 2008 primarily reflects the cash
received in the sale of the urokinase assets and proceeds from
the sale of property and equipment offset partially by purchases
of property and equipment.
Net Cash Provided by or used in Financing
Activities. Net cash provided by financing
activities was $7.2 million for the year ended
December 31, 2007 and net cash used in financing activities
was $5.9 million in 2008. Net cash provided by financing
activities in 2007 was primarily attributable to the
$12.4 million net cash proceeds from the initial public
offering offset partially by a $4.8 million payment on the
note payable to Abbott Laboratories in 2007. In 2008, net cash
used in financing activities was attributable to the
$6.3 million payment on the note payable to Abbott
Laboratories offset partially by the $0.4 million change in
the restricted cash balance.
Operating
Capital and Capital Expenditure Requirements
Historically, our primary source of liquidity has been the
public offering and private placement of shares of our common
and preferred stock and convertible notes, government grants,
and, more recently, product sales of urokinase. We do not
currently have a significant source of cash.
In furtherance of the June 2008 restructuring we are now
exploring strategic alternatives for our clinical-stage
SonoLysis program and other Company assets, which may involve
the disposition of substantially all of these assets. As a
result of the sale of all of our urokinase assets to Microbix on
September 23, 2008, we have sufficient capital to fund our
operating needs into the third quarter 2009. Our operating needs
include the planned costs to operate our business and the amount
required to fund our working capital and capital expenditures.
At the present time, we have no material commitments for capital
expenditures.
We cannot be sure that our existing cash and cash equivalents
will be adequate, or that additional financing will be available
when needed, or that, if available, such financing will be
obtained on terms favorable to us or our stockholders. Failure
to obtain adequate cash resources may adversely affect our
ability to operate as a going concern. If we raise additional
funds by issuing equity securities, or enter into a strategic
transaction, substantial dilution to existing stockholders will
likely result. If we raise additional funds by incurring debt
obligations, the terms of the debt will likely involve
significant cash payment obligations as well as covenants and
specific financial ratios that may restrict our ability to
operate our business.
Off-Balance
Sheet Transactions
At December 31, 2007 and 2008, we did not have any
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities, which
C-31
would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes.
Recently
Issued Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162
(SFAS 162), The Hierarchy of Generally Accepted
Accounting Principles. SFAS 162 sets forth the level of
authority to a given accounting pronouncement or document by
category. Where there might be conflicting guidance between two
categories, the more authoritative category will prevail.
SFAS 162 becomes effective 60 days after the SEC
approves the PCAOBs amendments to AU Section 411 of
the AICPA Professional Standards. SFAS 162 will not have an
impact on our financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007) (SFAS 141R), Business Combinations
and SFAS No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research
Bulletin No. 51. SFAS 141R will change how
business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective beginning
in the first fiscal period ending after December 15, 2008.
Early adoption is not permitted. We do not believe the adoption
of these new standards, SFAS 141R and SFAS 160, will
have an impact on our financial statements.
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ITEM 8.
|
Financial
Statements and Supplementary Data
|
The information required by this item is incorporated herein by
reference to the financial statements and schedule listed in
Item 15 (a)1 and (a)2 of Part IV and included in this
Form 10-K
Annual Report.
|
|
ITEM 9A(T).
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that material information required to be disclosed in
our periodic reports filed under the Securities Exchange Act of
1934, as amended, or 1934 Act, is recorded, processed,
summarized, and reported within the time periods specified in
the SECs rules and forms and to ensure that such
information is accumulated and communicated to our management,
including our chief executive officer and chief financial
officer as appropriate, to allow timely decisions regarding
required disclosure. During the quarter ended December 31,
2008 we carried out an evaluation, under the supervision and
with the participation of our management, including the
principal executive officer and the principal financial officer,
of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in
Rule 13a-15(e)
under the 1934 Act. Based on that evaluation and due to the
restructuring plan initiated in June 2008 including the
significant reduction in personnel in the accounting and finance
function, our principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures were ineffective as of the end of the period covered
by this report.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. The
Companys internal control over financial reporting is
designed to provide reasonable assurances regarding the
reliability of financial reporting and the preparation of the
financial statements of the Company in accordance with
U.S. generally accepted accounting principles, or GAAP.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
or compliance with the policies or procedures may deteriorate.
