YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IN ORDER TO ENSURE THAT YOUR SHARES ARE VOTED, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. IF GIVEN, YOU MAY REVOKE YOUR PROXY BY FOLLOWING THE INSTRUCTIONS IN THE PROXY STATEMENT.
Los Angeles, California June 2, 2010 IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 15, 2010: The Company’s proxy statement, proxy card and Annual Report are available at the following website: www.colonialstock.com/GlobalCleanEnergy2010. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO VOTE ELECTRONICALLY VIA THE INTERNET OR BY COMPLETING, SIGNING, DATING AND RETURNING THE PROXY/VOTING INSTRUCTION CARD. IF GIVEN, YOU MAY REVOKE YOUR PROXY BY FOLLOWING THE INSTRUCTIONS IN THE PROXY STATEMENT AND ATTACHED PROXY/VOTING INSTRUCTION CARD. TABLE OF CONTENTS | 1 | | QUESTION AND ANSWER SUMMARY ABOUT THE 2010 ANNUAL MEETING | 4 | | PROPOSAL I – ELECTION OF DIRECTORS | 11 | | EXECUTIVE COMPENSATION | 19 | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 22 | | PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 24 | | PROPOSAL III – APPROVAL OF ADOPTION OF THE 2010 EQUITY INCENTIVE PLAN | 25 | | PROPOSAL IV – APPROVAL OF REINCORPORATION MERGER | 31 | | DISSENTERS’ RIGHTS | 46 | | PROPOSAL V – APPROVAL OF AMENDMENT TO CERTIFICATE (ARTICLES) OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT | 49 | | INTERESTS OF CERTAIN PERSONS IN THE MERGER | 54 | | STOCKHOLDER PROPOSALS | 54 | | DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS | 56 | | OTHER MATTERS | 56 | | 56 | | WHERE YOU CAN FIND MORE INFORMATION | 57 |
GLOBAL CLEAN ENERGY HOLDINGS, INC. 6033 W. Century Blvd., Suite 895 Los Angeles, California 90045 Annual Meeting of Stockholders to Be Held On July 15, 2010 The 2010 Annual meeting This proxy statement is being furnished to the stockholders of Global Clean Energy Holdings, Inc., a Utah corporation (the “Company”), in connection with the solicitation of proxies by the Company’s Board of Directors (the “Board”) for use at the 2010 Annual Meeting to be held at the offices of TroyGould PC, 1801 Century Park East, 16th Floor, Los Angeles, California U.S.A., beginning at 10:00 A.M. local time on July 15, 2010, for the purpose of considering and voting: | · | to elect four (4) directors to our Board of Directors; |
| · | to ratify the appointment of Hansen, Barnett & Maxwell, P.C. as our independent registered public accountant for the fiscal year ending December 31, 2010; |
| · | to approve the adoption of the Company’s 2010 Equity Incentive Plan; |
| · | to approve the Reincorporation Merger; |
| · | to approve an amendment (the “Amendment”) to our Certificate (Articles) of Incorporation to effect, in the discretion of our Board of Directors, a reverse stock split of common stock at any time prior to next year’s annual meeting of stockholders at a reverse split ratio in the range of between 1-for-5 and 1-for-20, which specific ratio will be determined by our Board of Directors (the “Reverse Stock Split”). The Amendment will not be implemented and the Reverse Stock Split will not occur unless the Board of Directors determines that it is in the best interests of this company and its stockholders to implement the Reverse Stock Split; and |
| · | to transact any other business as may properly come before the meeting or at any adjournment thereof. |
It is important that you vote your shares whether or not you attend the meeting in person. If you attend the 2010 Annual Meeting, you may vote in person even if you have previously returned your proxy card or voted on the Internet. Shares represented by proxy will be voted in accordance with the instructions you provide on the proxy. If you provide no instructions, the shares will be voted “FOR” the proposals presented and discussed in this proxy statement. All validly executed proxies received by our Board pursuant to this solicitation will be voted at the 2010 Annual Meeting, and the directions contained in such proxies will be followed. The proxy card is attached as Appendix A to this proxy statement. Notice of Internet Availability Of Proxy Materials We are pleased to take advantage of SEC rules that allow companies to furnish their proxy materials over the Internet. As a result, on or about June 2, 2010, we mailed to most of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to gain access to our proxy Statement, our Annual Report, and how to vote online. The Notice also contains instructions on how you can elect to receive a printed copy of the proxy statement and Annual Report. The Annual Report is not to be considered part of the soliciting materials. We believe this new process will allow us to provide our stockholders with the information they need in a timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our proxy materials. If you received paper copies of these proxy materials, included with such materials is a proxy card or a voting instruction card from your bank, broker or other nominee for the 2010 Annual Meeting. If you received the Notice, it will contain instructions on how to access and review the proxy materials online, how to obtain a paper or electronic copy of such materials, as well as instructions on how to vote at the 2010 Annual Meeting, over the Internet or by mail. Record Date; Shares Entitled To Vote; Vote Required To Approve The Proposals The Board has fixed the close of business on May 21, 2010, the Record Date, as the date for the determination of stockholders entitled to notice of, and to vote at, the 2010 Annual Meeting. On the Record Date, 270,464,478 shares of our common stock, no par value per share (“Common Stock”) were issued and outstanding, and 13,000 shares of Series B Convertible Preferred Stock, no par value per share (the “Series B Preferred Stock”), were issued and outstanding. Each outstanding share of Common Stock is entitled to one vote on each proposal submitted to vote at the 2010 Annual Meeting. Holders of shares of the Series B Preferred Stock will be entitled to vote 909.09 shares of Common Stock with respect to each share they hold, which equals the number of shares of Common Stock into which each share of Series B Preferred Stock would have been convertible if such conversion had taken place on the Record Date. As of the Record Date, the Series B Preferred Stock was convertible into, and will be entitled to vote, 11,818,181 shares of common stock. Stockholders do not have cumulative voting rights. A majority of the issued and outstanding shares entitled to vote, represented either in person or by proxy, is necessary to constitute a quorum for the transaction of business at the 2010 Annual Meeting. In the absence of a quorum, the 2010 Annual Meeting may be postponed from time to time until stockholders holding the requisite number of shares are represented in person or by proxy. Broker non-votes and abstentions will be counted towards a quorum at the 2010 Annual Meeting, but will not count as votes for or against Proposal I, Proposal II or Proposal III. As to Proposals IV and V, broker non-votes and abstentions will have the same effect as a vote against such proposals. If a quorum is present, the proposals presented in this proxy statement will be approved by the following votes (our Common Stock and Series B Preferred Stock voting together as one class): | · | the proposal to elect four (4) directors to our Board will be approved by the affirmative vote of a plurality of votes cast at the 2010 Annual Meeting; |
| · | the proposal to ratify the appointment of Hansen, Barnett & Maxwell, P.C. as our independent registered public accountant for the fiscal year ending December 31, 2010, will be approved if the votes cast in favor of the proposal exceed those cast against it; |
| · | the proposal to approve the adoption of our 2010 Equity Incentive Plan will be approved if the votes cast in favor of the proposal exceed those cast against it; |
| · | the proposal to approve the Reincorporation Merger will require the affirmative vote of a majority of our outstanding voting shares entitled to vote at the 2010 Annual Meeting; and |
| · | the proposal to adopt the Amendment to our Certificate (Articles) of Incorporation to effect the Reverse Stock Split within the specified range will require the affirmative vote of a majority of our outstanding voting shares entitled to vote at the 2010 Annual Meeting. |
Solicitation, Voting and Revocation Of Proxies This solicitation of proxies is being made by our Board, and we will pay the entire cost of preparing and distributing these proxy materials. In addition to the distribution of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communications by directors, officers and employees of our company, who will not receive any additional compensation for such solicitation activities. We also will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses, if any, for forwarding proxy and solicitation materials to our stockholders. Shares of our Common Stock represented by a proxy properly signed and received at or prior to the 2010 Annual Meeting, unless properly revoked, will be voted in accordance with the instructions on the proxy. If a proxy is signed and returned without any voting instructions, shares of our Common Stock represented by the proxy will be voted “FOR” the proposals described in this proxy statement, and in the proxy holder’s judgment as to any other matter which may properly come before the 2010 Annual Meeting, including any adjournment or postponement thereof. A stockholder may revoke any proxy given pursuant to this solicitation by: (i) delivering to the Company, at or prior to the 2010 Annual Meeting, a written notice revoking the proxy; (ii) delivering to the Company, at or prior to the 2010 Annual Meeting, a duly executed proxy relating to the same shares and bearing a later date; or (iii) voting in person at the 2010 Annual Meeting. Attendance at the 2010 Annual Meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communications with respect to the revocation of a proxy should be addressed to: Global Clean Energy Holdings, Inc. 6033 W. Century Blvd., Suite 895 Los Angeles, California 90045 Attention: Secretary
Our Board of Directors is not aware of any business to be acted upon at the 2010 Annual Meeting other than consideration of the proposals described herein.
QUESTION AND ANSWER SUMMARY ABOUT THE 2010 ANNUAL MEETING | Q: | WHAT IS THIS PROXY STATEMENT AND WHY AM I RECEIVING IT? |
| A: | You are receiving this proxy statement in connection with the annual meeting of stockholders called by our Board with respect to soliciting stockholder votes for the purpose of (i) electing four (4) directors to our Board of Directors; (ii) ratifying the appointment of Hansen, Barnett & Maxwell, P.C. as our independent registered public accountant for the fiscal year ending December 31, 2010, (iii) approving the adoption of the Company’s 2010 Equity Incentive Plan; (iv) approving the Reincorporation Merger; and (v) approving the Amendment to our Certificate (Articles) of Incorporation to effect the Reverse Stock Split at a ratio in the range of between 1-for-5 and 1-for-20, to be determined by our Board; in each case, as more fully described in this proxy statement. You have been sent this proxy statement and the enclosed proxy card because our Board is soliciting your proxy to vote at the 2010 Annual Meeting regarding the foregoing matters. The information included in this proxy statement relates to the proposals to be voted on at the 2010 Annual Meeting, and certain other required information. |
| Q: | DO I HAVE CUMULATIVE VOTING RIGHTS IN CONNECTION WITH THE ELECTION OF DIRECTORS AT THE ANNUAL MEETING? |
| A: | No. Our current Certificate of Incorporation and Bylaws do not provide for cumulative voting in connection with the election of directors to our Board. |
| Q: | WHAT IS THE PURPOSE OF THE COMPANY’S 2010 EQUITY INCENTIVE PLAN? |
| A: | The Board adopted the 2010 Equity Incentive Plan (“2010 Plan”) because there are a limited number of shares available for grants of awards under our existing stock option plan, the 2002 Stock Incentive Plan (the “2002 Plan”). In addition, the 2002 Plan will expire in July 2012. Management believes that granting options is an important incentive tool for the Company’s directors and employees. As a result, the Board adopted the 2010 Plan to continue to provide a means by which employees, directors and consultants of the Company may be given an opportunity to benefit from increases in the value of our Common Stock, and to attract and retain the services of such persons. The 2010 Plan is attached to this proxy statement as Appendix B. |
| Q: | WHAT IS THE PURPOSE OF THE REINCORPORATION MERGER? |
| A: | The Company is incorporated in Utah and, as such, is governed by Utah law. Utah law was appropriate before because we were based in Utah. However, we no longer have any presence in Utah. The purpose of the Reincorporation Merger is to change the state of our incorporation from Utah to Delaware. The Reincorporation Merger is intended to permit us to be governed by the Delaware General Corporation Law (“DGCL”) rather than by the Utah Revised Business Corporations Act (“UBCA”). The corporation law of Delaware is widely regarded as the most extensive and well-defined body of corporate law in the United States, and both the legislature and the courts in Delaware have demonstrated ability and a willingness to act quickly and effectively to meet changing business needs. We anticipate that the DGCL will continue to be interpreted and construed in significant court decisions, thus lending greater predictability and guidance in managing and structuring the internal affairs of our company and its relationships and contacts with others. |
| Q: | WHAT DOES THE REINCORPORATION MERGER ENTAIL? |
| A: | As a result of the Reincorporation Merger, the Company will be reincorporated in Delaware and governed by Delaware law (including the DGCL). The Reincorporation Merger will be effected by a merger of the Company into a wholly owned subsidiary of the Company that was formed and incorporated in the State of Delaware solely for this purpose. The Delaware subsidiary will be the surviving corporation in the merger, which we refer to in this proxy statement as “GCEH-Delaware.” A copy of the Agreement and Plan of Merger (the “Merger Agreement”) by which the Reincorporation Merger will be effected is attached to this proxy statement as Appendix C. Approval of the proposed Reincorporation Merger also will constitute approval of the Merger Agreement. In the Reincorporation Merger, each outstanding share of our Common Stock will automatically be converted into one share of common stock of GCEH-Delaware, and each outstanding share of Series B Preferred Stock will automatically be converted into one share of GCEH-Delaware Series B Preferred Stock on the same terms. Outstanding options and warrants to purchase shares of our Common Stock likewise will become options and warrants to purchase the same number of shares of common stock of GCEH-Delaware, with no change in the exercise price or other terms or provisions of the options and warrants. Our name, business, directors, officers, employees, assets and liabilities and the location of our offices will remain unchanged by the Reincorporation Merger. Our Board of Directors may, in its sole discretion, determine to abandon the Reincorporation Merger notwithstanding stockholder approval of the Reincorporation Merger and the Merger Agreement |
| Q: | HOW WILL THE REINCORPORATION MERGER AFFECT MY RIGHTS AS A STOCKHOLDER? |
| A: | Your rights as stockholders currently are governed by Utah law and the provisions of our Articles of Incorporation and Bylaws. As a result of the Reincorporation Merger, you will become stockholders of GCEH-Delaware with rights governed by Delaware law (including the DGCL) and the provisions of the Certificate of Incorporation and the Bylaws of GCEH-Delaware, which differ in some important respects from your current rights. These important differences are discussed in this proxy statement under “Proposal IV – Approval of Reincorporation Merger; Comparison of Rights Under DGCL and UBCA.” The Certificate of Incorporation and the Bylaws of GCEH-Delaware are attached to this proxy statement as Appendix D and Appendix E, respectively. |
| Q: | WHAT ARE THE TAX CONSEQUENCES TO ME OF THE REINCORPORATION MERGER? |
| A: | The Reincorporation Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. If the Reincorporation Merger does so qualify, no gain or loss would generally be recognized by our U.S. stockholders upon conversion of their shares of our Common Stock or Series B Preferred Stock into shares of common stock or Series B Preferred Stock of GCEH-Delaware pursuant to the Reincorporation Merger. We cannot assure you of the foregoing tax consequences. Therefore, we urge stockholders to consult their own tax advisors regarding the tax consequences of the Reincorporation Merger. |
| Q: | WHAT HAPPENS IF STOCKHOLDERS APPROVE THE REINCORPORATION MERGER BUT NOT THE AMENDMENT/REVERSE STOCK SPLIT? |
| A: | We expect to effect the Reincorporation Merger, if at all, as soon as practicable following stockholder approval of the proposal, regardless of whether our stockholders also approve the proposed Amendment to our Certificate (Articles) of Incorporation to effect the Reverse Stock Split. However, our Board of Directors may determine to abandon the Reincorporation Merger notwithstanding stockholder approval of the Reincorporation Merger and the Merger Agreement. |
| Q: | WHAT HAPPENS IF STOCKHOLDERS APPROVE BOTH THE REINCORPORATION MERGER AND THE AMENDMENT/REVERSE STOCK SPLIT? |
| A: | If, in addition to approving the Reincorporation Merger, our stockholders vote to grant our Board discretionary authority to implement the Amendment and effect the Reverse Stock Split, we expect to consummate the Reincorporation Merger prior to filing the Amendment and effecting the Reverse Stock Split, if at all. However, our Board of Directors may, in its sole discretion, determine to abandon the Reincorporation Merger notwithstanding stockholder approval of the Reincorporation Merger and the Merger Agreement. |
| Q: | ARE DISSENTERS’ RIGHTS AVAILABLE IN CONNECTION WITH THE REINCORPORATION MERGER? |
| A: | Yes. Utah law affords stockholders dissenters’ rights in connection with the Reincorporation Merger. If you choose to exercise your dissenters’ rights, you will be entitled to be paid the fair value of shares of our Common Stock that you own, which could be more than or less than the market value of your shares based upon the trading price of GCEH-Delaware common stock that you otherwise would receive in the Reincorporation Merger. To exercise your dissenters’ rights, you must follow specific procedures under Utah law. If you do not follow these procedures exactly, you will lose your dissenters’ rights. See the discussion under “Proposal IV – Approval of Reincorporation Merger – Dissenters’ Rights” for additional information concerning dissenters’ rights in connection with the Reincorporation Merger. |
| Q: | SHOULD I SEND IN MY STOCK CERTIFICATES IN CONNECTION WITH THE REINCORPORATION MERGER? |
| A: | No. Do not send us your stock certificates. If you do not exercise your dissenters’ rights and the Reincorporation Merger is approved, your shares of Common Stock or Series B Preferred Stock will automatically be converted into shares of common stock or Series B Preferred Stock of GCEH-Delaware. Following the Reincorporation Merger, each stock certificate representing issued and outstanding shares of our Common Stock or Series B Preferred Stock will continue to represent the same number of shares of common stock or Series B Preferred Stock of GCEH-Delaware. In addition, stock certificates previously representing our Common Stock or Series B Preferred Stock may be delivered in effecting sales through a broker, or otherwise, of shares of GCEH-Delaware common stock or Series B Preferred Stock. It will not be necessary for you to exchange your existing stock certificates for stock certificates of GCEH-Delaware, and if you do so, it will be at your own cost. |
| Q: | WHAT IS THE PURPOSE OF THE REVERSE STOCK SPLIT? |
| A: | The purpose of the Reverse Stock Split is to reduce the number of outstanding shares, increase the price at which our common stock is listed for trading, attract potential additional investment by increasing investor interest in, and the marketability of, our securities, and to assist in the future possible listing of our Common Stock on The Nasdaq Stock Market or a national exchange. |
| Q: | WHAT DOES THE REVERSE STOCK SPLIT ENTAIL? |
| A: | TABLE OF CONTENTSThe Board is requesting that our stockholders grant our Board discretionary authority to implement the Amendment to our Certificate of Incorporation (assuming approval of the Reincorporation Merger, otherwise the amendment will be to our Articles of Incorporation) to effect a reverse stock split of common stock at any time prior to next year’s annual meeting of stockholders at a reverse split ratio in the range of between 1-for-5 and 1-for-20, which specific ratio will be determined by our Board of Directors. Upon receipt of stockholder approval, the Board, in its discretion, may elect at any time prior to next year’s annual meeting of stockholders to file the Amendment and effect the Reverse Stock Split within the range set forth above, or none of them if the Board determines in its discretion not to proceed with the Reverse Stock Split. The Amendment will not be implemented and the Reverse Stock Split will not occur unless the Board of Directors determines that it is in the best interests of this company and its stockholders to effect the Reverse Stock Split. In determining which Reverse Stock Split ratio to implement, if any, the Board may consider a number of factors, including the historical and then current trading price and trading volume of our Common Stock. The Amendment to effect the Reverse Stock Split is attached to this proxy statement as Appendix F
| | Page. The Reverse Stock Split is expected to occur, if at all, after this company has been reincorporated in Delaware. However, if the Reincorporation Merger is not approved but the Reverse Stock Split is approved, we will have the right to effect the Reverse Stock Split by amending our Utah Articles of Incorporation.
| | | | PROXY STATEMENT | | 2 | PROPOSAL I - APPROVAL OF THE ASSET SALE TRANSACTION | | 8 | | Description Of The Eucodis Agreement And Transaction | | 20 | PROPOSAL II - INCREASE IN AUTHORIZED COMMON STOCK | | 27 | PROPOSAL III - NAME CHANGE | | 29 | FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION | | 29 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | 72 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS | | 75 | OTHER MATTERS | | 76 | WHERE YOU CAN FIND MORE INFORMATION | | 76 | APPENDIX A | | A-1 |
| Q: | ARE THERE ANY RISKS ASSOCIATED WITH THE REVERSE STOCK SPLIT? |
| A: | Yes. While our Board expects that the Reverse Stock Split will result in an increase in the price of our Common Stock, other factors may adversely affect our stock price, and there can be no assurance that our stock price will increase following consummation of the Reverse Stock Split. The trading market for our Common Stock may also be harmed if there is a significant reduction in the trading volume of our shares as a result of the reduction on the public float. |
| Q: | HOW WILL THE REVERSE STOCK SPLIT AFFECT MY RIGHTS AS A STOCKHOLDER? |
i| A: | If effected, as a result of the Reverse Stock Split, shares of our Common Stock issued and outstanding that you own shall be combined into a smaller number of shares of Common Stock. As a result, upon effectiveness of the Reverse Stock Split, you will own fewer shares of our Common Stock. The specific number of shares you will hold following effectiveness of the Reverse Stock Split will depend on the reverse stock split ratio selected by the Board. For example, if the Board decides to effect the Reverse Stock Split at a ratio of 1-for-10, then as a result, each 10 shares of our Common Stock issued and outstanding that you own shall be combined into one share of Common Stock. With respect to holders of our Series B Preferred Stock, if the Reverse Stock Split is effected, the conversion price of the Series B Preferred Stock (i.e., the ratio at which the Series B Preferred Stock converts into shares of our Common Stock) will be proportionately adjusted such that holders will be entitled to receive the number of shares of Common Stock which they would have been entitled to had the Series B Preferred Stock been converted immediately prior to implementing the Reverse Stock Split. As a result, while you will still own the same number of shares of Series B Preferred Stock, such shares will be convertible into a smaller number of shares of our Common Stock. The specific number of shares of Common Stock into which your Series B Preferred Stock will be convertible following effectiveness of the Reverse Stock Split will depend on the reverse stock split ratio selected by the Board. Since the Reverse Stock Split will affect all stockholders uniformly, it will not affect any stockholder’s (common or preferred) percentage ownership of the Company. |
| Q: | WHAT ARE THE TAX CONSEQUENCES TO ME OF THE REVERSE STOCK SPLIT? |
| A: | If effected, we believe that the federal income tax consequences of the Reverse Stock Split to our U.S. stockholders will be as follows: (i) no gain or loss will be recognized by any of our U.S. stockholders; (ii) the aggregate tax basis of the shares after the Reverse Stock Split will equal the aggregate tax basis of the shares exchanged therefor; and (iii) the holding period of the shares after the Reverse Stock Split will include the holding period of the holder’s existing shares. We cannot assure you of the foregoing tax consequences, therefore, we urge stockholders to consult their own tax advisors regarding the tax consequences of the Reverse Stock Split. |
| Q: | WHAT HAPPENS IF STOCKHOLDERS APPROVE THE AMENDMENT/REVERSE STOCK SPLIT BUT NOT THE REINCORPORATION MERGER? |
| A: | As a Utah corporation, we are governed by our Articles of Incorporation. If our stockholders approve the grant of discretionary authority to implement the Amendment and effect the Reverse Stock Split but do not approve the Reincorporation Merger, should the Board decide to implement the Reverse Stock Split, we will amend our Articles of Incorporation as set forth in Appendix F. In any event, the Amendment will not be implemented and the Reverse Stock Split will not occur unless the Board of Directors determines that it is in the best interests of this company and its stockholders to implement the Reverse Stock Split. |
MEDICAL DISCOVERIES, INC.| Q: | ARE DISSENTERS’ RIGHTS AVAILABLE IN CONNECTION WITH THE REVERSE STOCK SPLIT? |
6033 W. Century Blvd, Suite 1090,
Los Angeles, California 90045
PROXY STATEMENT
Special Meeting Of Shareholders To Be Held On January 29, 2008
This proxy statement is being furnished to the shareholders of Medical Discoveries, Inc.| A: | No. Dissenters’ rights are not available under Utah law or Delaware law in connection with the solicitation of proxies by our Board of Directors for use at the special meeting of the shareholders to be held on Tuesday, January 29, 2008, and at any adjournments or postponements thereof.Reverse Stock Split. |
This Proxy Statement and the accompanying proxy card are first being mailed to our shareholders on or about January __, 2008.
The purpose of the special meeting is to consider and vote upon the following:
| · | to approve that certain sale and purchase agreement, as amended, among Medical Discoveries, Inc., MDI Oncology, Inc. (“MDI Oncology”), our wholly-owned subsidiary, and Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company (“Eucodis”), pursuant to which we will sell certain of our assets to Eucodis;
| Q: | SHOULD I SEND IN MY STOCK CERTIFICATES IN CONNECTION WITH THE REVERSE STOCK SPLIT? |
| · | to approve the amendment to our Articles of Incorporation to increase the authorized number of shares of our common stock from 250,000,000 to 500,000,000 shares;| A: | No. Do not send us your stock certificates. If effected, following the Reverse Stock Split, each stock certificate representing issued and outstanding shares of our Common Stock will represent a fewer number of shares, as adjusted appropriately based on the Reverse Stock Split ratio selected by our Board. Stock certificates representing issued and outstanding shares of Series B Preferred Stock will continue to evidence the same number of shares, however, such shares of Series B Preferred Stock will be convertible into smaller shares of our Common Stock, as adjusted appropriately based on the Reverse Stock Split ratio selected by our Board. |
| · | to approve an amendment to our Articles of Incorporation to change our company’s name to “Global Clean Energy Holdings, Inc.” |
Record Date; Shares Entitled To Vote; Vote Required To Approve The Transaction| Q: | WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING, AND WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS? |
| A: | The Board of Directors has fixed the close of business on December 28, 2007,May 21, 2010, the Record Date, as the date for the determination of shareholdersstockholders entitled to notice of, and to vote at, the special meeting.2010 Annual Meeting. On the record date, 197,676,560Record Date, 270,464,478 shares of our common stock were outstanding, each entitled to one vote per share. In addition, the issuedCommon Stock, and outstanding13,000 shares of our Series B Convertible Preferred Stock, which arewere issued and outstanding. Each outstanding share of Common Stock is entitled to one vote on each proposal submitted to vote at the 2010 Annual Meeting. Holders of shares of the Series B Preferred Stock will be entitled to vote together909.09 shares of Common Stock with our common stockrespect to each share they hold, which equals the number of shares areof Common Stock into which each share of Series B Preferred Stock would have been convertible if such conversion had taken place on the Record Date. As of the Record Date, the Series B Preferred Stock was convertible into, and will be entitled to vote, 11,818,181 shares of our common stock, as of the record date. Our outstanding shares of Seriesstock. Stockholders do not have cumulative voting rights. A Convertible Preferred Stock are not entitled to vote. The presence at the special meeting, in person or by proxy, of the holders of a majority of the issued and outstanding shares of our common stock (on as-if converted basis) on the record dateentitled to vote, represented either in person or by proxy, is necessary to constitute a quorum for the transaction of business at the special meeting.2010 Annual Meeting. In the absence of a quorum, the special meeting2010 Annual Meeting may be postponed from time to time until shareholdersstockholders holding the requisite number of shares of our common stock (on as-if converted basis) are represented in person or by proxy. If a quorum is present, then each proposal will be approved if the votes cast (on as-if converted basis) favoring the proposal exceed the votes cast opposing the action, whether such votes are present in person or represented by proxy at the special meeting. Broker non-votes and abstentions will be counted towards a quorum at the special meeting,2010 Annual Meeting, but will not count as votes for or against Proposal I, Proposal II or Proposal III. As to Proposals IV and V, broker non-votes and abstentions will have the same effect as a vote against such proposals. If a quorum is present, the proposals presented in this proxy statement will be approved by the following votes (our Common Stock and Series B Preferred Stock voting together as one class):
|
| · | the proposal to elect four (4) directors to our Board will be approved by the affirmative vote of a plurality of votes cast at the 2010 Annual Meeting; |
| · | the proposal to ratify the appointment of Hansen, Barnett & Maxwell, P.C. as our independent registered public accountant for the fiscal year ending December 31, 2010, will be approved if the votes cast in favor of the proposal exceed those cast against it; |
| · | the proposal to approve the adoption of our 2010 Equity Incentive Plan will be approved if the votes cast in favor of the proposal exceed those cast against it; |
| · | the proposal to approve the Reincorporation Merger will require the affirmative vote of a majority of our outstanding voting shares entitled to vote at the 2010 Annual Meeting; and |
| · | the proposal to adopt the Amendment to our Certificate (Articles) of Incorporation to effect the Reverse Stock Split within the specified range will require the affirmative vote of a majority of our outstanding voting shares entitled to vote at the 2010 Annual Meeting. |
| Q: | DOES OUR BOARD OF DIRECTORS RECOMMEND VOTING “FOR” THE PROPOSALS? |
| A: | Yes. Our Board of Directors unanimously recommends that our stockholders vote “FOR” each of the proposals described in this proxy statement. |
| Q: | WHY DID I RECEIVE A NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS? |
| A: | We are pleased to take advantage of SEC rules that allow companies to furnish their proxy materials over the Internet. As a result, on or about June 2, 2010, we mailed to most of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to gain access to our proxy Statement, our Annual Report, and how to vote online. The Notice also contains instructions on how you returncan elect to receive a printed copy of the attachedproxy statement and Annual Report. We believe this new process will allow us to provide our stockholders with the information they need in a timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our proxy materials. |
| Q: | HOW MAY I VOTE ON THE PROPOSALS IF I OWN SHARES IN MY OWN NAME? |
| A: | If you own shares in your own name, and you received paper copies of these proxy materials, included with such copies is a proxy card with no voting decision indicated,for the 2010 Annual Meeting. If you received the Notice, it contained instructions on how to access and review the proxy materials online, how to obtain a paper or electronic copy of such materials, as well as instructions on how to vote either at the 2010 Annual Meeting, over the Internet or by mail. |
| Q: | HOW MAY I VOTE ON THE PROPOSALS IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, BANK OR OTHER NOMINEE? |
| A: | If your shares are held in “street name” by your broker, bank or other nominee, and you received paper copies of these proxy materials, included with such copies is a voting instruction card from your bank, broker or other nominee for the 2010 Annual Meeting. If you received the Notice, it will contain voting instructions provided by your bank, broker or other nominee. In some circumstances, brokerage firms have authority to vote shares for which their customers do not provide voting instructions on certain “routine” matters. The ratification of an accounting firm is considered a routine matter; however, the election of directors, the Reverse Stock Split and the Reincorporation Merger are not deemed to be “routine” matters. If you do not provide voting instructions to your brokerage firm, depending on the stock exchange of which the broker is a member, it may either: (1) vote your shares on routine matters and not vote on the non-routine matters, or (2) leave all of your shares unvoted. We encourage you to provide instructions to your brokerage firm by signing and returning your proxy. This ensures your shares will be voted FOR the approval of all proposals made at the meeting. Each holderWhen a brokerage firm votes its customers’ unvoted shares on routine matters, these shares are counted for purposes of record of shares of our common stock (on as-if converted basis) is entitledestablishing a quorum to cast, for each share registered in his or her name, one vote on each proposal as well as on each other matter presented to a vote of shareholdersconduct business at the special meeting. |
| Q: | CAN I CHANGE MY MIND AND REVOKE MY PROXY? |
| A: | Yes. If you are a stockholder of record, you may change your vote at any time before the polls close at the meeting. You may do this by (i) delivering to the Company, at or prior to the 2010 Annual Meeting, a written notice revoking the proxy; (ii) delivering to the Company, at or prior to the 2010 Annual Meeting, a duly executed proxy relating to the same shares and bearing a later date; or (iii) voting in person at the 2010 Annual Meeting. Attendance at the 2010 Annual Meeting, in and of itself, will not constitute a revocation of a proxy. If you hold your shares in “street name,” you may submit new voting instructions by contacting your broker, bank or other nominee. |
| Q: | CAN I VOTE MY SHARES IN PERSON? |
| A: | Yes. The 2010 Annual Meeting is open to all holders of our Common Stock and Series B Preferred Stock as of the Record Date. To vote in person, you will need to attend the meeting and bring with you evidence of your stock ownership. If your shares are registered in your name, you will need to bring a copy of stock certificate(s) together with valid picture identification. If your shares are held in the name of your broker, bank or another nominee or you received your proxy materials electronically, you will need to bring evidence of your stock ownership, such as your most recent brokerage account statement, and valid picture identification. |
Q: CAN I SUBMIT PROPOSALS FOR CONSIDERATION AT THE NEXT ANNUAL MEETING? | A: | Yes. In order for your proposal(s) (including nomination of directors to be elected) to be presented and considered at the annual meeting of stockholders (the “Next Annual Meeting”), and included in the Company’s proxy statement for such meeting, applicable SEC rules require, among other things, that stockholders deliver written notice of such proposal to the Company at our principal executive offices not less than 120 calendar days before the date of the Company’s proxy statement released to stockholders in connection with the previous year’s annual meeting (i.e., the 2010 Annual Meeting). Accordingly, we must receive all such written notices no later than February 4, 2011. Stockholders may also nominate persons to be elected as directors of the Company or present other proposals to be considered at the Next Annual Meeting, but not for inclusion in our proxy statement prepared in connection with such meeting. For such proposals to be considered at Next Annual Meeting, our current Bylaws require that your written proposal must be received by our Secretary at our principal executive offices not less than 60 days nor more than 90 days prior to the first anniversary of the 2010 Annual Meeting. Accordingly, under our current Bylaws, we must receive all such written notices no earlier than April 16, 2011, and no later than May 16, 2011. For additional information, please refer to “STOCKHOLDER PROPOSALS” beginning on page 54 of this proxy statement. |
| Q. | HOW MAY I REQUEST A SINGLE SET OF PROXY MATERIALS FOR MY HOUSEHOLD? |
| A: | If you share an address with another stockholder and have received multiple copies of our proxy materials, you may write us to request delivery of a single copy of these materials. Written requests should be made to Global Clean Energy Holdings, Inc., Attention: Corporate Secretary, 6033 W. Century Blvd., Suite 895, Los Angeles, California 90045. |
| Q. | WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS? |
| A: | You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date, and return each proxy card and voting instruction card that you receive. |
Solicitation, Voting and Revocation Of Proxies| Q. | WHAT HAPPENS IF ADDITIONAL MATTERS ARE PRESENTED AT THE ANNUAL MEETING? |
This solicitation| A: | Other than the proposals described in this proxy statement, we are not aware of proxies is being made by ourany other business to be acted upon at the 2010 Annual Meeting. If you grant a proxy, the persons named as proxy holders will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. |
| Q. | IS MY VOTE CONFIDENTIAL? |
| A: | Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within the Company or to third parties, except: (1) as necessary to meet applicable legal requirements, (2) to allow for the tabulation of votes and certification of the vote, and (3) to facilitate a successful proxy solicitation. Occasionally, stockholders provide on their proxy card written comments, which are then forwarded to Company management. |
| Q. | WHO IS PAYING FOR THIS PROXY SOLICITATION? |
| A: | Our Board of Directors is making this solicitation, and our companywe will pay the entire cost of preparing assembling, printing, mailing and distributing these proxy materials. In addition to the mailingdistribution of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communications by our directors, officers and employees, of our company, who will not receive any additional compensation for such solicitation activities. We will also will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwardingdistributing proxy and solicitation materials to shareholders.Shares of our common stock represented by a proxy properly signed and received at or prior to the special meeting, unless properly revoked, will be voted in accordance with the instructions on the proxy. If a proxy is signed and returned without any voting instructions, shares of our common stock represented by the proxy will be voted “FOR” each proposal and, in accordance with the determination of the majority of our Board of Directors, as to any other matter which may properly come before the special meeting, including any adjournment or postponement thereof. A shareholder may revoke any proxy given pursuant to this solicitation by: (i) delivering to our corporate secretary, prior to or at the special meeting, a written notice revoking the proxy; (ii) delivering to our corporate secretary, at or prior to the special meeting, a duly executed proxy relating to the same shares and bearing a later date; or (iii) voting in person at the special meeting. Attendance at the special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communications with respect to the revocation of a proxy should be addressed to:
Medical Discoveries, Inc.
6033 W. Century Blvd, Suite 1090
Los Angeles, California, 90045
Our Board of Directors is not aware of any business to be acted upon at the special meeting other than consideration of the proposals described herein.
Summary Term Sheet – Transaction With Eucodis-Proposal I
This Summary Term Sheet summarizes certain material information regarding the proposed sale of assets to Eucodis under the Eucodis Agreement. You should carefully read this entire proxy statement for a more complete understanding of the transaction with Eucodis.stockholders.
|
· | Assets Sold (page22) | The assets being sold to Eucodis include (i) all of our right, title and interest in a certain Asset Purchase Agreement between Medical Discoveries, Inc. and the liquidator of Savetherapeutics AG, a German company in liquidation, dated as of March 11, 2005, relating to certain rights in “SaveCream”; (ii) all of our right, title and interest in that certain agreement between MDI Oncology and Eucodis, dated as of July 29, 2006, in connection with the co-development and licensing of SaveCream; and (iii) all of our right, title and interest under certain contracts relating to SaveCream.PROPOSAL I – ELECTION OF DIRECTORSPursuant to our Bylaws, our Board has fixed the number of our directors at four, and there are currently four individuals serving on our Board. The Board proposes that the following four nominees, all of whom currently serve on the Board, be elected as directors to serve for a term ending on the date of the next annual meeting of stockholders following the date such persons are initially elected as directors, and until their successors are duly elected and qualified. Each of the nominees has consented to serve if elected. If any nominee becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board. There is no family relationship between any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer. We have determined that each of Messrs. Bernstein, Walker and Wenzel are non-employee directors and “independent” as defined under The Nasdaq Stock Market’s listing standards (see “Director Independence” below). The affirmative vote of a plurality of the shares cast at the 2010 Annual Meeting is required to elect each director. The following is information concerning the nominees for election as directors: Director Nominees Set forth below is information regarding the nominees, including information furnished by them as to their principal occupations for the last five years, and their ages as of May 1, 2010. | Name | | Age | | Position | | | | | · | Purchase Price (page 23) | The purchase price paid by Eucodis is approximately 4,007,534 euros or approximately $5,906,000 based on the currency exchange rate in effect as of November 30, 2007, comprising a cash payment of approximately $2,267,000, and Eucodis’ assumption of certain of our obligations and liabilities aggregating approximately $3,639,000. The financial terms of the Eucodis Agreement are denominated in euros, and we will be paid in euros. However, for convenience, the financial terms have been converted throughout the text of this proxy statement into U.S. dollars. The currency exchange rate in effect as of the closing of the Eucodis transaction or at any future date may differ, which may result is us receiving a different amount of U.S. dollars for the SaveCream assets. | | | | |
3
| David R. Walker | | 65 | | Chairman of the Board | | Richard Palmer | | 49 | | President, Chief Executive Officer and Director | | Mark A. Bernstein, Ph.D. | | 56 | | Director | | Martin Wenzel | | 52 | | Director | |
David R. Walker David R. Walker joined the Board of Directors on May 2, 1996, and was appointed Chairman of the Board of Directors on May 10, 1998. He has served as Chairman of the Audit Committee since its establishment in 2001. For over 20 years, Mr. Walker has been the General Manager of Sunheaven Farms, the largest onion growing and packing entity in the State of Washington. In the capacity of General Manager, Mr. Walker performs the functions of a traditional chief financial officer. Mr. Walker holds a Bachelor of Arts degree in economics from Brigham Young University with minors in accounting and finance. The Board believes that Mr. Walker’s experience regarding the operation and management of large-scale agricultural farms and his experience as a financial officer are valuable resources to our Board in formulating business strategy, addressing business opportunities and resolving operational issues that arise from time to time. Richard Palmer Richard Palmer was appointed as our President and Chief Operating Officer in September 2007, and been a member of the Board of Directors since September 2007. Mr. Palmer became our Chief Executive Officer on December 21, 2007. Mr. Palmer has over 25 years of hands-on experience in the energy field, holding senior level management positions with a number of large engineering, development, operations and construction companies. He is a co-founder of Mobius Risk Group, LLC, an energy risk advisory services consulting company, and was a principal and Executive Vice President of that consulting company from January, 2002 until September 2007. From 1997 to 2002, Mr. Palmer was a Senior Director at Enron Energy Services. Prior thereto, from 1995 to 1996 Mr. Palmer was a Vice President of Bentley Engineering, and a Senior Vice President of Southland Industries from 1993 to 1996. Mr. Palmer received his designation as a Certified Energy Manager in 1999, holds two Business Management Certificates from University of Southern California’s Business School, and is an active member of both the American Society of Plant Biologists and the International Tropical Farmers Association. Over the last 25 years, Mr. Palmer has held senior level management positions with a number of large engineering, development, operations and construction companies, and he has garnered a wealth of experience in the energy field. Mr. Palmer is the only member of management who serves as a director of the Company. Mark A. Bernstein Mark A. Bernstein, Ph.D., joined our Board of Directors on June 30, 2008. Dr. Bernstein is current a teaching professor at The University of Southern California (USC) where he also serves as the Managing Director of USC’s Energy Institute. Dr. Bernstein is an internationally recognized expert on energy policy and alternative energy technologies. Dr. Bernstein was awarded a Ph.D. in Energy Management and Policy from the University of Pennsylvania, holds a Masters degree in Mathematics from Ohio State University, and a B.A. from State University of New York at Albany. Mr. Bernstein’s expertise in energy policy and alternative energy technologies led to the conclusion that he should be nominated serve as a director of the Company. Martin Wenzel Martin Wenzel joined our Board of Directors in April 2010, and serves on the Board’s audit committee. Mr. Wenzel is currently the President and Chief Executive Officer of Colorado Energy, the operating entity of Bicent Power, LLC, which is a privately owned limited liability company that owns and operates power generating stations in Colorado, Montana and California. From 2005 until August 2007, he served as the Senior Vice President (Sales and Marketing) of Miasole Inc. Prior thereto, from 2001 to 2004, Mr. Wenzel was President and Chief Executive Officer of Alpha Energy LLC. He is also a member of the Board of the Deming Center of Entrepreneurship at the University of Colorado. Mr. Wenzel holds an Executive MBA from Columbia Business School; a Masters degree in Systems Management from the University of Southern California; and a Bachelors degree in Engineering and Management from the US Naval Academy. · | Obligations Assumed and Discharged Indebtedness (page 23) | Eucodis has agreed to assume an aggregate of approximately $3,639,000 of our current indebtedness that we owe to certain of our creditors. Eucodis will also assume all of our financial and other obligations under certain contracts relating to SaveCream, and certain other costs we have incurred since February 28, 2007 in connection with preserving the sold assets for the benefit of Eucodis through the closing of the transaction. | | | | · | Non-Competition (page 24) | We have agreed to a non-compete provision for the duration of five years after the closing of the Eucodis transaction. Specifically, the non-compete provision restricts us from undertaking research and development activities with respect to “SaveCream.” | | | | · | Representation and Warranties (page 24) | The Eucodis Agreement contains customary representations, warranties and covenants, which survive through the closing of the transaction. | | | | · | Closing Conditions (page 25) | The closing of the transaction depends on meeting a number of conditions, including the following: our delivery to Eucodis of certain documents necessary to effect the transfer of the assets being sold, and us obtaining additional capital or a credit facility in the aggregate amount of at least $250,000 (this latter condition has already been met). | | | | · | Our Board’s Recommendation (page 26) | Our board of directors has unanimously determined that the transaction with Eucodis is advisable, fair to, and in the best interests of our shareholders. |
Mr. Wenzel has an extensive background in the energy industry, including over 25 years of developing, constructing and operating energy projects, marketing energy commodities and operating energy assets in the U.S. and internationally. The Board concluded that Mr. Wenzel’s expertise in energy policy and alternative energy technologies is a valuable asset for the Board of Directors of the Company.Director Independence Our common stock is traded on the OTC Bulletin Board under the symbol “GCEH.” The OTC Bulletin Board electronic trading platform does not maintain any standards regarding the “independence” of the directors on our Board, and we are not otherwise subject to the requirements of any national securities exchange or an inter-dealer quotation system with respect to the need to have a majority of our directors be independent. In the absence of such requirements, we have elected to use the definition for “director independence” under The Nasdaq Stock Market’s listing standards, which defines an “independent director” as “a person other than an officer or employee of us or its subsidiaries or any other individual having a relationship, which in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.” The definition further provides that, among others, employment of a director by us (or any parent or subsidiary of ours) at any time during the past three years is considered a bar to independence regardless of the determination of our Board. Our Board has determined that each of Messrs. Walker, Bernstein and Wenzel are independent directors as defined in The Nasdaq Stock Market rules relating to director independence. Each of Messrs. Walker, Bernstein and Wenzel are non-employee directors. Board of Director Meetings All members of the Board of Directors hold office until the next annual meeting of stockholders or the election and qualification of their successors. During the fiscal year ended December 31, 2009, the Board of Directors held four meetings at which each director who was in office at that time attended at least 75% of such meetings of the Board of Directors. The Audit Committee met four times during fiscal year ended December 31, 2009, and all Audit Committee members were present at those meetings. Director Attendance at Annual Meetings Although we do not have a formal policy regarding attendance by Board members at the annual meeting of stockholders, directors are strongly encouraged to attend annual meetings of stockholders. All of our current directors (and nominees) are expected to attend the 2010 Annual Meeting. Board Committees Our Board of Directors has an Audit Committee, but does not currently have a Compensation Committee or a Nominating Committee. Audit Committee. Our Audit Committee operates pursuant to a written charter, a copy of which is attached as Appendix H to this proxy statement. Among other things, the Audit Committee is responsible for: | · | reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures; |
QUESTIONS AND ANSWERS ABOUT THIS PROXY STATEMENT MATERIAL | · | hiring our independent registered public accounting firm, and coordinating the oversight and review of the adequacy of our internal control over financial reporting with both management and the independent registered public accounting firm; and |
Q: | WHAT IS THIS PROXY STATEMENT AND WHY AM I RECEIVING IT? | · | reviewing and, if appropriate, approving all transactions between our company or its subsidiaries and any related party. |
A: | You are receiving this proxy statement in connection with a special meeting of shareholders called by our Board of Directors for the purpose of soliciting shareholder votes for the following: (i) to approve the sale of our SaveCream asset to Eucodis; (ii) approve an amendment to the Articles of Incorporation of Medical Discoveries, Inc. to increase our authorized shares of our common stock from 250,000,000 to 500,000,000; and (iii) approve an amendment to the Articles of Incorporation of Medical Discoveries, Inc. to effect a name change to “Global Clean Energy Holdings, Inc.”, each as more fully described in this proxy statement. You have been sent this proxy statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to vote at the special meeting of shareholders called for the purpose of voting on the foregoing matters. |
The assets being sold to Eucodis include (i) all of our right, title and interest, along with all of MDI Oncology’s right, title and interest, in that certain asset purchase agreement between Medical Discoveries, Inc. and the liquidator of Savetherapeutics AG, a German company in liquidation, dated as of March 11, 2005 (the “Savetherapeutics Contract”), including, among other things, our rights in and to “SaveCream”, a developmental topical aromatase inhibitor cream; (ii) all of MDI Oncology’s right, title and interest in that certain agreement between MDI Oncology and Eucodis, dated as of July 29, 2006, in connection with the co-development and licensing of SaveCream product; and (iii) all of our (and MDI Oncology’s) right, title and interest under certain contracts relating to SaveCream ((i),(ii) and (iii) collectively, the “Purchased Assets”). This sale of the SaveCream assets to Eucodis will terminate any further obligation on the part of our company or its subsidiary, MDI Oncology, to spend additional monies to develop SaveCream. The sale may constitute a sale of substantially all of our assets for purposes of Utah law, which governs our corporate matters. Accordingly, the sale is being submitted to our shareholders for approval pursuant to Section 16-10a-1202 of the Utah Revised Business Corporation Act.