With the participation of our Chief Executive Officer, our
management conducted an evaluation of the effectiveness of our
internal control over financial reporting as of
December 31, 2008 based on the framework
C-32
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation and the material weaknesses
described below, management concluded that the Company did not
maintain effective internal control over financial reporting as
of December 31, 2008 based on the specified criteria.
Management has identified control deficiencies regarding the
lack of segregation of duties and the need for a stronger
internal control environment. Management of the Company believes
that these material weaknesses are due to the small size of the
Companys accounting staff, which stemmed from the
significant work force reduction that resulted from our
June 11, 2008 restructuring. The small size of the
Companys accounting staff may prevent adequate controls in
the future, such as segregation of duties, due to the
cost/benefit of such remediation. Due to the lack of financial
resources available to the company we do not expect to retain
additional personnel to remediate these control deficiencies in
the near future, if ever.
These control deficiencies could result in a misstatement of
account balances that would result in a reasonable possibility
that a material misstatement to our financial statements may not
be prevented or detected on a timely basis. Accordingly, we have
determined that these control deficiencies as described above
together constitute a material weakness.
In light of this material weakness, we performed additional
analyses and procedures in order to conclude that our financial
statements for the year ended December 31, 2008 included in
this Annual Report on
Form 10-K
were fairly stated in accordance with US GAAP. Accordingly,
management believes that despite our material weaknesses, our
financial statements for the year ended December 31, 2008
are fairly stated, in all material respects, in accordance with
US GAAP.
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control
over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements
report in this Annual Report on
Form 10-K.
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers, and Corporate Governance
|
The names, ages and positions of our directors and officers as
of December 31, 2008, are set forth below. Biographical
information for each of these persons also is presented below.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position Held
|
|
Richard L. Love
|
|
|
65
|
|
|
Chairman of Board
|
Bradford A. Zakes
|
|
|
43
|
|
|
President and Chief Executive Officer
|
Richard E.Otto
|
|
|
59
|
|
|
Director
|
James M. Strickland
|
|
|
66
|
|
|
Director
|
Philip C. Ranker
|
|
|
49
|
|
|
Director
|
Thomas W. Pew
|
|
|
70
|
|
|
Director
|
There are no family relationships between any of our directors
and/or any
executive officer.
Richard
L. Love Chairman of Board
Richard Love has served as a director since March 2006 and as
Chairman of the Board of Directors since September 2007. Since
September 2007 to present, Mr. Love has served as Manager
of TVP Management, LLC, an Arizona-based venture capital
investment firm and since January 2007, Mr. Love has served
as a partner of Translational Accelerator Venture Fund (TRAC),
an investment fund. From January 2005 to January 2007
Mr. Love served as Managing Director of TGEN Accelerator
LLC for his employer Translational Genomics Research Institute.
From January 2003 to January 2005, Mr. Love served as Chief
Operating Officer for Translational Genomics Research Institute
and from June 1993 to January 2002 Mr. Love served as Chief
Executive Officer and a director of ILEX Oncology, Inc., a
biotechnology company evaluating cancer
C-33
therapeutics. Mr. Love also serves as a director for
Parexel International, Medical Consultant Services, Cell
Therapeutic Inc, and Medtrust, LLC. Mr. Love holds B.S. and
M.S. degrees in Chemical Engineering from the Virginia
Polytechnic Institute.