In addition, the amendments to our Amended and Restated Articles of Incorporation to increase our authorized common stock and effect a name change are being submitted to our shareholders for approval pursuant to Section 16-10a-1003 of the Utah Revised Business Corporation Act.As of December 31, 2009, David Walker was the only member of the Audit Committee. As of the date of this proxy statement, David Walker and Martin Wenzel constituted all of the members of the Audit Committee. Each of Messrs. Walker and Wenzel is a non-employee director and independent as defined under the Nasdaq Stock Market’s listing standards. Mr. Walker has significant knowledge of financial matters, and our Board has designated Mr. Walker as the “audit committee financial expert” of the Audit Committee.
Q: | HOW MANY VOTES ARE REQUIRED TO APPROVE EACH PROPOSAL? |
Nominating Committee. We do not currently maintain a nominating committee on our Board of Directors. Rather, all of the directors on the Company’s board of directors at any given time participate in identifying qualified director nominees, and recommending such persons to be nominated for election to the Board at each annual meeting of our stockholders. As a result, our Board has not found it necessary to have a separate nominating committee. However, the Board may form a nominating committee for the purpose of nominating future director candidates. A: | Each share of common stock will entitle the holder to cast one vote. Our outstanding shares of Series A Convertible Preferred Stock are not entitled to vote. However, our outstanding shares of Series B Convertible Preferred Stock are entitled to vote, together with the holders of our common stock as one class, on all matters presented to the our shareholders, including the foregoing proposals. Each outstanding share of our Series B Convertible Preferred Stock entitles the holder thereof to that number of votes equal to the number of shares of our common stock into which each such share of Series B Convertible Preferred Stock would have been convertible as of December 28, 2007, the record date set for determining shareholders entitled to vote at the special meeting. |
Assuming the presence of a quorum, the affirmative vote of the majority of votes cast in person or by proxy on the matter (excluding broker non-votes), with the common stock and the Series B Convertible Preferred Stock voting together as a single group, will be required for approval. Abstentions will be considered for purposes of calculating the vote, but will not be considered to have been voted in favor of such matter. As of December 28, 2007, the record date, we had 197,676,560 shares of common stock outstanding, and 13,000 shares of Series B Convertible Preferred Stock outstanding (which shares of preferred stock have the right to cast up to 11,818,181 votes).Usually, nominees for election to the Board are proposed by our existing directors. In identifying and evaluating individuals qualified to become Board members, our current directors will consider such factors as they deem appropriate to assist in developing a board of directors and committees thereof that are diverse in nature and comprised of experienced and seasoned advisors. Our Board of Directors has not adopted a formal policy with regard to the consideration of diversity when evaluating candidates for election to the Board. However, our Board believes that membership should reflect diversity in its broadest sense, but should not be chosen nor excluded based on race, color, gender, national origin or sexual orientation. In this context, the Board does consider a candidate’s experience, education, industry knowledge and, history with the Company, and differences of viewpoint when evaluating his or her qualifications for election the Board. In evaluating such candidates, the Board seeks to achieve a balance of knowledge, experience and capability in its composition. In connection with this evaluation, the Board determines whether to interview the prospective nominee, and if warranted, one or more directors interview prospective nominees in person or by telephone.
Q: | WHAT WILL HAPPEN IF THE SHAREHOLDERS APPROVE THE PROPOSALS? |
Our full Board also reviews the qualifications of director nominations submitted by stockholders of the Company, subject to the stockholders having followed procedures established under the Company’s bylaws (See the discussion under “STOCKHOLDER PROPOSALS” beginning on page 54 of this proxy statement). All potential director candidates, regardless of source, are reviewed under the same process. A: | If the shareholders approve the transaction with Eucodis, then shortly following the special meeting, subject to the satisfaction of certain conditions set out in the Eucodis Agreement, we (and MDI Oncology) will sell to Eucodis the Purchased Assets in exchange for an aggregate of €4,007,534 (approximately $5,906,000 based on the currency exchange rate in effect as of November 30, 2007), a portion of which comprised (a) a cash payment of €1,538,462 (approximately $2,267,000 based on the currency exchange rate in effect as of November 30, 2007), which is due and payable to us at the closing, less $200,000 already received from Eucodis in March 2007, and (b) Eucodis’ assumption of an aggregate of €2,469,072 (approximately $3,639,000 based on the currency conversion rate in effect as of November 30, 2007), constituting specific indebtedness currently owed to certain of our creditors, as more fully discussed under “Proposal I - Terms of Sale and Purchase Agreement – Assumption of Liabilities”.
|
The approximately $2,067,000 in cash proceeds received from the Eucodis sale will be used for general business purposes and to repay certain outstanding indebtedness. We do not anticipate that any distributions will be made to our shareholders in the near future, if at all.
In addition, if the shareholders approve the amendments to our Articles of Incorporation in connection with the proposed increase in authorized common stock and name change, then subsequent to the special meeting, we will file the Articles of Amendment to our Articles of Incorporation with the Office of the Secretary of State of Utah to increase our authorized number of shares of common stock, to change our company’s name.
5Compensation Committee. We do not currently maintain a compensation committee on our Board of Directors. All of our existing directors participate in determining the compensation of our executive officers and non-employee directors. As a result, the Board has not found it necessary to have a separate compensation committee.
In determining the compensation of any executive officer or non-employee director, the full Board (excluding the executive officer or non-employee director whose compensation is being determined) will consider such factors as they deem appropriate in developing competitive compensation standards aimed at attracting and retaining qualified management personnel and directors. Some of these factors may include, but are not limited to, the level of compensation paid to senior executives and directors at businesses and other organizations of comparable size and industry, and the specific experience and expertise of any particular executive officer or non-employee director relative to the experience and expertise of other executive officers and non-employee directors. Our Board meets at least once a year to review and consider the current compensation of our executive officers and non-employee directors, and if appropriate, adjust the current levels of such compensation. Q: | WHY IS THE BOARD OF DIRECTORS PROPOSING THE SALE OF SAVECREAM?Legal ProceedingsWe are not aware of any material proceedings to which any of our current directors and nominees, or any of their respective associates, is a party adverse to the Company or any of its subsidiaries, or has a material interest adverse to the Company. Certain Relationships And Related Transactions In September 2007 we entered into a loan and security agreement with Mercator Momentum Fund III, L.P., pursuant to which Mercator agreed to make available to us a secured term credit facility in the aggregate principal amount of up to $1,000,000. As of December 31, 2009, the outstanding principal balance of the Loan was $475,000, and the Loan was secured by a first priority lien on all of our assets. In March 2010, we repaid the outstanding balance of the Loan. Mercator was an affiliate of Monarch Pointe Fund, Ltd., a major stockholder of the Company until April 2010. Communications with the Board of Directors Stockholders may communicate directly with the Board by writing to them at Board of Directors, c/o Secretary, Global Clean Energy Holdings, Inc., 6033 W. Century Blvd., Suite 895, Los Angeles, California 90045. Such communications will be forwarded to the director or directors to whom it is addressed, except for communications that are (1) advertisements or promotional communications, (2) solely related to complaints with respect to ordinary course of business customer service and satisfaction issues, or (3) clearly unrelated to the Company’s business, industry, management or Board or committee matters. Code of Ethics Our Board of Directors has adopted a code of ethics that applies to our principal executive officers, principal financial officer or controller, or persons performing similar functions (“Code of Ethics”). A copy of our Code of Ethics will be furnished without charge to any person upon written request. Requests should be sent to: Secretary, Global Clean Energy Holdings, Inc. 6033 W. Century Blvd., Suite 895 Los Angeles, California 90045. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on information provided to us by our officers and our review of copies of reporting forms received by us, we believe that during fiscal year ended December 31, 2009, our current officers and directors complied with the filing requirements under Section 16(a). Board Leadership Structure and Role in Risk Oversight Our Board does not have a formal policy on whether the positions of Chairman of the Board and Chief Executive Officer are to be held by the same person. However, our Board believes it is important to select the Company’s Chairman and Chief Executive Officer in the manner it considers in the best interests of the Company at any given time. Accordingly, the Chairman and Chief Executive Officer positions may be filled by one individual or by two different individuals, as determined by our Board based on circumstances then in existence. Currently, two individuals occupy these positions: David Walker serves as the Chairman of the Board, and Richard Palmer serves as the Company’s Chief Executive Officer.
Our Board believes that the separation of the offices of Chairman of the Board and Chief Executive Officer at this time enhances Board independence and oversight. Moreover, since we are a relatively new participant in the energy agri-business, the current bifurcation of these positions enables our Chief Executive Officer to better focus on more managerial responsibilities such as improving our Jatropha operations, enhancing stockholder value and expanding and strengthening the Company’s brand in the energy agri-business industry, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. We believe that this leadership structure has been effective for the Company. Management is responsible for the day-to-day management of risks the Company faces, while the Board as a whole plays an important role in overseeing the identification, assessment and mitigation of such risks. For example, the oversight of financial risk management lies primarily with the Board’s audit committee, which is empowered to appoint and oversee our independent auditors, monitor the integrity of our financial reporting processes and systems of internal controls and provide an avenue of communication among our independent auditors, management and our board of directors. In fulfilling its risk oversight responsibility, the Board, as a whole and acting through any established committees, regularly consults with management to evaluate and, when appropriate, modify our risk management strategies. Director Compensation On April 22, 2009, our Board of Directors adopted a compensation policy for non-employee directors (“Compensation Policy”), which new policy became effective as of July 1, 2009. Pursuant to the Compensation Policy, non-employee directors will be entitled to receive the following benefits, among others, in consideration for their services as directors of the Company: | · | Monthly cash payments of $2,000; |
| · | Annual grants of non-qualified stock options to purchase up to 500,000 shares of the Company’s common stock; |
| · | Participation in the Company’s stock option plans; and |
| · | Reimbursement of certain expenses incurred in connection with attendance of meetings of the Board and Board Committee. |
A: | To date, we have been a developmental-stage bio-pharmaceutical company engaged in the research, validation, development and ultimate commercialization of two drug candidates referred to as MDI-P and SaveCream. Both of these drug candidates are still in development and neither has been approved by the U.S. Food and Drug Administration (the “FDA”). The total cost to develop these two drugs and to receive the approval from the FDA would cost many millions of dollars and take many more years. Our Board of Directors has determined that we can no longer fund the development of the two drug candidates, and cannot obtain additional funding for these drug candidates. Accordingly, our Board has decided to stop our bio-pharmaceutical operations, and to enter the renewable feedstock-biofuels business. Since we will no longer be developing our SaveCream assets, we have sought to maximize our return from these drug assets through their sale at this time, and to use the proceeds that we receive from the disposition of these assets to pay off all of our creditors and to invest any residual proceeds into our new renewable feedstock-biofuels business.The following table sets forth information concerning the compensation paid to each of our non-employee directors during fiscal 2009 for their services rendered as directors (Mr. Wenzel, one of our current directors, was appointed to the Board in 2010 and, therefore, is not included in the following table). The compensation of Richard Palmer, who serves as a director and as our President and Chief Executive Officer, is described below in “Executive Compensation - Summary Compensation Table.”
DIRECTOR COMPENSATION FOR FISCAL YEAR 2009 | Name | | Fees Earned or Paid in Cash | | | Stock Awards | | | Option Awards(1)(2) | | | Non-Equity Incentive Plan Compensation | | | Nonqualified Deferred Compensation Earnings | | | All Other Compensation | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | David R. Walker | | $ | 12,000 | | | | | | | $ | 9,100 | | | | | | | | | | | | | | | $ | 21,100 | | | Richard Palmer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Mark A. Bernstein, Ph.D. | | $ | 12,000 | | | | | | | $ | 9,100 | | | | | | | | | | | | | | | $ | 21,100 | | | Total | | $ | 24,000 | | | | | | | $ | 18,200 | | | | | | | | | | | | | | | $ | 42,200 | |
| (1) | This column represents the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions with respect to the option grants, refer to Note J of our financial statements in the Annual Report. These amounts do not correspond to the actual value that will be recognized by the named directors from these awards. |
| (2) | On July 2, 2009 we granted a five-year non-qualified option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.02 per share to each of our non-employee directors, vesting, in ten monthly installments, for their services as directors for the one-year period commencing August 31, 2009. |
Q: | IS THE BOARD OF DIRECTORS ASKING US TO APPROVE THE NEW BIOFUELS BUSINESS?Vote Required and Recommendation of Board of DirectorsOur Bylaws provide that directors are elected by a plurality of the votes cast by shares entitled to vote at such election of directors. In addition, applicable Securities and Exchange Commission voting requirements hold that stockholders have two voting choices for the election of directors: “FOR” or “WITHHOLD.” You may choose to vote “FOR” or “WITHHOLD” with respect to all of the nominees or any specific nominee(s). Stockholders entitled to vote at the 2010 Annual Meeting have the right to cast, in person or proxy, all of the votes to which the stockholder’s shares are entitled for each of the nominees. Under the plurality standard, the only votes that count when director votes are being tabulated are “FOR” votes. “WITHHOLD “ votes have no effect. Unless otherwise instructed on your signed proxy, your shares will be voted “FOR” the election of the nominees presented in this proxy statement. If you do not vote for a particular nominee, or if your broker does not vote your shares of common stock held in “street name,” or if you withhold authority for one or all nominees, your vote will not count either “FOR” or “AGAINST” the nominee, although it will be counted for purposes of determining whether there is a quorum present at the meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES LISTED ABOVE. Audit Committee Report The following is the report of our Audit Committee with respect to our audited financial statements for the fiscal year ended December 31, 2009. This report shall not be deemed soliciting material or to be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act or to the liabilities of Section 18 of the Securities Exchange Act, nor shall any information in this report be incorporated by reference into any past or future filing under the Securities Act or the Securities Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Securities Exchange Act. In performing its oversight responsibilities as defined in its charter, the Audit Committee has reviewed and discussed the audited financial statements and reporting process, including the system of internal controls, with management and with Hansen, Barnett & Maxwell, P.C. (“HBM PC”), the Company’s independent registered public accounting firm for the year ended December 31, 2009. The committee has also discussed with HBM PC the matters required to be discussed by the statement on Auditing Standards No. 61, as amended, (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the committee has received from HBM PC the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding HBM PC’s communications with the committee concerning independence and has discussed with HBM PC their independence. The committee has also considered the compatibility of audit-related services, tax services and other non-audit services with the firm’s independence. Based on these reviews and discussions, the committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2009 for filing with the SEC. Audit Committee
David Walker
Management Set forth below is information regarding our senior executive officers, including information furnished by them as to their principal occupations for the last five years, and their ages as of December 31, 2009, the end of the Company’s last fiscal year. | Name | | Age | | Position | | | | | | | Richard Palmer | | 49 | | President and Chief Executive Officer | | Bruce Nelson | | 55 | | Chief Financial Officer |
A: | No. The Board of Directors has decided that it is not in the best interests of this company, its shareholders, or its creditors to continue to attempt to develop and commercialize our bio-pharmaceutical assets and has, therefore, stopped those operations. The Board has decided to enter into the biofuels business, but the Board is not required to obtain shareholder approval for its activities in this new line of business. |
Richard Palmer Q: | WHY IS THE BOARD OF DIRECTORS PROPOSING THE INCREASE IN AUTHORIZED COMMON STOCK? |
Richard Palmer was appointed as our President and Chief Operating Officer in September 2007, and been a member of the Board of Directors since September 2007. Mr. Palmer became our Chief Executive Officer on December 21, 2007. See the discussion above under “Director Nominees – Richard Palmer” for Mr. Palmer’s principal occupations for the last five years. A: | In addition to ensuring that we have a sufficient number of shares of common stock available in connection with the exercise of currently outstanding options, warrants and other convertible securities, the additional authorized common stock may be used for future acquisitions and equity funding. |
Bruce Nelson Q: | WHY IS THE BOARD OF DIRECTORS PROPOSING THE NAME CHANGE? |
Bruce Nelson was appointed as our Chief Financial Officer in March 2008. Prior to commencing his relationship with the Company, Mr. Nelson served as Chief Financial Officer of US Modular, a private technology company located in Irvine, California. From April 2002 through February 2007, Mr. Nelson served as Chief Financial Officer of netGuru, Inc., a NASDAQ-listed global engineering software and IT service company. Prior to netGuru, Mr. Nelson founded and operated Millennium Information Technologies from 1997 to 2002. From 1992 to 1997 he served as President and CFO of Comprehensive Weight Management, a national healthcare service provider. From 1985 to 1991 he served as Treasurer of Comprehensive Care Corporation, a NYSE listed national healthcare provider. Mr. Nelson served as a U.S. Naval Officer after graduating from the University of Southern California, majoring in finance. He holds a MBA degree from Bryant University in Smithfield, R.I. He has also served on the board of directors of two commercial banks, a NASDAQ-listed technology company, and a privately held specialty hospital. A: | We have discontinued our prior operations in the bio-pharmaceutical industry and have initiated operations in the biofuels-feedstock market. We are proposing a name change to reflect our new business as a biofuels energy company. |
Summary Compensation Table Q: | WILL WE CONTINUE TO OPERATE AFTER THE EUCODIS TRANSACTION IS CLOSED? |
The following table set forth certain information concerning the annual and long-term compensation for services rendered to us in all capacities for the fiscal years ended December 31, 2009 and 2008 of all persons who served as our principal executive officer and principal financial officer during the fiscal year ended December 31, 2009. No other executive officers earned annual compensation during the fiscal year ended December 31, 2009 that exceeded $100,000. The principal executive officer and the other named officers are collectively referred to as the “Named Executive Officers.” A: | In connection with the sale to Eucodis, we have agreed that after the sale neither we nor MDI Oncology will undertake research and development activities with respect to SaveCream or any other product which could be used in reasonable substitution of SaveCream, or commercialize any products based on SaveCream, except as may be otherwise expressly requested by Eucodis. We also intend to dissolve our MDI Oncology subsidiary after the sale to Eucodis. |
Since signing the Eucodis Agreement, we have actively sought to develop a new business to maximize shareholder value. Our future business plan, and our current principal business activities, includes the planting, cultivation, harvesting and processing of inedible feedstock (such as Jatropha curcas) to generate feedstock seed oils and biomass for use in the biofuels industry, including the production of bio-diesel. See “Business – The Jatropha Business” for additional details regarding our new feedstock-biofuels business.
Name and Principal Position | | Fiscal Year Ended 12/31 | | Salary Paid or Accrued ($) | | | Bonus Paid or Accrued ($) | | | Stock Awards ($) | | | Option Awards ($)(4) | | | All Other Compensation ($) | | | Total ($) | | | Richard Palmer | | 2009 | | | 250,000 | | | | 0 | | | | 0 | (1) | | | 0 | | | | 23,400 | | | | 273,400 | | | | | 2008 | | | 250,000 | | | | — | | | | — | | | | — | | | | 23,400 | | | | 273,400 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bruce Nelson(1) | | 2009 | | | 175,000 | | | | 0 | | | | 0 | (3) | | | 0 | | | | 10,000 | | | | 185,000 | | | | | 2008 | | | 145,833 | (2) | | | — | | | | — | | | | 189,000 | | | | 10,000 | | | | 344,833 | |
Q: | HAS THE COMPANY RECEIVED A VALUATION OR FAIRNESS OPINION WITH RESPECT TO THE SALE OF ASSETS? |
A: | No. Based on all factors, including the price paid for the SaveCream assets, the uncertainty as to title of those assets, and the book value of those assets, our Board of Directors determined that the purchase price being paid by Eucodis was fair to this company. |
Q: | WHAT HAPPENS IF THE SHAREHOLDERS DO NOT APPROVE THE EUCODIS TRANSACTION. |
A: | If the sale of the SaveCream assets is not approved by the shareholders, the sale will be cancelled, and we will continue to own the SaveCream assets. However, since our Board has determined that it is not in the best interests of this company or our shareholders to continue to operate as a drug development company, and since we will no longer invest any funds in the development of SaveCream, we will not continue our efforts to develop that drug candidate. In fact, under the Eucodis Agreement, if the shareholders do not approve the sale of SaveCream to Eucodis, we are obligated to attempt to transfer to Eucodis, by means of a license, or otherwise, certain of our rights to SaveCream. |
Q: | WHEN IS THE EUCODIS TRANSACTION EXPECTED TO BE COMPLETED? |
A: | The transaction will close when certain conditions set forth in the sale and purchase agreement are satisfied or waived, or at such other time as is agreed by the parties. We expect the transaction to close on or about January 31, 2008. |
Q: | DOES OUR BOARD OF DIRECTORS RECOMMEND VOTING FOR THE EUCODIS TRANSACTION AND OTHER PROPOSALS? |
A: | Yes. After careful consideration of our financial position, the value of the SaveCream assets, the amount of time and funds needed to further develop the SaveCream drug candidate, and other factors, our Board of Directors has unanimously approved the sale of the SaveCream assets to Eucodis and determined that it is in the best interests of us and our shareholders. Our Board of Directors unanimously recommends that our shareholders vote “FOR” approval of the sale. |
Our Board of Directors also recommends that our shareholders vote “FOR” approval of amendments to our Amended and Restated Articles of Incorporation to increase our authorized common stock and to change our corporate name.
A: | Send in your proxy card. After reviewing this document and its appendices, indicate on your proxy card how you want to vote, and sign, date, and mail it in the enclosed envelope as soon as possible to ensure that your shares will be represented at the special meeting. If you sign, date, and send in your proxy and do not indicate how you want to vote, your proxy will be voted in favor of each proposal. |
Q: | IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, BANK OR OTHER NOMINEE, WILL IT VOTE MY SHARES FOR ME? |
A: | No, your broker will not vote your shares if you do not return your proxy card or broker voting instructions. Your broker, bank or other nominee holder will vote your shares only if you provide it with instructions on how to vote. You should instruct your broker, bank or other nominee how to vote your shares by following the directions it provides. If you sign and send in your proxy card or broker voting instruction card with no further instructions, your shares will be voted in accordance with the recommendations of our board of directors (FOR each of the proposals). |
Q: | CAN I CHANGE MY MIND AND REVOKE MY PROXY? |
A: | Yes. You may revoke your proxy up to the time of the special meeting by taking any of the actions explained under “The Special Meeting--Solicitation, Voting and Revocation of Proxies” on page 3 of this proxy statement, including by giving a written notice of revocation, by signing and delivering a new later-dated proxy, or by attending the special meeting and voting in person. |
Q: | CAN I VOTE MY SHARES IN PERSON? |
A: | Yes. Even after you have submitted your proxy, you may change the votes you cast or revoke your proxy at any time before the votes are cast at the meeting by (1) delivering a written notice of your revocation to our corporate secretary at our principal executive office, (2) executing and delivering a later dated proxy, or (3) appearing in person at the meeting, filing a written notice of revocation with our corporate secretary and voting in person the shares to which the proxy relates. |
Q: | DO I HAVE DISSENTERS’ RIGHTS IN CONNECTION WITH THE SALE? |
A: | No. Under Utah law, “dissenters’ rights” are not available in connection with the sale of assets by companies that have more than 2,000 shareholders, or otherwise in connection with an increase in the authorized number of shares, or a change in the name of the company. Based on information provided to us by our transfer agent, we have approximately 2,950 shareholders. |
Q. | WHO IS PAYING FOR THIS PROXY SOLICITATION? |
A: | Our Board of Directors is making this solicitation, and we will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communications by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to shareholders. |
PROPOSAL I - APPROVAL OF THE ASSET SALE TRANSACTION
Background And Reasons For The Transaction
During the past few years, we have been a developmental-stage bio-pharmaceutical company engaged in the research, validation, development and ultimate commercialization of two drug candidates we referred to as “MDI-P” and “SaveCream.” MDI-P is a drug candidate being developed as an anti-infective treatment for bacterial infections, viral infections and fungal infections. SaveCream is a drug candidate being developed to reduce breast cancer tumors. Both of these drug candidates are still in development and neither has been approved by the U.S. Food and Drug Administration (the “FDA”). The total cost to develop these two drugs, and to receive the approval from the FDA, would cost many millions of dollars and take many more years. To date, we attempted to fund our development costs through the sale of our equity securities and debt instruments, including the sale of our Series A Convertible Preferred Stock.
At the end of 2006, we had virtually no cash, had no source of revenues, had a working capital deficit of approximately $5,600,000, and had a shareholders deficit of approximately $5,500,000. In addition, holders of our Series A Convertible Preferred Stock informed us that they were no longer willing to fund our then current operations and biotechnology business strategy. In December 2006, three of our five directors resigned.
Because of our lack of capital, we were unable to fund our on-going operations, including any further drug development activities, and were not able to pay our professionals to audit our company’s year-end financial statements and to prepare the public company period reports we are required to file with the Securities and Exchange Commission. As a result, we became delinquent in our Securities and Exchange Commission filings and, in July 2007, or company was de-listed from the OTC Bulletin Board.
In February 2007, we engaged a consulting firm to assist it in resolving our financial issues, to obtain advice regarding any strategic alternatives that may be available to us, and to prevent us from losing all of our assets in bankruptcy. During the past several months, we have explored a number of transactions that would (i) prevent our shareholders from losing their entire investment in our company, and (ii) enable our company to repay some of its currently outstanding debts and liabilities.
Our Board of Directors evaluated the value of both of its developmental stage drug candidates. The commencement of human clinical trials of our MDI-P drug candidate currently is on Full Clinical Hold by FDA under 21 CRF 312.42(b), and may not be initiated until deficiencies in our IND application are resolved to the FDA’s satisfaction. The FDA has concluded that our IND application did not contain sufficient toxicology and genetic toxicology data to support the safety of the proposed clinical trial. We considered the uncertainty of the efficacy and safety data of the MDI-P compound, the costs involved in further developing the compound, and the limited market, and thereafter concluded that we did not have the capability or capacity to take the MDI-P compound to commercialization. Our Board of Directors also evaluated the value of our SaveCream drug candidate that is currently being co-developed with Eucodis Pharmaceuticals Forschungs und Entwicklungs GmbH, an Austrian company (“Eucodis”), and determined that the highest value for this drug candidate could be realized through a sale of that drug candidate to Eucodis.
In reaching this decision, our board considered several factors, including, but not limited to, the following:
| (1) | · | The limited capital raising opportunities available to our company, and the unlikely possibility that another entity would be interested in funding the development of our company’s drug candidates. |
| · | The unlikelihood that our company will receive the requisite FDA approvals for MDI-P to pursue the development of that drug candidate through to commercialization. |
| · | The costs of further development of the MDI-P and SaveCream drugs weighed against the limited markets for both drugs. |
| · | The availability of a potential buyer due to Eucodis’ pre-existing interest in the SaveCream drug (Eucodis currently is our development partner and holds rights to SaveCream in certain regions of the world). |
The foregoing discussion of the information and factors considered by our board is not intended to be exhaustive, but includes the material factors considered. In view of the variety of factors considered in connection with its evaluation of the transaction and the offer price, our board did not find it practicable to, and did not, quantify or otherwise assign relative weight to the specific factors considered in reaching its determinations and recommendations, and individual directors may have given differing weight to different factors.
As further described below, on July 6, 2007, we entered into an agreement with Eucodis (the “Eucodis Agreement”) to sell SaveCream for an aggregate of 4,007,534 euros (approximately U.S. $5,906,000 based on the currency exchange rate in effect as of November 30, 2007), which consideration is payable in cash and by the assumption of certain of our outstanding liabilities. We thereafter also entertained various offers to purchase our rights to the MDI-P compound, and on August 9, 2007, we sold the MDI-P compound for $310,000 in cash. The special meeting is being held, in part, to obtain the approval of our shareholders of the Eucodis Agreement and our plan to sell our SaveCream assets to Eucodis.
Overview of Our Bio-Pharmaceutical Business
Prior to electing to terminate our biopharmaceutical operations, we were engaged in the development of two potential drug candidates that we referred to as “SaveCream” and “MDI-P.” We had purchased our SaveCream technologies from the liquidator of Savetherapeutics AG i.L., pursuant to an asset purchase agreement dated March 11, 2005. The SaveCream assets consist primarily of patents, patent applications, pre-clinical study data and anecdotal clinical trial data concerning SaveCream. We purchased the SaveCream assets for €2,350,000 payable as follows: €500,000 at closing, €500,000 upon conclusion of certain pending transfers of patent and patent application rights to us from SaveCream’s inventors, and €1,350,000 upon successful commercialization of the Assets. In addition to purchasing the SaveCream asset, we were developing MDI-P as an anti-infective drug for the treatment of bacterial infections, viral infections and fungal infections. In addition, we considered that MDI-P could be a useful therapy for the treatment of cystic fibrosis. However, the commencement of human clinical trials of MDI-P was on Full Clinical Hold by the FDA because the FDA concluded that our IND application did not contain sufficient toxicology and genetic toxicology data to support the safety of the proposed clinical trial. Our business strategy was to further develop the SaveCream asset, and to commence human clinical trials of MDI-P for cystic fibrosis following completion of the required toxicity and genetic toxicity testing.
We currently hold eight United States Patents, two Japanese patents and a Mexican patent covering various applications for MDI-P, the machinery that manufactures it and the method by which it is manufactured. The U.S. Patents were as follows:
| · | Patent No. 5,334,383: “Electrically Hydrolyzed Salines as In Vivo Microbiocides for the Treatment of Cardiomyopathy and Multiple Sclerosis” |
| · | Patent No. 5,507,932: “Apparatus for Electrolyzing Fluids” |
| · | Patent No. 5,560,816: “Method for Electrolyzing Fluids” |
| · | Patent No. 5,622,848: “Electrically Hydrolyzed Saline Solution as Microbiocides for In Vitro Treatment of Contaminated Fluids Containing Blood” |
| · | Patent No. 5,674,537: “An Electrolyzed Saline Solution Containing Concentrated Amount of Ozone and Chlorine Species” |
| · | Patent No. 5,731,008: “Electrically Hydrolyzed Salines as Microbiocides” |
| · | Patent No. 6,007,686: “System for Electrolyzing Fluids for Use as Antimicrobial Agents” |
| · | Patent No. 6,117,285: “System for Carrying Out Sterilization of Equipment” |
The Japanese and Mexican patents provide coverage in those countries for several of the U.S. patents. We also hold pending applications with the US Patent and Trademark Office for patents on MDI-P as a pharmaceutical treatment for cystic fibrosis, sepsis and asthma, including (i) a patent application for the use of MDI-P in the treatment of sepsis, (ii) a provisional patent application for the use of MDI-P in the treatment of sepsis, and (iii) a provisional patent application for the use of MDI-P in the treatment of asthma.
We also hold rights to the certain intellectual property assets relating to the SaveCream drug, including the following four patent families:
| · | “Substances and Agents for Positively Influencing Collagen.” This included a EU patent application and a Canadian patent. |
| · | “Topical Treatment for Mastalgia.” This included U.S. patent application 10/416,096 filed October 30, 2001, and a European Union patent application. |
| · | “Medicament for Preventing and/or Treating a Mammary Carcinoma Containing a Steroidal Aromatase Inhibitor.” This included a U.S. patent application, No. 09/646,355, filed November 16, 2000 and divisional and continuation applications based upon the initial application. |
| · | “Aromatase Marking.” This included a U.S. Patent application, No. 10/487,953, filed August 28, 2002, as well as a European Union patent application. |
We are currently a party to a lawsuit that we initiated in the German Federal Court in Hamburg, Germany, to confirm all of our rights to the foregoing intellectual property. If the Eucodis transaction is consummated, Eucodis will take over that lawsuit.
Competition for our bio-pharmaceutical drugs
The biotechnology and pharmaceutical industries are characterized by rapidly evolving technologies and intense competition. Our competitors in the bio-pharmaceutical market included many major pharmaceutical, and specialized biotechnology companies, most of which have financial, technical, and marketing resources significantly greater than ours. Fully integrated pharmaceutical companies, due to their expertise in research and development, manufacturing, testing, obtaining regulatory approvals, and marketing, as well as their substantially greater financial and other resources, were our most formidable competitors. In addition, colleges, universities, governmental agencies, and other public and private research organizations are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technology that they have developed. These institutions also competed with us in recruiting and retaining highly qualified scientific personnel.
In particular, we faced competition from the manufacturers of products that would have competed with MDI-P and SaveCream in the event we successfully commercialized both drugs. The products currently available for the treatment targeted by SaveCream and MDI-P included drugs produced by Pfizer, Bristol-Myers Squibb, Boehringer Ingelheim, GlaxoSmithKline, Gilead Sciences, Hoffman-La Roche, Merck, Abbott Laboratories, Agouron Pharmaceuticals, Abraxis BioScience, Inc., AstraZeneca and Trimeris. The significant pressure we faced from competitors with substantially greater financial and other resources contributed to our decision to exit the biotechnology and pharmaceutical industries.
Government Regulations
Our prior intention to use MDI-P and SaveCream as pharmaceuticals made us subject to extensive regulation by United States and foreign governmental authorities. In particular, pharmaceutical treatments are subject to rigorous preclinical and clinical testing, and subject to approval requirements by the FDA in the United States under the federal Food, Drug and Cosmetic Act and by comparable agencies in most foreign countries. Various federal, state and foreign statutes also govern or influence the manufacture, labeling, storage, record keeping, and marketing of such products. Pharmaceutical manufacturing facilities are also regulated by state, local, and other authorities. Obtaining approval from the FDA and other regulatory authorities for a new drug or treatment may take several years and involve substantial expenditures. Moreover, ongoing compliance with these requirements can require the expenditure of substantial resources. The delays and extensive costs associated with our efforts to commercialize MDI-P and SaveCream contributed to our decision to exit the biotechnology and pharmaceutical industries.
Recent Developments
Having agreed to dispose of our SaveCream assets to Eucodis under the Eucodis Agreement, we considered entering into a number of other businesses that would enable us to be able to provide our shareholders with future value. Our Board has decided to develop a business to produce and sell seed oils, including seeds oils harvested from the planting and cultivation of Jatropha curcas plant, for the purpose of providing feedstock oil intended for the generation of methyl ester, otherwise known as bio-diesel (the “Jatropha Business”). Our Board concluded that there was a significant opportunity to participate in the rapidly growing biofuels industry, which previously was mainly driven by high priced, edible oil-based feedstock. In order to commence our new Jatropha Business, effective September 7, 2007, we (i) hired Richard Palmer an energy consultant, and a member of Global Clean Energy Holdings LLC (“Global”) to act asbecame the our new President andregistrant’s Chief OperatingExecutive Officer (ii) engaged Mobius Risk Group, LLC, a Texas company engaged in providing energy risk advisory services, to provide us with consulting services related to the development of the Jatropha Business, and (iii) acquired certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the cultivation and production of seed oil from the Jatropha plant for the production of bio-diesel from Global.
Global Clean Energy Holdings, LLC -- Share Exchange Agreement
In connection withDecember 21, 2007. Under our efforts to commence the Jatropha Business, on September 7, 2007, we entered into an exchange agreement (the “Global Agreement”) pursuant to which we acquired all of the outstanding ownership interests in Global Clean Energy Holdings, LLC, a Delaware limited liability company (“Global”). Global is a company that owns certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the cultivation and production of seed oil from the seed of the Jatropha plant, for the purpose of providing feedstock oil intended for the production of bio-diesel. Richard Palmer and Mobius Risk Group, LLC, a Texas limited liability company engaged in providing energy risk advisory services (“Mobius”), were the sole owners of the outstanding equity interests of Global. Richard Palmer was also a member of Global.
In exchange for all of the outstanding ownership interests in Global, we issued 63,945,257 shares of our common stock to Richard Palmer and Mobius. The shares issued to Mr. Palmer and Mobius in the acquisition of Global represented 35% of our outstanding shares of common stock immediately after the acquisition (excluding the shares of Series A Convertible Preferred Stock). Of the 63,945,257 shares issued under the Global Agreement, 36,540,146 shares were issued and delivered to Mr. Palmer (5,220,021 shares) and Mobius (31,320,125 shares) at the closing of the Global Agreement without any restrictions. The remaining 27,405,111 shares of common stock were, however, issued as restricted shares, subject to forfeiture in the event that certain specified performance milestones are not achieved. The restricted shares are being held by us in escrow until such shares are either released or cancelled. An aggregate of 23,490,095 restricted shares were issued to Mobius, and 3,915,016 restricted shares were being issued to Palmer. If and when certain specified milestones are achieved, the restricted shares will be released and delivered to Mr. Palmer and Mobius in accordance with the terms and conditions of the Global Agreement. During the time that the restricted shares are restricted and subject to forfeiture, the restricted shares shall be outstanding shares for all purposes and shall be entitled to vote and receive dividends, if any are declared. As of November 30, 2007, a total of 4,567,518 of Mr. Palmer and Mobius’ restricted shares were released from the restrictions and delivered on a pro rata basis per the terms of the Global Agreement to Mr. Palmer and Mobius.