Bradford
A. Zakes President and Chief Executive
Officer
Bradford Zakes has served as our President and Chief Executive
Officer since October 2006, prior to that he served ImaRx as
Chief Operating Officer. From December 2001 to August 2005,
Mr. Zakes served as Director, Business Management at
ICOS Corporation, a biotechnology company. Mr. Zakes
currently serves on the Board of The BioIndustry Organization of
Southern Arizona and on the Emerging Company
Section Governing Body of The Biotechnology Industry
Organization (BIO). Mr. Zakes holds a B.S. in Biology from
Oregon State University, a M.S. degree in Toxicology from
American University and a M.B.A. from Duke Universitys
Fuqua School of Business.
Richard
E. Otto Director
Richard Otto has served as a director since July 2004. From
February 2003 to December 2006, Mr. Otto served as
President and Chief Executive Officer of Corautus Genetics,
Inc., a gene therapy company. Mr. Otto founded Clique
Capital, a venture capital company, in January 1999, where he
was employed until January 2002. Mr. Otto serves on
the board of directors of Medi-Hut Co., Inc. Mr. Otto holds
a B.S. in Chemistry and Zoology from the University of Georgia
and engaged in graduate studies in Biochemistry at Medical
College of Georgia.
James M.
Stickland Director
James Strickland has served as a director since August 2000.
Since February 2004, Mr. Strickland has served as the Chief
Executive Officer of Thayer Medical Corporation, a medical
device company. Since March 1998, Mr. Strickland has
served as the General Partner and Managing Director of the
Coronado Venture Funds, a group of venture investing
partnerships formed in 1988. Mr. Strickland holds B.S. and
M.S. degrees in Electrical Engineering from the University of
New Mexico and an M.S. in Industrial Administration from
Carnegie Institute of Technology (now Carnegie-Mellon
University).
Philip C.
Ranker Director
Philip Ranker has served as a director since February 2006.
Since January 2008, Mr. Ranker has served as the Vice
President of Finance for Amylin Pharmaceuticals, Inc. From
September 2004 to January 2008, Mr. Ranker served as the
Chief Financial Officer and Vice President of Finance of Nastech
Pharmaceutical Company, Inc. From September 2001 to August 2004,
Mr. Ranker served as Director of Finance for
ICOS Corporation. Prior to working at ICOS, Mr. Ranker
spent nearly 15 years in various positions with Aventis and
its predecessor companies. Mr. Ranker holds a B.S. in
Accounting from the University of Kansas.
Thomas W.
Pew Director
Thomas Pew has served as a director since January 2004. Since
1994, Mr. Pew has been a private investor in
formative-stage biotechnology companies. He holds a B.A. in
Economics from Cornell University.
Responsibilities
of the Board
Our Board of Directors is elected by the stockholders to oversee
the stockholders interest in the Company and the overall
success of our business. Among other things, the Board, directly
and through its committees, establishes corporate policies;
oversees compliance and ethics; reviews the performance of the
Chief Executive Officer and other executives; establishes our
executive compensation policies and objectives; reviews and
approves total compensation paid to our named executive
officers; reviews and approves significant transactions or
transactions involving related persons; and reviews our
long-term strategic plans.
C-34
In accordance with general corporate legal principles applicable
to corporations organized under the laws of Delaware, the Board
of Directors does not control the
day-to-day
management of ImaRx. Members of the Board keep informed about
our business by participating in Board and committee meetings,
by reviewing analyses and reports and through discussions with
the Chief Executive Officer.
The Board meets throughout the year and holds special meetings
and acts by written consent from time to time as needed.
Directors are expected to attend Board meetings and meetings of
committees on which they serve, and to devote the time needed
and meet as frequently as necessary to discharge their
responsibilities properly. During the fiscal year ended
December 31, 2008, the Board of Directors held 20 meetings.
At certain meetings for limited periods of time and for limited
considerations, the Board met in executive session where only
the independent directors were present. Each Board member
standing for re-election attended 75% or more of the aggregate
of the meetings held by the Board and by the respective
committees on which such Board member served during the period
for which he or she was a director or a member of such committee.