In order to obtain the expertise necessary to exploit the assets we acquired under the Global Agreement, we also entered into an employment agreement with Richard Palmer, and a consulting agreement with Mobius.
Mobius Consulting Agreement
Concurrent with the execution of the Global Agreement, we entered into a consulting agreement with Mobius pursuant to which Mobius has agreed to provide consulting services to us in connection with our new Jatropha Business. We engaged Mobius as consultant to obtain Mobius’ experience and expertise in the feedstock/bio-diesel market to assist us in developing our new business operations. Mobius’ compensation for the services provided under the consulting agreement is a monthly retainer of $45,000; the term of the Mobius consulting agreement is twelve months, or such shorter period until the scope of work under the agreement has been completed.
Employment Agreement
On September 7, 2007, we entered into an employment agreement (effective as of September 1, 2007) with Richard Palmer pursuant to which we hired Mr. Palmer, to serve as our President and Chief Operating Officer. Mr. Palmer was also appointed to serve as director on our Board to serve until the next election of directors by our shareholders. We hired Mr. Palmer to take advantage of his experience and expertise in the feedstock/bio-diesel industry, and in particular, in the Jatropha bio-diesel and feedstock business.
Under Mr. Palmer’s employment agreement, we granted Mr. Palmer an incentive option to purchase up to 12,000,000 shares of our common stock at an exercise price of $0.03, (the trading price on the date the agreement was signed), subject to our achievement of certain market capitalization goals. The option expires after five years.As of April 2009, 12,000,000 of these options remained unvested. In addition, Mr. Palmer’s compensation package includes a base salary of $250,000, and a bonus payment contingent on Mr. Palmer’s satisfaction of certain performance criteria, which will not exceed 100% of Mr. Palmer’s base salary. The term of employment commenced September 1, 2007 and ends on September 30, 2010, unless terminated earlier in accordance with the terms of that agreement.
Appointment of New Directors
At a meeting ofApril 2009, our Board held on August 30, 2007, the Board appointed three individualsof Directors agreed to fill three vacancies on the Board. In connection with covenants we made under the Global Agreement and Mr. Palmer’s employment agreement, the Board appointed Richard Palmer and Eric J. Melvinagreed to fill two of the vacancies on the Board. In addition, the Board appointed Martin Schroeder to fill the final vacancy on the Board. Messrs. Palmer, Melvin and Schroeder will stand for re-election at our next annual meeting of shareholders. All of the appointments were contingent upon, and became effective as of the consummation of the Global Share Exchange Agreement and the execution of Mr. Palmer’s employment agreement.
Mr. Eric Melvin currently is the Chief Executive Officer of Mobius and a principal owner of that energy consulting business.
Mr. Richard Palmer is our newly appointed President, Chief Operating Officer and Chief Executive Officer. Prior to joining us, Mr. Palmer was a Vice President of Mobius, specializing in providing consulting services related to alternative energy sources, including bio-diesel feedstock production. Mr. Palmer also owns a minority equity interest in Mobius.
Mr. Martin Schroeder currently is the Executive Vice President & Managing Director of The Emmes Group, Inc., a strategic business development, assessment and planning organization specializing in the support of firms engaged in the consumer product, technology, internet, medical diagnostic, biotechnology, and pharmaceutical industries. He also is the principal of Emmes Group Consulting, LLC. Mr. Schroeder has been providing consulting services to us since February 2007.
Lodemo Services Agreement
On October 15, 2007, we entered into a Service Agreement (the “Lodemo Agreement”) with Corporativo LODEMO S.A DE CV, a Mexican corporation (the “Lodemo Group”) in connection with our new Jatropha Business. We have decided to initiate our Jatropha Business in Mexico, and have already identified parcels of land in Mexico to plant and cultivate Jatropha. In order to obtainfully vest all of the logistical12,000,000 shares under the option.
|
| (2) | Mr. Nelson became our Chief Financial Officer and other services needed to operate a large-scale farming and transportation businessSecretary on April 1, 2008. Accordingly, the amounts reflected in Mexico, we entered into the Lodemo Agreement with the Lodemo Group, a privately held Mexican company with substantial land holdings, significant experience in fuel distribution and sales, liquids transportation, logistics, land development and agriculture.this table reflect compensation paid or accrued for Mr. Nelson during this partial year. |
| (3) | Under our supervision, the Lodemo Group will be responsible for the establishment, development, and day-to-day operations of our Jatropha Business in Mexico, including the extraction of the oil from the Jatropha seeds, the delivery of the Jatropha oilemployment agreement with Mr. Nelson, we granted Mr. Nelson an incentive option to buyers, the purchase or lease of land in Mexico, the establishment and operation of one or more Jatropha nurseries, the clearing, planting and cultivation of the Jatropha fields, the harvesting of the Jatropha seeds, the operation of the our oil extraction facilities, and the logistics associated with the foregoing. Although the Lodemo Group will be responsible for identifying and acquiring the farmland, ownership of the farmland or any lease thereto will be held directly by us. The Lodemo Group will be responsible for hiring and managing all necessary employees. We will bear all direct and budgeted costs of the Jatropha Business in Mexico.The Lodemo Group will provide the foregoing and other necessary services for a fee primarily based on the number of hectares of Jatropha under cultivation. We have agreedup to pay the Lodemo Group a fixed fee per year of $60 per hectare of land planted and maintained with minimum payments based on 10,000 hectares of developed land, to follow a planned planting schedule. The agreement has a 20-year term but we may terminate under certain circumstances. The Lodemo Group also will potentially receive incentive compensation for controlling costs below the annual budget established by the parties, production incentives for increase yield and a sales commission for biomass sales.
Loan Agreement
In order to fund our operations pending the closing of the SaveCream Asset Sale Agreement, on September 7, 2007, we entered into a loan and security agreement (“Loan Agreement”) with Mercator Momentum Fund III, L.P., a California limited partnership, pursuant to which Mercator Momentum Fund III, L.P. made available to us a secured term credit facility in the aggregate principal amount of $1,000,000. We utilized a total of $350,000 under the Loan Agreement, which amount was evidenced by two secured promissory notes that we issued to Mercator Momentum Fund III, L.P. in the aggregate principal amount of $350,000 (the “Notes”). Interest is payable on the Notes at a rate of 12% per annum, payable monthly. Initially, all advances under the credit facility became due and payable on December 14, 2007. On December 13, 2007, we repaid $100,000 of the credit facility advances, and Mercator agreed to extend the maturity date of the remaining $250,000 Note to February 21, 2008. The Note is secured by a first priority lien on all of our assets. Mercator Momentum Fund III, L.P. and its affiliates currently own all of the issued and outstanding shares of Series A Convertible Preferred Stock. We have used the advances under the credit facility to fund our working capital needs.
Series B Preferred Stock
In order to obtain additional working capital, on November 6, 2007, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with two accredited investors, pursuant to which we sold a total of 13,000 shares of our newly authorized Series B Convertible Preferred Stock (“Series B Shares”) for an aggregate purchase price of $1,300,000. Each share of the Series B Shares has a stated value of $100. The two purchasers of our Series B Shares are parties who will be engaged in our Jatropha Business in Mexico.
The Series B Shares may, at the option of each holder, be converted at any time or from time to time into fully paid and non-assessable4,500,000 shares of our common stock at an exercise price of $0.05, which shares vest over the conversion price then in effect. The number of shares into which one Series B Share shall be convertible is determined by dividing $100.00 per share by the conversion price then in effect. The initial conversion price per share for the Series B Shares is $0.11, which is subject to appropriate adjustment for certain events, including stock splits, stock dividends, combinations, recapitalizations or other recapitalizations affecting the Series B Shares.
Each holder of Series B Shares is entitled to the number of votes equal to the number of shares of our common stock into which the Series B Shares could be converted on the record date for such vote, and shall have voting rights and powers equal to the voting rights and powerscourse of the holdersemployment agreement and upon achievement of our common stock. In the event of our dissolution or winding up, each share of the Series B Shares is entitled to be paid an amount equal to $100 (plus any declared and unpaid dividends) out of the assets of our company then available for distribution to shareholders; subject, however, to the senior rights of the holders of our Series A Convertible Preferred Stock.
No dividends are required to be paid to holders of the Series B Shares. However, we may not declare, pay or set aside any dividends on shares of any class or series of our capital stock (other than dividends on shares of our common stock payable in shares of common stock) unless the holders of the Series B Shares shall first receive, or simultaneously receive, an equal dividend on each outstanding share of Series B Shares.
Employees
certain milestones. As of December 31, 2007, we had one employee, our Chief Executive Officer, Richard Palmer. During the initial development of our Jatropha Business, most of our Jatropha-related services are being provided to us by the Mobius Risk Group and the Lodemo Group. In addition, our accounting and other administrative functions are also currently being provided to us by consultants. At such time as capital resources permit, we will hire full-time employees to assume these positions. Description Of Property
Currently, we operate out of offices located at 6033 W. Century Blvd, Suite 1090, Los Angeles, California 90045. We recently moved to this location (previously, our offices were located in Salt Lake City, Utah) and we have not yet entered into a lease for these offices. Accordingly, we currently are not subject to any lease or rental payments.
Legal Proceedings
On August 22, 2006, we initiated legal proceedings in Landgericht Hamburg, a German Federal Court in Hamburg - Germany, against Dr. Alfred Schmidt to obtain certain rights concerning “SaveCream”, a developmental topical aromatase inhibitor cream relevant to our legacy bio-pharmaceutical business. No cross complaints have been filed against us in this matter. We acquired the “SaveCream” rights and certain other related intellectual property assets from the liquidator of Savetherapeutics AG i.L., a German corporation, pursuant to an asset purchase agreement dated as of March 11, 2005. Pursuant to the Eucodis Agreement, Eucodis has agreed to assume and become financially responsible for all costs we incur in connection with the foregoing litigation, subject to the satisfaction of certain conditions, including that all such costs are backed up by duly rendered invoices (or receipts).
The Jatropha Business
Business Strategy
As of September 7, 2007, the day on which we entered into the Global Agreement, we changed the core business of our company to focus on the cultivation of non-edible feedstock for certain applications in the biofuels market. In particular, we anticipate that our core activities in the future will include the planting, cultivation, harvesting and processing of Jatropha plant feedstock to generate seed oils and biomass for use in the biofuels industry, including the production of bio-diesel and certain other biofuels.
Bio-diesel is a diesel-equivalent, processed fuel derived from biological sources (such as plant oils), which can be used in diesel engines and as a replacement for fuel oil. The term “biofuels” refers to a range of biological based fuels including biodiesel, synthetic diesel, ethanol and biomass, most of which have environmental benefits that are the major driving force for their introduction. Using biofuels instead of fossil fuels reduces net emissions of carbon dioxide and other green house gases, which are associated with global climate change. Biofuels further the concept of energy independence and environmental responsibility, while generating new jobs in new markets. This creates a social, environmental and economic gain from the production, distribution and end use of biofuels. As the world consumes larger volumes of fossil fuels, and further depletes the supplies of such fossil fuels, alternate sources of energy need to be developed to support growing economies.
We have identified the Jatropha curcas plant as our primary feedstock for producing bio-diesel and other biofuels. The Jatropha plant is a perennial plant that produces an inedible fruit with large seeds containing a high percentage of high quality inedible oil. The entire fruit, including the seeds, has excellent properties necessary for the production of biofuels. Our current business plan proposes to utilize the entire fruit of the Jatropha plant for biofuel production, including the oils produced from the fruit, as well as the hull, seed cover, seed oil and seed cake.
In connection with our new feedstock operations, we have identified strategic locations in North America, the Caribbean, Central America and South America ideally suited to our proposed planting, cultivation, harvesting and processing activities, in which we plan to establish cultivation, harvesting and processing operations. All of the areas identified have been selected for a number of key strategic reasons, including proximity to large ports for logistics purposes, relatively stable democratic governments, favorable trade agreements with the United States, low-cost land, reasonably priced labor, favorable weather conditions and acceptable soil conditions.
The Jatropha plant is indigenous to Mexico, and we have decided to initiate implementation of our new business plan and related agricultural development activities in Mexico. Our business plan proposes to establish a nursery in which we will initially grow and cultivate Jatropha seedlings prior to transferring them to the plantation for further growth and cultivation. We are currently negotiating a lease for approximately 40 hectares of land in the Yucatan Peninsula, on which we plan to set up our proposed Jatropha nursery. We have already begun a plant breeding research and development program on this property.
We have identified a wide range of varieties of the Jatropha plant in Mexico, which we are currently propagating and studying. Our research and development activities will focus on plant and soil sciences, plant breeding and other related activities. We plan to study and identify the proper mix of Jatropha varieties, as well as optimum growth conditions, in order to maximize our output of the Jatropha fruit and seed oil. For political as well as legal reasons, we anticipate organizing a wholly owned Mexican subsidiary for purpose of carrying out our contemplated activities in Mexico, and plan to locate the corporate offices of any such Mexican subsidiary on the same property on which our nursery, plant breeding and research support facilities will be located. We are currently in negotiations for the construction of the nursery and research facilities on an approximately 40-hectare parcel in Mexico.
In addition, we have identified 2,000 hectares of land in the State of Yucatan Mexico, which we believe is ideal for establishing and maintaining what we plan to be the first of several multi-thousand hectare plantations in which we will cultivate the Jatropha plant. Our business plan is to acquire the rights to use up to 20,000 hectares in Mexico, by the end of our 2008 fiscal year, for purposes of setting up plantations on which we will cultivate the Jatropha plant. We anticipate that the 2,000 hectares will yield 1-2 million gallons of feedstock oil when fully planted with mature plants.
We are also evaluating other locations in the Caribbean, Central America and South America for purposes of establishing Jatropha plantations, and we plan to have a Jatropha plantation and related operations in a location outside of Mexico by the end of ourApril 2009, fiscal year.
Our business plan also proposes the construction of a seed oil extracting facility in which we would extract the feedstock oil from the Jatropha seed, and collect the remaining biomass for sale to interested buyers. We have not yet identified a location for the seed oil extracting facility; however, we plan to locate the facility relatively close to the ultimate end user of the biomass in order to minimize the costs and logistics of transporting the biomass to prospective buyers.
We anticipate that our primary focus will be in the feedstock oil market, and our operations will primarily comprise the planting, harvesting and sale of feedstock oil to end users in the energy industry for production of bio-diesel and other biofuels. In the short term, while developing Jatropha plantations, we expect to generate short-term cash flows through our forward sale contracts for feedstock oil and biomass to be produced at our facilities, and the potential sale of carbon offset credits.
Depending on future economic, political and other factors, we may in the future expand our operations beyond the feedstock oil market. For example, our business plan contemplates the possibility of entering into a joint venture for the constructing a bio-diesel refinery in which we would produce bio-diesel using the feedstock oil that we produce. In any event, we anticipate we will still remain a feedstock oil company primarily, and that our bio-diesel production, if any, would be derived from only a portion of the feedstock oil we produce. If economic and other factors at the time encourage us to invest in bio-diesel production, we anticipate that we may develop or acquire additional refining capacity in other strategic locations.
Our employees, advisors and consultants are senior energy professionals with extensive experience in the energy and biofuels market, the production of bio-diesel and in the renewable energy sector in general.
We are still a development stage company, and we anticipate that we will require significant time and capital to develop our new operations into a stable and profitable business.
Principal Biofuel Products
The production of biofuels feedstock is primarily a logistical agricultural operation. It needs to be supported with strong plant and soils sciences to improve productivity, quality and plant stability. The Jatropha curcas plant will be our primary agricultural focus. The Jatropha plant is a perennial, inedible plant, and all of its by-products can be used for fuel and biomass energy production. It is a very efficient plant that produces high quality seed oil and high-energy content biomass.
Bio-diesel Oil Feedstock
The feedstock oil needed for the production of bio-diesel that is currently available on the market today is primarily supplied from edible plant seed oils including soy, canola (rapeseed) and palm. There are other types of feedstock utilized including animal fats and recycled cooking grease, but they make up a small portion of the market supply. Our primary source of bio-diesel feedstock will be from the oil produced from the Jatropha plant. One advantage of the Jatropha plant is that it’s oil and meal is inedible, and the cultivation of the plant, which will primarily be for use in the biofuels industry, does not compete for resources with other crops grown primarily for food consumption. Since the Jatropha plant does not compete with land or other resources used in food crop development, it is an additional feedstock supply, growing the base and the market capacity.
Biomass Feedstock
The Jatropha plant produces a fruit (about the size of a golf ball) containing three large seeds that contain 32%-38% oil content by weight. The non-oil components of the fruit, which represents 62-68% of the total fruit, contains high energy biomass (carbon values) that is an excellent source of feedstock for a number of energy producing processes including direct combustion, gasification, power production, and cellulostic ethanol (alcohol) production.
Carbon Credits
Biofuels production and use is a very effective means to reduce both local and global pollution from emissions that cause climate change. Growing trees and plants which sequesters carbon from the atmosphere and burning biofuels offsets the production of greenhouse gasses resulting from the consumption of petroleum or other fossil-based fuels. Many biofuels produce less pollution, including CO2, NOx, SOx and PM10. Through the 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change (Kyoto Protocol), signatory countries are required to reduce their overall greenhouse gas emissions, or carbon footprint. As of November 2007, 174 parties are signatories to and have ratified the Kyoto Protocol. The United States of America is not a signatory to the Kyoto Protocol. Signatory countries require local industry and other local energy end-users to either reduce their greenhouse gas emissions, or purchase greenhouse gas emission credits (carbon credits). This requirement has created a worldwide “Carbon Credit Trading Market” where users sell their excess carbon credits and buyers purchase the carbon credits they need to meet their greenhouse gas reduction requirements. The development of agricultural-based energy projects may produce carbon credits through the sequestration (storing) of carbon by the growing of trees and plants, or by the offset of other sequestered carbon. Selling carbon credits represents potential additional revenue that will help to offset capital requirements for our plantation and other development activities.
In our case, Certified Emission Reductions (CERs) may be generated through Clean Development Mechanism projects in non-Annex 1 nations, which include Mexico, the Caribbean, Central and South America. Assuming full capacity at a 20,000-hectare Jatropha plantation, we estimate that we could generate more than 100,000 metric tons of sellable carbon credits annually.
Technology
Although we do not currently possess any patentable technology relating to our operations in the feedstock and biofuels market, we may develop technology as we design and implement our business plan. Any technology we develop will be in three main categories: (i) plant and science sciences, (ii) agricultural development, and (iii) material processing and end use applications. Such technologies developed are expected to assist in reducing costs, improving efficiency and allowing us to move the products higher in value creation. We intend to pursue patentable technologies, processes and plant varieties.
Market
According to U.S. Department of Energy estimates, the world demand for crude oil in 2006 was approximately 85 million barrels per day, with approximately 25% of that demand being diesel and fuel oil (distillate fuel oil). This equates to a global consumption of distillate fuel oil of approximately 21 million barrels per day, or 325 billion gallons per year. At a 5% blend with biodiesel, the world market for biodiesel exceeds 16 billion gallons per year.
U.S. distillate fuel oil consumption for 2005 was 4.12 million barrels per day, which equates to over 60 billion gallons of diesel and fuel oil consumed annually. At a 5% biodiesel blend, the US biodiesel market is over 3 billion gallons per year and growing.
In 2004, 32 U.S. biodiesel refineries produced approximately 30 million gallons of neat (100%) bio-diesel fuel. In 2005, 50 refineries produced approximately 75 million gallons and in 2006 approximately 250 million gallons was sold. It is expected that in 2007 over 300 million gallons of bio-diesel fuel will be produced and consumed domestically, with an unconfirmed, but announced, biodiesel refinery construction exceeding a total U.S. Domestic refining capacity of 1 billion gallons.
Direct Sales
Based on our current business plan, our primary market will be in the direct sale of Jatropha feedstock oil for bio-diesel production and biomass energy production, and the sale of carbon credits. Our primary customers will be refiners of bio-diesel. We estimate that there are approximately 165 bio-diesel plants in the United States alone, which can utilize up to 100% of our crude or refined Jatropha oil.
We will generate our highest revenues and greatest margins from customers who have logistical capacity on a water port accessible from the Gulf of Mexico. This will reduce redundant transportation costs, and allow us to ship large quantities economical. These customers have historically paid a higher price for feedstock oil, since the majority of feedstock oil supplies has been shipped from the Midwestern United States. We anticipate that our key customer profile will include well-financed, low-cost bio-diesel refiners.
Distributor Sales
As our business develops, we expect to utilize some distributors for sale of the Jatropha feedstock oil and the biomass by-products that we will produce.
Environmental Impact
Biofuels, including bio-diesel, have environmental benefits that are a major driving force for their introduction. Using biofuels instead of fossil fuels reduces net emissions of carbon dioxide and other greenhouse gasses, which are associated with global climate change. Biofuels are produced from renewable plant resources that “recycle” the carbon dioxide created when biofuels are consumed. Life-cycle analyses consistently show that using biofuels produced in modern facilities results in net reductions of greenhouse gas carbon emissions compared to using fossil fuel-based petroleum equivalents. These life-cycle analyses include the total energy requirements for the farming and production of the biomass resource, as well as harvesting, conversion and utilization. Biofuels help nations achieve their goals of reducing carbon emissions. Biofuels burn cleanly in vehicle engines and reduce emissions of unwanted products, particularly unburned hydrocarbons and carbon monoxide. These characteristics contribute to improvements in local air quality. In a life-cycle study published in October 2002, entitled “A Comprehensive Analysis of Bio-diesel Impacts on Exhaust Emissions, 2002,” the U.S. Environmental Protection Agency (“EPA”) analyzed bio-diesel produced from virgin soy oil, rapeseed (canola) and animal fats. The study concluded that the emission impact of bio-diesel produced slightly increased NOx emissions while significantly reducing other major emissions.
Competition
Although there are a number of producers of biofuels, few are utilizing non-edible oil feedstock for the production of bio-diesel. The following table lists the companies we are aware of that are cultivating Jatropha for the production of bio-diesel:
British Petroleum (UK) | Plans to establish 100,000 hectares of Jatropha plantations in Indonesia to feed the 350,000-tonne-per-year biodiesel refinery that it is building in the country. | Van Der Horst Corporation (Singapore) | Building a 200,000-tpy biodiesel plant in Juron Island in Singapore that will eventually be supplied with Jatropha from plantations it operates in Cambodia and China, and possible new plantations in India, Laos and Burma. | Mission Biofuels (Australia) | Hired Agro Diesel of India to manage a 100,000-heactare Jatropha plantation, and a contract farming network in India to feed its Malaysian and Chinese biodiesel refineries. Mission Biofuels has raised in excess of $80 million to fund its operations. | D1 Oils (UK) | As of June 2007, together with its partners, D1 Oils has planted or obtained rights to offtake from a total approximately 172,000 hectares of Jatropha under cultivation worldwide. D1’s Jatropha plantations are located in Saudi Arabia, Cambodia, Ghana, Indonesia, the Philippines, China, India, Zambia, South Africa and Swaziland. In June 2007, D1 Oils and British Petroleum entered into a 50:50 joint venture to plant up to an additional 1 million hectares of Jatropha worldwide. British Petroleum funded the first £31.75 million of the Joint Venture’s working capital requirements through a purchase of D1 Oils equity, and the total Joint Venture funding requirement is anticipated to be £80 million over the next five years. | NRG Chemical Engineering (UK) | Signed a $1.3 billion deal with state-owned Philippine National Oil Co. in May 2007. NRG Chemical will own a 70% stake in the joint venture which will involve the construction of a biodiesel refinery, two ethanol distilleries and a $600 million investment in Jatropha plantations that will cover over 1 million hectares, mainly on the islands of Palawan and Mindanao. |
1 hectare = 2.47 acres
We believe there is sufficient global demand for alternative non-edible biofuel feedstock to allow a number of companies to successfully compete worldwide. In particular, we note that we are the only US-based producer of non-edible oil feedstock for the production of bio-diesel which gives us a unique competitive advantage over many foreign competitors when competing in the USA.
The price basis for our non-edible oil and biomass feedstock will be equivalent to other edible seed oil and biomass feedstock. We have not found any substantial effort towards the production of any other non-edible oil worldwide that could compete with Jatropha. With the growing demand for feedstock, and the high price of oil and biofuels, we anticipate that we will be able to sell our Jatropha oil and biomass feedstock profitability.
DESCRIPTION OF THE EUCODIS TRANSACTION AND AGREEMENT
The following sets forth a summary of the material provisions of the sale and purchase agreement between the us and Eucodis (the “Eucodis Agreement”). The description does not purport to be complete and is qualified in its entirety by reference to the sale and purchase agreement, as amended, a copy of which is attached hereto as Appendix A. All shareholders are urged to read the sale and purchase agreement in its entirety.
Past Contacts and Negotiations
As described in this proxy statement, we operated as a development stage bio-pharmaceutical company engaged in the research and development of two drug candidates. Both3,500,000 of these drug candidates are still in development and neither has been approved by the U.S. Food and Drug Administration. The total cost to develop these two drugs, and to receive the approval from the FDA, would cost many millions of dollars and take many more years. As of the end of 2006, we did not have the funds to continueoptions remained unvested. In April 2009, our bio-pharmaceutical business, and our principal financing sources informed us that they were no longer willing to fund our operations.
In order to assist our management to resolve our financial crisis and to assist in developing a new business strategy, effective February 1, 2007 we engaged a consulting firm, the Emmes Group Consulting LLC (“Emmes”) to obtain advice regarding any strategic alternatives that may be available to us. Emmes is a strategy consulting firm that assists pharmaceutical and other companies.
At a Board of Directors meeting held in February 2007, our Board of Directors and Emmes concluded that it would not be possible to raise additional equity or debt financing to fund the continued operation of the bio-pharmaceutical business. Emmes recommended, and the Board of Directors agreed to pursuefully vest all of the sale of its lead drug candidates in an effort to (i) prevent our shareholders from losing their entire investmentremaining 3,500,000 options. The amounts included in this company, and (ii) enable ustable reflect the value of the fully vested options.
|
| (4) | This column represents the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to repay someservice-based vesting conditions. For additional information on the valuation assumptions with respect to the option grants, refer to Note J of our currently outstanding debts and liabilities. Emmes further recommended, andfinancial statements in the Board of Directors agreed,Annual Report. These amounts do not correspond to consider reengineering our business model and business strategy to onethe actual value that could attract additional financing.will be recognized by the named executives from these awards. |
Stock Option Grants The following table sets forth information as of December 31, 2009, concerning unexercised options, unvested stock and equity incentive plan awards for the executive officers named in the Summary Compensation Table. OUTSTANDING EQUITY AWARDS AT YEAR ENDED DECEMBER 31, 2009 | | | Option Awards | | Stock Awards | | Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Richard Palmer | | | 6,000,000 | | | | | | | | | | | | 0.03 | | 8/20/2012 | | | | | | | | | | | | | | | | | | | | | 6,000,000 | | | | | | | | | | | | 0.03 | | 8/20/2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bruce Nelson | | | 500,000 | | | | | | | | | | | | 0.05 | | 3/20/2018 | | | | | | | | | | | | | | | | | | | | | 500,000 | | | | | | | | | | | | 0.05 | | 3/20/2018 | | | | | | | | | | | | | | | | | | | | | 500,000 | | | | | | | | | | | | 0.05 | | 3/20/2018 | | | | | | | | | | | | | | | | | | | | | 500,000 | | | | | | | | | | | | 0.05 | | 3/20/2018 | | | | | | | | | | | | | | | | | | | | | 1,250,000 | | | | | | | | | | | | 0.05 | | 3/20/2013 | | | | | | | | | | | | | | | | | | | | | 1,250,000 | | | | | | | | | | | | 0.05 | | 3/20/2013 | | | | | | | | | | | | | | | | |
Employment Agreements Richard Palmer. On September 7, 2007, we entered into an employment agreement (the “Employment Agreement”) with Richard Palmer pursuant to which we hired Mr. Palmer to serve as our President and Chief Operating Officer. Mr. Palmer was also appointed to serve as director on our Board of Directors to serve until the next election of directors by our stockholders. Upon the resignation of our prior Chief Executive Officer in December 2007, Mr. Palmer also became our Chief Executive Officer. Under the Employment Agreement, we granted Mr. Palmer an incentive option to purchase up to 12,000,000 shares of our common stock at an exercise price of $0.03 (the trading price on the date the agreement was signed), subject to our achievement of certain market capitalization goals. The option expires after five years. As of April 22, 2009, all 12,000,000 shares under the option remained unvested. On April 22, 2009, our Board of Directors approved accelerating the vesting of all 12,000,000 unvested shares under the option, and accelerated the release from escrow of 652,503 shares of restricted common stock issuable to Mr. Palmer under the Global Agreement. As a result, on that date, all of the restricted and escrowed shares were released to Mr. Palmer. In addition, Mr. Palmer’s compensation package includes a base salary of $250,000, and a bonus payment contingent on Mr. Palmer’s satisfaction of certain performance criteria, which will not exceed 100% of Mr. Palmer’s base salary. In the event that (i) we terminate Mr. Palmer’s employment for reasons other than “cause” (as defined in the Employment Agreement to include material breaches by him of the agreement, fraud, misappropriation of funds or embezzlement), or if (ii) Mr. Palmer resigns because we breached the Employment Agreement, we will be obligated to pay Mr. Palmer an amount equal to one (1) times his then-current annual base salary plus fifty percent (50%) of the target bonus in effect on the date of his termination. However, if Mr. Palmer’s employment is terminated for death or disability, or if Mr. Palmer resigns or is terminated for “cause,” he will not be entitled to receive any severance payments or other post-employment benefits. The original term of the Employment Agreement commenced September 1, 2007, and was scheduled to expire on September 30, 2010. On March 16, 2010, the Company and Richard Palmer entered into an amendment (the “Amendment”) to the Employment Agreement. Pursuant to the Amendment, the Company extended the term of Mr. Palmer’s employment for an additional two years, i.e., through September 30, 2012. Thereafter, the term of employment shall automatically renew for successive one-year periods unless otherwise terminated. In connection with the Amendment, the Company and Mr. Palmer entered into an option agreement (“Option Agreement”). Pursuant to the Option Agreement, the Company granted Mr. Palmer a new option to acquire up to 12,000,000 shares of the Company’s common stock at an exercise price of $0.02, subject to the Company’s achievement of certain market capitalization goals. The new option expires after ten (10) years. Bruce Nelson. On March 20, 2008, we entered into an employment agreement with Bruce K. Nelson pursuant to which we hired Mr. Nelson to serve as our Executive Vice-President and Chief Financial Officer effective April 1, 2008. Mr. Nelson’s employment agreement has an initial term of employment that continues through March 20, 2010. Thereafter, the term of employment shall automatically renew for successive one-year periods unless otherwise terminated by us. The employment agreement was automatically extended in March 2010 through March 20, 2011. We agreed to pay Mr. Nelson a base salary of $175,000, subject to annual increases based on the Consumer Price Index for the immediately preceding 12-month period, and a bonus payment based on Mr. Nelson’s satisfaction of certain performance criteria established by the compensation committee of our Board of Directors. The bonus amount in any fiscal year will not exceed 100% of Mr. Nelson’s base salary. Mr. Nelson is eligible to participate in this company’s employee stock option plan and other benefit plans.
At the time we employed Mr. Nelson, we granted him a ten-year option to acquire up to 2,000,000 shares of our common stock at an exercise price of $0.05 (the trading price on the date the agreement was signed). These options vest in tranches of 500,000 shares over the first two years of the employment term. We also granted Mr. Nelson a five-year option to acquire up to 2,500,000 shares of our common stock at an exercise price of $0.05, if this company meets certain market capitalization goals. As of April 22, 2009, options to acquire up to 3,500,000 shares remained unvested pursuant to the terms of the Company’s employment agreement with Mr. Nelson. On April 22, 2009, our Board of Directors approved accelerating the vesting of all 3,500,000 unvested shares under the option. In the event that, commencing after March 20, 2009, (i) we terminate Mr. Nelson’s employment for reasons other than “cause” (as defined in his employment agreement to include material breaches by him of his employment agreement, fraud, misappropriation of funds or embezzlement), or if (ii) Mr. Nelson resigns because we breached his employment agreement, we will be obligated to pay Mr. Nelson an amount equal to the salary he would have received through the end of the term of his employment agreement. However, if Mr. Nelson’s employment is terminated for death or disability, or if Mr. Nelson resigns or is terminated for “cause,” he will not be entitled to receive any severance payments or other post-employment benefits. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of our common stock as of May 1, 2010 by (a) each person known by us to own beneficially 5% or more of our common stock, (b) each of our executive officers named in the Summary Compensation Table and each of our directors and (c) all executive officers and directors of this company as a group. As of May 1, 2010, there were 270,464,478 shares of our common stock issued and outstanding. As of the same date, there were 13,000 shares of our Series B Preferred Stock issued and outstanding, which shares of preferred stock were convertible into an aggregate of 11,818,181 shares of common stock. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all the shares beneficially owned by them. | Name and Address of Beneficial Owner (1) | | Shares Beneficially Owned (2) | | | Percent of Class | | | Certain Beneficial Owners: | | | | | | | | | | | | | | | Corporativo LODEMO S.A DE CV Calle 18, #201-B x 23 y 25, Colonias Garcia Gineres, C.P. 97070 Merida, Yucatan, Mexico | | | 9,090,908 | (3) | | | 3.25 | % | | | | | | | | | | | Greenrock Capital Holdings LLC 10531 Timberwood Circle, Suite D Louisville, Kentucky 40223 | | | 2,727,273 | (4) | | | 1.00 | % | | | | | | | | | | | | Directors/Named Executive Officers: | | | | | | | | | | | | | | | | | | | | Richard Palmer | | | 72,030,241 | (5) | | | 25.50 | % | | Bruce Nelson | | | 5,543,000 | (6) | | | 2.02 | % | | David R. Walker | | | 1,653,539 | (7) | | | * | | | Mark A. Bernstein | | | 500,000 | (8) | | | * | | | Marin Wenzel | | | 300,000 | (9) | | | * | | | | | | | | | | | | | All Named Executive Officers and Directors as a group (4 persons) | | | 80,026,780 | | | | 27.69 | % |
* Less than 1% (1) Unless otherwise indicated, the business address of each person listed is c/o Global Clean Energy Holdings, Inc., 6033 W. Century Blvd, Suite 895, Los Angeles, California. (2) For purposes of this table, shares of common stock are considered beneficially owned if the person directly or indirectly has the sole or shared power to vote or direct the voting of the securities or the sole or shared power to dispose of or direct the disposition of the securities. Shares of common stock are also considered beneficially owned if a person has the right to acquire beneficial ownership of the shares upon exercise or conversion of a security within 60 days of May 1, 2010.
(3) Consists of 9,090, 908 shares of common stock that may be acquired upon the conversion of shares of Series B Preferred Stock. Corporativo LODEMO owns 10,000 shares of our Series B Preferred Stock, which represents approximately 76.92% of the issued and outstanding shares of that class of securities. (4) Consists of 2,727,273 shares of common stock that may be acquired upon the conversion of shares of Series B Preferred Stock. Greenrock owns 3,000 shares of our Series B Preferred Stock, which represents approximately 23.08% of the issued and outstanding shares of that class of securities. (5) Consists of 12,000,000 shares that may be acquired upon the exercise of currently exercisable options. Mr. Palmer also has options to acquire 12,000,000 shares of common stock that are not currently exercisable and will not become exercisable unless certain conditions are met. (6) Includes 4,500,000 shares that may be acquired upon the exercise of currently exercisable options. (7) Includes 1,250,000 shares that may be acquired upon the exercise of currently exercisable options. (8) Includes 500,000 shares that may be acquired upon the exercise of currently exercisable options. (9) Includes 300,000 shares that may be acquired upon the exercise of options.
Securities Authorized For Issuance Under Equity Compensation Plans The following table contains information regarding our equity compensation plans as of December 31, 2009 | Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | | | Weighted-
Average Exercise Price of Outstanding Options, Warrants and Rights | | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in the First Column) | | | Equity compensation plans approved by security holders | | | | | | | | | | | 1993 Incentive Plan (1) | | | 3,383,000 | | | $ | 0.13 | | | | — | | | 2002 Stock Incentive Plan | | | 19,700,000 | | | $ | 0.04 | | | | 300,000 | | | Equity compensation plans not approved by security holders | | | 1,350,000 | | | $ | 0.02 | | | | | | | Options | | | | | | | | | | | | | | Warrants | | | 66,518,635 | | | $ | 0.02 | | | | | | | | | | | | | | | | | | | | | Total | | | 90,951,635 | | | | | | | | 300,000 | |
(1) The 1993 Incentive Plan has expired and no additional options or awards can be granted under this plan.
PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM General The Audit Committee of our Board has appointed Hansen, Barnett & Maxwell, P.C. (“HBM PC”), to act as our independent registered public accounting firm for the fiscal year ending December 31, 2010, and recommends that our stockholders vote to ratify such appointment. Representatives of HBM PC will not be available at the 2010 Annual Meeting. In the event of a negative vote on such ratification, the Board will reconsider its selection. No determination has been made as to what action the Board would take if the stockholders do not ratify the appointment. Principal Accountant Fees And Services The following discussion sets forth fees billed to us by HBM PC, our independent registered public accounting firm, during the fiscal years ended December 31, 2009, and December 31, 2008: Audit Fees The aggregate fees accrued by HBM PC during the fiscal year ended December 31, 2008 and 2009 for professional services for the audit of our financial statements and the review of financial statements included in our Forms 10-Q and SEC filings were $43,038 and $45,119, respectively. Audit-Related Fees HBM PC did not provide and did not bill and it was not paid any fees for, audit-related services in the fiscal years ended December 31, 2008 and 2009. Tax Fees HBM PC did not provide, and did not bill and was not paid any fees for, tax compliance, tax advice, and tax planning services for the fiscal years ended December 31, 2008 and December 31, 2009. All Other Fees HBM PC did not provide, and did not bill and were not paid any fees for, any other services in the fiscal years ended December 31, 2008 and 2009. Audit Committee Pre-Approval Policies and Procedures Consistent with SEC policies, the Audit Committee charter provides that the Audit Committee shall pre-approve all audit engagement fees and terms and pre-approve any other significant compensation to be paid to the independent registered public accounting firm. No other significant compensation services were performed for us by HBM PC during 2008 and 2009. Vote Required and Recommendation of Board of Directors Under Utah law, and pursuant to our Bylaws, the proposal to ratify HBM PC as our independent registered public accounting firm for the fiscal year ending December 31, 2009, will be approved if the votes cast in favor of the proposal exceed those cast against it, with respect to our issued and outstanding shares of Common Stock entitled to vote at meeting, represented in person or by proxy. The Board Of Directors Recommends A Vote “For” The Ratification of Hansen, Barnett & Maxwell,
P.C. as our Independent Registered Public Accountants.
PROPOSAL III – APPROVAL OF ADOPTION OF THE 2010 EQUITY INCENTIVE PLAN On May 13, 2010, our Board adopted the Global Clean Energy Holdings, Inc. 2010 Equity Incentive Plan (the “2010 Plan”), and recommended that the adoption of the 2010 Plan be submitted for approval by our stockholders. The Board adopted the 2010 Plan because there are a limited number of shares available for grants of awards under our prior stock option plan, the Company’s 2002 Stock Incentive Plan (the “2002 Plan”). In addition, the 2002 Plan will expire in July 2012. Upon the expiration of the 2002 Plan, the Company will no longer be able to grant any stock options or other awards to its employees, officers and directors. The 2002 Plan authorized the Company to grant options to purchase a total of 20,000,000 shares. As of April 1, 2010, awards for 19,700,000 shares had been granted under the 2002 Plan and 300,000 shares remained available for future grants. Management of the Company believes that granting options and other stock awards is an important incentive tool for the Company’s employees, officers and directors. As a result, the Board adopted the 2010 Plan to continue to provide a means by which employees, directors and consultants of the Company may be given an opportunity to benefit from increases in the value of our Common Stock, and to attract and retain the services of such persons. All of our employees, directors and consultants are eligible to participate in the 2010 Plan. In the meantime, we may make awards under the 2010 Plan, as long as the effectiveness of the awards is conditioned upon obtaining such stockholder approval. If stockholders do not approval this proposal, we will not implement the 2010 Plan, and any currently outstanding awards under the 2010 Plan will terminate and be of no further force or effect. A summary of the 2010 Plan is set forth below. The summary is qualified in its entirety by reference to the full text of the 2010 Plan, a copy of which is set forth as Appendix B to this proxy statement. General The 2010 Plan provides for awards of incentive stock options, non-statutory stock options, rights to acquire restricted stock, and stock appreciation rights, or SARs. Incentive stock options granted under the 2010 Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Non-statutory stock options granted under the 2010 Plan are not intended to qualify as incentive stock options under the Code. See “Federal Income Tax Consequences” below for a discussion of the principal federal income tax consequences of awards under the 2010 Plan. Purpose Our Board adopted the 2010 Plan to provide a means by which employees, directors and consultants of the Company and its affiliates may be given an opportunity to benefit from increases in the value of our Common Stock, to assist in attracting and retaining the services of such persons, to bind the interests of eligible recipients more closely to the Company’s interests by offering them opportunities to acquire shares of our Common Stock and to afford such persons stock-based compensation opportunities that are competitive with those afforded by similar businesses. All of our employees, directors and consultants are eligible to participate in the 2010 Plan. Administration Unless it delegates administration to a committee as described below, our Board will administer the 2010 Plan. Subject to the provisions of the 2010 Plan, the Board has the power to construe and interpret the 2010 Plan, and to determine: (i) the fair value of Common Stock subject to awards issued under the 2010 Plan; (ii) the persons to whom and the dates on which awards will be granted; (iii) what types or combinations of types of awards will be granted; (iv) the number of shares of Common Stock to be subject to each award; (v) the time or times during the term of each award within which all or a portion of such award may be exercised; (vi) the exercise price or purchase price of each award; and (vii) the types of consideration permitted to exercise or purchase each award and other terms of the awards.