Committees
of the Board
The Board has elected to use Board committees in furtherance of
the discharge of its duties and for the conduct of its work. All
major decisions of such committees are reviewed and, where
appropriate, ratified by the Board. In furtherance of its
decision to employ committees and consistent with applicable
laws and regulations, the Board has established an Audit
Committee, a Compensation Committee, and a Nominating and
Corporate Governance Committee. Information regarding each
committee is provided below.
Audit
Committee
The Board has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the
Exchange Act of 1934, as amended (the Exchange Act),
the purpose of which includes: overseeing ImaRxs
accounting and financial reporting processes and audits of
ImaRxs financial statements; reviewing evaluations of
ImaRxs system of internal controls; engaging and
monitoring the independence and performance of ImaRxs
independent registered public accounting firm; providing a forum
for communication among the independent registered public
accounting firm, management, and the Board; and providing such
additional information and materials the Audit Committee may
deem necessary to make the Board aware of significant financial
matters that require the Boards attention. The Audit
Committee also submits the Audit Committee Report included in
this proxy statement. The Audit Committee met five times during
the fiscal year ended December 31, 2008.
The Audit Committee is presently composed of three directors,
Philip Ranker, Richard Otto and James Strickland.
Our Board has determined that each member of the Audit Committee
is independent under our independence criteria described above.
Our Board has also determined that Mr. Ranker qualifies as
an Audit Committee Financial Expert as defined in the applicable
SEC rules. The Board has adopted a written charter for the Audit
Committee and this charter is available on the corporate
governance section of our web site at www.imarx.com.
Compensation
Committee
The Board has delegated to the Compensation Committee the
responsibility for implementing, reviewing and monitoring
adherence with ImaRxs compensation policies and
objectives. The Compensation Committee is responsible for
establishing, approving and recommending to the Board for final
approval ImaRxs compensation programs. The Compensation
Committees functions include: (i) establishing,
reviewing, and overseeing base salaries, incentive compensation,
equity compensation, retention compensation and other forms of
compensation paid to our executive officers;
(ii) administering our incentive compensation and equity
plans; and (iii) performing such other functions regarding
compensation as the Board may delegate. In connection with
annual adjustments to named executive officer compensation, the
Compensation Committee traditionally reviews and discusses over
several meetings the compensation recommendations of the CEO and
the compensation studies and data it has available to it and
then renders a final compensation recommendation
C-35
for each of our named executive officers to the Board for
approval. The Compensation Committee has the final authority to
hire and terminate any compensation consultant engaged by ImaRx.
The Compensation Committee is currently composed of three
directors, James Strickland, Richard Love and Thomas Pew. The
Compensation Committee met three times during the fiscal year
ended December 31, 2008.
Our Board has determined that each member of the Compensation
Committee is independent under our independence criteria
described above. In addition, all members of the Compensation
Committee are outside directors as defined by Rule 162(m)
of the Internal Revenue Code and are nonemployee directors as
defined by
Rule 16b-3
promulgated by the SEC under the Securities Exchange Act of
1934. The Board has adopted a written charter for the
Compensation Committee and the charter is available on the
corporate governance section of our web site at
www.imarx.com.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committees
functions include: evaluating director performance on at least
an annual basis; providing advice, information and materials
relating to the nomination of directors; interviewing,
nominating, and recommending individuals for membership on the
Board and its committees; developing and overseeing the
Boards Corporate Governance Principles and a Code of
Business Conduct and Ethics applicable to members of the Board,
officers and employees of ImaRx; and assessing and monitoring
the independence of the Board. The Committee will, at least on
an annual basis, consider the mix of skills and experience that
the then-current directors bring to the Board to assess whether
the Board has the necessary membership and resources to perform
its oversight function effectively. The qualifications of any
non-incumbent director candidates brought to the attention of
the Committee by directors, management, stockholders or third
parties will be evaluated from time to time in light of the
Committees determination of the Boards needs, and
under the same criteria as set forth below. The Committee will
consider nominees for directors nominated by stockholders upon
submission in writing to the Secretary of ImaRx of the names of
such nominees, together with their qualifications for service as
a director of ImaRx. Our bylaws set forth the procedures a
stockholder must follow to nominate candidates for director. The
Committee does not distinguish between nominees suggested by
stockholders and other nominees. To date, the committee has not
received a director nominee from a stockholder or stockholders
holding more than five percent of our common stock.
In evaluating the suitability of candidates for Board
membership, the Committee takes into account many factors,
including whether the persons is independent; the
individuals personal qualities and characteristics,
accomplishments and reputation in the business community; the
persons current knowledge and contacts in the communities
in which ImaRx does business and in ImaRxs industry or
other industries relevant to ImaRxs business; the
persons ability and willingness to commit adequate time to
Board and committee matters; the fit of the individuals
skills and personality with those of other directors and
potential directors in building a Board that is effective and
responsive to the needs of ImaRx; and the need for the Board to
have a diversity of viewpoints, background, experience and other
factors. The Committee has not established any specific minimum
qualification standards for nominees to the Board.
The Nominating and Corporate Governance Committee is currently
composed of four directors, Mr. Love, Mr. Otto,
Mr. Pew and Mr. Ranker.
Our Board has determined that each member of the Nominating and
Corporate Governance Committee is independent under our
independence criteria described above. The Board has adopted a
written charter for the Nominating and Corporate Governance
Committee and the charter is available on the corporate
governance section of our web site at www.imarx.com. The
Nominating and Corporate Governance Committee did not meet
during the fiscal year-ended December 31, 2008.
Section 16(a)
Beneficial Ownership Reporting
Section 16(a) of the Exchange Act requires ImaRxs
directors and executive officers, and persons who own more than
10% of ImaRxs common stock, to file with the Commission
reports of ownership and changes
C-36
in ownership of ImaRx common stock. Officers, directors, and
greater than 10% stockholders are required by the Commission to
furnish ImaRx with copies of all Section 16(a) forms they
file.
To our knowledge, based solely on a review of the copies of such
reports furnished to ImaRx or written representations that no
other reports were required, during the fiscal year ended
December 31, 2008, we believe that all of these filing
requirements were satisfied by our directors, officers and 10%
holders.
Code of
Ethics
We have adopted a corporate Code of Business Conduct and Ethics
that applies to all of our directors, officers (including our
chief executive and accounting officers) and employees. We
require that all of our directors, officers, employees and
agents certify on an annual basis that they are in compliance
with the code. A copy of the Code of Business Conduct and Ethics
is available on the corporate governance section of our web site
at www.imarx.com.
|
|
ITEM 11.
|
Executive
Compensation
|
SUMMARY
COMPENSATION TABLE
The table below summarizes the total compensation paid to or
earned by each of our named executive officers for the fiscal
years ended December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonequity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
|
|
Bradford A. Zakes
|
|
|
2008
|
|
|
|
272,731
|
|
|
|
254,767
|
|
|
|
318,125
|
(4)
|
|
|
|
|
|
|
845,623
|
|
President and Chief Executive
|
|
|
2007
|
|
|
|
227,308
|
|
|
|
76,012
|
|
|
|
63,281
|
|
|
|
|
|
|
|
366,601
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Cobb(6)
|
|
|
2008
|
|
|
|
129,423
|
|
|
|
9,162
|
|
|
|
25,000
|
|
|
|
119,689
|
|
|
|
283,274
|
|
Chief Financial Officer
|
|
|
2007
|
|
|
|
192,306
|
|
|
|
74,685
|
|
|
|
56,250
|
|
|
|
|
|
|
|
323,242
|
|
Kevin J. Ontiveros(7)
|
|
|
2008
|
|
|
|
303,008
|
|
|
|
13,895
|
|
|
|
39,250
|
|
|
|
110,449
|
|
|
|
446,601
|
|
Vice President, Legal Affairs and
|
|
|
2007
|
|
|
|
139,327
|
|
|
|
16,912
|
|
|
|
52,500
|
|
|
|
15,000
|
(5)
|
|
|
223,739
|
|
General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in this column represent the compensation expenses
recognized in 2008 and 2007, respectively, related to stock
option awards pursuant to SFAS No. 123(R). A discussion of