The Board has the power to delegate administration of the 2010 Plan to a committee composed of one or more directors. In the discretion of the Board, a committee may consist solely of two or more “outside directors” or two or more “non-employee directors” (as such terms are defined in the 2010 Plan). Stock Subject to the 2010 Plan Subject to the provisions of Sections 6.1.1 and 8.2 of the 2010 Plan relating to adjustments upon changes in our Common Stock, an aggregate of 20,000,000 shares of common stock will be reserved for issuance under the 2010 Plan. If shares of Common Stock subject to an option or SAR granted under the 2010 Plan expire or otherwise terminate without being exercised (or exercised in full), such shares shall become available again for grants under the 2010 Plan. If shares of restricted stock awarded under the 2010 Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the 2010 Plan. Where the exercise price of an option granted under the 2010 Plan is paid by means of the optionee’s surrender of previously owned shares of common stock, or the Company’s withholding of shares otherwise issuable upon exercise of the option as may be permitted under the 2010 Plan, only the net number of shares issued and which remain outstanding in connection with such exercise shall be deemed “issued” and no longer available for issuance under the 2010 Plan. Eligibility Incentive stock options may be granted under the 2010 Plan only to employees of the Company and its affiliates. Employees, directors and consultants of the Company and its affiliates are eligible to receive all other types of awards under the 2010 Plan. No incentive stock option may be granted under the 2010 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company or any affiliate of the Company, unless the exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and the term of the option does not exceed five years from the date of grant. In addition, no employee may be granted options under the 2010 Plan exercisable for more than 500,000 shares of common stock during any twelve-month period. Terms of Options and SARs Options and SARs may be granted under the 2010 Plan pursuant to stock option agreements and stock appreciation rights agreements, respectively. The following is a description of the permissible terms of options and SARs under the 2010 Plan. Individual grants of options and SARs may be more restrictive as to any or all of the permissible terms described below. Exercise Price; Payment The exercise price of incentive stock options may not be less than the fair market value of the common stock subject to the option on the date of the grant and, in some cases (see “Eligibility” above), may not be less than 110% of such fair market value. The exercise price of nonstatutory options also may not be less than the fair market value of the common stock on the date of grant. The base value of a SAR may not be less than the fair market value of the common stock on the date of grant. The exercise price of options granted under the 2010 Plan must be paid either in cash at the time the option is exercised or, at the discretion of the Board, (i) by delivery of already-owned shares of our Common Stock, (ii) pursuant to a deferred payment arrangement, (iii) pursuant to a net exercise arrangement, or (iv) pursuant to a cashless exercise as permitted under applicable rules and regulations of the Securities and Exchange Commission.
In addition, the holder of a SAR is entitled to receive upon exercise of such SAR only shares of our Common Stock at a fair market value equal to the benefit to be received by the exercise. Vesting Options granted under the 2010 Plan may be exercisable in cumulative increments, or “vest,” as determined by the Board. Our Board has the power to accelerate the time as of which an option may vest or be exercised. Tax Withholding To the extent provided by the terms of an option or SAR, a participant may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option or SAR by a cash payment upon exercise, or in the discretion of our Board, by authorizing the Company to withhold a portion of the stock otherwise issuable to the participant, by delivering already-owned shares of our Common Stock or by a combination of these means. Term The maximum term of options and SARs under the 2010 Plan is ten years, except that in certain cases (see “Eligibility” above) the maximum term is five years. Options and SARs awarded under the 2010 Plan generally will terminate three months after termination of the participant’s service; however, pursuant to the terms of the 2010 Plan, an a grantee’s employment shall not be deemed to terminate by reason of such grantee’s transfer from the Company to an affiliate of the Company, or vice versa, or sick leave, military leave or other leave of absence approved by our Board, if the period of any such leave does not exceed ninety (90) days or, if longer, if the grantee’s right to reemployment by the Company or any of its affiliate is guaranteed either contractually or by statute. Restrictions on Transfer A recipient may not transfer an incentive stock option otherwise than by will or by the laws of descent and distribution. During the lifetime of the recipient, only the recipient may exercise an option or SAR. The Board may grant nonstatutory stock options and SARs that are transferable to the extent provided in the applicable written agreement. Terms of Restricted Stock Awards Restricted stock awards may be granted under the 2010 Plan pursuant to restricted stock purchase or grant agreements. No awards of restricted stock may be granted under the 2010 Plan after ten (10) years from the Board’s adoption of the 2010 Plan. Payment Our Board may issue shares of restricted stock under the 2010 Plan as a grant or for such consideration, including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory notes, as determined in its sole discretion. If restricted stock under the 2010 Plan is issued pursuant to a purchase agreement, the purchase price must be paid either in cash at the time of purchase or, at the discretion of our Board, pursuant to any other form of legal consideration acceptable to the Board.
Vesting Shares of restricted stock acquired under a restricted stock purchase or grant agreement may, but need not, be subject to forfeiture to the Company or other restrictions that will lapse in accordance with a vesting schedule to be determined by our Board. In the event a recipient’s employment or service with the Company terminates, any or all of the shares of Common Stock held by such recipient that have not vested as of the date of termination under the terms of the restricted stock agreement may be forfeited to the Company in accordance with such restricted stock agreement. Tax Withholding Our Board may require any recipient of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, our Board may withhold that amount from other amounts payable by the Company to the recipient, including salary, subject to applicable law. With the consent of our Board in its sole discretion, a recipient may deliver shares of our common stock to the Company to satisfy this withholding obligation. Restrictions on Transfer Rights to acquire shares of common stock under the restricted stock purchase or grant agreement shall be transferable by the recipient only upon such terms and conditions as are set forth in the restricted stock agreement, as the Board shall determine in its discretion, so long as shares of Common Stock awarded under the restricted stock agreement remains subject to the terms of the such agreement. Adjustment Provisions If any change is made to our outstanding shares of Common Stock without the Company’s receipt of consideration (whether through reorganization, stock dividend or stock split, or other specified change in the capital structure of the Company), appropriate adjustments may be made in the class and maximum number of shares of Common Stock subject to the 2010 Plan and outstanding awards. In that event, the 2010 Plan will be appropriately adjusted in the class and maximum number of shares of Common Stock subject to the 2010 Plan, and outstanding awards may be adjusted in the class, number of shares and price per share of Common Stock subject to such awards. Effect of Certain Corporate Events In the event of (i) a liquidation or dissolution of the Company; (ii) a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly-owned subsidiary); (iii) a sale of all or substantially all of the assets of the Company; or (iv) a purchase or other acquisition of more than 50% of the outstanding stock of the Company by one person or by more than one person acting in concert, any surviving or acquiring corporation may assume awards outstanding under the 2010 Plan or may substitute similar awards. Unless the stock award agreement otherwise provides, in the event any surviving or acquiring corporation does not assume such awards or substitute similar awards, then the awards will terminate if not exercised at or prior to such event. Duration, Amendment and Termination The Board may suspend or terminate the 2010 Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the 2010 Plan will terminate ten years from the date of its adoption by the Board, i.e., in May 2020.
The Board may also amend the 2010 Plan at any time, and from time to time. However, except as provided in Section 6.1.1 and 8.2 relating to adjustments upon changes in common stock, no amendment will be effective unless approved by our stockholders to the extent stockholder approval is necessary to preserve incentive stock option treatment for federal income tax purposes. Our Board may submit any other amendment to the 2010 Plan for stockholder approval if it concludes that stockholder approval is otherwise advisable. Federal Income Tax Consequences The following is a summary of the principal United States federal income tax consequences to the recipient and the Company with respect to participation in the 2010 Plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside. Incentive Stock Options There will be no federal income tax consequences to either us or the recipient upon the grant of an incentive stock option. Upon exercise of the option, the excess of the fair market value of the stock over the exercise price, or the “spread,” will be added to the alternative minimum tax base of the recipient unless a disqualifying disposition is made in the year of exercise. A disqualifying disposition is the sale of the stock prior to the expiration of two years from the date of grant and one year from the date of exercise. If the shares of common stock are disposed of in a disqualifying disposition, the recipient will realize taxable ordinary income in an amount equal to the spread at the time of exercise, and we will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a federal income tax deduction equal to such amount. If the recipient sells the shares of common stock after the specified periods, the gain or loss on the sale of the shares will be long-term capital gain or loss and we will not be entitled to a federal income tax deduction. Non-statutory Stock Options and Restricted Stock Awards Non-statutory stock options and restricted stock awards granted under the 2010 Plan generally have the following federal income tax consequences. There are no tax consequences to the participant or us by reason of the grant. Upon acquisition of the stock, the recipient will recognize taxable ordinary income equal to the excess, if any, of the stock’s fair market value on the acquisition date over the purchase price. However, to the extent the stock is subject to “a substantial risk of forfeiture” (as defined in Section 83 of the Code), the taxable event will be delayed until the forfeiture provision lapses unless the recipient elects to be taxed on receipt of the stock by making a Section 83(b) election within 30 days of receipt of the stock. If such election is not made, the recipient generally will recognize income as and when the forfeiture provision lapses, and the income recognized will be based on the fair market value of the stock on such future date. On that date, the recipient’s holding period for purposes of determining the long-term or short-term nature of any capital gain or loss recognized on a subsequent disposition of the stock will begin. If a recipient makes a Section 83(b) election, the recipient will recognize ordinary income equal to the difference between the stock’s fair market value and the purchase price, if any, as of the date of receipt and the holding period for purposes of characterizing as long-term or short-term any subsequent gain or loss will begin at the date of receipt. With respect to employees, we are generally required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the participant.
Upon disposition of the stock, the recipient will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income with respect to the stock. Such gain or loss will be long-term or short-term depending on whether the stock has been held for more than one year. Stock Appreciation Rights or SARs A recipient receiving a stock appreciation right will not recognize income, and we will not be allowed a tax deduction, at the time the award is granted. When a recipient exercises the stock appreciation right, the fair market value of any shares of common stock received will be ordinary income to the recipient and will be allowed as a deduction to us for federal income tax purposes. Potential Limitation on Company Deductions Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain senior executives of the Company (a “covered employee”) in a taxable year to the extent that compensation to such employees exceeds $1,000,000. It is possible that compensation attributable to awards, when combined with all other types of compensation received by a covered employee from the Company, may cause this limitation to be exceeded in any particular year. Certain kinds of compensation, including qualified “performance-based compensation,” are disregarded for purposes of the deduction limitation. In accordance with Treasury Regulations issued under Section 162(m), compensation attributable to stock options will qualify as performance-based compensation if the award is granted by a committee solely comprising “outside directors” (as defined in the 2010 Plan) and, among other things, the plan contains a per-employee limitation on the number of shares for which such awards may be granted during a specified period, the per-employee limitation is approved by the stockholders, and the exercise price of the award is no less than the fair market value of the stock on the date of grant. Awards to purchase restricted stock under the 2010 Plan will not qualify as performance-based compensation under the Treasury Regulations issued under Section 162(m). Treatment of 2010 Plan in Reincorporation Merger In connection with the Reincorporation Merger included in Proposal IV below, if it is approved at the 2010 Annual Meeting and effected, the 2010 Plan will be assumed by and become a stock plan of GCEH-Delaware (i.e., the surviving corporation in the Reincorporation Merger), as described below under “Proposal IV – Approval of Reincorporation Merger.” The Board Of Directors Recommends A Vote “For” Approval of the adoption of the 2010 Equity Incentive Plan.
PROPOSAL IV – APPROVAL OF REINCORPORATION MERGER Overview of the Reincorporation Merger Our Board has unanimously approved the reincorporation of the Company in Delaware pursuant to the terms of the Merger Agreement attached as Appendix C, entered into by and between the Company and a wholly-owned subsidiary of the Company organized under the laws of the State of Delaware for purposes of effecting the Reincorporation Merger. For the reasons discussed below, the Board recommends that the stockholders also approve the Reincorporation Merger. Approval of the Reincorporation Merger also will constitute approval of the Merger Agreement. For purposes of the discussion below, the Company, before and after the Reincorporation Merger, is sometimes referred to as “GCEH-Utah” and “GCEH-Delaware,” respectively. The Merger Agreement provides for a tax-free reorganization pursuant to the provisions of Section 368 of the Code, whereby we will be merged with and into GCEH-Delaware, our separate existence as a Utah corporation shall cease, and GCEH-Delaware shall continue as the surviving corporation of the Reincorporation Merger governed by the laws of the State of Delaware. The Merger Agreement provides that each share of our Common Stock and Series B Preferred Stock outstanding as of the effective time of the Merger shall be converted into one share of the common stock of GCEH-Delaware and one shares of GCEH-Delaware Series B Preferred Stock, respectively, with no further action required on the part of our stockholders. The Board believes that the Reincorporation Merger will benefit the Company and its stockholders. We expect to effect the Reincorporation Merger as soon as practicable following stockholder approval of the proposal, regardless of whether our stockholders also approve the proposal to grant discretionary authority to the Board to effect the Reverse Stock Split. Our Board of Directors, however, may determine to abandon the reincorporation and the Reincorporation Merger either before or after stockholder approval has been obtained. If, in addition to approving the Reincorporation Merger, our stockholders vote to grant our Board discretionary authority to effect the Reverse Stock Split, we will consummate the Reincorporation Merger prior to effecting the Reverse Stock Split, if at all. The State of Delaware is recognized for adopting comprehensive modern and flexible corporate laws that are periodically revised to respond to the changing legal and business needs of corporations. Consequently, the Delaware judiciary has become particularly familiar with corporate law matters and a substantial body of court decisions has developed construing Delaware law. Delaware corporate law, accordingly, has been, and is likely to continue to be, interpreted in many significant judicial decisions, a fact which may provide greater clarity and predictability with respect to the Company’s corporate legal affairs. For this reason, many major corporations have initially incorporated in Delaware or have changed their corporate domiciles to Delaware in a manner similar to that proposed herein. Accordingly, our Board believes that it is in the Company’s best interest that our state of incorporation be changed from Utah to Delaware, and has recommended the approval of the Reincorporation Merger to our stockholders. Reincorporation in Delaware will not result in any change in our business, operations, management, assets, liabilities or net worth; however, reincorporation in Delaware will allow us to take advantage of certain provisions of the corporate laws of Delaware as described herein. Our corporate affairs currently are governed by Utah law and the provisions of the Articles of Incorporation and the Bylaws of GCEH-Utah. Copies of these Articles of Incorporation and Bylaws are included as exhibits to our filings with the Securities and Exchange Commission, and are available for inspection during regular business hours at the principal executive offices of the Company. Copies will be sent to stockholders upon request. If the Reincorporation Merger is approved at the 2010 Annual Meeting and effected, our corporate affairs will be governed by Delaware law and the provisions of the Certificate of Incorporation and the Bylaws of GCEH-Delaware. Copies of the Certificate of Incorporation and the Bylaws of GCEH-Delaware are attached to this Proxy Statement as Appendix D and Appendix E, respectively. Principal Features of the Reincorporation Merger The Reincorporation Merger will be effected by the merger of GCEH-Utah with and into GCEH-Delaware pursuant to the Merger Agreement. GCEH-Delaware is a wholly owned subsidiary of GCEH-Utah that was incorporated by us under the laws of the State of Delaware for the sole purpose of effecting the Reincorporation Merger. The Reincorporation Merger will become effective upon the filing of the requisite merger documents in Delaware and Utah, which is expected to occur as soon as practicable after the 2010 Annual Meeting if the Reincorporation Merger is approved by stockholders. Our Board, however, may determine to abandon the Reincorporation Merger notwithstanding stockholder approval of the Reincorporation Merger and the Merger Agreement. The discussion below is qualified in its entirety by reference to the Merger Agreement, and by the applicable provisions of Utah law and Delaware law. On effectiveness of the Reincorporation Merger: Our principal assets (the “Assets”) consisted primarily | · | Each outstanding share of patents, patent applications, pre-clinical study dataGCEH-Utah common stock will be converted into one share of GCEH-Delaware common stock, and clinical trial data concerning Formestane cream (“SaveCream”), a developmental-stage topical aromatase inhibitor treatment for breast cancer. Since July 29, 2006, we have been a party to a licensing and development agreement with Eucodis Pharmaceuticals Forschungs und Entwicklungs GmbH, an Austrian company (“Eucodis”), under which agreement we granted Eucodis a license toeach outstanding share of GCEH-Utah Series B Preferred Stock will be converted into one share of GCEH-Delaware Series B Preferred Stock on the technology to certain territories, and Eucodis agreed to assist in the further development of the SaveCream Assets. Under this license agreement, we granted Eucodis the exclusive right to develop, manufacture and commercialize SaveCream in the European Union and certain surrounding countries. Accordingly, Eucodis was familiar with SaveCream and had an economic incentive to protect and develop this technology.same terms; |
In February 2007, Emmes recommended, | · | Each outstanding share of GCEH-Utah common stock and the Board of Directors agreed, that we approach Eucodis concerning their possible acquisition of our rights in the Assets forGCEH-Utah Series B Preferred Stock held by a one-time cash payment plus the assumption of certain our current debts directly related to the Assets. The Board considered the benefitsGCEH-Utah stockholder will be retired and possible draw-backs of selling the Assets to a buyer (Eucodis) that was very familiar with the Assets. The Board noted that legal title to the Assets was currently being contested by one of the co-inventors of the SaveCream technology,canceled and that two lawsuits to resolve ownership dispute over the Assets were pending in two courts in Germany. The Board noted that these lawsuits would likely make it difficult to sell the Assets to a third party who is unfamiliar withwill resume the status of authorized and unissued GCEH-Delaware stock; and |
| · | Each outstanding option and warrant to purchase shares of GCEH-Utah common stock will be deemed to be an option or warrant to purchase the legal titlesame number of shares of GCEH-Delaware common stock, with no change in the exercise price or other terms or provisions of the Assets and the status of the lawsuits in Germany. Eucodis was familiar with the lawsuits and, in fact, was paying for all of the legal fees in those lawsuits. The Board also noted, that our co-development agreement with Eucodis would make it difficult to market the Assets because a third party purchaser would want to develop the technology itself. Finally, the Board noted that Eucodis already owned the license to commercialize the Assets in the European Union and certain other countries, which would make Eucodis more interested in buying the remaining rights. The fact that Eucodis has a license to these territories also was believed to negatively affect any interest a potential third party purchaser may have in the Assets. After considering all of these factors, the Board concluded that Eucodis was the most logical purchaser of the Assets and that Eucodis was most likely to offer the highest price for our Assets. Therefore, the Board authorized Emmes and our management to approach Eucodis regarding the possible purchase of our rights to the Assets.In February 2007, we approached Dr. Wolfgang Schoenfeld, the President and Chief Executive Officer of Eucodis, to discuss the possible purchase by Eucodis of the Assets. Dr. Schoenfeld expressed interest, and Emmes, Mr. Stephen Drake, our lawyer from Epstein Becker and Green, a Chicago-based law firm, Ms. Valerie Heusinkveld (another financial consultant we retained for this purpose in February 2007), and members of our management thereafter proceeded to negotiate a letter of intent for the purchase of the Assets by Eucodis. Periodically during the negotiation period, the Board of Directors was updated concerning the progress of the negotiations with Eucodis.
On March 8, 2007, a Board of Directors meeting was held to approve the execution of a binding letter of intent (LOI) whereby we agreed to sell the Assets in consideration for a cash payment and the assumption by Eucodis of certain of our current indebtedness directly related to the Assets being purchased by Eucodis. Upon execution of the LOI by both parties, Eucodis made an upfront payment of $200,000 to us.
Following the signing of the LOI, Emmes and Mr. Drake began to draft the terms of a definitive purchase agreement for the Assets with Eucodis.
On April 9, 2007, we delivered a first draft of the definitive purchase agreement to Dr. Schoenfeld for his review and comment. Periodically during the negotiation of the definitive purchase agreement, the Board of Directors was updated by Emmes and Mr. Drake regarding the progress of the negotiations with Eucodis and the terms of the draft asset purchase agreement.
On April 14, 2007, we discussed with Eucodis their proposed changes to our April 9th draft purchase agreement, and prepared a revised draft agreement for Eucodis’ further review and comment.
On April 26, 2007, we negotiated a extension of the expiration date of LOI with Eucodis extending the date by which the parties agree to complete negotiations regarding the definitive purchase agreement.
On May 11, 2007, we held a teleconference with Eucodis’ management to discuss the proposed changes requested by Eucodis.
On May 15, 2007, a revised draft of the April 9th draft purchase agreement was delivered to Dr. Schoenfeld for his review and comment.
On May 30, 2007, Emmes, Mr. Drake and management discussed with the Board of Directors the proposed changes made by Eucodis to the May 15th draft agreement. It was the collective opinion of the members of the Board that Eucodis’ suggested changes were unacceptable, and Emmes was instructed to proceed with further negotiations with Eucodis in an attempt to resolve the outstanding issues.
On June 6, 2007, Emmes made a formal counter proposal to Eucodis concerning the May 15th draft agreement received from Eucodis.
On June 27, 2007, we received from Eucodis comments regarding our June 6th draft agreement. Our Board members and management discussed those comments, identified certain open issues, and instructed Emmes to attempt to resolve the outstanding issues. On June 27, 2007, Emmes submitted a revised draft agreement to Eucodis for consideration, which proposal was accepted by Eucodis.
Following acceptance of the final version of the asset purchase agreement by Eucodis, that version of the purchase agreement was submitted to the Board of Directors in anticipation of a Board meeting to be held to approve the sale.
On July 6, 2007, our Board of Directors met to consider the terms of the final version of a sale and purchase agreement to be entered into with Eucodis. The form and terms of the Asset Sale Agreement were approved at that meeting. Later that day, we entered into that agreement with Eucodis.
Assets To Be Sold
The assets being sold to Eucodis include:
| · | all of our right, title and interest, along with all of MDI Oncology’s right, title and interest, in that certain asset purchase agreement between Medical Discoveries, Inc. and the liquidator of Savetherapeutics AG, a German company in liquidation, dated as of March 11, 2005 (the “Savetherapeutics Contract”), including, among other things, our rights in and to “SaveCream”, a developmental topical aromatase inhibitor cream;option or warrant. |
| · | all of MDI Oncology’s right, title and interest in that certain agreement between MDI Oncology and Eucodis, dated as of July 29, 2006, in connection with the co-development and licensing of SaveCream; |
Following the Reincorporation Merger, stock certificates previously representing our Common Stock or Series B Preferred Stock may be delivered in effecting sales through a broker, or otherwise, of shares of GCEH-Delaware stock. It will not be necessary for you to exchange your existing stock certificates for stock certificates of GCEH-Delaware, and if you do so, it will be at your own cost. | · | any and all of our and MDI Oncology’s rights, title and interests in the patents and patent applications acquired under the Savetherapeutics Contract, and any other patent and/or patent application pertaining to the SaveCream drug, owned or in our or MDI Oncology’s possession or control; |
The Reincorporation Merger will not cause a change in our name, which will remain “Global Clean Energy Holdings, Inc.” The Reincorporation Merger also will not effect any change in our business, management or operations or the location of our principal executive office. On effectiveness of the Reincorporation Merger, our directors and officers will become all of the officers and directors of GCEH-Delaware, all of our employee benefit and stock option plans will become GCEH-Delaware plans (including the 2010 Plan if approved by stockholders), and each option or right issued under such plans will automatically be converted into an option or right to purchase the same number of shares of GCEH-Delaware common stock, at the same price per share, upon the same terms and subject to the same conditions as before the Reincorporation Merger. Stockholders should note that approval of the Reincorporation Merger will also constitute approval of these stock plans continuing as plans of GCEH-Delaware. Our employment contracts and other employee benefit arrangements also will be continued by GCEH-Delaware upon the terms and subject to the conditions currently in effect. We believe that the Reincorporation Merger will not affect any of our material contracts with any third parties, and that our rights and obligations under such material contractual arrangements will continue as rights and obligations of GCEH-Delaware. | · | any and all United States and foreign regulatory files and data relating to the SaveCream drug in our or MDI Oncology’s possession, including marketing authorization procedures and preclinical and clinical studies; |
Other than receipt of stockholder approval, and the filing of requisite merger documents in Delaware and Utah, there are no federal or state regulatory requirements or approvals that must be obtained in order for us to consummate the Reincorporation Merger. | · | all of our right, title and interest in that certain asset purchase agreement between Medical Discoveries, Inc. and Attorney Hinnerk-Joachim Muller as Liquidator of Savetherapeutics AG i. L.; |
| · | all of our right, title and interest in that side letter to the asset purchase agreement between Medical Discoveries, Inc. and Attorney Hinnerk-Joachim Muller as Liquidator of Savetherapeutics AG i. L.; |
Securities Act Consequences | · | all of MDI Oncology’s right, title and interest in that certain Assignment of Patent, Participation and Research Development Agreement between MDI Oncology and Professor Heinrich Weiland; |
The shares of GCEH-Delaware common stock to be issued upon conversion of shares of GCEH-Utah common stock in the Reincorporation Merger are not being registered under the Securities Act of 1933, as amended (the “Securities Act”). In this regard, we are relying on Rule 145(a)(2) under the Securities Act (“Rule 145”), which provides that a merger that has “as its sole purpose” a change in the domicile of a corporation does not involve the sale of securities for purposes of the Securities Act. After the Reincorporation Merger, GCEH-Delaware will be a publicly held company, GCEH-Delaware common stock will continue to be qualified for quotation on the OTC Bulletin Board, and GCEH-Delaware will file periodic reports and other documents with the SEC and provide to its stockholders the same types of information that GCEH-Utah have previously filed and provided. | · | all of MDI Oncology’s right, title and interest in that certain Assignment 1 to the Assignment of Patent, Participation and Research Development Agreement between MDI Oncology and Professor Heinrich Weiland; and |
Holders of shares of GCEH-Utah common stock that are freely tradable before the Reincorporation Merger will continue to have freely tradable shares of GCEH-Delaware common stock. Stockholders holding so-called restricted shares of GCEH-Utah common stock will have shares of GCEH-Delaware common stock that are subject to the same restrictions on transfer as those to which their shares of GCEH-Utah common stock are subject, and their stock certificates, if surrendered for replacement certificates representing shares of GCEH-Delaware common stock, will bear the same restrictive legend as appears on their present stock certificates. For purposes of computing compliance with the holding period requirement of Rule 144 under the Securities Act, stockholders will be deemed to have acquired their shares of GCEH-Delaware common stock on the date they acquired their shares of common stock of GCEH-Utah. | · | all of our right, title and interest in that certain consulting agreement between Medical Discoveries, Inc. and Marc Kessemeier. |
Material U.S. Federal Income Tax ConsequencesThe following discussion summarizes the material U.S. federal income tax consequences of the Reincorporation Merger that are applicable to you as a stockholder. It is based on the Code, applicable Treasury Regulations, judicial authority, and administrative rulings and practice, all as of the date of this proxy statement and all of which are subject to change, including changes with retroactive effect. The discussion below does not address any state, local or foreign tax consequences of the Reincorporation Merger. Your tax treatment may vary depending upon your particular situation. You also may be subject to special rules not discussed below if you are a certain kind of stockholder, including, but not limited to: an insurance company; a tax-exempt organization; a financial institution or broker-dealer; a person who is neither a citizen nor resident of the United States or entity that is not organized under the laws of the United States or political subdivision thereof; a holder of our shares as part of a hedge, straddle or conversion transaction; a person that does not hold our shares as a capital asset at the time of the Reincorporation Merger; or an entity taxable as a partnership for U.S. federal income tax purposes. The Company will not request an advance ruling from the Internal Revenue Service as to the U.S. federal income tax consequences of the Reincorporation Merger or any related transaction. The Internal Revenue Service could adopt positions contrary to those discussed below and such positions could be sustained. Stockholders are urged to consult with their tax advisors and financial planners as to the particular tax consequences of the Reincorporation Merger to them, including the applicability and effect of any state, local or foreign laws, and the effect of possible changes in applicable tax laws. It is intended that the Reincorporation Merger qualify as a “reorganization” under Section 368(a) of the Code. As a “reorganization,” it is expected that the Reincorporation Merger will have the following U.S. federal income tax consequences: The foregoing are collectively referred to in this proxy statement as the “Purchased Assets”.
In the event the sale to Eucodis is not approved by our shareholders, we are obligated under the Eucodis Agreement to transfer to Eucodis certain rights to SaveCream, by means of a license or otherwise, on terms to be determined by the parties. Accordingly, since we will no longer be developing the SaveCream product even if our shareholders do not approve the sale of these assets, we may still enter into a limited license or other agreement with Eucodis pursuant to which Eucodis could continue to develop and commercially exploit the SaveCream products.
Purchase Price; Obligations To Be Assumed By Eucodis
In exchange for the Purchased Assets, Eucodis will pay approximately 4,007,534 euros or approximately $5,906,000 based on the currency exchange rate in effect as of November 30, 2007, comprising a cash payment of approximately $2,267,000, and Eucodis’ assumption of certain of our obligations and liabilities aggregating approximately $3,639,000. Specifically, at or prior to the closing Eucodis will relieve us (and MDI Oncology, as applicable) from a total of $3,639,000 of indebtedness and commitments owed to Epstein, Becker and Green, LLP; H3 Pharma Consulting Group; Mayer, Brown, Rowe and Maw, LLP; Professor Heinrich Weiland; the Liquidator of Savetherapeutics AG i. L.; Marc Kessemeier; and Millbank Tweed, Hadley & McCloy LLP. The foregoing obligations to be assumed by Eucodis are collectively referred to in this proxy statement as the “Assumed Indebtedness”.
Further, Eucodis will assume all of our financial and other obligations under certain contracts relating to SaveCream, which will be assigned to Eucodis when the transaction closes, and certain other costs we have incurred since February 28, 2007 in connection with preserving the Purchased Assets for the benefit of Eucodis through the closing of the transaction. Other than the foregoing obligations, Eucodis will not assume or be liable for any of our obligations or liabilities.
Non-Competition
Under the Eucodis Agreement, we and MDI Oncology have agreed to a non-compete provision for the duration of five years after the closing of the Eucodis transaction. Specifically, the non-compete provision restricts us from undertaking research and development activities with respect to SaveCream, or any other product which could be used in reasonable substitution of SaveCream, or commercializing any products based on SaveCream, unless expressly authorized by Eucodis.
Representations And Warranties
The Eucodis Agreement contains various representations and warranties of Medical Discoveries and MDI Oncology including among others, representations and warranties related to:
· | due incorporation | · | due authorization, | · | consents | · | enforceability | · | corporate authority | · | contracts | · | no defaults or violations | · | litigation | · | no liens | · | no infringement |
The Eucodis agreement contains various representations and warranties of Eucodis including among others, representations and warranties related to:
· | due incorporation | · | corporate authority | · | enforceability | · | due authorization |
Indemnification
We and MDI Oncology have agreed to indemnify Eucodis and its directors, officers, employees, agents and consultants against, and hold them harmless from, any and all losses incurred or suffered by any of them arising out of any of the following:
| · | any breach of any representation, warranty, covenant or agreement made by either of us or MDI Oncology under the Eucodis Agreement; and |
| · | any act or omission by either of us or MDI Oncology in connection with the Purchased Assets to the extent that the cause for such claim was existing prior to or on July 6, 2007, or in connection with the transactions contemplated by the Eucodis Agreement. |
Eucodis has agreed to indemnify us and MDI Oncology and their directors, officers, employees, agents or consultants against, and hold them harmless from, any and all losses incurred or suffered by them arising out of any of the following:
| · | any breach of any representation, warranty, covenant or agreement made by Eucodis under the Eucodis Agreement; |
| · | non payment by Eucodis of the Assumed Indebtedness; and |
| · | any act or omission by Eucodis in connection with the Purchased Assets to the extent that the cause for such claim was created after July 6, 2007, or in connection with the transactions contemplated by the Eucodis Agreement. |
Other Covenants
Each of us, MDI Oncology and Eucodis have agreed:
| · | to strictly protect and maintain the confidentiality of the confidential information belonging to the other parties with at least a reasonable standard of care that is no less than that which it uses to protect similar confidential information of its own; |
| · | not to disclose, nor allow to be disclosed, the confidential information belonging to the other parties to any person other than to employees, consultants and counsel, on a need to know basis provided, that such recipients of the confidential information are bound by obligations of confidentiality no less strict than those contained in the Eucodis Agreement |
| · | unless otherwise expressly provided for in the Eucodis Agreement, not use the confidential information belonging to the other parties for any purpose other than in relation to the exercise of its rights and obligations under the Eucodis Agreement; and |
| · | take all necessary precautions to restrict access of the confidential information belonging to the other parties to unauthorized personnel. |
Conditions To Closing The Transaction
The consummation of the transactions contemplated under the Eucodis Agreement is contingent on approval by our shareholders. In addition, the obligations of Eucodis, us and MDI Oncology to consummate the transaction at the closing are, subject to satisfaction of the following conditions precedent on or before the closing date:
| · | our and MDI Oncology’s representations and warranties under the Eucodis Agreement being true on the closing date; |
| · | our and MDI Oncology’s performance of all covenants and obligations required under the Eucodis Agreement; |
| · | our and MDI Oncology’s delivery to Eucodis of certain documents necessary to effect the transfer of the Purchased Assets; and |
| · | our obtaining additional capital or a credit facility in the aggregate amount of at least $250,000. We have already satisfied this condition. |
Amendment Of The Eucodis Agreement
The Eucodis Agreement may be amended, modified or supplemented but only in writing signed by all of the parties.
Closing
The closing of the transaction is to take place on January 31, 2008 following approval by the shareholders and the satisfaction of all of the closing conditions set forth in the Eucodis Agreement.
Use Of Proceeds And Operations After The Transaction
Following the closing of the Eucodis transaction, neither we | · | Neither GCEH-Utah nor MDI Oncology will undertake research and development activities with respect to SaveCream or any other product which could be used in reasonable substitution of SaveCream, or commercialize any products based on SaveCream except as may be otherwise expressly requested by Eucodis.At the closing of the Eucodis transaction, in addition to Eucodis’ assumption of certain indebtedness, as further described in this proxy statement, we will receive from Eucodis cash proceeds in the aggregate of approximately $2,067,000. These proceeds will be used to fund our future working capital needs, to repay certain indebtedness and commitments, and for future operations. At the time of the execution of the Eucodis Agreement, we had not yet made any determination about future business plans once the transaction with Eucodis closed. However, since signing into the Eucodis Agreement, we decided to engage in a the business of developing, marketing and selling alternative energy bio-fuels and related products. The proceeds to be received from Eucodis will, therefore, be used to conduct our new alternative biofuels business.
Regulatory Approvals
There are no regulatory approvals required to close the transactions contemplated by the Eucodis Agreement.
Certain Federal Income Tax Consequences
We expect that, in our consolidated tax returns, we will recognize taxable gain for U.S. federal income tax purposes as a result of the sale of the SaveCream assets to Eucodis. However, we believe that any taxes payable as a result of this sale will be offset by our prior operating losses, including those from the fiscal year ended December 31, 2007.
We do not expect that our shareholdersGCEH-Delaware will recognize any gain or loss for U.S. federal income tax purposesfrom the Reincorporation Merger;
|
| · | A GCEH-Utah stockholder will not recognize any gain or loss as a result of the transaction.receipt of GCEH-Delaware shares in exchange for such stockholder’s GCEH-Utah shares in the Reincorporation Merger; |
Accounting Treatment | · | A GCEH-Utah stockholder’s aggregate tax basis in the GCEH-Delaware shares received in the Reincorporation Merger will equal such stockholder’s aggregate tax basis in the GCEH-Utah shares held immediately before the Reincorporation Merger; and |
| · | A GCEH-Utah stockholder’s tax holding period for GCEH-Delaware shares received in the Reincorporation Merger will include the period during which such stockholder held GCEH-Utah shares. |
Accounting Treatment The Reincorporation Merger is expected to be accounted for as a reverse acquisition in which GCEH-Utah is the accounting acquirer, and GCEH-Delaware is the legal acquirer. Since the Reincorporation Merger is expected to be accounted for as a reverse acquisition and not a business combination, no goodwill is expected to be recognized. Regulatory Approval To the Company’s knowledge, the only required regulatory or governmental approval or filings necessary in connection with the Reincorporation Merger would be the filing of articles of merger with the Secretary of the State of Utah, and the filing of a certificate of merger with the Secretary of the State of Delaware. Dissenters’ Rights Sections 16-10a-1301 through 16-10a-1331 of the UBCA grants any stockholder of GCEH-Utah of record on the Record Date who objects to the Reincorporation Merger the right to have GCEH-Utah purchase the shares owned by the dissenting stockholder at their fair value at the effective time of the Reincorporation Merger. Any stockholder contemplating the exercise of these dissenters’ rights should review carefully the discussion of dissenting stockholder rights under the caption “Dissenters’ Rights” and the provisions of Sections 16-10a-1301 through 16-10a-1331 of the UBCA, particularly the procedural steps required to perfect such rights. A VOTE AGAINST THE REINCORPORATION MERGER IS NOT SUFFICIENT TO PERFECT YOUR DISSENTERS’ RIGHTS AND SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTIONS 16-10a-1301 THROUGH 16-10a-1331 ARE NOT FULLY AND PRECISELY SATISFIED. A SUMMARY OF THE STATUTORY PROCEDURE TO PERFECT YOUR DISSENTER'S RIGHTS IS PROVIDED BELOW AND A COPY OF SECTIONS 16-10a-1301 THROUGH 16-10a-1331 IS ATTACHED AS APPENDIX G. Material Terms of the Merger Agreement The following is only a summary of the material provisions of the Merger Agreement between GCEH-Utah and GECH-Delaware and is not complete. The Merger Agreement is attached to this proxy statement as Appendix C. Please read the Merger Agreement in its entirety. General The Merger Agreement provides that, subject to the approval and adoption of the Merger Agreement by the stockholders of GCEH-Utah and the authority of the Board of Directors of GCEH-Utah to abandon the Reincorporation Merger: | · | GCEH-Utah will merge with and into GCEH-Delaware; and |
| · | GCEH-Utah will cease to exist and GCEH-Delaware will continue as the surviving corporation. |
As a result of, and as of the effective time of, the Reincorporation Merger, GCEH-Delaware will succeed to and assume all rights and obligations of GCEH-Utah, in accordance with Delaware law. Effective Time The Merger Agreement provides that, subject to the approval of the stockholders of GCEH-Utah, the Reincorporation Merger will be consummated by the filing of articles/certificate of merger and any other appropriate documents, in accordance with the relevant provisions of the UBCA and the DGCL, with the Secretary of State of the State of Utah and the Secretary of State of the State of Delaware, respectively. We expect to effect the Reincorporation Merger as soon as practicable following stockholder approval of the proposal, regardless of whether our stockholders also approve the proposal to grant discretionary authority to the Board to effect the Reverse Stock Split. If, in addition to approving the Reincorporation Merger, our stockholders vote to grant our Board discretionary authority to implement the Amendment and effect the Reverse Stock Split, we expect to consummate the Reincorporation Merger prior to effecting the Reverse Stock Split, if at all. Merger Consideration Upon consummation of the Reincorporation Merger, each outstanding share of GCEH-Utah common stock and GCEH-Utah Series B Preferred Stock (except shares as to which dissenters’ rights have been properly exercised) will be converted into the right to receive one share of GCEH-Delaware common stock and GCEH-Delaware Series B Preferred Stock. Shares of GCEH-Utah common stock and GCEH-Utah Series B Preferred Stock will no longer be outstanding and will automatically be cancelled and retired and will cease to exist. Each holder of a certificate representing shares of GCEH-Utah common stock and GCEH-Utah Series B Preferred Stock immediately prior to the Reincorporation Merger will cease to have any rights with respect to such certificate, except the right to receive shares of GCEH-Delaware common stock and GCEH-Delaware Series B Preferred Stock. Treatment of Stock Options and Warrants Under the terms of the Merger Agreement, upon consummation of the Reincorporation Merger each outstanding option to purchase a share of GCEH-Utah common stock will be deemed to constitute an option to purchase one share of GCEH-Delaware common stock at an exercise price per full share equal to the stated exercise price, and each outstanding warrant to purchase a share of GCEH-Utah common stock will be deemed to constitute a warrant to purchase one share of GCEH-Delaware common stock at an exercise price per full share equal to the stated exercise price. Under the Merger Agreement, GCEH-Delaware will assume GCEH-Utah’s stock option plans (including the 2010 Plan if approved by stockholders), which following the Reincorporation Merger will be used by GCEH-Delaware to make awards to directors, officers, and employees of GCEH-Delaware and others as permitted under the terms of GCEH-Utah’s stock option plans. Directors and Officers The Merger Agreement provides that the board of directors of GCEH-Delaware from and after the Reincorporation Merger will consist of the directors of GCEH-Utah immediately prior to the Reincorporation Merger. The Merger Agreement further provides that the officers of GCEH-Delaware from and after the Reincorporation Merger will be the officers of GCEH-Utah immediately prior to the Reincorporation Merger.