the valuation assumptions used to determine the expense is
included in Note 8 of our audited financial statements
included in this
Form 10-K. |
|
(2) |
|
The amounts shown in this column constitute the quarterly cash
incentive bonuses made to each named executive officer based on
the attainment of certain pre-established performance criteria
established by our Board of Directors. |
|
(3) |
|
Amounts consist of severance payments including benefits. |
|
(4) |
|
Amounts include a retention bonus. |
|
(5) |
|
Amounts consist of relocation expenses. |
|
(6) |
|
177,249 options were forfeited in 2008 upon separation with the
Company. Also upon separation, 94,000 shares were
accelerated. |
|
(7) |
|
65,501 options were forfeited in 2008 upon separation with the
Company. Also upon separation, 60,165 shares were
accelerated. |
Employment
Agreements
Bradford A. Zakes. On June 27, 2008,
pursuant to the recommendation of the Compensation Committee and
approval of the our Board of Directors, we entered into an
amendment to the Executive Employment Agreement (the
Agreement) with Mr. Bradford Zakes. Pursuant to
the terms of the Agreement, we agreed to
C-37
pay to Mr. Zakes a retention bonus in the amount of
$290,000. In consideration for such payment, Mr. Zakes
agreed to remain in our employ for a period of 12 months
from the date of the Agreement. In the event that
Mr. Zakes employment is terminated prior to the
expiration of such
12-month
period and such termination is not incident to a
change-in-control,
disability, death, or is not for good reason or is by us without
cause, then Mr. Zakes is required to repay us a ratable
portion of the bonus. We will continue to pay Mr. Zakes an
annual base salary of $275,000. Furthermore, Mr. Zakes is
eligible to receive bonus awards aggregating up to 50% of his
base salary.
The 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. Finally, 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.
Greg Cobb. Effective June 11, 2008, in
connection with a general workforce reduction, Greg Cobb left us
and no longer serves as our chief financial officer or
treasurer. We entered into a Separation and Release of Claims
Agreement with Mr. Cobb. The Separation and Release of
Claims Agreement provided for a lump sum severance payment in an
amount equal to Mr. Cobbs salary for six months
totaling $112,500. In addition, we agreed to pay on
Mr. Cobbs behalf his COBRA benefits for six months
totaling approximately $7,200. Additionally, Mr. Cobb
provided a general release of all claims he may have against us
other than rights to indemnification he may have under the terms
of an Indemnification Agreement dated July 12, 2007 entered
into with us in connection with the our initial public offering
of common stock. We entered into a Consultant Services Agreement
with Mr. Cobb. Under the Consulting Agreement Mr. Cobb
will provide general business development services and
assistance on the review, maintenance and prosecution of its
patent estate and patent applications on an as-needed basis and
as requested by us from
time-to-time.
Mr. Cobb shall be paid $165 per hour for services rendered
under the agreement. The term of the agreement is 9 months
and either party may terminate the agreement upon the provision
of 30 days advance notice.
Kevin Ontiveros. Effective June 11, 2008,
in connection with a general workforce reduction, Kevin
Ontiveros left us. We entered into a Separation and Release of
Claims Agreement with Mr. Ontiveros. The Separation and
Release of Claims Agreement provided for a lump sum severance
payment in an amount equal to Mr. Ontiveross salary
for six months totaling $103,260. In addition we agreed to pay
on Mr. Ontiveross behalf his COBRA benefits for six
months totaling approximately $7,200. Additionally,
Mr. Ontiveros provided a general release of all claims he
may have against us other than rights to indemnification he may
have under the terms of an Indemnification Agreement dated
July 12, 2007 entered into with us in connection with our
initial public offering of common stock.