Certificate of Incorporation and Bylaws The Merger Agreement provides that the Certificate of Incorporation of GCEH-Delaware in effect immediately before the Reincorporation Merger will be the Certificate of Incorporation of the surviving corporation, and the bylaws of GCEH-Delaware in effect immediately before the Reincorporation Merger will be the bylaws of the surviving corporation until later amended in accordance with Delaware law. Conditions to the Merger The obligations of GCEH-Utah and GCEH -Delaware to consummate the Reincorporation Merger are subject to the satisfaction or waiver of the conditions that the Merger Agreement and Reincorporation Merger shall have been approved and adopted by the stockholders of GCEH-Utah. To the Company’s knowledge, the only required regulatory or governmental approval or filings necessary in connection with the Reincorporation Merger would be the filing of articles of merger with the Secretary of the State of Utah, and the filing of a certificate of merger with the Secretary of the State of Delaware. Effect on Stock Certificates The Reincorporation Merger will not have any effect on the transferability of outstanding stock certificates representing our Common Stock or Series B Preferred Stock. It will not be necessary for stockholders to exchange their existing stock certificates for certificates of GCEH-Delaware. Each stock certificate representing issued and outstanding shares of common stock and preferred stock of GCEH-Utah will continue to represent the same number of shares of common stock and preferred stock of GCEH-Delaware. Abandonment of Reincorporation Merger Our Board of Directors may, in its sole discretion, determine to abandon the Reincorporation Merger notwithstanding stockholder approval of the Reincorporation Merger and the Merger Agreement. Comparison of Rights under DGCL and UBCA GCEH-Utah currently is a Utah corporation and, as such, the rights of its stockholders are governed by the Utah Revised Business Corporation Act (the “UBCA”), and by the Articles of Incorporation and Bylaws of GCEH-Utah currently in effect (the “GCEH-Utah Articles” and “GCEH-Utah Bylaws,” respectively). Upon completion of the Reincorporation Merger, the stockholders of GCEH-Utah will become stockholders of GCEH-Delaware and their rights will be governed by the Delaware General Corporation Law (the “DGCL”) and by the GCEH-Delaware Certificate of Incorporation and Bylaws (the “GCEH-Delaware Certificate” and “GCEH-Delaware Bylaws,” respectively), which differ in some important respects from the UBCA and the GCEH-Utah Articles and GCEH-Utah Bylaws. The following comparison of the DGCL and the GCEH-Delaware Certificate and GCEH-Delaware Bylaws with the UBCA and the GCEH-Utah Articles and GCEH-Utah Bylaws summarizes the important differences, but is not intended to list all differences: | | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | Action by Stockholders Without a Meeting | | Utah law permits stockholder action by less than unanimous written consent and provides that any action that could be taken at an annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if written consents are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unlike Delaware law, Utah law requires a unanimous written consent of stockholders to elect directors. Utah law provides that, in order to be effective, all written consents must be delivered to GCEH-Utah within 60 days after the earliest dated consent delivered to GCEH-Utah, and (ii) prompt notice of the action by written consent must be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to GCEH-Utah. Unlike Delaware law, Utah law requires that the actions taken by the written consent of stockholders cannot become effective until at least 10 days after notice of such actions has been furnished to all stockholders who did not sign the written consent. The GCEH-Utah Bylaws are consistent with Utah law, except that under the GCEH-Utah Bylaws, any action that could be taken at an annual or special meeting of stockholders may be taken without a meeting if written consents are signed by the holders of all outstanding stock. | | Delaware law permits stockholder action by less than unanimous written consent and provides that any action that could be taken at an annual or special meeting of stockholders (including the election of directors) may be taken without a meeting, without prior notice and without a vote, if written consents are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Delaware law provides that, in order to be effective, all written consents must be delivered to GCEH-Delaware within 60 days after the earliest dated consent delivered to GCEH-Delaware, and prompt notice of the action by written consent must be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to Company. Unlike Utah law, Delaware law does not stipulate that the actions taken by the written consent of stockholders cannot become effective until at least 10 days after notice of such actions has been furnished to all stockholders who did not sign the written consent. The GCEH-Delaware Bylaws are consistent with the DGCL. |
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | Special Meetings of Stockholders | | The UBCA permits special meetings of the stockholders to be called at any time by the board of directors or persons authorized by the bylaws to call a special meeting, or on the written demand of holders of shares representing at least 10% of all the votes entitled to be cast at such meeting. The transaction will be accounted for by us and MDI Oncology as a sale of assets. Recommendation Of The Board Of Directors
Our Board has determinedGCEH-Utah Bylaws are consistent with the UBCA but also provide that the approvalcorporation’s president, in addition to the foregoing categories of persons, may call a special meeting of stockholders.
| | The DGCL provides that a special meeting of stockholders may be called by the sale and purchase agreement andboard of directors or by such person or persons as may be authorized by the transaction is incertificate of incorporation or by the best interestbylaws. The GCEH-Delaware Bylaws provide that a special meeting of our shareholders.THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE EUCODIS AGREEMENT AND THE ASSET SALE TRANSACTION.
PROPOSAL II - INCREASE IN AUTHORIZED COMMON STOCK
Overview
Ourstockholders be called by the Board of Directors has approved an amendmentor the Chairman of the Board or the Chief Executive Officer of GCEH -Delaware. The DGCL and the GCEH -Delaware Bylaws require that a notice of stockholders meeting be delivered to our Amendedstockholders not less than ten days nor more than 60 days before the meeting. The notice must state the place, day, hour and Restated Articlespurpose of Incorporation to increase the sharesmeeting.
| | | | | | | Removal of Directors | | The UBCA provides that any director may be removed, with or without cause, by the holders of common stock that are authorized for issuance from 250,000,000 sharesof GCEH-Utah but only at a meeting of stockholders pursuant to 500,000,000 shares. The full texta notice of meeting, which includes the amendment to our Amended and Restated Articlesremoval of Incorporation increasing the authorized numbersuch director as an item of sharesbusiness. If cumulative voting is set forth as follows: “The first sentence of Article 3 of the Amended and Restated Articles of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
3.The aggregate number of shares of stock that the Corporation is authorized to issue is 550,000,000, consisting of 50,000,000 shares of preferred stock, no par value (hereinafter referred to as “Preferred Stock”), and 500,000,000 shares of common stock, no par value (hereinafter referred to as “Common Stock”).”
Reasons for the Amendment
Under our Amended and Restated Articles of Incorporation as currentlynot in effect there are 250,000,000 shares of common stock authorized for issuance. As of the record date, we have an aggregate of 197,676,560 shares of our common stock issued and outstanding. An additional 145,719,231 shares of our common stock are reserved for issuance upon the exercise of our outstanding warrants and options or the conversion of our outstanding Series A Convertible Preferred Stock and our Series B Convertible Preferred Stock. (The holders or the Series A Convertible Preferred Stock and certain warrants have agreed that they will(the GCEH-Utah Bylaws do not convert their shares of Series A Convertible Preferred Stock or exercise their warrantsprovide cumulative voting rights), a director may be removed only if by doing so, they would collectively own more than 9.99% of our outstanding shares. The foregoing assumes that all shares of Series A Convertible Preferred Stock are converted and all warrants are exercised, despite this limitation). Based on the number of shares of our common stock currently issued and outstanding, and onvotes cast to remove the director exceeds the number of additional shares issuable in connectionvotes cast against removal.
The GCEH-Utah Bylaws are consistent with the exerciseUBCA in this regard. | | The DGCL provides that a director or directors may be removed with or without cause by the holders of outstanding warrantsa majority in voting power of the shares then entitled to vote at an election of directors, except that (a) members of a classified board of directors may be removed only for cause, unless the certificate of incorporation provides otherwise, and options and(b) in the conversioncase of our convertible Preferred Stock, we have agreeda corporation having cumulative voting, if less than the entire board of directors is to issue upbe removed, no director may be removed without cause if the votes cast against such director’s removal would be sufficient to 93,395,791 more shares than our authorized numberelect such director if then cumulatively voted at an election of shares permits. Accordingly,the entire board of directors or of the class of directors of which such director is a part. The GCEH-Delaware Bylaws are consistent with the DGCL in this regard. | | | | | | | Board Vacancies | | Under the UBCA, unless our Amended and Restated Articlesthe Certificate of Incorporation are amended toprovide otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of sharesdirectors, (i) the stockholders may fill the vacancy; (ii) the board of common stock we are authorized to issue, we will not have sufficient authorized sharesdirectors may fill the vacancy; or (iii) if the directors remaining in office constitute fewer than a quorum of common stock availablethe board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in connection with exercises of currently outstanding warrants, options and our convertible preferred stock.office. Neither the GCEH-Utah Articles nor the GCEH-Utah Bylaws alters this provision. | | The primary purposesDGCL provides that the board of directors may fill all vacancies on the proposedboard, including vacancies caused by an increase in the number of authorized sharesdirectors, unless otherwise provided in the certificate of common stock are the following:incorporation or bylaws. 1.To make additionalNeither the GCEH-Delaware Certificate nor the GCEH-Delaware Bylaws alters this provision.
|
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | Indemnification | | The UBCA provides that, unless limited by its Certificate of Incorporation, a corporation shall indemnify a director who was successful, on the merits or otherwise, in the defense of any proceeding, or in the defense of any claim, issue, or matter in the proceeding, to which he was a party because he is or was a director of the corporation, against reasonable expenses incurred by him in connection with the proceeding or claim with respect to which he has been successful. With respect to third party actions, under the UBCA and the GCEH-Utah Bylaws, GCEH-Utah has the power, but not an obligation, to indemnify any director, officer, employee or agent of GCEH-Utah who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit, against expenses (including attorneys’ fees) judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with any such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of GCEH-Utah, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. | | The DGCL generally permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a third-party action, other than a derivative action, and against expenses actually and reasonably incurred in the defense or settlement of a derivative action, provided that there is a determination that the individual acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation. Such determination shall be made, in the case of an individual who is a director or officer at the time of such determination (i) by a majority of the disinterested directors, even though less than a quorum; (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum; (iii) by independent legal counsel, regardless of whether a quorum of disinterested directors exists; or (iv) by a majority vote of the stockholders, at a meeting at which a quorum is present. Without court approval, however, no indemnification may be made in respect of any derivative action in which such individual is adjudged liable to the corporation. The DGCL requires indemnification of directors and officers for expenses relating to a successful defense on the merits or otherwise of a derivative or third-party action. The DGCL permits a corporation to advance expenses relating to the defense of any proceeding to directors and officers contingent upon such individuals’ commitment to repay any advances unless it is determined ultimately that such individuals are entitled to be indemnified. |
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | | With respect to corporate actions, under the UBCA and the GCEH-Utah Bylaws, GCEH-Utah has the power, but not an obligation, to indemnify any director, officer, employee or agent of GCEH-Utah who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor, against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with any such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of GCEH-Utah, except that no indemnification will be made in respect of any claim, issue, or matter as to which such a person shall have been adjudged to be liable to the corporation, or in connection with a proceeding in which the individual was adjudged liable on the basis that he or she derived an improper personal benefit. | | Under the DGCL, the rights to indemnification and advancement of expenses provided in the law are non-exclusive, in that, subject to public policy issues, indemnification and advancement of expenses beyond that provided by statute may be provided by by-law, agreement, vote of stockholders, disinterested directors or otherwise. The GCEH-Delaware Certificate provides that GCEH-Delaware shall indemnify directors, officers, employees and agents of GCEH-Delaware to the fullest extent permitted by the DGCL. The GCEH -Delaware Bylaws provides that GCEH -Delaware officers and directors shall be indemnified to the fullest extent permitted by applicable law, and that GCEH -Delaware shall pay the expenses incurred in defending any proceeding in advance of its final disposition. Payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon the receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified. | | | | | | | Elimination of Directors’ Liability for Monetary Damages | | Utah law permits a corporation, pursuant to its Certificate of Incorporation, or in certain circumstances its bylaws, to provide for the elimination or limitation of the liability of a director to the corporation or its stockholders for monetary damages for any action taken or failure to take any action as a director, except liability for (i) the amount of a financial benefit received by a director to which he is not entitled; (2) an intentional infliction of harm on the corporation or its stockholders; (3) unlawful distributions; or (4) an intentional violation of criminal law. The GCEH-Utah Articles provide that the personal liability of directors, officers and stockholders of the corporation to the corporation or any third person is eliminated or limited to the fullest extent permitted under the UBCA. | | The DGCL provides that a corporation’s certificate of incorporation may include a provision limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. However, no such provision can eliminate or limit the liability of a director for certain actions, including, among others, (i) any breach of the director’s duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; (iii) any transaction from which the director derived an improper personal benefit; and (iv) pursuant to Section 174 of the DGCL. The GCEH-Delaware Certificate provides that a director of GCEH -Delaware shall not be personally liable to GCEH -Delaware or any of its stockholders for monetary damages for breach of fiduciary duty as a director except to the extent provided by applicable law for the actions described above. |
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | Record Date | | Under the UBCA, a corporation’s bylaws may fix or provide the manner of fixing the record date for stockholders entitled to be given notice of a stockholders' meeting, to determine stockholders entitled to take action without a meeting, to demand a special meeting, to vote, or to take any other action. The GCEH-Utah Bylaws provide that, with respect to all actions requiring the fixing of a record date, the record date shall be not more than 70 days before the meeting or action requiring a determination of stockholders. | | Under the DGCL, a corporation’s bylaws may fix or provide the manner of fixing the record date for stockholders entitled to be given notice of a stockholders' meeting, to determine stockholders entitled to take action without a meeting, to demand a special meeting, to vote, or to take any other action. The GCEH-Delaware Bylaws provide that, with respect to all actions requiring the fixing of a record date, the record date shall be not more than 60 days or less than 10 days before the meeting or action requiring a determination of stockholders. | | | | | | | Amendment to the Articles (Certificate) of Incorporation | | The UBCA provides that amendments to the GCEH-Utah Articles (other than ministerial amendments authorized by the board of directors without stockholder action) may be proposed by the board of directors, and the board of directors must recommend the amendment to the stockholders for their approval. Unless the UBCA, the Certificate of Incorporation, or the bylaws (if authorized by the Certificate of Incorporation) require a greater vote, the amendment to be adopted must be approved by a majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters’ rights, or a majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would materially and adversely affect rights of such voting group. The GCEH-Utah Articles and Bylaws do not require a greater vote. | | Under the DGCL, unless a corporation’s certificate of incorporation requires a greater vote, a proposed amendment to the certificate of incorporation requires an affirmative vote of a majority of the voting power of the outstanding stock entitled to vote thereon and a majority of the voting power of the outstanding stock of each class entitled to vote thereon. The GCEH-Delaware Certificate does not require a greater vote. The approval of the holders of a majority of the outstanding shares of any class of capital stock available for issuanceof a corporation, voting separately as a class, is required under the DGCL to approve a proposed amendment to a corporation’s certificate of incorporation, whether or not entitled to vote on such amendment by the certificate of incorporation, if the amendment would increase or decrease the aggregate number of authorized shares of such class (except as provided in connection with currently outstanding warrants, options and our outstanding Series A Convertible Preferred Stock and our Series B Convertible Preferred Stock.the last sentence of this paragraph), increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. |
| | GCEH-Utah, 2.To provide our Boarda Utah Corporation
| | GCEH-Delaware, a Delaware corporation | | | | | The authorized number of Directors with the flexibility to issue additional securities as the Board deems appropriateshares of any class of stock may be increased or necessary. In connection with the development of our new Jatropha Business, we expect to have to obtain additional financing in order to fund ongoing operations and to meet our working capital needs. Unless we increasedecreased (but not below the number of shares that we are authorized to issue, we may not be able to raise any additional capital fromof such class outstanding) by the issuance of securities.3.The Board needs to have additional shares available to it for the issuance of options to future officers, directors and employees. The Board of Directors believes that the ability to issue stock options is crucial to the company’s future success.
4.The company may need additional newly authorized sharesrequisite vote described above if so provided in the future in connection with possible acquisitionsoriginal certificate of or business combinations with other companies,incorporation or in connection with establishing strategic partnershipsany amendment thereto that created such class of stock or other business relationships, or for other corporate purposes.
Except pursuant to outstanding options, warrants and other convertible securities, we have no present agreement or commitment, however, to issue any additional shares of common stock.
If our shareholders approve the increase in our authorized shares of common stock, our Board of Directors does not intend to solicit further shareholder approvalthat was adopted prior to the issuance of any authorized shares of common stock,such class, or in an amendment authorized by a majority vote of the holders of shares of such class.
| | | | | | | Amendment to the By-laws | | The UBCA provides that a corporation’s board of directors may amend the corporation’s bylaws at any time, except as may be required by applicable law.The increase in the authorized common stock will not have any immediate effect on the rights of existing shareholders. Toto the extent that the additional authorized shares are issuedCertificate of Incorporation, the bylaws, or the UBCA reserve this power exclusively to the stockholders, in whole or part. This is consistent with the GCEH-Utah Bylaws.
| | Under the DGCL, the power to adopt, alter and repeal bylaws of a corporation is vested in its stockholders, except to the extent that a corporation’s certificate of incorporation vests concurrent power in the future,board of directors or the bylaws state otherwise. The GCEH-Delaware Certificate provides that the board of directors has the power to make and to alter or amend the GCEH-Delaware Bylaws. The GCEH -Delaware Bylaws provide that they will decreasemay be amended by the existing shareholders percentage equity ownership and, dependingstockholders of GCEH -Delaware, or by the GCEH -Delaware Board of Directors at any meeting by a majority vote of the full GCEH -Delaware Board of Directors or by a consent in writing signed by the entire GCEH -Delaware Board of Directors. | | | | | | | Advance Notice Bylaws | | The UBCA does not contain any provisions specifically dealing with advance notice by stockholders in connection with annual or special stockholder meetings. However, the GCEH-Utah Bylaws provide that a stockholder entitled to vote at the meeting may nominate a person for election as a director or may propose other business to be conducted at such a meeting only if advance written notice of such director nomination or stockholder proposal is given. Specifically, written notice of such stockholders’ intent to make such nomination or to propose such other business at an annual meeting of stockholders generally must be received by the corporation’s secretary not less than 60 days or more than 90 days prior to the first anniversary date of the preceding year’s annual meeting, or with respect to a special meeting, no later than the 10th day following the earlier of the day on which notice of the date of the special meeting was mailed or public disclosure was made. | | The DGCL does not contain any provisions specifically dealing with advance notice by stockholders in connection with annual or special stockholder meetings. However, the GCEH-Delaware Bylaws require that nominations (other than by the Board of Directors or a nominating committee) for the election of directors at a meeting of stockholders must be made by written notice, delivered or mailed by first class mail, to GCEH -Delaware not less than 120 days prior to the anniversary of the date on which the proxy statement for the immediately preceding annual meeting was mailed to stockholders, or if GCEH -Delaware did not hold an annual meeting in the prior year or if the date of the annual meeting occurs more than 30 days before or after the anniversary of such immediately preceding annual meeting, then not later than the close of business on the price atlater of the (i) 60th day prior to such annual meeting, and (ii) the 10th day following the date on which they are issued, could be dilutivepublic notice of the date of such annual meeting is first made. |
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | Dissolution | | Under the UBCA, the board of directors of GCEH-Utah may submit a proposal of voluntary dissolution of GCEH-Utah to the existing shareholders. Any issuancestockholders entitled to vote thereon. The board of additionaldirectors must recommend such dissolution to the stockholders as part of the dissolution proposal, unless the board of directors determines that, because of a conflict of interest or other special circumstances, it should make no recommendation and communicates the basis for its determination to the stockholders. | | GCEH-Delaware will be subject to the same voting requirement with respect to a proposed dissolution of the corporation. However, if the board of directors does not initially approve the dissolution, then the stockholder vote required for the dissolution is a unanimous written consent of all stockholders entitled to vote thereon. | | | | | | | Dividends | | Utah law provides that the payment of dividends and other distributions is generally permissible unless, after giving effect to the dividend or distribution, GCEH-Utah would be unable to pay its debts as they become due in the usual course of business, or if the total assets of GCEH-Utah would be less than the sum of its total liabilities plus the amount that would be needed, if GCEH-Utah were dissolved at the time the dividend was paid, to satisfy the preferential rights of stockholders whose preferential rights upon dissolution are superior than those of the stockholders receiving the dividend. | | Delaware law provides the same provision with respect to declaration of dividends as Utah law. However, unlike in Utah, the concepts of capital and surplus are retained in Delaware. Delaware law defines surplus as the excess of the net assets of the corporation over its capital. Unless the corporation’s board of directors determines otherwise, the capital of the corporation is equal to the aggregate par value of the issued shares of common stock having par value. Therefore, Delaware law permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of the net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. |
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation | | Examination of Books and Records | | Under Utah law, any record or beneficial stockholder of GCEH-Utah may, upon five business days’ written demand, inspect certain records, including stockholder actions, minutes of stockholder meetings, communications with stockholders and recent financial statements. In addition, upon five business days’ written demand, any such stockholder may inspect the list of stockholders and certain other corporate records, including minutes of the meetings of board of directors of GCEH-Utah, provided that the demand is made in good faith and for a proper purpose reasonably related to such person’s interests as a stockholder. The GCEH-Utah Bylaws are consistent with the UBCA in this regard. | | Under the DGCL, any stockholder may, upon five days written demand, inspect, in person or by agent or attorney, the stockholder ledger or other record of stockholders during usual business hours. The written demand must be under oath and state the purpose of such an inspection. The stockholder may, unless denied for cause, copy such records. The DGCL also couldallows stockholders, by the same written demand, to inspect the corporation’s other books and records. | | | | | | | Dissenters’ (Appraisal) Rights | | Under Utah law, stockholders are entitled to exercise dissenters’ rights in the event of certain mergers, share exchanges, sales, leases, exchanges or other dispositions of all or substantially all of the property of GCEH-Utah. Dissenters’ rights in Utah are available to both record holders and beneficial holders. | | Delaware law provides appraisal rights only in the case of certain mergers or consolidations. Thus, under Delaware law, stockholders have no appraisal rights in the effectevent of diluting any future earnings pera sale, lease or exchange of all or substantially all of a corporation’s assets. Appraisal rights in Delaware are available only to record holders. | | | | | | | Control Shares Acquisition Act | | Under the Utah Control Shares Acquisitions Act, shares acquired in a “control share and book value per shareacquisition” by a single stockholder or group of stockholders that give the stockholder or group more than 20% of the voting power of certain public Utah corporations cease to have voting rights until a resolution allowing the shares to be voted is approved by a majority of the outstanding shares of our common stock, and such additionalthe corporation (excluding shares could be used to dilute the stock ownership or voting rights of a person seeking to obtain control of Medical Discoveries, Inc. The increase in the authorized number of shares of common sockheld by officers, directors and the subsequent issuance of such shares could have the effect of delaying or preventing a change-in-control of this company without further action by the shareholders.No Dissenters Rights
Under the laws ofacquirer). The Utah our shareholders are not entitled to dissenters’ rights with respect to the amendment to increase the number of our authorized capital stock, and we will not independently provide our shareholders with any such right.
Federal Income Tax Consequences
We believe that the federal income tax consequences of the increase in authorized capital stock to holders of our common stock will be as follows:
| · | No gain or loss will be recognized by a shareholder upon the effective date of the amendment; |
| · | The aggregate tax basis of shares of our common stock will not be affected by the amendment; and |
| · | The holding period of shares of our common stock after the amendment will remain the same as the holding period prior to the amendment. |
Our beliefs regarding the tax consequence of the proposed amendment are not binding upon the Internal Revenue Service or the courts, and there can be no assurance that the Internal Revenue Service or the courts will accept the positions expressed above. This summary does not purport to be complete and does not address the tax consequences to holders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident foreign individuals, brokers-dealers and tax exempt entities. The state and local tax consequences of the amendment may vary significantly as to each shareholder, depending upon the state in which he or she resides.
HOLDERS OF COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE INCREASE IN OUR AUTHORIZED COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND OF CHANGES IN APPLICABLE TAX LAWS.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO EFFECT AN AMENDMENT TO OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL III – NAME CHANGE
Overview
Our Board of Directors has approved an amendment to our Articles of Incorporation to effect a name change to “Global Clean Energy Holdings, Inc.” The Article 1 of the Amended and Restated Articles of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
“Article 1 of the Amended and Restated Articles of Incorporation is amended to read in its entirety as follows:
The name of the corporation is “Global Clean Energy Holdings, Inc. (the “Corporation).”
Reasons for Amendment
As stated elsewhere in this proxy statement, we have discontinued our operations in the bio-pharmaceutical industry and have commenced our new Jatropha Business. See “Business – The Jatropha Business,” above, for additional information about our new business. Since we are no longer a medical and drug development company, our Board decided to change the company’s name from “Medical Discoveries, Inc.”Control Shares Acquisitions Act applies only to a name that reflects the new biofuels business we are conducting.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO EFFECT A NAME CHANGE OF THE COMPANY TO “GLOBAL CLEAN ENERGY HOLDINGS, INC.”
FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
Pro Forma Selected Financial Data
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information
The following pro forma condensed consolidated financial statements estimate the pro forma effect of the Sale and Purchase Agreement by and between Medical Discoveries, Inc. and Eucodis dated July 6, 2007, whereby we agreed to sell all of our right, title and interest in all patents, patent applications, United States and foreign regulatory files and data, pre-clinical study data and anecdotal clinical trial data concerning SaveCream and to assign to Eucodis all of our right, title and interest in a co-development agreement with Eucodis, dated as of July 29, 2006, related to the co-development and licensing of SaveCream (including the intellectual property rights acquired in connection with that development). The closing of the transaction is subject to the satisfaction of certain closing conditions pursuant to the terms of the Sale and Purchase Agreement. Pursuant to a Settlement and Release Agreement with Ms. Judy Robinett, our former Chief Executive Officer, we have, among other things, agreed to pay Ms. Robinett $500,000 upon the closing of the sale of SaveCream to Eucodis. Therefore, the following pro forma condensed consolidated financial statements also estimate the pro forma effect of the Settlement and Release Agreement payment to Ms. Robinett.
The pro forma condensed consolidated balance sheet as of September 30, 2007 has been prepared as if the Sale and Purchase Agreement had been consummated on that date. The pro forma condensed consolidated statements of operations for the year ended December 31, 2006 and for the nine months ended September 30, 2007, are presented as if the Sale and Purchase Agreement had been consummated at the beginning of each period.
Pursuant to the terms of the Sale and Purchase Agreement, the purchase price to be paid by Eucodis for acquiring these assets will be €4,007,534 (approximately $5,906,000 under exchange rates in effect as of November 30, 2007). The purchase price is comprised of (i) a cash payment of €1,538,462 ($2,267,000 under exchange rates in effect as of November 30, 2007) less $200,000 we received in March 2007 under the binding letter of intent, and (ii) Eucodis’ assumption of an aggregate of €2,469,072 ($3,639,000 under exchange rates in effect as of November 30, 2007), constituting specific indebtedness currently owed by us and other commitments to certain of our creditors. Under the terms of the Settlement and Release Agreement, we are obligated to pay Ms. Robinett $500,000 from the proceeds of the closing of the Sale and Purchase Agreement in settlement of $895,137 of accrued, but unpaid, compensation.
The pro forma condensed consolidated financial statements are based upon available information and certain assumptions made by management and believed to be reasonable in the circumstances. The pro forma condensed consolidated financial statements may be subject to adjustment based on the actual euro/dollar currency exchange rate in effect on the date of closing, among other considerations. The pro forma information may not be indicative of the results of our operations and financial position, as it may be in the future or as it might have been had the transactions been consummated on the respective dates assumed. These pro forma condensed consolidated financial statements is included for comparative purposes and should be read in conjunction with our historical financial information in financial statements included in this proxy statement and in our other reports and documents filed with the Securities and Exchange Commission.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2007
(Unaudited)
| | | | | Pro forma | | Pro forma | | | | | As Reported (1) | | Adjustments | | Total | | ASSETS | | | | | | | | | | | CURRENT ASSETS | | | | | | | | | | | Cash | | $ | 296,121 | | $ | 1,987,539 | | a | | $ | 1,783,660 | | | | | | | | | (500,000 | ) | b | | | | | | Prepaid expenses | | | 66,031 | | | | | | | | 66,031 | | Total Current Assets | | | 362,152 | | | 1,487,539 | | | | | 1,849,691 | | | | | | | | | | | | | | | | Property and equipment, net | | | 29,870 | | | | | | | | 29,870 | | Deferred offering costs | | | 1,530 | | | | | | | | 1,530 | | | | | | | | | | | | | | | | TOTAL ASSETS | | $ | 393,552 | | $ | 1,487,539 | | | | $ | 1,881,091 | | | | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | CURRENT LIABILITIES | | | | | | | | | | | | | | Accounts payable | | $ | 1,111,501 | | $ | - | | | | $ | 1,111,501 | | | Accrued payroll and payroll taxes | | | 1,294,584 | | | (895,137 | ) | b | | | 399,447 | | | Accrued interest payable | | | 291,585 | | | | | | | | 291,585 | | | Notes payable to shareholders | | | 56,000 | | | | | | | | 56,000 | | | Secured promissory note, less unamortized discount | | | 58,673 | | | | | | | | 58,673 | | | Convertible notes payable | | | 193,200 | | | | | | | | 193,200 | | | Financial instrument | | | 2,065,470 | | | | | | | | 2,065,470 | | | Current liabilities associated with assets held for sale | | | 3,137,859 | | | (3,137,859 | ) | a | | | - | | Total Current Liabilities | | | 8,208,872 | | | (4,032,996 | ) | | | | 4,175,876 | | | | | | | | | | | | | | | | STOCKHOLDERS' DEFICIT | | | | | | | | | | | | | | Preferred stock - undesignated, Series A, convertible; no par value; | | | | | | | | | | | | | | 50,000,000 shares authorized; 28,928 shares issued and outstanding; | | | | | | | | | | | | | | (aggregate liquidation preference of $2,892,800); the Company also | | | | | | | | | | | | | | has designated Series B with no shares issued or outstanding | | | 514,612 | | | | | | | | 514,612 | | | Common stock, no par value; 250,000,000 shares authorized; | | | | | | | | | | | | | | 170,238,669 shares issued and outstanding | | | 16,403,248 | | | | | | | | 16,403,248 | | | Additional paid-in capital | | | 1,468,057 | | | | | | | | 1,468,057 | | | Deficit accumulated prior to the development stage | | | (1,399,577 | ) | | | | | | | (1,399,577 | ) | | Deficit accumulated during the development stage | | | (24,801,660 | ) | | 5,125,398 | | a | | | (19,281,125 | ) | | | | | | | | 395,137 | | b | | | | | Total Stockholders' Deficit | | | (7,815,320 | ) | | 5,520,535 | | | | | (2,294,785 | ) | TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 393,552 | | $ | 1,487,539 | | | | $ | 1,881,091 | |
(1) Based on the Company's interim financial statements for the nine months ended September 30, 2007 included in this proxy statement.
See accompanying notes to unaudited pro forma condensed consolidated financial statements
MEDICAL DISCLOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
| | | | | Pro forma | | Pro forma | | | | | As Reported (1) | | Adjustments | | Total | | | Operating Expenses | | | | | | | | | | General and administrative | | $ | 919,273 | | $ | - | | | $ | 919,273 | | | Research and development | | | 986,584 | | | | | | | 986,584 | | | | | | | | | | | | | | | | Loss from Operations | | | (1,905,857 | ) | | - | | | | (1,905,857 | ) | | | | | | | | | | | | | | | Other Income (Expenses) | | | | | | | | | | | | | Unrealized loss on financial instrument | | | (1,520,482 | ) | | | | | | (1,520,482 | ) | | Interest income | | | 394 | | | | | | | 394 | | | Interest expense | | | (27,252 | ) | | | | | | (27,252 | ) | | Interest expense from amortization of discount | | | | | | | | | | | | | on secured promissory note | | | (58,673 | ) | | | | | | (58,673 | ) | | Gain on debt restructuring | | | 90,000 | | | | | | | 90,000 | | | | | | | | | | | | | | | | Total Other Income (Expenses) | | | (1,516,013 | ) | | - | | | | (1,516,013 | ) | | | | | | | | | | | | | | | Income (Loss) from Continuing Operations | | | (3,421,870 | ) | | - | | | | (3,421,870 | ) | | | | | | | | | | | | | | | Loss from Discontinued Operations (net of | | | | | | | | | | | | | gain on disposal of MDI-P of $258,809) | | | (355,305 | ) | | 355,305 | c | | | - | | | | | | | | | | | | | | | | Net Loss | | $ | (3,777,175 | ) | $ | 355,305 | | | $ | (3,421,870 | ) | | | | | | | | | | | | | | | Basic and Diluted Loss per Common Share: | | | | | | | | | | | | | Loss from Continuing Operations | | $ | (0.028 | ) | | | | | $ | (0.028 | ) | | Loss from Discontinued Operations | | $ | (0.003 | ) | | | | | $ | - | | | | | | | | | | | | | | | | Net loss | | $ | (0.031 | ) | | | | | $ | (0.028 | ) | | | | | | | | | | | | | | | Basic and Diluted Weighted-Average Common | | | | | | | | | | | | | Shares Outstanding | | | 122,214,575 | | | | | | | 122,214,575 | |
(1) Based on the Company's interim financial statements for the nine months ended September 30, 2007 included in this proxy statement..
See accompanying notes to unaudited pro forma condensed consolidated financial statements
MEDICAL DISCLOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(Unaudited)
| | | | | Pro forma | | | | Pro forma | | | | | As Reported (1) | | Adjustments | | | | Total | | | Revenues | | $ | 800,000 | | $ | (800,000 | ) | c | | $ | - | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | General and administrative | | | 1,986,052 | | | (934,952 | ) | c | | | 1,051,100 | | | Research and development | | | 2,026,907 | | | (2,026,907 | ) | c | | | - | | | | | | | | | | | | | | | | | Total Expenses | | | (4,012,959 | ) | | 2,961,859 | | | | | (1,051,100 | ) | | | | | | | | | | | | | | | | Loss from Operations | | | (3,212,959 | ) | | 2,161,859 | | | | | (1,051,100 | ) | | | | | | | | | | | | | | | | Other Income (Expenses) | | | | | | | | | | | | | | Unrealized gain on financial instrument | | | 2,564,608 | | | | | | | | 2,564,608 | | | Interest income | | | 2,866 | | | | | | | | 2,866 | | | Interest expense | | | (29,919 | ) | | | | | | | (29,919 | ) | | Foreign currency transaction loss | | | (117,501 | ) | | 117,501 | | c | | | - | | | Gain on debt restructuring | | | 607,761 | | | | | | | | 607,761 | | | Other income | | | 1,373 | | | | | | | | 1,373 | | | | | | | | | | | | | | | | | Total Other Income | | | 3,029,188 | | | 117,501 | | | | | 3,146,689 | | | | | | | | | | | | | | | | | Net Income (Loss) | | $ | (183,771 | ) | $ | 2,279,360 | | | | $ | 2,095,589 | | | | | | | | | | | | | | | | | Income (Loss) per Common Share: | | | | | | | | | | | | | | Basic | | $ | (0.00 | ) | | | | | | $ | 0.02 | | | Diluted | | $ | (0.00 | ) | | | | | | $ | 0.01 | | | | | | | | | | | | | | | | | Weighted-Average Common Shares Outstanding | | | | | | | | | | | | | | Basic | | | 113,809,546 | | | | | | | | 113,809,546 | | | Diluted | | | 236,518,217 | | | | | | | | 236,518,217 | |
(1) Based on the Company's annual financial statements for the year ended December 31, 2006 included in this proxy statement..
See accompanying notes to unaudited pro forma condensed consolidated financial statements
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(a) The pro forma condensed consolidated balance sheet gives the estimated effects of the closing of the Sale and Purchase Agreement, including the cash payment of €1,538,462 ($2,187,539 under exchange rates in effect as of September 30, 2007) less $200,000 received in March 2007 under the binding letter of intent, and (ii) Eucodis’ assumption of an aggregate of €2,469,072 ($3,510,773 under exchange rates in effect as of September 30, 2007) of our liabilities, constituting $3,137,859 of specific indebtedness currently owed and recorded in the balance sheet, and $372,914 of other commitments to certain of our creditors.
(b) The pro forma condensed consolidated balance sheet gives the estimated effects of the fulfillment of the terms of the Settlement and Release Agreement with Judy Robinett, the Company’s former Chief Executive Officer. Under the Settlement and Release Agreement, we are obligated to pay Ms. Robinett $500,000 from the proceeds of the closing of the Sale and Purchase Agreement in settlement of $895,137 of accrued, but unpaid, compensation.
(c) The pro forma condensed consolidated statements of operations for the nine months ended September 30, 2007, and for the year ended December 31, 2006, give effect of the Sale and Purchase Agreement as though it had been consummated on January 1, 2007 and January 1, 2006, respectively. This pro forma adjustment also includes the effects of eliminating the operating expenses associated with MDI-P, a bio-pharmaceutical technology that we sold in August 2007. It is not practical to segregate the operating expenses of the MDI-P technology from the operating expenses associated with the technology being sold under the Sale and Purchase Agreement.
HANSEN, BARNETT& MAXWELL, P.C.
| | | A Professional Corporation | | Registered with the Public Company
| CERTIFIED PUBLIC ACCOUNTANTS | | Accounting Oversight Board
| AND | | | BUSINESS CONSULTANTS | | | 5 Triad Center, Suite 750 | | | Salt Lake City, UT 84180-1128 | | | Phone: (801) 532-2200 | | | Fax: (801) 532-7944 | | | www.hbmcpas.com | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Medical Discoveries, Inc.
We have audited the accompanying consolidated balance sheets of Medical Discoveries, Inc. and subsidiaries (a development stage company) as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and for the period from November 20, 1991 (date of inception of the development stage) through December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Company from November 20, 1991 through December 31, 2003, which statements reflect total revenues and deficit accumulated during the development stage of $157,044 and $14,930,259, respectively. Those statements were audited by other auditors whose reports, dated February 18, 2004 (except Note K, not included herein, as to which the date is November 15, 2004) and March 20, 2000, included an explanatory paragraph stating there was substantial doubt regarding the Company’s ability to continue as a going concern. Our opinion, insofar as it relates to the consolidated financial statements for the period from November 20, 1991 through December 31, 2003, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Medical Discoveries, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended and for the period from November 20, 1991 through December 31, 2006, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage enterprise previously engaged in developing bio-pharmaceutical research and currently developing bio-diesel fuels. As discussed in Note B to the financial statements, the stockholders’ deficit and the operating losses since inception raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
HANSEN, BARNETT & MAXWELL, P.C.
Salt Lake City, Utah
November 28, 2007
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
| | | December 31, | | December 31, | | | | 2006 | | 2005 | | | ASSETS | | CURRENT ASSETS | | | | | | | | | | | | | | Cash | | $ | 47,658 | | $ | 654,438 | | | | | | | | | | | | Total Current Assets | | | 47,658 | | | 654,438 | | | | | | | | | | | | Notes receivable | | | - | | | 296,050 | | | Property and equipment, net | | | 62,249 | | | 80,635 | | | | | | | | | | | | TOTAL ASSETS | | $ | 109,907 | | $ | 1,031,123 | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | Accounts payable | | $ | 1,136,684 | | $ | 935,132 | | | Accrued payroll and payroll taxes | | | 1,184,264 | | | 1,673,651 | | | Accrued interest payable | | | 267,739 | | | 237,836 | | | Notes payable to shareholders | | | 56,000 | | | 56,000 | | | Convertible notes payable | | | 193,200 | | | 193,200 | | | Research and development obligation | | | 2,441,445 | | | 592,100 | | | Financial instrument | | | 294,988 | | | 2,859,596 | | | | | | | | | | | | Total Current Liabilities | | | 5,574,320 | | | 6,547,515 | | | | | | | | | | | | Long-term liability | | | 90,000 | | | - | | | | | | | | | | | | TOTAL LIABILITIES | | | 5,664,320 | | | 6,547,515 | | | | | | | | | | | | STOCKHOLDERS' DEFICIT | | | | | | | | | | | | | | | | | | Preferred stock - undesignated, Series A, convertible; no par value; 50,000,000 shares | | | | | | | | | authorized; 34,420 and 42,000 shares issued and outstanding, respectively; (aggregate | | | | | | | | | liquidation preference of $3,442,000 and $4,200,000, respectively); the Company also has | | | | | | | | | designated a Series B with no shares issued or outstanding | | | 514,612 | | | 523,334 | | | Common stock, no par value; 250,000,000 shares authorized; 118,357,704 and 107,679,724 | | | | | | | | | shares issued and outstanding, respectively | | | 15,299,017 | | | 15,211,895 | | | Additional paid-in capital | | | 1,056,020 | | | 988,670 | | | Deficit accumulated prior to the development stage | | | (1,399,577 | ) | | (1,399,577 | ) | | Deficit accumulated during the development stage | | | (21,024,485 | ) | | (20,840,714 | ) | | | | | | | | | | | Total Stockholders' Deficit | | | (5,554,413 | ) | | (5,516,392 | ) | | | | | | | | | | | TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 109,907 | | $ | 1,031,123 | |
See Notes to Consolidated Financial Statements
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
| | | | | | | From Inception of | | | | | | | | the Development Stage | | | | For the Years Ended | | on November 20, 1991 | | | | December 31, | | Through | | | | 2006 | | 2005 | | December 31, 2006 | | | | | | | | | | | | REVENUES | | $ | 800,000 | | $ | - | | $ | 957,044 | | | | | | | | | | | | | | | COST OF GOODS SOLD | | | - | | | - | | | 14,564 | | | | | | | | | | | | | | | GROSS PROFIT | | | 800,000 | | | - | | | 942,480 | | | | | | | | | | | | | | | OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | General and administrative | | | 1,986,052 | | | 1,878,027 | | | 19,041,049 | | | Research and development | | | 2,026,907 | | | 2,172,461 | | | 7,748,106 | | | Inventory write-down | | | - | | | - | | | 96,859 | | | Impairment loss | | | - | | | - | | | 9,709 | | | License fees | | | - | | | - | | | 1,001,500 | | | | | | | | | | | | | | | Total Expenses | | | 4,012,959 | | | 4,050,488 | | | 27,897,223 | | | | | | | | | | | | | | | LOSS FROM OPERATIONS | | | (3,212,959 | ) | | (4,050,488 | ) | | (26,954,743 | ) | | | | | | | | | | | | | | OTHER INCOME (EXPENSES) | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gain on | | | | | | | | | | | | financial instrument | | | 2,564,608 | | | 2,300,191 | | | 4,864,799 | | | Interest income | | | 2,866 | | | 25,727 | | | 58,164 | | | Interest expense | | | (29,919 | ) | | (38,264 | ) | | (1,185,620 | ) | | Foreign currency transaction gain (loss) | | | (117,501 | ) | | 56,480 | | | (61,021 | ) | | Gain on debt restructuring | | | 607,761 | | | 196,353 | | | 2,039,650 | | | Other income | | | 1,373 | | | 23,220 | | | 906,485 | | | | | | | | | | | | | | | Total Other Income (Expenses) | | | 3,029,188 | | | 2,563,707 | | | 6,622,457 | | | | | | | | | | | | | | | NET LOSS | | | (183,771 | ) | | (1,486,781 | ) | | (20,332,286 | ) | | | | | | | | | | | | | | Preferred stock dividend from | | | | | | | | | | | | beneficial conversion feature | | | - | | | - | | | (692,199 | ) | | NET INCOME (LOSS) APPLICABLE TO | | | | | | | | | | | | COMMON SHAREHOLDERS | | $ | (183,771 | ) | $ | (1,486,781 | ) | $ | (21,024,485 | ) | | | | | | | | | | | | | | BASIC AND DILUTED INCOME (LOSS) | | | | | | | | | | | | PER COMMON SHARE | | $ | (0.00 | ) | $ | (0.01 | ) | | | | | | | | | | | | | | | | | WEIGHTED AVERAGE NUMBER OF | | | | | | | | | | | | SHARES OUTSTANDING | | | 113,809,546 | | | 107,398,164 | | | | |
See Notes to Consolidated Financial Statements
MEDICAL DISCOVERIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Period From November 20, 1991 (Date of Inception of the Development Stage) through December 31, 2006
| | | | | | | | | | | | | Accumulated | | Deficit | | | | | | | | | | | | | | | | | | Deficit | | Accumulated | | | | | | | | | | | | | | | | Additional | | Prior to | | During the | | Escrow/ | | | | | | Preferred Stock | | Common stock | | Paid in | | Development | | Development | | Subscription | | | | | | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Stage | | Receivables | | Total | | | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 1991 | | | | | | | | | 1,750,000 | | $ | 252,997 | | $ | - | | $ | (1,482,514 | ) | $ | - | | $ | - | | $ | (1,229,517 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restatement for reverse acquisition of WPI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pharmaceutical, Inc. by Medical Discoveries, Inc. | | | - | | | - | | | - | | | (252,997 | ) | | - | | | 252,997 | | | - | | | - | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued in merger of WPI Pharmaceutical, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Medical Discoveries, Inc., $0.01 per share | | | - | | | - | | | 10,000,000 | | | 135,000 | | | - | | | (170,060 | ) | | - | | | - | | | (35,060 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at November 20, 1991 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (Date of Inception of Development Stage) | | | - | | | - | | | 11,750,000 | | | 135,000 | | | - | | | (1,399,577 | ) | | - | | | - | | | (1,264,577 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1992 - $0.50 per share | | | - | | | - | | | 200,000 | | | 100,000 | | | - | | | - | | | - | | | - | | | 100,000 | | | 1992 - $1.50 per share | | | - | | | - | | | 40,000 | | | 60,000 | | | - | | | - | | | - | | | - | | | 60,000 | | | 1993 - $0.97 per share | | | - | | | - | | | 542,917 | | | 528,500 | | | - | | | - | | | - | | | - | | | 528,500 | | | 1994 - $1.20 per share | | | - | | | - | | | 617,237 | | | 739,500 | | | - | | | - | | | - | | | - | | | 739,500 | | | 1995 - $0.67 per share | | | - | | | - | | | 424,732 | | | 283,200 | | | - | | | - | | | - | | | - | | | 283,200 | | | 1996 - $0.66 per share | | | - | | | - | | | 962,868 | | | 635,000 | | | - | | | - | | | - | | | (60,000 | ) | | 575,000 | | | 1997 - $0.43 per share | | | - | | | - | | | 311,538 | | | 135,000 | | | - | | | - | | | - | | | 60,000 | | | 195,000 | | | 1998 - $0.29 per share | | | - | | | - | | | 2,236,928 | | | 650,000 | | | - | | | - | | | - | | | - | | | 650,000 | | | 1999 - $0.15 per share | | | - | | | - | | | 13,334 | | | 2,000 | | | - | | | - | | | - | | | - | | | 2,000 | | | 2001 - $0.15 per share | | | - | | | - | | | 660,000 | | | 99,000 | | | - | | | - | | | - | | | - | | | 99,000 | | | 2003 - $0.04 per share | | | - | | | - | | | 20,162,500 | | | 790,300 | | | - | | | - | | | - | | | - | | | 790,300 | | | 2004 - $0.09 per share | | | - | | | - | | | 20,138,024 | | | 1,813,186 | | | - | | | - | | | - | | | - | | | 1,813,186 | | | Services and Interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1992 - $0.50 per share | | | - | | | - | | | 500,000 | | | 250,000 | | | - | | | - | | | - | | | - | | | 250,000 | | | 1993 - $0.51 per share | | | - | | | - | | | 251,450 | | | 127,900 | | | - | | | - | | | - | | | - | | | 127,900 | | | 1993 - $0.50 per share | | | - | | | - | | | 800,000 | | | 400,000 | | | - | | | - | | | - | | | - | | | 400,000 | | | 1994 - $1.00 per share | | | - | | | - | | | 239,675 | | | 239,675 | | | - | | | - | | | - | | | - | | | 239,675 | | | 1995 - $0.39 per share | | | - | | | - | | | 4,333,547 | | | 1,683,846 | | | - | | | - | | | - | | | (584,860 | ) | | 1,098,986 | | | 1996 - $0.65 per share | | | - | | | - | | | 156,539 | | | 101,550 | | | - | | | - | | | - | | | - | | | 101,550 | | | 1997 - $0.29 per share | | | - | | | - | | | 12,500 | | | 3,625 | | | - | | | - | | | - | | | - | | | 3,625 | | | 1998 - $0.16 per share | | | - | | | - | | | 683,000 | | | 110,750 | | | - | | | - | | | - | | | - | | | 110,750 | | | 1999 - $0.30 per share | | | - | | | - | | | 100,000 | | | 30,000 | | | - | | | - | | | - | | | - | | | 30,000 | | | 2001 - $0.14 per share | | | - | | | - | | | 1,971,496 | | | 284,689 | | | - | | | - | | | - | | | - | | | 284,689 | | | 2002 - $0.11 per share | | | - | | | - | | | 2,956,733 | | | 332,236 | | | - | | | - | | | - | | | - | | | 332,236 | | | 2003 - $0.04 per share | | | - | | | - | | | 694,739 | | | 43,395 | | | - | | | - | | | - | | | - | | | 43,395 | | | 2004 - $0.06 per share | | | - | | | - | | | 1,189,465 | | | 66,501 | | | - | | | - | | | - | | | - | | | 66,501 | | | Conversion of Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1996 - $0.78 per share | | | | | | | | | 239,458 | | | 186,958 | | | - | | | - | | | - | | | - | | | 186,958 | | | 1997 - $0.25 per share | | | - | | | - | | | 100,000 | | | 25,000 | | | - | | | - | | | - | | | - | | | 25,000 | | | 1998 - $0.20 per share | | | - | | | - | | | 283,400 | | | 56,680 | | | - | | | - | | | - | | | - | | | 56,680 | | | 2002 - $0.03 per share | | | - | | | - | | | 17,935,206 | | | 583,500 | | | - | | | - | | | - | | | - | | | 583,500 | | | 2004 - $0.07 per share | | | - | | | - | | | 9,875,951 | | | 650,468 | | | - | | | - | | | - | | | - | | | 650,468 | | | Other Issuances | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1993 -License - $0.50 share | | | - | | | - | | | 2,000,000 | | | 1,000,000 | | | - | | | - | | | - | | | - | | | 1,000,000 | | | 1997 - Settlement of contract | | | - | | | - | | | 800,000 | | | 200,000 | | | - | | | - | | | - | | | - | | | 200,000 | | | 1998 - Issuance of common stock from | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | exercise of warrants, $0.001 per share | | | - | | | - | | | 200,000 | | | 200 | | | - | | | - | | | - | | | - | | | 200 | | | 2000 - Reversal of shares issued | | | - | | | - | | | (81,538 | ) | | - | | | - | | | - | | | - | | | - | | | - | |
See Notes to Consolidated Financial Statements
MEDICAL DISCOVERIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT - (Continued)
Period From November 20, 1991 (Date of Inception of the Development Stage) through December 31, 2006
| | | | | | | | | | | | | Accumulated | | Deficit | | | | | | | | | | | | | | | | | | | Deficit | | Accumulated | | | | | | | | | | | | | | | | | Additional | | Prior to | | During the | | Escrow/ | | | | | | | Preferred Stock | | Common stock | | Paid in | | Development | | Development | | Subscription | | | | | | | Shares | | Amount | | Shares | | Amount | | Capital | | Stage | | Stage | | Receivables | | Total | | | | | - | | | - | | | 103,301,699 | | | 12,347,659 | | | - | | | (1,399,577 | ) | | - | | | (584,860 | ) | | 10,363,222 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Escrow and Subscription Receivables | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1996 - Common stock canceled - $.34 per share | | | - | | | - | | | (1,400,000 | ) | | (472,360 | ) | | - | | | - | | | - | | | 472,360 | | | - | | | 2000 - Issuance for escrow receivable $0.09 per share | | | - | | | - | | | 5,500,000 | | | 500,000 | | | - | | | - | | | - | | | (500,000 | ) | | - | | | 2000 - Write-off of subscription receivable | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 112,500 | | | 112,500 | | | 2000 - Research and development costs | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 115,400 | | | 115,400 | | | 2001 - Research and development costs | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 132,300 | | | 132,300 | | | 2001 - Operating expenses | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 25,000 | | | 25,000 | | | 2004 - Termination of escrow agreement | | | - | | | - | | | (2,356,200 | ) | | (227,300 | ) | | - | | | - | | | - | | | 227,300 | | | - | | | Exercise of Options and Warrants | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1997 - $0.25 per share | | | - | | | - | | | 87,836 | | | 21,959 | | | - | | | - | | | - | | | - | | | 21,959 | | | 1999 - Waived option price $0.14 per share | | | - | | | - | | | 170,000 | | | 24,000 | | | - | | | - | | | - | | | - | | | 24,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value of Options Issued for Services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1998 | | | - | | | - | | | - | | | 2,336,303 | | | - | | | - | | | - | | | - | | | 2,336,303 | | | 1999 | | | - | | | - | | | - | | | 196,587 | | | - | | | - | | | - | | | - | | | 196,587 | | | 2001 | | | - | | | - | | | - | | | - | | | 159,405 | | | - | | | - | | | - | | | 159,405 | | | 2002 | | | - | | | - | | | - | | | - | | | 124,958 | | | - | | | - | | | - | | | 124,958 | | | 2003 | | | - | | | - | | | - | | | - | | | 295,000 | | | - | | | - | | | - | | | 295,000 | | | 2004 | | | - | | | - | | | - | | | - | | | 1,675,000 | | | - | | | - | | | - | | | 1,675,000 | | | Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1994 - Cash contributed | | | - | | | - | | | - | | | 102,964 | | | - | | | - | | | - | | | - | | | 102,964 | | | 1995 - Issuance of common stock option | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | to satisfy debt restructuring | | | - | | | - | | | - | | | 20,000 | | | - | | | - | | | - | | | - | | | 20,000 | | | 2004 - Issuance of preferred stock and warrants for cash | | | 12,000 | | | 523,334 | | | 350,000 | | | 68,845 | | | 477,821 | | | - | | | - | | | - | | | 1,070,000 | | | 2004 - Convertible preferred stock beneficial conversion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | dividend | | | - | | | - | | | - | | | - | | | 692,199 | | | - | | | (692,199 | ) | | - | | | - | | | Net loss from inception through December 31, 2004 | | | - | | | - | | | - | | | - | | | - | | | - | | | (18,661,734 | ) | | - | | | (18,661,734 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2004 | | | 12,000 | | | 523,334 | | | 105,653,335 | | | 14,918,657 | | | 3,424,383 | | | (1,399,577 | ) | | (19,353,933 | ) | | - | | | (1,887,136 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock for services at $0.18 per share | | | - | | | - | | | 104,167 | | | 11,312 | | | - | | | - | | | - | | | - | | | 11,312 | | | Issuance of common stock for cash at $0.18 per share | | | - | | | - | | | 1,922,222 | | | 281,926 | | | - | | | - | | | - | | | - | | | 281,926 | | | Issuance of preferred stock and warrants | | | 30,000 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | Reclassification of warrants to a financial instrument | | | - | | | - | | | - | | | - | | | (2,435,713 | ) | | - | | | - | | | - | | | (2,435,713 | ) | | Net loss for the year ended December 31, 2005 | | | - | | | - | | | - | | | - | | | - | | | - | | | (1,486,781 | ) | | - | | | (1,486,781 | ) | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2005 | | | 42,000 | | | 523,334 | | | 107,679,724 | | | 15,211,895 | | | 988,670 | | | (1,399,577 | ) | | (20,840,714 | ) | | - | | | (5,516,392 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conversion of preferred stock to common stock | | | (7,580 | ) | | (8,722 | ) | | 10,242,424 | | | 8,722 | | | - | | | - | | | - | | | - | | | - | | | Issuance of options for services | | | - | | | - | | | - | | | - | | | 67,350 | | | - | | | - | | | - | | | 67,350 | | | Issuance of common stock for services at $0.18 per share | | | - | | | - | | | 435,556 | | | 78,400 | | | - | | | - | | | - | | | - | | | 78,400 | | | Net loss for the year ended December 31, 2006 | | | - | | | - | | | - | | | - | | | - | | | - | | | (183,771 | ) | | - | | | (183,771 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2006 | | | 34,420 | | $ | 514,612 | | | 118,357,704 | | $ | 15,299,017 | | $ | 1,056,020 | | $ | (1,399,577 | ) | $ | (21,024,485 | ) | $ | - | | $ | (5,554,413 | ) |
See Notes to Consolidated Financial Statements
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
| | For the Year Ended December 31, | | From Inception of the Development Stage | | | | 2006 | | 2005 | | on November 20, 1991 Through Dec. 31, 2006 | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | Net Loss | | $ | (183,771 | ) | $ | (1,486,781 | ) | $ | (20,332,286 | ) | | Adjustments to reconcile net loss to net cash used by operating activities: | | | | | | | | | | | | Foreign currency transaction (gain) loss | | | 117,501 | | | (56,480 | ) | | 61,021 | | | Gain on debt restructuring | | | (607,761 | ) | | (196,353 | ) | | (2,039,650 | ) | | Common stock issued for services, expenses, and litigation | | | 78,400 | | | - | | | 4,346,117 | | | Commitment for research and development obligation | | | 1,712,745 | | | 665,700 | | | 2,378,445 | | | Depreciation | | | 18,386 | | | 8,515 | | | 127,172 | | | Reduction of escrow receivable from research and development | | | - | | | - | | | 272,700 | | | Unrealized gain on financial instrument | | | (2,564,608 | ) | | (2,300,191 | ) | | (4,864,799 | ) | | Stock options and warrants granted for services | | | 67,350 | | | - | | | 4,878,603 | | | Reduction of legal costs | | | - | | | - | | | (130,000 | ) | | Write-off of subscriptions receivable | | | - | | | - | | | 112,500 | | | Impairment of loss on assets | | | - | | | - | | | 9,709 | | | Loss on disposal of equipment | | | - | | | - | | | 30,364 | | | Write-off of receivable | | | 317,175 | | | 51,100 | | | 562,240 | | | Note payable issued for litigation | | | - | | | - | | | 385,000 | | | Changes in operating assets and liabilities | | | | | | | | | | | | Increase in accounts receivable | | | - | | | - | | | (7,529 | ) | | Increase in accounts payable, accrued payroll and payroll taxes | | | 407,900 | | | 171,641 | | | 2,872,086 | | | Increase in accrued interest | | | 29,903 | | | 38,210 | | | 667,822 | | | Net Cash Used in Operating Activities | | | (606,780 | ) | | (3,104,639 | ) | | (10,670,485 | ) | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | Increase in deposits | | | - | | | - | | | (51,100 | ) | | Purchase of equipment | | | - | | | (89,150 | ) | | (221,334 | ) | | Issuance of note receivable | | | - | | | (313,170 | ) | | (313,170 | ) | | Payments received on note receivable | | | - | | | - | | | 130,000 | | | Net Cash Used in Investing Activities | | | - | | | (402,320 | ) | | (455,604 | ) | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | Issuance of common stock, preferred stock and warrants for cash | | | - | | | 3,006,000 | | | 10,033,845 | | | Contributed equity | | | - | | | - | | | 131,374 | | | Proceeds from notes payable | | | - | | | - | | | 1,336,613 | | | Payments on notes payable | | | - | | | (300,000 | ) | | (801,287 | ) | | Proceeds from convertible notes payable | | | - | | | - | | | 571,702 | | | Payments on convertible notes payable | | | - | | | - | | | (98,500 | ) | | Net Cash Provided by Financing Activities | | | - | | | 2,706,000 | | | 11,173,747 | | | | | | | | | | | | | | | NET INCREASE (DECREASE) IN CASH | | | (606,780 | ) | | (800,959 | ) | | 47,658 | | | CASH AT BEGINNING OF PERIOD | | | 654,438 | | | 1,455,397 | | | - | | | | | | | | | | | | | | | CASH AT END OF PERIOD | | $ | 47,658 | | $ | 654,438 | | $ | 47,658 | |
See Notes to Consolidated Financial Statements
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
| | | For the Year Ended | | | | December 31, | | | | 2006 | | 2005 | | | SUPPLEMENTAL DISCLOSURES OF | | | | | | | CASH FLOW INFORMATION | | | | | | | Interest paid | | $ | 46 | | $ | 19,283 | | | | | | | | | | | | NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | | | | | Conversion of preferred stock to common stock | | $ | 8,722 | | $ | - | | | Common stock and warrants issued to placement agent | | $ | - | | $ | 11,312 | | | Conversion of accounts payable to long-term liability | | $ | 90,000 | | $ | - | |
See Notes to Consolidated Financial Statements
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A — ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Medical Discoveries, Inc. (“MDI” or the “Company”) was incorporatedcorporation formed under the laws of the State of Utah that has all of the following: (i) 100 or more stockholders; (ii) its principal office or place of business, or substantial assets, located in Utah; and (iii) any of (A) more than 10% of its stockholders resident in Utah, (B) more than 10% of its shares owned by Utah residents or (C) 10,000 stockholders that are Utah residents.
| | Section 203 of the DGCL prohibits a corporation from engaging in a “business combination” with an “interested stockholder” for three years following the date that the person becomes an interested stockholder. The three year moratorium imposed on November 20, 1991. Effective asbusiness combinations by Section 203 does not apply if: · prior to the date on which the stockholder becomes an interested stockholder the board of August 6, 1992,directors approves either the Company merged with and into WPI Pharmaceutical, Inc., business combination or the transaction which resulted in the person becoming an interested stockholder; |
| | GCEH-Utah, a Utah Corporation | | GCEH-Delaware, a Delaware corporation (“WPI”), pursuant to which WPI was the surviving corporation. Pursuant to the MDI-WPI merger, the name | | | GCEH-Utah does not have our principal office, any place of the surviving corporation was changed to Medical Discoveries, Inc.
On July 6, 1998, the Company incorporated a wholly owned subsidiary, Regenere, Inc.,business, or substantial assets in the State of Nevada. On October 2, 1998,Utah. Accordingly, the Company incorporated another whollyprotections and restrictions of the Control Shares Acquisitions Act do not presently apply to GCEH-Utah or to holders of its common stock.
| | · the interested stockholder owns 85% of the corporation’s voting stock upon consummation of the transaction which made him an interested stockholder; or · the business combination is approved by the board of directors and approved at a stockholder meeting by the holders of two-thirds of the voting stock not owned subsidiary, MDI Healthcare Systems, Inc.,by the interested stockholder. Section 203 only applies to Delaware corporations that have a class of voting stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders. However, a corporation may elect not to be governed by Section 203 by a provision in its certificate of incorporation or its bylaws. | | | | | | | Cumulative Voting | | The UBCA permits cumulative voting with respect to the election of a corporation’s directors. The GCEH-Utah Articles do not provide for cumulative voting in connection with the election of directors. | | Under both the DGCL, a corporation’s certificate of incorporation may provide that at all elections of directors, or at elections held under specified circumstances, each stockholder is entitled to cumulate such stockholder’s votes. The GCEH-Delaware Certificate does not provide for cumulative voting for the election of directors. | | | | | | | Preemptive Rights | | Under the UBCA, unless otherwise provided in the StateCertificate of Nevada. AsIncorporation, stockholders do not have preemptive rights. The GCEH-Utah Articles specifically state that stockholders have no preemptive rights. | | Under the DGCL, a stockholder does not possess preemptive rights unless such rights are specifically granted in the certificate of December 31, 2003,incorporation. The GCEH-Delaware Certificate does not provide for preemptive rights. | | | | | | Reacquisition of Stock by the Company dissolved those subsidiaries.Corporation | | Utah law dispenses with the concepts of par value of shares as well as statutory definitions of capital and surplus. The concepts of par value, capital and surplus exist under Delaware law. | | Delaware law requires that (i) all repurchases of shares by GCEH-Delaware generally be made of out of surplus, and (ii) a purchase of shares redeemable at the option of GCEH-Delaware not be made for more than the price at which the shares may then be redeemed. |
| | GCEH-Utah, On March 22, 2005, the Company formed MDI Oncology, Inc., a Utah Corporation
| | GCEH-Delaware, a Delaware corporation | | | Under Utah law, a corporation may not repurchase its shares if, after giving effect to the repurchase: (i) the corporation would not be able to pay its debts as a wholly-owned subsidiary to acquire and operate the assets and business associated with the Savetherapeutics transaction, discussed further in Note J.
Principles of Consolidation
The consolidated financial statements include the accounts of Medical Discoveries, Inc. and subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Development Stage Company
The Company has not yet commenced its planned principal operations and is, therefore, considered a development stage company as definedthey become due in the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 7. The Company has, at the present time, not paid any dividends. Any dividends that maynormal course; or (ii) its total assets would be paid in the future will depend upon the financial requirements of the Company. The primary purpose of the business is the research and development of pharmaceuticals.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments maturing in three months or less to be cash equivalents. From time to time, the Company has cash deposits in excess of federally insured limits. The Company did not have any uninsured bank balances at December 31, 2006.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated lives of the related assets. Estimated useful lives are 5 years.
Normal maintenance and repair items are charged to costs and expensed as incurred. The cost and accumulated depreciation of property and equipment sold or otherwise retired are removed from the accounts and gain or loss on disposition is reflected in net income.
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment whenthan the sum of its total liabilities plus the expected undiscounted future cash flowsamount, if any, payable upon liquidation to holders of any preferred stock with distribution rights superior to the rights of holders of common stock.
| | Shares of stock issued by GCEH-Delaware as fully paid, and afterwards reacquired by GCEH-Delaware, would have the status of “treasury shares” if the board of directors does not, by resolution, retire the shares reacquired. Treasury shares that have a par value may be resold at any price fixed by the board of directors. | | | | | | | Franchise Tax | | Generally, Utah law requires corporations to pay franchise tax equal to the greater of (i) 5% of net income, and (ii) $100. The franchise tax is payable annually if taxable income is less than the carrying amount of the asset. Impairment losses,$3,000 per year or quarterly if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Income Taxes
The Company utilizes the liability method of accounting fortaxable income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and the carryforward of operating losses and tax credits and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. Research tax credits are recognized as utilized.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”). We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller’s price to the buyer is fixed or determinable; collectibility is reasonably assured; and title and the risks and rewards of ownership have transferred to the buyer. At the time of the transaction we also assess whether or not collection is reasonably assured. If we determine that collection of a fee is not reasonably assured, we defer recognition of the fee as revenue until the time collection becomes reasonably assured, which is generally upon receipt of cash.
Research and Development
Research and development has been the principal function of the Company. Expenses in the accompanying financial statements include certain costs which are directly associated with the Company’s research and development of the Company’s anti-infective pharmaceutical, MDI-P as well as the purchase of the intellectual property assets of Savetherapeutics AG (See Note J). These costs, which consist primarily of pre-clinical testing activities, amounted to $2,026,907 and $2,172,461 and $7,748,106 for the year ended December 31, 2006 and 2005 and for the period November 20, 1991 (date of inception of the development stage) through December 31, 2006, respectively.
Foreign Currency Translation
The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Euros. The Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations.
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments, at December 31, 2006 do not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these financial statements include those assumed in determining the valuation of common stock, warrants, and stock options. It is at least reasonably possible that the significant estimates used will change within the next year.
Basic and Diluted Loss per Share
Basic loss per share is computed on the basis of the weighted-average number of common shares outstanding during the year. Diluted loss per share is computed on the basis of the weighted-average number of common shares and all dilutive potentially issuable common shares outstanding during the year. Common stock equivalents, stock options and stock warrants have not been included in the loss per share for 2006 and 2005 as they are anti-dilutive. The potential common shares as of December 31, 2006 and 2005 are detailed below:
| | | Potential Common Shares | | | | | as of December 31, | | | | | 2006 | | 2005 | | | Convertible notes | | | 128,671 | | | 128,671 | | | Convertible preferred stock | | | 114,080,000 | | | 48,000,000 | | | Warrants | | | 38,973,861 | | | 40,923,861 | | | Stock options | | | 19,883,000 | | | 19,483,000 | | | Total potential common shares | | | 173,065,532 | | | 108,535,532 | |
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Currently, the Company does not have enough authorized shares to meet the commitments it has entered into. Management is aware of the situation and is currently considering an appropriate course of action.
Stock Based Compensation
Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”) using the modified prospective application. SFAS 123(R) requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. SFAS 123(R) also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period). Prior to adopting SFAS 123(R), the Company accounted for stock-based compensation plans under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of grant. The Company adopted the disclosure-only provision of SFAS No. 123.
Had compensation expense for stock option grants been determined based on the fair value of the stock options at the grant date, the Company's net loss and net loss per share would have been the same for the year ended December 31, 2005.
As a result of adopting SFAS 123(R), we recognized compensation expense related to options granted during the year ended December 31, 2006 in the amount of $67,350, which was the fair value of the options issued during the year ended December 31, 2006.
Reclassifications
Certain 2005 balances have been reclassified to conform to the 2006 presentation. These reclassifications had no effect on net loss or stockholders’ deficit for the year ended December 31, 2005.
Recently Issued Accounting Statements
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and related interpretations. SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and clarifies which interest-only strips and principal-only strips are not subject to recognition as liabilities. SFAS 155 eliminates the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for the Company for all financial instruments acquired or issued beginning January 1, 2007. The Company is in the process of evaluating the application of the fair value option and its effect on its financial position and results of operations.
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, which attempts to set out a consistent framework for preparers to use to determine the appropriate level of valuation allowance tax reserves to maintain for deferred tax assets relating to uncertain tax positions. This interpretation for FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more-than-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit, which is greater than fifty percent likely$3,000 per year.
| | Delaware law requires corporations to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity’spay franchise tax reserves.annually. The Company will adopt this Interpretation as of January 1, 2007. The Companycurrent minimum tax is in$75 per year and the process of evaluating the application of the fair value option and its effect on its financial position and results of operations.MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statementcurrent maximum tax is effective for financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, the Company will adopt SFAS 157 in 2008. The Company is currently evaluating the impact of SFAS 157 on the financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. This statement is effective for fiscal years beginning after November 15, 2007. Accordingly, the Company will adopt SFAS 159 in 2008. The Company is in the process of evaluating the application of the fair value option and its effect on its financial position and results of operations.
NOTE B — BASIS OF PRESENTATION AND GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net loss applicable to common shareholders of $183,771 during the year ended December 31, 2006, and has incurred losses applicable to common shareholders since inception of the development stage of $21,024,485. The Company has not had significant revenues and has negative working capital. The Company is hopeful, but there is no assurance, that its current business plan will be economically viable. Those factors raise substantial doubt about the Company’s ability to continue as a going concern.
Management plans to meet its cash needs through various means including selling intellectual assets, securing financing, and developing new business plans. The Company has entered into an agreement to sell certain intellectual assets for an aggregate of €4,007,534 (approximately $5,906,000), which consideration is payable in cash and by the assumption of certain of the Company’s outstanding liabilities. In order to fund its operations pending the closing of the asset sale, the Company issued a secured promissory note for $1,000,000. The Company will also develop a business to participate in the rapidly growing bio-diesel industry. (See Note K for a more detailed description of these transactions.)
The ability of the Company to continue as a going concern is dependent on that plan’s success. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2006 and 2005 are detailed below:
| | | 2006 | | 2005 | | | | | | | | | | Research equipment | | $ | 168,468 | | $ | 168,468 | | | Accumulated depreciation | | | (106,219 | ) | | (87,833 | ) | | | | $ | 62,249 | | $ | 80,635 | |
Depreciation expense was $18,386 and $8,513 for the years ended December 31, 2006 and 2005, respectively.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D — INCOME TAXES
Income taxes are provided for temporary differences between financial and tax basis income. The following is a reconciliation of the amount of benefit that would result from applying the federal statutory rate to pretax loss with the benefit from income taxes for the years ended December 31, 2006 and 2005:
| | | Years Ended December 31, | | | | | 2006 | | 2005 | | | Federal income tax benefit at statutory rate (34%) | | $ | 62,000 | | $ | 506,000 | | | State income tax, net of federal benefit | | | 11,000 | | | 89,000 | | | Unrealized gain on financial instrument | | | 1,026,000 | | | 920,000 | | | Change in valuation allowance | | | (1,099,000 | ) | | (1,515,000 | ) | | Provision for income taxes | | $ | - | | $ | - | |
The components of net deferred taxes are as follows at December 31 using a combined deferred tax rate of 40%:
| | | December 31, | | | | | 2006 | | 2005 | | | Net operating loss carryforward | | $ | 7,684,000 | | $ | 6,663,000 | | | Research and development credits | | | 80,000 | | | 80,000 | | | Stock options | | | 673,000 | | | 646,000 | | | Accrued compensation | | | 436,000 | | | 380,000 | | | Valuation allowance | | | (8,873,000 | ) | | (7,769,000 | ) | | Net deferred tax asset | | $ | - | | $ | - | |
Inasmuch as it is not possible to determine when or if the net operating losses will be utilized, a valuation allowance has been established to offset the benefit of the utilization of the net operating losses.
The Company has available net operating losses of approximately $19,000,000 which can be utilized to offset future earnings of the Company. The Company also has available approximately $80,000 in research and development credits which expire in 2008. The utilization of the net operating losses and research and development credits are dependent upon the tax laws in effect at the time such losses can be utilized. The losses begin to expire between the years 2007 and 2023. Should the Company experience a significant change of ownership the utilization of net operating losses could be reduced.
NOTE E — NOTES PAYABLE
The Company has the following notes payable at December 31, 2006 and 2005:
| | | 2006 | | 2005 | | | Notes payable to shareholders, which are currently due | | | | | | | and in default. Interest is at 12%. | | $ | 56,000 | | $ | 56,000 | |
On April 1, 2005, the Company negotiated a settlement regarding notes payable totaling $280,717 and accrued interest of $215,636, by payment of $300,000 in cash. The Company recognized a gain on settlement of debt totaling $196,353.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F — CONVERTIBLE NOTES PAYABLE
The Company has the following convertible notes payable at December 31, 2006:
| | | 2006 | | 2005 | | | Convertible notes payable to a trust, which is currently due | | | | | | | | | and in default. Interest is at 12%. Each $1,000 note is convertible | | $ | 193,200 | | $ | 193,200 | | | into 667 shares of Company's common stock. | | | | | | | |
NOTE G — STOCKHOLDERS’ EQUITY
Common Stock
Preferred stock converted to common stock - During 2006, the Company converted 200 shares of Series A Preferred Stock into 242,424 shares of common stock. The conversion price was $.0825$180,000 per share. The preferred stock had an assigned value of $8,722 which was reclassified to common stock at the time of conversion. During May 2006, the Company converted 7,380 shares of Series A Preferred Stock into 10,000,000 shares of common stock. The conversion price was $.0738 per share. The preferred stock did not have any assigned value due to all the proceeds being assigned to the warrant liability.
Stock issued for cash - During the year ended December 31, 2005 the Company issued 1,922,222 shares of common stock for cash totaling $281,926 at $0.18 per share. In connection with the sales for cash, the Company also issued warrants to purchase 1,922,222 shares of restricted common stock at $0.18 per share, expiring three years from the date of issuance.
Stock issued for services - During the year ended December 31, 2006 the Company issued 435,556 shares of restricted common stock for services totaling $78,400 or $0.18 per share, which was the fair value of the services rendered. During the year ended December 31, 2005, the Company issued 104,167 shares for services totaling $11,312 or $0.18 per share, which was the fair value of the services rendered.
Preferred Stock, Warrants and Financial Instrument
During the year ended December 31, 2005, the Company issued 30,000 shares of Series A Convertible Preferred Stock and warrants to purchase 22,877,478 shares of common stock for a total offering price of $3.0 million. The Company incurred $340,000 of offering costs and issued to the placement agent warrants to purchase 1,220,132 shares of common stock exercisable at $0.1967 per share which are exercisable for a period of three years.
Each share of Preferred Stock entitles the holder to convert the share of Preferred Stock into the number of shares of common stock resulting from multiplying $100 by the conversion price. The conversion price is 75% of the average of the three lowest intra-day trading prices for the Company’s common stock during the 10 trading days immediately preceding the conversion date. The conversion price may not exceed $0.1967 and has a conversion price floor of $0.05. The warrants are subject to equitable adjustment in connection with a stock split, stock dividend or similar transaction. The warrants entitle the holder to purchase up to 22,877,478 shares of common stock of the Company at $0.1967 per share. The warrants expire three years after the date of issuance.
The Series A Convertible Preferred Stock has no voting rights. In the event of liquidation, the holders are entitled to a liquidating distribution of $100 per share. The Company also entered into a Registration Rights Agreement with the investors requiring the Company to use its “best efforts” to timely file a registration statement with the Securities and Exchange Commission registering the shares of common stock issuable upon conversion of the Preferred Stock and exercise of the warrants. There are no significant liquidation damages in the event the Company is unable to file its registration statement.
The conversion feature of the Series A Convertible Preferred Stock has more of the attributes of an equity instrument than a liability instrument, and thus not considered a derivative. However, the Company is unable to guarantee that there will be enough shares of stock to settle other “freestanding instruments.” Accordingly, the warrants attached to the convertible preferred stock are measured at their fair value and classified as liability in the financial statements. The fair value of the warrants was $3,844,116 on the date of issuance computed using the Black Scholes model with the following assumptions: volatility of 170%, risk-free interest rate of 3.9%, and an expected life of three years. The fair value of the warrants exceeded the proceeds received by $1,184,116, which was recorded as an expense on the statement of operations.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As noted above, all warrants and options outstanding on March 11, 2005 (with the exception of stock options issued to employees) were measured at their fair value and reclassified as a liability in the financial statements. There were 16,215,100 warrants issued prior to March 11, 2005 with a fair value of $2,435,713. The value of the warrants was computed using the Black Scholes model with the following assumptions: volatility of 170%, risk-free interest rate of 3.9%, and an expected life of three years. As a result of the reclassification, stockholders’ equity was decreased by the fair value of the liability.
Subsequent to March 11, 2005, 611,110 warrants were issued as part of common stock offerings of 611,110 shares. The warrants have a fair value of $64,074 and are classified as a liability on the financial statements. The value of the warrants was computed using the Black Scholes model with the following assumptions: volatility of 165%, risk-free interest rate of 3.8%, and an expected life of three years. The proceeds received from this issuance exceeded the value of the warrants by $45,926, which was attributed to the common stock.
The Company adjusted to market value the outstanding warrants as of December 31, 2006 and 2005. The fair value of the financial instrument was $294,988 and $2,859,596, respectively. The Company used the Black-Scholes model in calculating fair value. At December 31, 2006 the following assumptions were: volatility of 138%, risk free interest rate of 5.0% and an expected life of one year. At December 31, 2005 the assumptions were: volatility of 152%, risk free interest rate of 4.41% and an expected life of two years. The changes in fair market value have been recorded as adjustments in the line “Unrealized gain on financial instrument” in the statement of operations of $2,564,608 and $2,300,191 for the years ended December 31, 2006 and 2005, respectively.
NOTE H - STOCK OPTIONS AND WARRANTS
Stock Options
The Company has two incentive stock option plans wherein 24,000,000 shares of the Company’s common stock are reserved for issuance thereunder. During the year ended December 31, 2006, the Company granted a stock option to a former officer and director. The option is for 500,000 shares exercisable at $0.25 per share through December 31, 2010. The option was fully vested on January 1, 2006. The Company did not grant any options during 2005. Share-based compensation recorded during the years ended December 31, 2006 and 2005 was $67,350 and zero, respectively. No income tax benefit has been recognized for share-based compensation arrangements and no compensation cost has been capitalized in the balance sheet.
A summary of the status of the options granted at December 31, 2006 and 2005, and changes during the years then ended is presented in the following table:
| | | | | | | Weighted | | | | | | | | | Weighted | | Average | | | | | | | Shares | | Average | | Remaining | | Aggregate | | | | | Under | | Exercise | | Contractual | | Intrinsic | | | | | Option | | Price | | Life | | Value | | | Outstanding at January 1, 2005 | | | 19,483,000 | | $ | 0.04 | | | | | | | | | Granted | | | - | | | - | | | | | | | | | Expired | | | - | | | - | | | | | | | | | Outstanding at December 31, 2005 | | | 19,483,000 | | | 0.04 | | | | | | | | | Granted | | | 500,000 | | | 0.25 | | | | | | | | | Expired | | | (100,000 | ) | | 0.50 | | | | | | | | | Outstanding at December 31, 2006 | | | 19,883,000 | | $ | 0.05 | | | 6.4 years | | $ | 340,000 | | | | | | | | | | | | | | | | | Exercisable at December 31, 2006 | | | 19,883,000 | | $ | 0.05 | | | 6.4 years | | $ | 340,000 | |
|
Stockholders of the Company of record on the Record Date (i.e., May 21, 2010) will have dissenters' rights under the UBCA as a result of the proposed Reincorporation Merger. Stockholders who oppose the Reincorporation Merger will have the right to receive payment for the value of their shares as set forth in sections 16-10(a)-1301-1331 of the UBCA. A copy of these sections is attached hereto as Appendix G to this proxy statement. The material requirements for a stockholder to properly exercise his or her dissenter’s rights are summarized below. However, these provisions are very technical in nature, and stockholders are encouraged to carefully read and understand the actual statutory provisions governing the assertion of such rights. Requirements for Exercising Dissenters' Rights Under the UBCA, dissenters' rights will be available only to those stockholders of the Company who (i) object to the proposed Reincorporation Merger in writing prior to or at the 2010 Annual Meeting before the vote on the matter is taken (a negative vote will not itself constitute such a written objection); and (ii) do not vote any of their shares in favor of the proposed Reincorporation Merger at the 2010 Annual Meeting. TO BE ENTITLED TO PAYMENT, THE DISSENTING STOCKHOLDER MUST FILE WITH THE COMPANY BEFORE THE VOTE FOR THE PROPOSED REINCORPORATION MERGER A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT OF THE FAIR VALUE OF THE SHARES AND MUST NOT VOTE IN FAVOR OF THE PROPOSED REINCORPORATION MERGER; PROVIDED, THAT SUCH DEMAND SHALL BE OF NO FORCE AND EFFECT IF THE PROPOSED REINCORPORATION MERGER IS NOT EFFECTED.
The notice must be submitted to the Company at 6033 W. Century Blvd., Suite 895, Los Angeles, California 90045, Attention: Secretary, and must be received before the vote for the proposed Reincorporation Merger. The submission of a blank proxy will constitute a vote in favor of the Reincorporation Merger and a waiver of dissenter’s rights. A vote against the Reincorporation Merger is not necessary for the stockholder to exercise dissenter’s rights and require the Company to purchase their shares. A vote against the Reincorporation Merger will not be deemed to satisfy the notice requirements of Utah law. The liability to the dissenting stockholder for the fair value of the shares also shall be the liability of GCEH-Delaware when and if the Reincorporation Merger is consummated. Any stockholder contemplating the exercise of these dissenter’s rights should review carefully the provisions of Sections 16-10(a)-1301et. seq. of the UBCA, particularly the procedural steps required to perfect such rights. SUCH DISSENTER’S RIGHTS WILL BE LOST IF THESE PROCEDURAL REQUIREMENTS ARE NOT FULLY AND PRECISELY SATISFIED. A SUMMARY OF THE STATUTORY PROCEDURE TO PERFECT YOUR DISSENTER’S RIGHTS IS SET FORTH BELOW AND A COPY OF SECTIONS 16-10(a)-1301 ET. SEQ. OF THE UBCA IS ATTACHED AS APPENDIX G. Procedure Within ten days after the effective time of the Reincorporation Merger (i.e., the time at which the articles/certificate of merger and any other appropriate documents are filed with the Secretaries of State of the States of Utah and Delaware), GCEH-Delaware will send to each stockholder who has satisfied the requirements for exercising dissenter’s rights a written notice in which GCEH-Delaware will notify such stockholders of their right to demand payment for their shares and will supply a form for dissenting stockholders to demand payment. Stockholders will have 30 days to make their payment demands or lose such rights. If required in the notice, each dissenting stockholder must also certify whether or not he or she acquired beneficial ownership of such shares before or after the date of the first announcement to the public of the proposed merger. Upon receipt of each demand for payment, GCEH-Delaware will pay each dissenting stockholder the amount that GCEH-Delaware estimates to be the fair value of such stockholder’s shares, plus interest from the date of the completion of the Reincorporation Merger to the date of payment. With respect to any dissenting stockholder who does not certify that he or she acquired beneficial ownership of the shares prior to the first public announcement of the transaction, GCEH-Delaware may, instead of making payment, offer such payment if the dissenter agrees to accept it in full satisfaction of his or her demand. “Fair Value” means the market value of the shares immediately before the effectuation of the Reincorporation Merger, excluding any appreciation or depreciation in anticipation of such events. Any dissenter who does not wish to accept the payment or offer made by GCEH-Delaware must notify GCEH-Delaware in writing of his or her own estimate of the fair value of the shares within 30 days after the date GCEH-Delaware makes or offers payment. UNLESS A STOCKHOLDER MAKES SUCH A DEMAND WITHIN SUCH THIRTY-DAY PERIOD, THE STOCKHOLDER WILL BE ENTITLED ONLY TO THE AMOUNT ESTIMATED BY GCEH-Delaware. If the dissenting stockholder and GCEH-Delaware are unable to agree on the fair value of the shares, then GCEH-Delaware will commence a proceeding with the Utah courts within 60 days after receiving the dissenter’s notice of his or her own estimate of fair value. If GCEH-Delaware does not commence such a proceeding within the 60-day period, it must pay each dissenter whose demand remains unresolved the amount demanded by such dissenter. If a proceeding is commenced, the court will determine the fair value of the shares and may appoint one or more appraisers to help determine such value. All dissenting stockholders must be a party to the proceeding, and all such stockholders will be entitled to judgment against GCEH-Delaware for the amount of the fair value of their shares, to be paid on surrender of the certificates representing such shares. The judgment will include an allowance for interest (at a rate determined by the court) to the date of payment. The costs of the court proceeding, including the fees and expenses of any appraisers, will be assessed against GCEH-Delaware unless the court finds that the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment at a higher amount than that offered by GCEH-Delaware. Both GCEH-Delaware and the dissenters must bear their own respective legal fees and expenses, unless the court requires one party to pay such legal fees and expenses because of the conduct of such party. The loss or forfeiture of dissenter’s rights simply means the loss of the right to receive a cash payment from GCEH-Delaware in exchange for shares. In such event the stockholder would still hold the appropriate number of shares of GCEH-Delaware.