C-38
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised Options
|
|
|
Unexercised Options
|
|
|
Option
|
|
|
Option
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Exercise Price
|
|
|
Expiration
|
|
Name
|
|
Exercisable(1)
|
|
|
Unexercisable(2)
|
|
|
($)
|
|
|
Date
|
|
|
Bradford A. Zakes
|
|
|
24,000
|
|
|
|
|
|
|
|
15.00
|
|
|
|
8/22/2015
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
20.00
|
|
|
|
12/14/2015
|
|
|
|
|
30,333
|
|
|
|
|
|
|
|
15.00
|
|
|
|
12/12/2016
|
|
|
|
|
41,666
|
|
|
|
|
|
|
|
5.00
|
|
|
|
7/31/2017
|
|
|
|
|
16,667
|
|
|
|
|
|
|
|
4.05
|
|
|
|
9/07/2017
|
|
|
|
|
56,250
|
|
|
|
168,750
|
|
|
|
2.10
|
|
|
|
12/18/2017
|
|
Greg Cobb
|
|
|
30,000
|
|
|
|
|
|
|
|
15.00
|
|
|
|
4/18/2015
|
|
|
|
|
6,750
|
|
|
|
|
|
|
|
20.00
|
|
|
|
12/14/2015
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
25.00
|
|
|
|
5/16/2016
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
15.00
|
|
|
|
12/12/2016
|
|
|
|
|
10,417
|
|
|
|
|
|
|
|
5.00
|
|
|
|
7/31/2017
|
|
|
|
|
16,667
|
|
|
|
|
|
|
|
4.05
|
|
|
|
9/07/2017
|
|
|
|
|
46,250
|
|
|
|
|
|
|
|
2.10
|
|
|
|
12/18/2017
|
|
Kevin J. Ontiveros
|
|
|
30,665
|
|
|
|
|
|
|
|
5.00
|
|
|
|
7/31/2017
|
|
|
|
|
21,834
|
|
|
|
|
|
|
|
2.10
|
|
|
|
12/18/2017
|
|
|
|
|
(1) |
|
Stock options with expiration dates after July 31, 2007
were granted under the 2000 Stock Plan and are immediately
exercisable, and, when and if exercised, will be subject to a
repurchase right held by the company, which lapses in accordance
with the respective vesting schedules for such options. |
|
|
|
|
|
(2) |
|
Stock options with expiration dates after July 31, 2007
were granted under the 2007 Performance Incentive Plan and vest
and generally vest at the rate of 28% of the total option grant
vests one year from the anniversary date of the grant and
remainder vests at the rate of 2% per month thereafter. |
Pension
Benefits
None of our named executive officers participates in or has
account balances in qualified or non-qualified defined benefit
plans sponsored by us.
Nonqualified
Deferred Compensation
None of our named executive officers participates in or has
account balances in non-qualified defined contribution plans or
other deferred compensation plans maintained by us. The
compensation committee, which will be comprised solely of
outside directors as defined for purposes of
Section 162(m) of the Internal Revenue Code, may elect to
provide our officers and other employees with non-qualified
defined contribution or deferred compensation benefits if the
compensation committee determined that doing so is in our best
interests.
Director
Compensation
Each non-employee member of our board of directors receives the
following compensation:
|
|
|
|
|
$1,500 for each board and committee meeting attended in person;
|
|
|
|
$250 for each board and committee meeting attended via
tele-conference;
|
|
|
|
$15,000 annual retainer for each non-employee director payable
in cash if our cash balance exceeds $10 million on the date
of payment, or in stock valued at the fair market value on the
date of payment;
|
|
|
|
Annual grant of an option to purchase 3,333 shares of
common stock with an exercise price equal to fair market value
of our common stock on the date of grant; and
|
|
|
|
Reimbursement of actual, reasonable travel expenses incurred in
connection with attending board or committee meetings;
|
C-39
In addition, the following additional compensation will be paid
annually, generally, immediately following the annual meeting of
stockholders:
|
|
|
|
|
$10,000 to the chairman of the Board;
|
|
|
|
$7,500 to the chairman of our audit committee;
|
|
|
|
$2,500 to each audit committee member other than the chairman;
|
|
|
|
$5,000 to the chairman of our compensation committee;
|
|
|
|
$1,500 to each compensation committee member other than the
chairman;
|
|
|
|
$5,000 to the chairman of our nomination and governance
committee; and
|
|
|
|
$1,500 to each nomination and governance committee member other
than the chairman.