PROPOSAL V – APPROVAL OF AMENDMENT TO CERTIFICATE (ARTICLES) OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT Overview Our Board of Directors has unanimously adopted a resolution approving, declaring advisable and recommending to the stockholders for their approval, a proposal to grant discretionary authority to our Board of Directors to amend GCEH-Delaware’s Certificate of Incorporation (or if the Reincorporation Merger is not approved, to amend GCEH-Utah’s Articles of Incorporation) to effect a Reverse Stock Split of our issued and outstanding common stock at any time prior to our next annual meeting of stockholders, at any whole number ratio between one for five and one for twenty (1-for-5 to 1-for-20), with the exact exchange ratio and timing of the Reverse Stock Split (if at all) to be determined at the discretion of the Board of Directors. If this proposal is approved by the stockholders, our Board of Directors will be granted the discretionary authority to select any whole number ratio between 1-for-5 to 1-for-20 for the Amendment and the Reverse Stock Split, and will be authorized to implement the Amendment and effect the Reverse Stock Split at any time prior to our next annual meeting of stockholders but no later than September 30, 2011, with the exact exchange ratio and timing of the Reverse Stock Split (if at all) to be determined at the discretion of the Board of Directors. Our Board of Directors’ decision whether or not (and when) to file the Amendment and effect the Reverse Stock Split (and at what whole number ratio to effect the Reverse Stock Split) will also be based on a number of factors, including market conditions, existing and anticipated trading prices for our common stock and the listing requirements of a national stock exchange or the Nasdaq Capital Market. Stockholder approval is being to implement the Amendment and effect the Reverse Stock Split at any whole number ratio between 1-for-5 to 1-for-20 in order to provide our Board of Directors with the flexibility to determine the ultimate exchange ratio of the Reverse Stock Split, based upon the best interests of the Company and its stockholders. If the stockholders approve the Amendment and Reverse Stock Split, the Company reserves the right not to file the Amendment and effect the Reverse Stock Split if our Board of Directors does not deem it to be in the best interests of the Company and its stockholders. The form of the Amendment to GCEH-Delaware’s Certificate of Incorporation (or if the Reincorporation Merger is not approved, GCEH-Utah’s Articles of Incorporation) to effect the Reverse Stock Split is attached to this proxy statement as Appendix F. The form of the Amendment 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. The Company believes that the availability of a range of reverse stock split ratios will provide it with the flexibility to implement the Reverse Stock Split in a manner designed to maximize the anticipated benefits for the Company and its stockholders. In determining which ratio to implement, if any, following the receipt of stockholder approval, our Board may consider, among other things, factors such as: | · | the historical trading price and trading volume of our Common Stock; |
| · | the then prevailing trading price and trading volume of our Common Stock and the anticipated impact of the Reverse Stock Split on the trading market for our Common Stock; |
| · | the Company’s ability to facilitate the listing of our Common Stock on the Nasdaq Capital Market on a national exchange; and |
| · | prevailing general market and economic conditions. |
The Board, in its discretion, may elect, at any time prior to next year’s annual meeting of stockholders, to implement the Amendment and effect the Reverse Stock Split at a ratio within the range set forth above upon receipt of stockholder approval, or none of them if the Board determines in its discretion not to proceed with the Reverse Stock Split.
As a Utah corporation, GCEH-Utah is governed by our Articles of Incorporation. If we consummate the Reincorporation Merger, as GCEH-Delaware, we will become governed by the Certificate of Incorporation attached to this proxy statement as Appendix D. If our stockholders approve the grant of discretionary authority to implement the Amendment and effect the Reverse Stock Split but do not approve the Reincorporation Merger, we will remain a Utah corporation governed by our Articles of Incorporation. In such event, should the Board decide to implement the Amendment and effect the Reverse Stock Split, we will amend GCEH-Utah’s Articles of Incorporation as set forth in Appendix F. On the other hand, if our stockholders approve the Reincorporation Merger, and should our Board decide to implement the Reverse Stock Split following the Reincorporation Merger, we will amend our (i.e., GCEH-Delaware) Certificate of Incorporation as set forth in Appendix F. Reasons for Reverse Stock Split The Board proposes to effect, and believes that stockholders should authorize, the Reverse Stock Split for the following reasons: | · | The Reverse Stock Split would allow a broader range of institutions and other investors to invest in our Common Stock, such as funds that are prohibited from buying stock whose price is below a certain threshold, potentially increasing trading volume and liquidity. Further, the Reverse Stock Split would help increase broker interest in shares of our Common Stock as their policies can discourage them from recommending companies with lower stock prices. Because of the trading volatility often associated with lower-priced stocks, many brokerage houses and institutional investors have adopted internal policies and practices that either prohibit or discourage them from investing in such stocks or recommending them to their customers. Additionally, because brokers’ commissions on transactions in lower-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of our Common Stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the stock price were substantially higher. |
| · | Our Board believes that the increase in the stock price expected to result from the Reverse Stock Split could decrease price volatility, as small changes in the price of our Common Stock currently result in relatively large percentage changes in the stock price. |
| · | Our Common Stock is traded on the OTC Bulletin Board. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than national securities exchanges, such as The Nasdaq Stock Market. We would like to have the flexibility in the future to consider listing our Common Stock on the Nasdaq Stock Market or on another national stock exchange, but we do not currently meet the listing requirements for The Nasdaq Stock Market or any other national stock exchange. Most national stock exchanges maintain minimum share price requirements to determine a security’s eligibility for listing on the stock exchange. For example, in order to list our Common Stock on The Nasdaq Capital Market, we would be required to have a minimum bid price of $4.00 per share. As of the Record Date, the closing price of our common stock, as listed on the OTC Bulletin Board, was $0.04 per share. While the Reverse Stock Split may not increase our stock price to $4.00 per share immediately, our Board believes that the Reverse Stock Split may make it easier for the Company to achieve that level in the future, thereby facilitating listing of our Common Stock on the Nasdaq Stock Market or on another national stock exchange. |
Possible Disadvantages of Reverse Stock Split The Board believes that the potential advantages of the Reverse Stock Split significantly outweigh any disadvantages that may result. The following are possible disadvantages of the Reverse Stock Split: | · | Although our Board expects that the Reverse Stock Split will result in an increase in the price of our Common Stock, the effect of the Reverse Stock Split cannot be predicted with certainty. Other factors, such as the Company’s financial results, market conditions and the market perception of the Company’s business may adversely affect our stock price. As a result, there can be no assurance that the Reverse Stock Split, if completed, will result in the intended benefits described above; that the stock price will increase following the Reverse Stock Split; or that the stock price will not decrease in the future. |
| · | Because the Reverse Stock Split will reduce the number of shares of our Common Stock available in the public market, the trading market for such securities may be harmed, particularly if the stock price does not increase as a result of the Reverse Stock Split. The Reverse Stock Split will reduce the number of shares outstanding, including the number of shares in the public float (i.e. the shares that trade on the public markets). A reduction in the public float could reduce the amount of trading in our shares of Common Stock. |
Effects of Reverse Stock Split General If the Reverse Stock Split is approved and implemented, the principal effects will be to decrease the number of outstanding shares of the Company’s common stock based on the reverse stock split ratio selected by the Board. As of May 1, 2010, approximately 270,464,478 shares of our Common Stock were issued and outstanding. Without taking into account fractional shares that will be rounded up to the nearest whole share or cashed out as described below, based on this number of shares issued and outstanding and, for illustrative purposes only, assuming a reverse split ratio of 1-for-10, the Company would have approximately 27,046,448 shares outstanding immediately following the completion of the Reverse Stock Split. With respect to holders of our Series B Preferred Stock, if the Reverse Stock Split is effected, the conversion price of the Series B Preferred Stock (i.e., the ratio at which the Series B Preferred Stock converts into shares of our Common Stock) will be proportionately adjusted such that holders will be entitled to receive the number of shares of Common Stock which they would have been entitled to had the Series B Preferred Stock been converted immediately prior to implementing the Reverse Stock Split. As a result, while our preferred stockholders will still own the same number of shares of Series B Preferred Stock, such shares will be convertible into a smaller number of shares of our Common Stock. The specific number of shares of Common Stock into which shares of Series B Preferred Stock will be convertible following effectiveness of the Reverse Stock Split will depend on the reverse stock split ratio selected by the Board. The proposed Reverse Stock Split will affect all of our stockholders (common or preferred) uniformly and will not affect any common stockholder’s percentage ownership interest in the Company except to the extent that the Reverse Stock Split results in any of our common stockholders owning a fractional share and such fractional share. The proposed Reverse Stock Split will not affect voting rights and other rights and preferences of our stockholders (common or preferred), nor will it affect the number of our stockholders of record. The Amendment to our Certificate of Incorporation (or Articles of Incorporation if the Reincorporation Merger is not approved) to effect the Reverse Stock Split will not proportionately change the number of authorized shares of our Common Stock or Series B Preferred Stock. As a result, with respect to each class of capital stock, one of the effects of the Reverse Stock Split, if effected, will be to effectively increase the proportion of authorized shares, which are unissued relative to those which are issued. This could result in us being able to issue more shares without further stockholder approval.
Effectiveness of Reverse Stock Split The Amendment and Reverse Stock Split, if approved by our stockholders, would become effective upon the filing and effectiveness of a Certificate of Amendment to GCEH-Delaware’s Certificate of Incorporation with the Secretary of State of the State of Delaware (assuming stockholder approval of the Reincorporation Merger). However, the exact timing of the filing of the Amendment will be determined by the Board based on its evaluation as to when such action will be the most advantageous to the Company and its stockholders, if at all. Accordingly, the Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split if, at any time prior to filing the Amendment, the Board, in its sole discretion, determines that it is no longer in the Company’s best interests and the best interests of its stockholders to proceed with the Reverse Stock Split. If the Board fails to implement the Reverse Stock Split by next year’s annual meeting, stockholder approval would be required again prior to implementing any reverse stock split. If our stockholders approve the grant of discretionary authority to implement the Amendment and effect the Reverse Stock Split but do not approve the Reincorporation Merger, we will remain a Utah corporation governed by our Articles of Incorporation. In such event, should the Board decide to file Amendment and effect the Reverse Stock Split, we will amend GCEH-Utah’s Articles of Incorporation instead. Effect on Stock Certificates Stockholders are not required to send in their current certificates for exchange. Following the Reverse Stock Split, each stock certificate representing issued and outstanding shares of our Common Stock will represent a fewer number of shares, as adjusted appropriately based on the Reverse Stock Split ratio selected by our Board. For example, a stock certificate evidencing 1,000 shares of Common Stock will, upon effectiveness of the Reverse Stock Split, represent 100 shares of Common Stock (assuming that the Board effects the Reverse Stock Split at a 1-for 10 ratio). With respect to holders of our Series B Preferred Stock, if the Reverse Stock Split is effected, the conversion price of the Series B Preferred Stock (i.e., the ratio at which the Series B Preferred Stock converts into shares of our Common Stock) will be proportionately adjusted such that holders will be entitled to receive the number of shares of Common Stock which they would have been entitled to had the Series B Preferred Stock been converted immediately prior to implementing the Reverse Stock Split. As a result, while you will still own the same number of shares of Series B Preferred Stock, such shares will be convertible into a smaller number of shares of our Common Stock. The specific number of shares of Common Stock into which your Series B Preferred Stock will be convertible following effectiveness of the Reverse Stock Split will depend on the reverse stock split ratio selected by the Board. Effect on Company’s Stock Plans As of May 1, 2010, approximately 19,700,000 shares of our Common Stock were subject to the exercise of outstanding stock options and other awards, and approximately 300,000 additional shares were reserved and available for issuance pursuant to future awards, under the Company’s 2002 Plan. As of May 14, 2010, no awards have been granted under the 2010 Plan. Under these plans, the number of shares reserved and available for issuance and the number, exercise price, grant price or purchase price of shares subject to outstanding awards will be proportionately adjusted based on the reverse split ratio selected by the Board if the Reverse Stock Split is effected. As a result, using the above data as of May 14, 2010, and assuming for illustrative purposes only that a 1-for-10 reverse stock split is effected, the number of shares issuable upon exercise or vesting of outstanding awards would be adjusted from 19,700,000 to 1,970,000, and the 300,00 shares that were available for future issuance under the stock plans would be adjusted to30,000 shares (subject to increase as and when awards made under the stock plans expire or are forfeited and are returned in accordance with the terms of the plans).
For individual holders, the number of shares subject to outstanding awards would be reduced by a factor of 10 and, in the case of outstanding stock options, the exercise price per share would be increased by a multiple of 10, such that upon an exercise, the aggregate exercise price payable by the optionee to the Company would remain the same. For example, an outstanding stock option for 5,000 shares of common stock, exercisable at $0.10 per share, would be adjusted as a result of a 1-for-10 split ratio into an option exercisable for 500 shares of common stock at an exercise price of $1.00 per share. In connection with the proposed Reverse Stock Split, the number of shares of our Common Stock issuable upon exercise of outstanding stock awards will be rounded to the nearest whole share and no cash payment will be made in respect of such rounding. The proposed Reverse Stock Split will have a similar effect upon our outstanding warrants. Fractional Shares We will not issue any fractional shares of common stock to holders of our Common Stock in connection with the Reverse Stock Split. Instead, with respect to any fractional share resulting from the Reverse Stock Split, and subject to applicable law, we will either pay in cash the value of such fractional share, or round up such fractional share to the nearest whole share. Effect on Registered and Beneficial Holders If the Reverse Stock Split is implemented, the Company intends to treat beneficial holders (i.e., stockholders who hold their shares in “street name” through a bank, broker or other nominee) in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding shares in “street name”. However, these banks, brokers or other nominees may have their own procedures for processing the Reverse Stock Split. Stockholders who hold shares with a bank, broker or other nominee and have questions in this regard are encouraged to contact their bank, broker or other nominee. No Dissenters’ Rights Under Utah law, the Company’s stockholders are not entitled to dissenter’s rights or appraisal rights with respect to the Amendment and the Reverse Stock Split described in this proposal. Certain Federal Income Tax Consequences of Reverse Stock Split The following is a general summary of certain U.S. federal income tax consequences of the Reverse Stock Split that may be relevant to stockholders. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, published administrative rulings and judicial decisions as of the date hereof, all of which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from those discussed below. This summary does not purport to be complete and does not address all aspects of federal income taxation that may be relevant to stockholders in light of their particular circumstances or to stockholders that may be subject to special tax rules. In addition, this summary does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction and U.S. federal tax consequences other than federal income taxation. The Company has not sought, and will not seek, an opinion of counsel or a ruling from the Internal Revenue Service (“IRS”) regarding the United States federal income tax consequences of the Reverse Stock Split and there can be no assurance the IRS will not challenge the statements and conclusions set forth below or that a court would not sustain any such challenge. EACH STOCKHOLDER SHOULD CONSULT SUCH HOLDER’S TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH STOCKHOLDER.
The Reverse Stock Split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a stockholder generally should not recognize gain or loss upon the Reverse Stock Split. A stockholder’s aggregate tax basis in the shares of the common stock received pursuant to the Reverse Stock Split should equal the aggregate tax basis of the shares of the common stock surrendered (excluding the effect of any fractional shares that are rounded up, if at all), and such stockholder’s holding period in the shares of the common stock received should include the holding period in the shares of the common stock surrendered. Treasury regulations promulgated under the Code provide detailed rules for allocating the tax basis and holding period of the shares of the common stock surrendered to the shares of the common stock received pursuant to the Reverse Stock Split. Stockholders who acquired their shares of common stock on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares. The Board Of Directors Recommends A Vote “For” The Proposal to amend the Company’s Certificate of Incorporation (or Articles of Incorporation, if applicable) to effect the Reverse Stock Split at a ratio of between 1-for-5 and 1-for-20, as determined by the Board of Directors. INTERESTS OF CERTAIN PERSONS IN THE MERGER No director, executive officer, associate of any director or executive officer, or any other person has any substantial interest, direct or indirect, by security holdings or otherwise, resulting from the proposals presented in this proxy statement, which is not shared by all other stockholders pro rata, and in accordance with their respective interests. Stockholder Nominations for Board of Directors. Stockholders may nominate persons to be elected as directors of the Company or present proposals to the Company for inclusion in our proxy statement prepared in connection with our annual meeting of stockholders to be held in the fiscal year ending December 31, 2011 (the “Next Annual Meeting”). In order to be eligible to submit a proposal for inclusion in our proxy materials, a stockholder must have continuously held at least $2,000 in market value, or 1% of our securities entitled to vote at the meeting for at least prior to the date of the submission of the proposal. In addition, SEC rules require that stockholders give written notice of any proposal to the Company. For your proposal to be considered for inclusion in the proxy statement and form of proxy for the Next Annual Meeting, your written proposal must be received by our Secretary at our principal executive offices not less than 120 calendar days before the date of the Company’s proxy statement released to stockholders in connection with the previous year’s annual meeting (i.e., the 2010 Annual Meeting). Accordingly, we must receive all such written notices no later than February 4, 2011. To be in proper written form, such stockholder’s notice shall set forth: (1) as to each person that the stockholder proposes to nominate for election as a director, all information relating to such nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors, or may otherwise be required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made: (i) the name and address of such stockholder, as they appear on the Company’s books, and of such beneficial owner; (ii) the class and number of shares of capital stock of the Company which are beneficially owned by such stockholder and such beneficial owner; and (iii) if applicable, any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors, or may otherwise be required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.
Stockholder Proposals for Other Business. Stockholders may present proposals to the Company for inclusion in our proxy statement prepared in connection with the Next Annual Meeting. In order to be eligible to submit a proposal for inclusion in our proxy materials, a stockholder must have continuously held at least $2,000 in market value, or 1% of our securities entitled to vote at the meeting for at least prior to the date of the submission of the proposal. In addition, SEC rules require that stockholders give written notice of any proposal to the Company. For your proposal to be considered for inclusion in the proxy statement and form of proxy for the Next Annual Meeting, your written proposal must be received by our Secretary at our principal executive offices not less than 120 calendar days before the date of the Company’s proxy statement released to stockholders in connection with the previous year’s annual meeting (i.e., the 2010 Annual Meeting). Accordingly, we must receive all such written notices no later than February 4, 2011. To be in proper written form, such stockholder’s notice shall set forth: (1) as to each matter that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made: (i) the name and address of such stockholder, as they appear on the Company’s books, and of such beneficial owner; (ii) the class and number of shares of capital stock of the Company which are beneficially owned by such stockholder and such beneficial owner; and (iii) if applicable, any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for such matters, or may otherwise be required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Receipt of a stockholder proposal does not necessarily guarantee that the proposal will be included in the proxy statement for the Next Annual Meeting. Stockholders interested in submitting a nomination or proposal for consideration at the Next Annual Meeting should consult the Company’s Bylaws to ensure that any such notice of nomination or proposal is submitted to the Company in proper form. You should also be aware that your proposal must comply with Securities and Exchange Commission regulations regarding inclusion of stockholder proposals in Company-sponsored proxy materials. The Board will review any proposal that is received by the deadline and determine if it is a proper proposal for inclusion in the proxy statement for the Next Annual Meeting. Stockholder Proposals Not for Inclusion in Company Proxy Statement. Stockholders may nominate persons to be elected as directors of the Company, or present other proposals, to the Company to be considered at the Next Annual Meeting, but not for inclusion in our proxy statement prepared in connection with the Next Annual Meeting. In order to submit a proposal, our Bylaws require that stockholders give written notice of any proposal to the Company. For your proposal to be considered at the Next Annual Meeting (but not for inclusion in our proxy statement prepared in connection with such annual meeting), your written proposal must be received by our Secretary at our principal executive offices not less than 60 days nor more than 90 days prior to the first anniversary of the 2010 Annual Meeting. Accordingly, we must receive all such written notices no earlier than April 16, 2011, and no later than May 16, 2011. Depending on the nature of the proposal, our Bylaws require certain additional information to be included in such written notice. Stockholders interested in submitting a nomination or proposal for consideration at the Next Annual Meeting (but not for inclusion in our proxy statement prepared in connection with such annual meeting) should consult the Company’s Bylaws to ensure that any such notice of nomination or proposal is submitted to the Company in proper form.
Stockholder Proposals Following Approval of Reincorporation Merger. If our stockholders approve the Reincorporation Merger, as GCEH-Delaware, we will become governed by the Bylaws of GCEH-Delaware attached to this proxy statement as Appendix E. Pursuant to the GCEH-Delaware Bylaws, stockholders may nominate persons to be elected as directors of the Company, or present other proposals, to be considered at annual meeting of stockholders, whether or not such proposals are for inclusion in our proxy materials. Pursuant to the GCEH-Delaware Bylaws, in order to timely submit such a proposal for consideration at the Next Annual Meeting (whether or not such proposal is for inclusion in our proxy materials), your written proposal must be received by our Secretary at our principal executive offices not less than 120 calendar days before the date of the Company’s proxy statement released to stockholders in connection with the previous year’s annual meeting (i.e., the 2010 Annual Meeting), which is no later than February 4, 2011. In addition, stockholders are required to include with such written proposals, the same information required under our current Bylaws, as applicable, with respect to nominations for election as a director of the Company and proposals of other business (as more specifically described in the discussion above). DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS Certain stockholders who share an address are being delivered only one copy of this proxy statement unless the Company or one of its mailing agents has received contrary instructions. Upon the written or oral request of a stockholder at a shared address to which a single copy of this proxy statement was delivered, the Company shall promptly deliver a separate copy of this proxy statement to such stockholder. Written requests should be made to Global Clean Energy Holdings, Inc., 6033 W. Century Blvd., Suite 895, Los Angeles, California 90045, Attention: Corporate Secretary, and oral requests may be made by calling the Company at (310) 641-4234. In addition, if such stockholder wishes to receive separate annual reports, proxy statements or information statements in the future, such stockholder should notify the Company either in writing addressed to the foregoing address or by calling the foregoing telephone number. Stockholders sharing an address who are receiving multiple copies of this proxy statement may request delivery of a single annual report, proxy statement or information statement in the future by directing such request in writing to the address above or calling the number above. Management does not intend to present any other items of business and knows of no other matters that will be brought before the 2010 Annual Meeting. Whether or not you plan to attend the 2010 Annual Meeting, please sign and date the enclosed proxy card and return it in the enclosed envelope to ensure your representation at the 2010 Annual Meeting. FORWARD-LOOKING STATEMENTS This proxy statement and materials delivered with this proxy statement, including our annual report on Form 10-K, for the year ended December 31, 2009, contains “forward-looking” statements. All statements other than statements of historical facts included in this proxy statement and materials delivered with this proxy statement, including, without limitation, statements regarding our financial position, business strategy, and plans and objectives of management for future operations and capital expenditures, are forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements and the assumptions upon which the forward-looking statements are based are reasonable, we can give no assurance that such expectations and assumptions will prove to have been correct. Additional statements concerning important factors that could cause actual results to differ materially from our expectations are disclosed in the “Note Regarding Forward Looking Statements” section of our annual report on Form 10-K for the year ended December 31, 2009. All written and oral forward-looking statements attributable to us or persons acting on our behalf subsequent to the date of this proxy statement are expressly qualified in their entirety by such cautionary statements.
WHERE YOU CAN FIND MORE INFORMATION The Company files reports, proxy statements, and other information with the Securities and Exchange Commission (“SEC”). You can read and copy these reports, proxy statements, and other information concerning our company at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the operation of the SEC’s Public Reference Room. The SEC also maintains an Internet site that contains all reports, proxy statements and other information that we file electronically with the SEC. The address of that website is http://www.sec.gov. A copy of our annual report on form 10-K, for the year ended December 31, 2009, which includes financial statements for the Company for the fiscal year then ended, management’s discussion and analysis of the Company’s financial condition, and a general description of the Company’s business operations (but excluding exhibits) will be made available at the Internet address specified in the Notice of Internet Availability of Proxy Materials being mailed to each stockholder of record with this proxy statement. The exhibits to the Form 10-K are available upon payment of charges that approximate reproduction costs. If you would like to request documents, please do so by June 30, 2010, to receive them before the annual meeting of stockholders. Requests should be sent in writing to: Global Clean Energy Holdings, Inc. 6033 W. Century Blvd., Suite 895 Los Angeles, California 90045 Attention: Corporate Secretary PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY GIVING WRITTEN NOTICE OF REVOCATION TO THE COMPANY PRIOR TO THE ANNUAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO COMPANY’S CORPORATE SECRETARY PRIOR TO THE ANNUAL MEETING OR BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON. | By Order of the Board of Directors, | | | | | | /s/ RICHARD PALMER | | | RICHARD PALMER | | | Chief Executive Officer | |
June 2, 2010
APPENDIX A PROXY GLOBAL CLEAN ENERGY HOLDINGS, INC. ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 15, 2010 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Know all men by these presents that the undersigned stockholder of GLOBAL CLEAN ENERGY HOLDINGS, INC. (“Company”) hereby constitutes and appoints Richard Palmer, the Company’s Chief Executive Officer, as attorney and proxy to appear, attend and vote all of the shares of the Company standing in the name of the undersigned at the Annual meeting of Stockholders of the Company to held at the offices of TroyGould PC, 1801 Century Park East, 16th Floor, Los Angeles, California U.S.A., and at any adjournment thereof.
PROPOSAL I - ELECTION OF DIRECTORS: Four (4) persons are nominated – David Walker, Mark Bernstein, Martin Wenzel and Richard Palmer – to serve as directors for a term ending on the date of the next annual meeting of stockholders following the date such persons are initially elected as directors, and until their successors are duly elected and qualified:
“FOR” all nominees o Withhold authority to vote for all nominees o
Withhold authority to vote for nominee(s) named below:
David Walker o Mark Bernstein o Martin Wenzel o Richard Palmer o
PROPOSAL II - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: Hansen, Barnett & Maxwell, P.C. as the Company’s independent registered public accountant for the fiscal year ending December 31, 2010.
FOR o AGAINST o ABSTAIN o
PROPOSAL III - APPROVAL OF ADOPTION OF THE 2010 EQUITY INCENTIVE PLAN: Approval of the Board of Director’s adoption of the 2010 Equity Incentive Plan.
FOR o AGAINST o ABSTAIN o
PROPOSAL IV – REINCORPORATION MERGER: Reincorporation of the Company in the State of Delaware pursuant to a merger with and into a wholly owned subsidiary of the Company.
FOR o AGAINST o ABSTAIN o
PROPOSAL V – APPROVAL OF AMENDMENT TO CERTIFICATE (ARTICLES) OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT: Amendment to Company’s Certificate (Articles) of Incorporation to effect Reverse Stock Split.
FOR o AGAINST o ABSTAIN o
OTHER BUSINESS: Such other business as may properly come before the meeting:
AUTHORITY GRANTED o AUTHORITY WITHHELD o
Please mark, date and sign your name exactly as it appears hereon and return the Proxy as promptly as possible. It is important to return this Proxy properly signed in order to exercise your right to vote if you do not attend the meeting in person. When signing as agent, partner, attorney, administrator, guardian, trustee or in any other fiduciary or official capacity, please indicate your title. If shares are held jointly, each owner must sign.
| Number of Common Shares: | | | | | Printed Name(s): | | | | | | | | | | | Date: | | Signature: | | | | | | Joint Owner (if any): |
APPENDIX B 2010 EQUITY INCENTIVE PLAN OF GLOBAL CLEAN ENERGY HOLDINGS, INC. The purposes of the 2010 Equity Incentive Plan (“Plan”) of GLOBAL CLEAN ENERGY HOLDINGS, INC., a Utah corporation (the “Company”), are to: 1.1 Encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability of the Company; 1.2 Encourage selected employees, directors, consultants and advisers to accept or continue employment or association with the Company or its Affiliates; and 1.3 Increase the interest of selected employees, directors, consultants and advisers in the Company’s welfare through participation in the growth in value of the common stock of the Company, no par value per share (the “Common Stock”). All references herein to stock or shares, unless otherwise specified, shall mean Common Stock. | 2. | TYPES OF AWARDS; ELIGIBLE PERSONS |
2.1 The Administrator (as defined below) may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant “incentive stock options” (“ISOs”) intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”); (ii) grant “non-qualified options” (“NQOs,” and together with ISOs, “Options”); (iii) grant or sell Common Stock subject to restrictions (“restricted stock”) and (iv) grant stock appreciation rights (in general, the right to receive the excess of the fair market value of Common Stock on the exercise date over its fair market value on the grant date (“SARs”)), either in tandem with Options or as separate and independent grants. Any such awards may be made to employees, including employees who are officers or directors, and to individuals described in Section 1 of this Plan who the Administrator believes have made or will make a contribution to the Company or any Affiliate (as defined below); provided, however, that only a person who is an employee of the Company or any Affiliate at the date of the grant of an Option is eligible to receive ISOs under the plan. The term “Affiliate” as used in this Plan means a parent or subsidiary corporation as defined in the applicable provisions (currently Sections 424(e) and (f), respectively) of the Code. The term “employee” includes an officer or director who is an employee of the Company. The term “consultant” includes persons employed by, or otherwise affiliated with, a consultant. The term “adviser” includes persons employed by, or otherwise affiliated with, an adviser. 2.2 Except as otherwise expressly set forth in this Plan, no right or benefit under this Plan shall be subject in any manner to anticipation, alienation, hypothecation, or charge, and any such attempted action shall be void. No right or benefit under this Plan shall in any manner be liable for or subject to debts, contracts, liabilities, or torts of any option holder or any other person except as otherwise may be expressly required by applicable law.
| 3. | STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS |
Subject to the provisions of Sections 6.1.1 and 8.2 of this Plan, the total number of shares of Common Stock which may be offered, or issued as restricted stock or on the exercise of Options or SARs under the Plan shall not exceed Twenty Million (20,000,000) shares of Common Stock. The shares subject to an Option or SAR granted under the Plan that expire, terminate or are cancelled unexercised shall become available again for grants under this Plan. If shares of restricted stock awarded under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. Where the exercise price of an Option is paid by means of the optionee’s surrender of previously owned shares of Common Stock or the Company’s withholding of shares otherwise issuable upon exercise of the Option as may be permitted herein, only the net number of shares issued and which remain outstanding in connection with such exercise shall be deemed “issued” and no longer available for issuance under this Plan. No eligible person shall be granted Options or other awards during any twelve-month period covering more than Five Hundred Thousand (500,000) shares of Common Stock. 4.1 This Plan shall be administered by the Board of Directors of the Company (the “Board”) or by a committee (the “Committee”) to which administration of this Plan, or of part of this Plan, is delegated by the Board (in either case, the “Administrator”). The Board shall appoint and remove members of the Committee in its discretion in accordance with applicable laws. At the Board’s discretion, the Committee may be comprised solely of “non-employee directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or “outside directors” within the meaning of Section 162(m) of the Code. The Administrator may delegate non-discretionary administrative duties to such employees of the Company as the Administrator deems proper and the Board, in its absolute discretion, may at any time and from time to time exercise any and all rights and duties of the Administrator under this Plan. 4.2 Subject to the other provisions of this Plan, the Administrator shall have the authority, in its discretion: (i) to grant Options and SARs and grant or sell restricted stock; (ii) to determine the fair market value of the Common Stock subject to Options or other awards; (iii) to determine the exercise price of Options granted, the economic terms of SARs granted, or the offering price of restricted stock; (iv) to determine the persons to whom, and the time or times at which, Options or SARs shall be granted or restricted stock granted or sold, and the number of shares subject to each Option or SAR or the number of shares of restricted stock granted or sold; (v) to construe and interpret the terms and provisions of this Plan, of any applicable agreement and all Options and SARs granted under this Plan, and of any restricted stock award under this Plan; (vi) to prescribe, amend, and rescind rules and regulations relating to this Plan; (vii) to determine the terms and provisions of each Option and SAR granted and award of restricted stock (which need not be identical), including but not limited to, the time or times at which Options and SARs shall be exercisable or the time at which the restrictions on restricted stock shall lapse; (viii) with the consent of the grantee, to rescind any award or exercise of an Option or SAR and to modify or amend the terms of any Option, SAR or restricted stock; (ix) to reduce the exercise price of any Option, the base value from which appreciation is to be determined with respect to an SAR or the purchase price of restricted stock, provided that any such reduction shall not be less than provided with Sections 6.2.1 and 6.3.1; (x) to accelerate or defer (with the consent of the grantee) the exercise date of any Option or SAR or the date on which the restrictions on restricted stock lapse; (xi) to issue shares of restricted stock to an optionee in connection with the accelerated exercise of an Option by such optionee; (xii) to authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option. SAR or award of restricted stock; (xiii) to determine the duration and purposes of leaves of absence which may be granted to participants without constituting a termination of their employment for the purposes of the Plan; and (xiv) to make all other determinations deemed necessary or advisable for the administration of this Plan, any applicable agreement, Option, SAR or award of restricted stock. 4.3 All questions of interpretation, implementation, and application of this Plan or any agreement or Option, SAR or award of restricted stock shall be determined by the Administrator, which determination shall be final and binding on all persons.
| 5. | GRANTING OF OPTIONS AND SARS; AGREEMENTS |
5.1 No Options or SARs shall be granted under this Plan after ten (10) years from the date of adoption of this Plan by the Board. No SARs shall be granted under the Plan unless and until the common stock of the Company is publicly traded. 5.2 Each Option and SAR shall be evidenced by a written agreement, in form satisfactory to the Administrator, executed by the Company and the person to whom such grant is made. In the event of a conflict between the terms or conditions of an agreement and the terms and conditions of this Plan, the terms and conditions of this Plan shall govern. 5.3 Each agreement shall specify whether the Option it evidences is an NQO or an ISO; provided, however, all Options granted under this Plan to non-employee directors, consultants and advisers of the Company are intended to be NQOs. 5.4 Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of Options or SARs under this Plan to persons who are expected to become employees, directors, consultants or advisers of the Company, but are not employees, directors, consultants or advisers at the date of approval. | 6. | TERMS AND CONDITIONS OF OPTIONS AND SARS |
Each Option and SAR granted under this Plan shall be subject to the terms and conditions set forth in Section 6.1. NQOs and SARs shall also be subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2. SARs shall be subject to the terms and conditions of Section 6.4. 6.1Terms and Conditions to Which All Options and SARs Are Subject. All Options and SARs granted under this Plan shall be subject to the following terms and conditions: 6.1.1Changes in Capital Structure. Subject to Section 6.1.2, if the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, or if the Company effects a spin-off of the Company’s subsidiary, appropriate adjustments shall be made by the Administrator, in its sole discretion, in (a) the number and class of shares of stock subject to this Plan and each Option and SAR outstanding under this Plan, and (b) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustments. Any adjustment, however, in an outstanding Option shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share covered by the unexercised portion of the Option. Adjustments under this Section 6.1.1 shall be made by the Administrator, whose determination as to the nature of the adjustments that shall be made, and the extent thereof, shall be final, binding, and conclusive. If an adjustment under this Section 6.1.1 would result in a fractional share interest under an option or any installment, the Administrator’s decision as to inclusion or exclusion of that fractional share interest shall be final, but no fractional shares of stock shall be issued under the Plan on account of any such adjustment. 6.1.2Corporate Transactions. Except as otherwise provided in the applicable agreement, in the event of a Corporate Transaction (as defined below), the Administrator shall notify each holder of an Option or SAR at least thirty (30) days prior thereto or as soon as may be practicable. To the extent not then exercised all Options and SARs shall terminate immediately prior to the consummation of such Corporate Transaction unless the Administrator determines otherwise in its sole discretion; provided, however, that the Administrator, in its sole discretion, may (i) permit exercise of any Options or SARs prior to their termination, even if such Options or SARs would not otherwise have been exercisable, and/or (ii) provide that all or certain of the outstanding Options and SARs shall be assumed or an equivalent Option or SAR substituted by an applicable successor corporation or entity or any Affiliate of the successor corporation or entity. A “Corporate Transaction” means (i) a liquidation or dissolution of the Company; (ii) a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly-owned subsidiary); (iii) a sale of all or substantially all of the assets of the Company; or (iv) a purchase or other acquisition of more than 50% of the outstanding stock of the Company by one person or by more than one person acting in concert. 6.1.3Time of Option or SAR Exercise. Subject to Section 5 and Section 6.3.4, an Option or SAR granted under the Plan shall be exercisable (a) immediately as of the effective date of the of the applicable agreement or (b) in accordance with a schedule or performance criteria as may be set by the Administrator and specified in the applicable agreement. However, in no case may an Option or SAR be exercisable until a written agreement in form and substance satisfactory to the Company is executed by the Company and the grantee. 6.1.4Grant Date. The date of grant of an Option or SAR under the Plan shall be the effective date of the applicable agreement. 6.1.5Non-Transferability of Rights. Except with the express written approval of the Administrator, which approval the Administrator is authorized to give only with respect to NQOs and SARs, no Option or SAR granted under this Plan shall be assignable or otherwise transferable by the grantee except by will or by the laws of descent and distribution. During the life of the grantee, an Option or SAR shall be exercisable only by the grantee. 6.1.6Payment. Except as provided below, payment in full, in cash, shall be made for all stock purchased at the time written notice of exercise of an Option is given to the Company and the proceeds of any payment shall be considered general funds of the Company. The Administrator, in the exercise of its absolute discretion after considering any tax, accounting and financial consequences, may authorize any one or more of the following additional methods of payment: (a) Subject to the Sarbanes-Oxley Act of 2002, acceptance of the optionee’s full recourse promissory note for all or part of the Option price, payable on such terms and bearing such interest rate as determined by the Administrator (but in no event less than the minimum interest rate specified under the Code at which no additional interest or original issue discount would be imputed), which promissory note may be either secured or unsecured in such manner as the Administrator shall approve (including, without limitation, by a security interest in the shares of the Company); (b) Subject to the discretion of the Administrator and the terms of the stock option agreement granting the Option, delivery by the optionee of shares of Common Stock already owned by the optionee for all or part of the Option price, provided the fair market value (determined as set forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by delivery of such stock; (c) Subject to the discretion of the Administrator, through the surrender of shares of Common Stock then issuable upon exercise of the Option, provided the fair market value (determined as set forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by surrender of such stock; and (d) By means of so-called “cashless exercises” as permitted under applicable rules and regulations of the Securities and Exchange Commission and the Federal Reserve Board. 6.1.7Withholding and Employment Taxes. At the time of exercise and as a condition thereto, or at such other time as the amount of such obligation becomes determinable, the grantee of an Option or SAR shall remit to the Company in cash all applicable federal and state withholding and employment taxes. Such obligation to remit may be satisfied, if authorized by the Administrator in its sole discretion, after considering any tax, accounting and financial consequences, by the holder’s (i) delivery of a promissory note in the required amount on such terms as the Administrator deems appropriate, (ii) tendering to the Company previously owned shares of Common Stock or other securities of the Company with a fair market value equal to the required amount, or (iii) agreeing to have shares of Common Stock (with a fair market value equal to the required amount), which are acquired upon exercise of the Option or SAR, withheld by the Company. 6.1.8Other Provisions. Each Option and SAR granted under this Plan may contain such other terms, provisions, and conditions not inconsistent with this Plan as may be determined by the Administrator, and each ISO granted under this Plan shall include such provisions and conditions as are necessary to qualify the Option as an “incentive stock option” within the meaning of Section 422 of the Code. 6.1.9Determination of Value. For purposes of this Plan, the fair market value of Common Stock or other securities of the Company shall be determined as follows: (a) If the stock of the Company is listed on a securities exchange or is regularly quoted by a recognized securities dealer, and selling prices are reported, its fair market value shall be the closing price of such stock on the date the value is to be determined, but if selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for such stock on the date the value is to be determined (or if there are no quoted prices for the date of grant, then for the last preceding business day on which there were quoted prices). (b) In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Administrator, with reference to the Company’s net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Company’s industry, the Company’s position in the industry, the Company’s management, and the values of stock of other corporations in the same or a similar line of business. 6.1.10Option and SAR Term. No Option or SAR shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the applicable agreement (the end of the maximum exercise period stated in the agreement is referred to in this Plan as the “Expiration Date”). 6.2Terms and Conditions to Which NQOs and SARs Are Subject. Options granted under this Plan which are designated as NQOs and SARs shall be subject to the following terms and conditions: 6.2.1Exercise Price. The exercise price of an NQO and the base value of a SAR shall be no less than the fair market value of the Common Stock on the date of grant. 6.2.2Termination of Employment. Except as otherwise provided in the applicable agreement, if for any reason a grantee ceases to be employed by the Company or any of its Affiliates, Options that are NQOs and SARs held at the date of termination (to the extent then exercisable) may be exercised in whole or in part at any time within ninety (90) days of the date of such termination (but in no event after the Expiration Date). For purposes of this Section 6.2.2, “employment” includes service as a director, consultant or adviser. For purposes of this Section 6.2.2, a grantee’s employment shall not be deemed to terminate by reason of the grantee’s transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer, if the grantee’s right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute. 6.3Terms and Conditions to Which Only ISOs Are Subject. Options granted under this Plan which are designated as ISOs shall be subject to the following terms and conditions: 6.3.1Exercise Price. The exercise price of an ISO shall not be less than the fair market value (determined in accordance with Section 6.1.9) of the stock covered by the Option at the time the Option is granted. The exercise price of an ISO granted to any person who owns, directly or by attribution under the Code (currently Section 424(d)), stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Affiliate (a “Ten Percent Stockholder”) shall in no event be less than one hundred ten percent (110%) of the fair market value (determined in accordance with Section 6.1.9) of the stock covered by the Option at the time the Option is granted. 6.3.2Disqualifying Dispositions. If stock acquired by exercise of an ISO granted pursuant to this Plan is disposed of in a “disqualifying disposition” within the meaning of Section 422 of the Code (a disposition within two (2) years from the date of grant of the Option or within one year after the issuance of such stock on exercise of the Option), the holder of the stock immediately before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the Option as the Company may reasonably require. 6.3.3Grant Date. If an ISO is granted in anticipation of employment as provided in Section 5.4, the Option shall be deemed granted, without further approval, on the date the grantee assumes the employment relationship forming the basis for such grant, and, in addition, satisfies all requirements of this Plan for Options granted on that date. 6.3.4Term. Notwithstanding Section 6.1.10, no ISO granted to any Ten Percent Stockholder shall be exercisable more than five (5) years after the date of grant. 6.3.5Termination of Employment. Except as otherwise provided in the stock option agreement, if for any reason an optionee ceases to be employed by the Company or any of its Affiliates, Options that are ISOs held at the date of termination (to the extent then exercisable) may be exercised in whole or in part at any time within ninety (90) days of the date of such termination (but in no event after the Expiration Date). For purposes of this Section 6.3.5, an optionee’s employment shall not be deemed to terminate by reason of the optionee’s transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer, if the optionee’s right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute. 6.4Terms and Conditions Applicable Solely to SARs. In addition to the other terms and conditions applicable to SARs in this Section 6, the holder shall be entitled to receive on exercise of an SAR only Common Stock at a fair market value equal to the benefit to be received by the exercise. 7.1 An optionee wishing to exercise an Option or SAR shall give written notice to the Company at its principal executive office, to the attention of the officer of the Company designated by the Administrator, accompanied by payment of the exercise price and/or withholding taxes as provided in Sections 6.1.6 and 6.1.7. The date the Company receives written notice of an exercise hereunder accompanied by the applicable payment will be considered as the date such Option or SAR was exercised. 7.2 Promptly after receipt of written notice of exercise and the applicable payments called for by Section 7.1, the Company shall, without stock issue or transfer taxes to the holder or other person entitled to exercise the Option or SAR, deliver to the holder or such other person a certificate or certificates for the requisite number of shares of Common Stock. A holder or permitted transferee of an Option or SAR shall not have any privileges as a stockholder with respect to any shares of Common Stock to be issued until the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares. MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2006, 80,000 of the options outstanding have no stated contractual life. The fair value of each8.1Grant or Sale of Restricted Stock. 8.1.1 No awards of restricted stock shall be granted under this Plan after ten (10) years from the date of adoption of this Plan by the Board. 8.1.2 The Administrator may issue shares under the Plan as a grant or for such consideration (including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory notes) as determined by the Administrator. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Administrator. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued (including the forfeiture of such shares in the event the recipient of such award ceases to be employed or engaged by the Company) together with such other restrictions as may be determined by the Administrator. If shares are subject to forfeiture or repurchase by the Company, all dividends or other distributions paid by the Company with respect to the shares may be retained by the Company until the shares are no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient. All Common Stock issued pursuant to this Section 8 shall be subject to a purchase or grant agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase or grant agreement may contain any terms, conditions, restrictions, representations and warranties required by the Administrator. The certificates representing the shares shall bear any legends required by the Administrator. The Administrator may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Administrator may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the consent of the Administrator in its sole discretion, a purchaser may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 8.2Changes in Capital Structure. In the event of a change in the Company’s capital structure, as described in Section 6.1.1, appropriate adjustments shall be made by the Administrator, in its sole discretion, in the number and class of restricted stock subject to this Plan and the restricted stock outstanding under this Plan; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustments. 8.3Corporate Transactions. In the event of a Corporate Transaction, as defined in Section 6.1.2 hereof, to the extent not previously forfeited, all restricted stock shall be forfeited immediately prior to the consummation of such Corporate Transaction unless the Administrator determines otherwise in its sole discretion; provided, however, that the Administrator, in its sole discretion, may remove any restrictions as to any restricted stock. The Administrator may, in its sole discretion, provide that all outstanding restricted stock participate in the Corporate Transaction with an equivalent stock substituted by an applicable successor corporation subject to the restriction 8.4Non-Transferability of Rights. Any award of restricted stock granted under this Plan shall be assignable or otherwise transferable by the grantee only upon such terms and conditions as are set forth in the restricted stock agreement, as the Administrator may, in its sole discretion, determine; provided, however, that, any transferee of such award remains subject to the terms of the such restricted stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The weighted average fair value of stock options during the year ended December 31, 2006 was $0.13. The weighted-average assumptions used for options granted during the year ended December 31, 2006 were risk-free rate of 4.3%, volatility of 152%, expected life of five years, and dividend yield of zero. The assumptions employed in the Black-Scholes option pricing model include the following. The expected life of stock options represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The expected volatility is based on the historical price volatility of the Company’s common stock. The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related stock options. The dividend yield represents our anticipated cash dividend over the expected life of the stock options.