|
The following table sets forth a summary of the compensation we
paid to our non-employee directors for the fiscal year ended
December 31, 2008:
2008
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Richard Otto(1)
|
|
$
|
23,750
|
|
|
$
|
15,000
|
|
|
$
|
1,614
|
|
|
$
|
40,364
|
|
James M. Strickland(2)
|
|
$
|
23,375
|
|
|
$
|
15,000
|
|
|
$
|
1,614
|
|
|
$
|
39,989
|
|
Thomas W. Pew(3)
|
|
$
|
17,750
|
|
|
$
|
15,000
|
|
|
$
|
1,614
|
|
|
$
|
34,364
|
|
Richard Love(4)
|
|
$
|
29,375
|
|
|
$
|
15,000
|
|
|
$
|
1,614
|
|
|
$
|
45,989
|
|
Philip Ranker(5)
|
|
$
|
21,625
|
|
|
$
|
15,000
|
|
|
$
|
1,614
|
|
|
$
|
38,239
|
|
|
|
|
(1) |
|
Mr. Otto owned 28,810 shares of common stock awards
and 17,666 option shares as of December 31, 2008. |
|
(2) |
|
Mr. Strickland directly owned 32,810 shares of common
stock awards, indirectly owned 79,095 shares of common
stock awards and 17,666 option shares as of December 31,
2008. |
|
(3) |
|
Mr. Pew owned 98,231 shares of common stock awards and
17,666 option shares as of December 31, 2008. |
|
(4) |
|
Mr. Love owned 48,810 shares of common stock awards
and 17,666 option shares as of December 31, 2008. |
|
(5) |
|
Mr. Ranker owned 28,810 shares of common stock awards
and 17,666 option shares as of December 31, 2008. |
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
EQUITY
COMPENSATION PLAN INFORMATION
The following table sets forth information regarding outstanding
awards and shares reserved for future issuance under our equity
compensation plans as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
|
|
|
Future Issuance Under Equity
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Compensation Plans
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
(Excluding Securities Reflected
|
|
Plan Category
|
|
of Outstanding Awards
|
|
|
Outstanding Awards
|
|
|
in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
732,079
|
|
|
$
|
6.93
|
|
|
|
885,600
|
|
Equity compensation plans not approved by security holders
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
732,079
|
|
|
$
|
6.93
|
|
|
|
885,600
|
|
C-40
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our common stock as of (or options and warrants
exercisable within 60 days of) February 1, 2009, by:
(a) all those known by us to be beneficial owners of more
than five percent of our common stock; (b) each current
director and nominee for director; (c) each of the named
executive officers referenced in the Summary Compensation Table;
and (d) all of our executive officers and directors as a
group. This table lists applicable percentage ownership based on
10,165,733 shares of common stock outstanding as of
February 1, 1009.
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 February 1, 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 persons ownership
percentage.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
Number of
|
|
|
Percent of
|
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
|
Total
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
Saints Capital Everest, L.P.(1)
|
|
|
1,176,471
|
|
|
|
11.6
|
%
|
475 Sansome Street, Suite 1850
San Francisco, CA 94111
|
|
|
|
|
|
|
|
|
Berg & Berg Enterprises, LLC(2)
|
|
|
570,588
|
|
|
|
5.6
|
%
|
10050 Bandley Drive
Cupertino, CA 95014
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers(12)
|
|
|
|
|
|
|
|
|
Richard Love(3)
|
|
|
66,476
|
|
|
|
*
|
|
Richard Otto(4)
|
|
|
46,476
|
|
|
|
*
|
|
Thomas W. Pew(5)
|
|
|
128,586
|
|
|
|
1.3
|
%
|
|