As of December 31, 2006, there was no unrecognized compensation cost related to stock options that will be recognized in the future.
Stock Warrants
A summary of the status of the warrants granted at December 31, 2006 and 2005, and changes during the years then ended is presented in the following table:| | | | | Weighted | | | | | Shares | | Average | | | | | Under | | Exercise | | | | | Warrant | | Price | | | Outstanding at January 1, 2005 | | | 14,904,029 | | $ | 0.28 | | | Issued | | | 26,019,832 | | | 0.20 | | | Expired | | | - | | | - | | | Outstanding at December 31, 2005 | | | 40,923,861 | | | 0.23 | | | Issued | | | - | | | - | | | Expired | | | (1,950,000 | ) | | 1.00 | | | Outstanding at December 31, 2006 | | | 38,973,861 | | $ | 0.19 | |
NOTE I — RELATED PARTY TRANSACTIONS
At December 31, 2006 and 2005, the Company had accrued payroll and payroll taxes to current and former officers, employees, and directors totaling $1,184,264 and $1,673,651 for services performed and costs incurred in behalf of the Company, including $836,804 and $877,636, respectively, to the Company’s President and CEO, and $75,500 and $73,000, respectively, to the Company’s controller.
NOTE J — OTHER SIGNIFICANT TRANSACTIONS
Debt Restructuring
On June 10, 2006, the Company entered into an agreement with a former vendor to forgive certain accrued expenses. The balance owed before the agreement was $229,066. Per the agreement, $3,975 was paid on the date of the agreement, another $3,975 was paid on August 13, 2006, and $131,116 was forgiven. The remaining balance of $90,000 will be due and payable immediately upon MDI’s receipt of $1 million in cumulative license revenue for MDI’s drug MDI-P in any human indication and has been recorded as Long-Term Liability in the accompanying financial statements. Additionally, the company determined $476,645 of previously recorded accrued payroll and payroll taxes had passed their statute of limitations for collection and are included in gain on debt restructuring in the accompanying financial statements.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Formestane Cream (formerly SaveCream) Asset Purchase
On March 16, 2005, the Company completed the purchase of the intellectual property assets (the “Assets”) of Savetherapeutics AG, a German corporation in liquidation in Hamburg, Germany (“SaveT”). The Assets consist primarily of patents, patent applications, pre-clinical study data and clinical trial data concerning formestane cream (formerly called SaveCream), a developmental-stage topical aromatase inhibitor treatment for breast cancer. Formestane cream did not generate revenues for SaveT.
The purchase price of the Assets was €2,350,000 (approximately $3.1 million under current exchange rates), payable as follows: €500,000 at closing, €500,000 (approximately $665,700 on the date of transaction, $659,850 using the December 31, 2006 exchange rates) upon conclusion of certain pending transfers of patent and patent application rights from formestane cream’s inventors to the Company, and the remaining €1,350,000 ($1,781,595 at December 31, 2006) upon successful commercialization of the Assets.
The pending transfers of patent and patent application rights have not occurred as of December 31, 2006. The Company has deemed the transfers are reasonably likely to occur due to existing contractual commitments of the inventors and the reasonably likely success of the Company’s action in German court proceeding to effect these transfers. Accordingly, the Company has recorded the second €500,000 payment as a research and development obligation in these financial statements.
In July 2006 the Company entered into a co-development and license agreement with Eucodis Forschungs-und Entwicklungs GmbH (Eucodis), which provides for up-front licensing fees and milestone payments in excess of the €1,350,000 threshold for successful commercialization of the Assets. Accordingly, in the year ended December 31, 2006 the Company recorded the final €1,350,000 purchase price payment as research and development obligation in the accompanying financial statements. Consistent with the Company’s conclusion that no business had been acquired in connection with the purchase of the Assets, the charge has been reflected as a research and development expense in the accompanying financial statements. During the year ended December 31, 2006, the Company recognized revenue of $800,000 from the co-development and license agreement.
Formation of MDI Oncology, Inc.
On March 22, 2005, the Company formed MDI Oncology, Inc., a Delaware Corporation, as a wholly-owned subsidiary for the purpose of acquiring and operating the assets and associated business ventures associated with the SaveCream purchase.
Note receivable and R&D agreement
On July 15, 2005, the Company entered into an Assignment of Patent, Participation and Research and Development Agreement (the "Agreement") with the inventor of the Company’s SaveCream lead drug candidate. The terms of the Agreement included the Company granting a €500,000 non-interest bearing loan to the inventor. The loan was secured by profits expected to be received by the inventor resulting from the inventor's 6% ownership interest in MDI Oncology, Inc., a wholly owned subsidiary of the Company. The Agreement also included a consulting agreement for the inventor to perform research and development work. The consulting fee was €10,000 (approximately $13,197 under current exchange rates) per month, under which the Company paid €60,000 (approximately $79,182 under current exchange rates).
On October 27, 2006 the Company and the inventor amended the Agreement. In exchange for certain intellectual property rights, the amended agreement (i) terminated the balance of the non-interest bearing loan (€250,000) not already advanced to the inventor under the terms of the earlier July 15, 2005 agreement, (ii) terminated the consulting agreement requiring the inventor to perform certain research and development work and the fee-for-service payments anticipated to be made by the Company, and (iii) cancelled the inventor's 6% ownership interest in MDI Oncology, Inc. The amended agreement further stipulated that the €250,000 already advanced to the inventor in two installments of €100,000 and €150,000, respectively, as a non-interest bearing loan under the July 15, 2005 agreement (the "Loan"), would be secured by 2,301,000 warrants (the "Warrant") for the Company’s common stock issuable to the inventor upon conclusion of certain pending transfers of patent and patent application rights to the Company. The Warrant would have a strike price of $0.001 per share and a 10 year expiration date. The Warrant would be issued to the inventor upon transfer of all intellectual property rights related to the SaveCream lead drug candidate. As of December 31, 2006, these intellectual property rights were not transferred. At December 31, 2006, the subject patents had yet to be transferred, and the principal amount of the Loan outstanding was €250,000 (approximately $329,925 under current exchange rates). During the year ended December 31, 2006, the Company provided in the accompanying financial statements an allowance of the full amount related to collectibility of this note receivable.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K — SUBSEQUENT EVENTS
Introduction
The Company has been a development stage bio-pharmaceutical company engaged in the research and development of two drug candidates. Both of these drug candidates are still in development and neither has been approved by the U.S. Food and Drug Administration (the FDA). The total cost to develop these two drugs and to receive the approval from the FDA would cost many millions of dollars and take many more years. The Company attempted to fund its development costs through the sale of its equity securities, including the sale of its Series A Convertible Preferred Stock. At the end of 2006, the Company had virtually no cash, had no source of revenues, had a working capital deficit of $5.6 million and a stockholders’ deficit of $5.6 million. In addition, the holders of the Series A Convertible Preferred Stock informed the Company that they were no longer willing to fund the Company’s then current operations.
The transactions described in this footnote reflect the Company’s efforts in 2007 to reorganize its operations and to reposition its business and operations.
Consulting Agreement
In February 2007, the Company engaged a consulting firm to assist it in resolving its financial issues, to obtain advice regarding any strategic alternatives that may be available to it, and to prevent the Company from losing all of its assets in bankruptcy. During the past several months, the Company has explored a number of transactions that would (i) prevent the Company’s shareholders from losing their entire investment in the Company and (ii) enable the Company to repay some of its currently outstanding debts and liabilities.
The consulting agreement has a term of one year. As compensation for its services, the consultant is to receive $15,000 per month plus a warrant to purchase 5,000,000 shares of the Company’s common stock. The warrant has an exercise price of $0.03 per share, contains a cash-less exercise provision, and expires ten years from date of issue. The Company is currently evaluating the proper accounting related to the warrant issuance.
Discontinued Operations
The Board of Directors initially determined that it could no longer fund the development of its two drug candidates and could not obtain additional funding for these drug candidates. The Board evaluated the value of both of its developmental stage drug candidates. In March, 2007, the Board determined that the best course of action was to discontinue further development of these two drug candidates and sell these technologies.
Eucodis Agreement
On March 8, 2007, the Company entered into a binding letter of intent with Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company (Eucodis), regarding their intent to proceed with the evaluation, negotiation, and execution of a sale and purchase agreement related to certain assets of the Company. On July 6, 2007, the Company entered into a sale and purchase agreement (the Asset Sale Agreement) with Eucodis, pursuant to which Eucodis agreed to acquire certain assets of the Company in consideration for a cash payment and the assumption by Eucodis of certain indebtedness of the Company. Pursuant to the Second Amendment to the Asset Sale Agreement, the sale is scheduled to be consummated on or before January 31, 2008 after the shareholders of the Company have approved the transaction.
The assets to be acquired by Eucodis pursuant to the Asset Sale Agreement include all of the Company’s right, title and interest in all patents, patent applications, United States and foreign regulatory files and data, pre-clinical study data and anecdotal clinical trial data concerning SaveCream. In addition, at the closing of the sale, the Company will also assign to Eucodis all of its right, title and interest in a co-development agreement with Eucodis, dated as of July 29, 2006, related to the co-development and licensing of SaveCream (including the intellectual property rights acquired in connection with that development) and their rights under certain other contracts relating to SaveCream.
50| 9. | EMPLOYMENT OR CONSULTING RELATIONSHIP |
Nothing in this Plan or any Option granted hereunder shall interfere with or limit in any way the right of the Company or of any of its Affiliates to terminate the employment, consulting or advising of any optionee or restricted stock holder at any time, nor confer upon any optionee or restricted stock holder any right to continue in the employ of, or consult or advise with, the Company or any of its Affiliates. MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES| 10. | CONDITIONS UPON ISSUANCE OF SHARES |
10.1Securities Act. Shares of Common Stock shall not be issued pursuant to the exercise of an Option or the receipt of restricted stock unless the exercise of such Option or such receipt of restricted stock and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the “Securities Act”). 10.2Non-Compete Agreement. As a further condition to the receipt of Common Stock pursuant to the exercise of an Option or the receipt of restricted stock, the optionee or recipient of restricted stock may be required not to render services for any organization, or engage directly or indirectly in any business, competitive with the Company at any time during which (i) an Option is outstanding to such Optionee and for six (6) months after any exercise of an Option or the receipt of Common Stock pursuant to the exercise of an Option and (ii) restricted stock is owned by such recipient and for six (6) months after the restrictions on such restricted stock lapse. Failure to comply with this condition shall cause such Option and the exercise or issuance of shares thereunder and/or the award of restricted stock to be rescinded and the benefit of such exercise, issuance or award to be repaid to the Company. (A DEVELOPMENT STAGE COMPANY)| 11. | NON-EXCLUSIVITY OF THIS PLAN |
The adoption of this Plan shall not be construed as creating any limitations on the power of the Company to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options other than under this Plan. Each optionee, holder of an SAR or recipient of restricted stock, if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, shall not sell or otherwise transfer any shares of Common Stock acquired upon exercise of Options, SARs or receipt of restricted stock during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to a registration statement of the Company which includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act and the restriction period shall not exceed 90 days after the registration statement becomes effective. | 13. | AMENDMENTS TO CONSOLIDATED FINANCIAL STATEMENTSPLAN |
The Board may at any time amend, alter, suspend or discontinue this Plan. Without the consent of an optionee, holder of an SAR or holder of restricted stock, no amendment, alteration, suspension or discontinuance may adversely affect such person’s outstanding Option(s), SAR(s) or the terms applicable to restricted stock except to conform this Plan and ISOs granted under this Plan to the requirements of federal or other tax laws relating to incentive stock options. No amendment, alteration, suspension or discontinuance shall require stockholder approval unless (a) stockholder approval is required to preserve incentive stock option treatment for federal income tax purposes or (b) the Board otherwise concludes that stockholder approval is advisable. | 14. | EFFECTIVE DATE OF PLAN; TERMINATION |
This Plan shall become effective upon adoption by the Board; provided, however, that no Option or SAR shall be exercisable unless and until written consent of the stockholders of the Company, or approval of stockholders of the Company voting at a validly called stockholders’ meeting, is obtained within twelve (12) months after adoption by the Board. If any Options or SARs are so granted and stockholder approval shall not have been obtained within twelve (12) months of the date of adoption of this Plan by the Board, such Options and SARs shall terminate retroactively as of the date they were granted. Awards may be made under this Plan and exercise of Options and SARs shall occur only after there has been compliance with all applicable federal and state securities laws. This Plan (but not Options and SARs previously granted under this Plan) shall terminate within ten (10) years from the date of its adoption by the Board. Termination shall not affect any outstanding Options or SARs or the terms applicable to previously awarded restricted stock. APPENDIX C AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this “Merger Agreement”) dated as of _______, 2010, by and between Global Clean Energy Holdings, Inc., a Utah corporation (“GCEH-Utah”), and Global Clean Energy Holdings, Inc., a Delaware corporation (“GCEH-Delaware”). WHEREAS, GCEH-Utah is a corporation duly organized and existing under the laws of the State of Utah; WHEREAS, GCEH-Delaware is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, GCEH-Utah has authority to issue 500,000,000 shares of common stock, no par value per share (“GCEH-Utah Common Stock”), of which 270,464,478 shares are issued and outstanding; WHEREAS, GCEH-Utah has authority to issue 50,000,000 shares of preferred stock, no par value per share, of which 13,000 shares have been designated as Series B Convertible Preferred Stock (“GCEH-Utah Series B Preferred Stock”), of which 13,000 shares are issued and outstanding; WHEREAS, GCEH-Delaware has authority to issue Five Hundred Million (500,000,000) shares of common stock, $0.001 par value per share (“GCEH-Delaware Common Stock”), and Fifty Million (50,000,000) shares of preferred stock, $0.001 par value per share, of which 13,000 shares have been designated as Series B Convertible Preferred Stock (“GCEH-Delaware Series B Preferred Stock”); WHEREAS, 100 shares of GCEH-Delaware Common Stock are issued and outstanding, all of which are owned, beneficially and of record, by GCEH-Utah, and no shares of GCEH-Delaware Series B Preferred Stock are issued and outstanding; WHEREAS, the respective Boards of Directors of GCEH-Utah and GCEH-Delaware have determined that, for the purpose of effecting the reincorporation of GCEH-Utah in the State of Delaware, it is advisable and in the best interests of both corporations and their respective stockholders that GCEH-Utah merge with and into GCEH-Delaware upon the terms hereinafter provided and in accordance with the laws of the State of Utah and the State of Delaware in a transaction qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and WHEREAS, the respective Boards of Directors of GCEH-Utah and GCEH-Delaware have approved this Merger Agreement and directed that this Merger Agreement be submitted to a vote of their respective stockholders for approval in accordance with applicable law. NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, GCEH-Utah and GCEH-Delaware hereby agree as follows: 1.Merger. Subject to the terms of this Merger Agreement, GCEH-Utah shall be merged with and into GCEH-Delaware (the “Merger”) in accordance with Section 253 of the Delaware General Corporation Law (“DGCL”), and Sections 16-10a-1104 and 16-10a-1107 of the Utah Revised Business Corporation Act (“UBCA”), such that GCEH-Delaware shall be the surviving corporation (hereinafter referred to as the “Surviving Corporation”). The Merger shall become effective on the date and at the time (the “Effective Time”) at which a certified copy of this Merger Agreement, or a Certificate of Merger complying with the DGCL, executed and acknowledged on behalf of GCEH-Delaware and GCEH-Utah in accordance with the requirements of the DGCL and the UBCA, has been filed with the Delaware Secretary of State and the Utah Secretary of State. 2.Certificate of Incorporation and Bylaws. The Certificate of Incorporation of GCEH-Delaware, as in effect on the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation without change or amendment, until thereafter amended in accordance with the provisions thereof and applicable laws. The Bylaws of GCEH-Delaware, as in effect on the Effective Time, shall be the Bylaws of the Surviving Corporation without change or amendment until thereafter amended in accordance with the provisions thereof and applicable laws. 3.Directors and Officers. The directors of GCEH-Utah immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation. The officers of GCEH-Utah immediately prior to the Effective Time shall be the officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation. 4.Succession. From and after the Effective Time, the Surviving Corporation shall succeed, insofar as permitted by law, to all of the rights, assets, liabilities and obligations of GCEH-Utah; and the title to any real estate vested by deed or otherwise, in either of GCEH-Utah or the Surviving Corporation, shall not revert or be in any way impaired by reason of the Merger, but all rights of creditors and all liens on any property of either of said corporations shall be reserved unimpaired, and all debts, liabilities and duties of said corporations shall, as of the Effective Time, attach to the Surviving Corporation, and may be enforced against the Surviving Corporation to the same extent as if said debts, liabilities and duties had been incurred or contracted by it, and any claim existing or action or proceeding pending by or against either of said corporations may be prosecuted as if the Merger had not taken place, or the Surviving Corporation may be substituted in its place. The employees and agents of GCEH-Utah shall become the employees and agents of the Surviving Corporation and continue to be entitled to the same rights and benefits that they enjoyed as employees and agents of GCEH-Utah. 5.Employee Benefit Plans. On the Effective Time, the Surviving Corporation shall assume all obligations of GCEH-Utah under any and all employee benefit plans in effect as of such date with respect to which employee rights or accrued benefits are outstanding as of such date; provided, however, that one share of Common Stock of GCEH-Delaware shall be substituted for each share of Common Stock of GCEH-Utah (if any) thereunder. On the Effective Time, the Surviving Corporation shall adopt and continue in effect all such employee benefit plans upon the same terms and conditions as were in effect immediately prior to the Merger and shall reserve that number of shares of GCEH-Delaware Common Stock with respect to each such employee benefit plan as is equal to the number of shares of GCEH-Utah Common Stock (if any) so reserved on the Effective Time. 6.Further Assurances. From time to time as and when requested by the Surviving Corporation or by its successors and assigns, there shall be executed and delivered on behalf of GCEH-Utah or the Surviving Corporation, as the case may be, such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other actions, as shall be appropriate or necessary in order to vest, protect or confirm, of record or otherwise, in the Surviving Corporation the title to and possession of all property, interest, assets, right, privileges, immunities, powers, franchises and authority of GCEH-Utah, and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of the Surviving Corporation are fully authorized, in the name and on behalf of GCEH-Utah, or otherwise, to take any and all such action and to execute and deliver any and all such deeds and other instruments. 7.Conversion of Shares. (a) At the Effective Time, each share of GCEH-Utah Common Stock issued and outstanding or held in the treasury of GCEH-Utah immediately prior thereto (other than shares of GCEH-Utah Common Stock in respect of which dissenters’ rights shall properly have been exercised in accordance with the NRS) shall, by virtue of the Merger and without any action on the part of any holder thereof, be changed and converted into one fully paid and non assessable share of GCEH-Delaware Common Stock. (b) At the Effective Time, each share of GCEH-Utah Series B Preferred Stock issued and outstanding or held in the treasury of GCEH-Utah immediately prior thereto (other than shares of GCEH-Utah Series B Preferred Stock in respect of which dissenters’ rights shall properly have been exercised in accordance with the NRS) shall, by virtue of the Merger and without any action on the part of any holder thereof, be changed and converted into one fully paid and non assessable share of GCEH-Delaware Series B Preferred Stock. (c) At the Effective Time, each option and warrant to purchase shares of GCEH-Utah Common Stock outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become an option or warrant, as the case may be, to purchase, upon the same terms and conditions, the number of shares of GCEH-Delaware Common Stock that is equal to the number of shares of GCEH-Utah Common Stock that the holder would have received had the holder exercised such option or warrant in full immediately prior to the Effective Time (whether or not such option or warrant was then exercisable) and the exercise price per share under each of said options and warrants shall be the exercise price per share thereunder immediately prior to the Effective Time, unless otherwise provided in the instrument granting such option or warrant. (d) At the Effective Time, the shares of GCEH-Delaware Common Stock currently issued and outstanding in the name of GCEH-Utah shall be canceled and retired, without any consideration being issued or paid therefor, and shall resume the status of authorized and unissued shares of GCEH-Delaware Common Stock, and no shares of GCEH-Delaware Common Stock or other securities of the Surviving Corporation shall be issued in respect thereof. 8.Stock Certificates. At the Effective Time, each certificate representing issued and outstanding shares of GCEH-Utah Common Stock and GCEH-Utah Series B Preferred Stock (other than shares in respect of which dissenters’ rights shall properly have been exercised in accordance with the UBCA) immediately prior to the Effective Time shall be deemed and treated for all purposes as representing the shares of GCEH-Delaware Common Stock and GCEH-Delaware Series B Preferred Stock, respectively, into which such shares of GCEH-Utah Common Stock and GCEH-Utah Series B Preferred Stock have been converted as provided in this Merger Agreement. All shares of GCEH-Delaware Common Stock and GCEH-Delaware Series B Preferred Stock into which shares of GCEH-Utah Common Stock and GCEH-Utah Series B Preferred Stock shall have been converted pursuant to this Merger Agreement shall be deemed to have been issued in full satisfaction of all rights pertaining to such converted shares. At the Effective Time, the holders of certificates representing GCEH-Utah Common Stock and GCEH-Utah Series B Preferred Stock outstanding immediately prior to the Effective Time (except for shares in respect of which dissenters’ rights shall have been properly exercised in accordance with the UBCA) shall cease to have any rights with respect to such stock, and their sole rights shall be with respect to GCEH-Delaware Common Stock and GCEH-Delaware Series B Preferred Stock, respectively, into which their shares of GCEH-Utah Common Stock and GCEH-Utah Series B Preferred Stock have been converted as provided in this Merger Agreement. At the Effective Time, the stock transfer books of GCEH-Utah shall be closed, and no transfer of shares of GCEH-Utah Common Stock or GCEH-Utah Series B Preferred Stock outstanding immediately prior to the Effective Time shall thereafter be made or consummated. 9.Stockholder Approval. This Merger Agreement shall be submitted to a vote of the stockholders of GCEH-Utah and the sole stockholder of GCEH-Delaware in accordance with the laws of the State of Utah and the State of Delaware, respectively. In the event that this Merger Agreement shall be not approved by the requisite vote of stockholders of GCEH-Utah Common Stock entitled to vote thereon, this Merger Agreement shall thereupon be terminated without further action of the parties hereto. 10.Plan of Reorganization. This Agreement is intended to be a plan of reorganization within the meaning of Section 368(a) of the Code and the Treasury Regulations promulgated thereunder. 11.Amendment. Subject to applicable law, this Merger Agreement may be amended, modified or supplemented by written agreement of the parties hereto at any time prior to the Effective Time with respect to any of the items contained herein. 12.Abandonment. At any time before the Effective Time, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of either GCEH-Delaware or GCEH-Utah or both, notwithstanding the approval of this Merger Agreement by the stockholders of GCEH-Utah or the sole stockholder of GCEH-Delaware. 13.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, except to the extent the laws of the State of Utah are required to apply to the Merger. IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf of GCEH-Utah and GCEH-Delaware by their respective duly authorized officers as of the date first written above. | GLOBAL CLEAN ENERGY HOLDINGS, INC., | | a Utah corporation | | | | Name: | | | Title: | | |
| GLOBAL CLEAN ENERGY HOLDINGS, INC., | | a Delaware corporation | | | | Name: | | | Title: | |
APPENDIX D CERTIFICATE OF INCORPORATION
OF
GLOBAL CLEAN ENERGY HOLDINGS, INC. FIRST – The name of the Corporation is Global Clean Energy Holdings, Inc. SECOND – The registered office of the Corporation in the State of Delaware is to be located at 40 East Division Street, Suite A, Dover, Delaware 19901, in the County of Kent. The registered agent at this address is Paracorp Incorporated. THIRD – The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law of the State of Delaware “DGCL”). FOURTH – The total number of shares of capital stock that the Corporation shall have authority to issue is Five Hundred and Fifty Million (550,000,000), of which Five Hundred Million (500,000,000) shares having a par value of $0.001 per share shall be designated as “Common Stock,” and Fifty Million (50,000,000) shares having a par value of $0.001 per share shall be designated as “Preferred Stock.” The Common Stock and the Preferred Stock may be issued from time to time without further action by the stockholders. The Common Stock and the Preferred Stock may be issued for such consideration as may be fixed from time to time by the Board of Directors. The designations, preferences, limitations and relative rights of each class of stock are as follows: The Board of Directors is expressly granted authority to issue shares of the Preferred Stock. The Preferred Stock may be issued in one or more series at such time or times, with such designations, preferences, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof, and for such consideration as the Board of Directors may determine pursuant to a resolution or resolutions providing for the creation and issuance of such series of Preferred Stock duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors), and such resolution or resolutions shall also set forth, with respect to each such series of Preferred Stock, any of the following: | 1. | The purchase price to be paiddistinctive designation, stated value and number of shares comprising such series, which number may (except where otherwise provided by Eucodis for acquiring these assets will be €4,007,534 (approximately $5,906,000 under exchange rates in effect as of November 30, 2007), is comprised of (i) a cash payment of €1,538,462 (approximately $2,267,000 under exchange rates in effect as of November 30, 2007) less $200,000 received in March 2007 under the binding letter of intent, and (ii) Eucodis’ assumption of an aggregate of €2,469,072 (approximately $3,639,000 under exchange rates in effect as of November 30, 2007), constituting specific indebtedness currently owed and other commitments to certain creditors of the Company. In addition, at the closing of the sale, Eucodis will assume (i) all financial and other obligations of the Company under certain contracts to be assigned to Eucodis, and (ii) certain other costs incurred by the Company since February 28, 2007 in connection with preserving the acquired assets for the benefit of Eucodis until closing of the sale.
The Company has agreed to a non-compete provision for the duration of five years after the closing of the sale. Specifically, the non-compete provision will restrict the Company, or any of its respective affiliates, from undertaking research and development activities with respect to SaveCream, or any other product which could be used in reasonable substitution of that product, or commercializing any products based on SaveCream, unless expressly authorized by Eucodis.
The closing of the sale was scheduled to occur on September 30, 2007. However, Eucodis and the Company have agreed to extend the date of the closing of the sale until on or before January 31, 2008 following the date on which the shareholders vote to approve the sale. The consummation of the sale is subject to certain customary conditions, including (i) the delivery of releases from each creditor whose debt is being assumed by Eucodis, releasing the Company from any liability concerning such creditor’s indebtedness, and (ii) the Company obtaining additional capital or a credit facility in the aggregate amount of at least $250,000.
MDI-P Agreement
The Company also entertained various offers to purchase the Company’s rights to the assets related to the MDI-P compound. On August 9, 2007, the Company sold the MDI-P related assets for $310,000 in cash. The sale included the patents, name, and other intellectual property, research results and test data, production units and equipment, and other assets related to this technology. No liabilities were assumed by the purchaser in this transaction. The sale was subject to certain customary conditions, representations, and warranties. The Company is currently evaluating the accounting treatment as it relates to the sale of MDI-P.
Global Clean Energy Holdings, LLC
Having agreed to dispose of its assets, the Board of Directors decided to develop a business to produce and sell seed oils, including seeds oils harvested fromin creating such series) be increased or decreased (but not below the planting and cultivationnumber of the Jatropha curcas plant, for the purpose of providing feedstock oil intended for the generation of bio-diesel. In order to commence its new Jatropha based biofuels business, the Company (i) hired Richard Palmer, an energy consultant, to act as the Company’s new President, Chief Operating Officer and future Chief Executive Officer, (ii) engaged Mobius Risk Group, LLC, a Texas company engaged in providing energy risk advisory services, to provide the Company with consulting services related to the development of the Jatropha bio-diesel business, and (iii) acquired certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the start-up of a business related to the cultivation and production of seed oil from the Jatropha plant for the production of bio-diesel. In order to fund the Company’s operations until cash is generated from the sale of the Assests to Eucodis and from the new Jatropha business, the Company entered into a loan and security agreement pursuant to which the Company has borrowed $350,000.
Share Exchange Agreement
The Company entered into a share and exchange agreement (the Global Agreement) pursuant to which the Company acquired all of the outstanding ownership interests in Global Clean Energy Holdings, LLC, a Delaware limited liability company (Global) on September 7, 2007 from Mobius Risk Group, LLC (Mobius) and from Richard Palmer (Mr. Palmer). Global is an entity that has certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the start-up of a business related to the cultivation and production of seed oil from the seed of the Jatropha plant, for the purpose of providing feedstock oil intended for the production of bio-diesel. Under the Global Agreement, the Company issued 63,945,257 shares of its common stock for all of the issued and outstanding membership interests of Global. Of the 63,945,257 shares issued under the Global Agreement, 36,540,146 shares were issued and delivered at the closing of the Global Agreement without any restrictions. The remaining 27,405,111 shares of common stock were, however, held in escrow by the Company, subject to forfeiture in the event that certain specified performance and market-related milestones are not achieved. Upon the satisfactionthen outstanding) from time to time by action of the operationalBoard of Directors;
|
| 2. | The rate of dividend, if any, on the shares of that series, whether dividends shall be cumulative and, market capitalization condition milestones,if so, from which date, and the restrictedrelative rights of priority, if any, of payment of dividends on shares willof that series over shares of any other series; |
| 3. | Whether the shares of that series shall be released by the Company from escrowredeemable and, delivered to the buyers in accordance withif so, the terms and conditions of such redemption, including the Global Agreement. Indate upon or after which they shall be redeemable, and the event that allamount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates, or the milestone conditions are not achieved, the restricted shares that have not been released from escrow will be cancelled by the Company and thereafter cease to be outstanding.MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the restricted shares issued under the Global Agreement, 13,702,556 shares will be released from escrow if and when certain land lease agreements suitable for the planting and cultivationproperty or rights, including securities of Jatropha curcas are executed; and certain operation management agreements with a third-party land and operations management company with respect to the management, planting and cultivationany other corporation, payable in case of Jatropha curcas are executed. These restricted shares will be held in escrow subject to the satisfaction of these milestones, at which time such shares will be released from escrow and delivered to the sellers.
The remaining 13,702,555 restricted shares issued under the Global Agreement will be released from escrow upon satisfaction of certain market capitalization and average daily trading volume levels. These restricted shares will be held in escrow subject to the satisfaction of these milestones, at which time such shares will be released from escrow and delivered to the sellers. As of November 30, 2007, a total of 4,567,518 shares had been released from escrow and delivered to the sellers.
The restricted shares under the Global Agreement are subject to cancellation and termination as follows. The restricted shares held in escrow related to the operational milestone will be returned to the Company and cancelled if the related conditions are not satisfied by the end of the first anniversary of the effective date of the Global Agreement. The restricted shares related to the market capitalization milestones will be returned to the Company and cancelled to the extent that the market-related conditions are not satisfied by the end of the second anniversary of the effective date of the Global Agreement.
As part of the Global Agreement, Mobius has agreed to a non-competition agreement that prohibits Mobius from engaging or participating in any business that is in competition in any manner whatsoever with the Company’s new Jatropha business. The non-competition prohibition is in effect for a period of five years following the effective date of the Global Agreement.
The Company is currently evaluating the accounting effect of the Share Exchange Agreement.
Mobius Consulting Agreement
Concurrent with the execution of the Global Agreement, the Company entered into a consulting agreement with Mobius pursuant to which Mobius has agreed to provide consulting services to the Company in connection with the Company’s new Jatropha bio-diesel feedstock business. The Company engaged Mobius as a consultant to obtain Mobius’ experience and expertise in the feedstock/bio-diesel market to assist the Company and Mr. Palmer in developing this new line of operations for the Company. Mobius has agreed to provide the following services to the Company: (i) manage and supervise a research and development program contracted by the Company and conducted by the University of Texas Pan American regarding the location, characterization, and optimal economic propagation of the Jatrophaplant; and (ii) manage and supervise the creation, planning, construction, and start-up of plant nurseries and seed production plantations in two geographical areas that may include either South Texas, the Yucatan Peninsula of Mexico (Merida), the Caribbean or Central America.
The term of the agreement is twelve (12) months, or until the scope of work under the agreement has been completed. Mobius will supervise the hiring of certain staff to serve in management and operations roles of the Company, or hire such persons to provide similar services as independent contractors. Mobius’ compensation for the services provided under the agreement is a monthly retainer of $45,000. The Company will also reimburse Mobius for reasonable business expenses incurred in connection with the services provided. The agreement contains customary confidentiality provisions with respect to any confidential information disclosed to Mobius or which Mobius receives while providing services under the agreement.
|
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Palmer Employment Agreement
Effective September 1, 2007, the Company entered into an employment agreement with Richard Palmer pursuant to which the Company hired Mr. Palmer to serve as its President and Chief Operating Officer. Mr. Palmer was also appointed to serve as director on the Company’s Board of Directors to serve until the next election of directors by the Company’s shareholders. Upon the resignation of the current Chief Executive Officer, Mr. Palmer also will become the Company’s Chief Executive Officer. The Company hired Mr. Palmer to take advantage of his experience and expertise in the feedstock/bio-diesel space, and in particular, in the Jatropha bio-diesel and feedstock business. The term of employment commenced September 1, 2007 and ends on September 30, 2010, unless terminated in accordance with the provisions of the agreement.
Mr. Palmer’s compensation package includes | 4. | Whether that series shall have a base salary of $250,000, subject to annual increases based on changes in the Consumer Price Index, and a bonus payment based on Mr. Palmer’s satisfaction of certain performance criteria established by the compensation committee of the Company’s Board of Directors. The bonus amount in any fiscal year will not exceed 100% of Mr. Palmer’s base salary. Mr. Palmer is eligible to participate in the Company’s employee stock option plan and other welfare plans. The Company granted Mr. Palmer an incentive option to purchase up to 12,000,000 shares of its common stock at an exercise price of $0.03 (the trading price on the date the agreement was signed). The options vest upon the Company’s achievement of certain market capitalization goals. When the Company’s market capitalization reaches $75 million, the incentive option will vest with respect to 6,000,000 shares. When the Company’s market capitalization reaches $120 million, the incentive option will vest with respect to the remaining 6,000,000 shares. The option expires five years after grant.
If Mr. Palmer’s employment is terminated by the Company without “cause” or by Mr. Palmer for “good reason”, he will be entitled to severance payments including 100% of his then-current annual base salary, plus 50% of the target bonussinking fund for the fiscal year in which his employment is terminated, and the incentive option toredemption or purchase 12,000,000 shares of common stock shall vest following termination of Mr. Palmer’s employment. The Company is currently evaluating the proper accounting treatment for this employment agreement and option issuance.
LODEMO Agreement
On October 15, 2007, the Company entered into a service agreement with Corporativo LODEMO S.A DE CV, a Mexican corporation (the LODEMO Group).
The Company has decided to initiate its Jatropha Business in Mexico, and has already identified parcels of land in Mexico to plant and cultivate Jatropha. In order to obtain all of the logistical and other services needed to operate a large-scale farming and transportation business in Mexico, the Company entered into the service agreement with the LODEMO Group, a privately held Mexican company with substantial land holdings, significant experience in diesel distribution and sales, liquids transportation, logistics, land development and agriculture.
Under the supervision of the Company’s management, the LODEMO Group will be responsible for the establishment, development, and day-to-day operations of the Jatropha Business in Mexico, including the extraction of the oil from the Jatropha seeds, the delivery of the Jatropha oil to buyers, the purchase or lease of land in Mexico, the establishment and operation of one or more Jatropha nurseries, the clearing, planting and cultivation of the Jatropha fields, the harvesting of the Jatropha seeds, the operation of the Company’s oil extraction facilities, and the logistics associated with the foregoing. Although the LODEMO Group will be responsible for identifying and acquiring the farmland, ownership of the farmland or any lease thereto will be held directly by the Company or by a Mexican subsidiary of the Company. The LODEMO Group will be responsible for hiring and managing all necessary employees. All direct and budgeted costs of the Jatropha Business in Mexico will be borne by the Company.
The LODEMO Group will provide the foregoing and other necessary services for a fee primarily based on the number of hectares of Jatropha under cultivation. The Company has agreed to pay the LODEMO Group a fixed fee per year of $60 per hectare of land planted and maintained with minimum payments based on 10,000 hectares of developed land, to follow a planned planting schedule. The Agreement has a 20-year term but may be terminated earlier by the Company under certain circumstances. The LODEMO Group also will potentially receive incentive compensation for controlling costs below the annual budget established by the parties, production incentives for increase yield and a sales commission for biomass sales.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan Agreement
In order to fund its operations pending the sale of the Assets to Eucodis, the Company entered into a loan and security agreement on September 7, 2007, with Mercator Momentum Fund III, L.P., a California limited partnership. Pursuant to the loan agreement, the lender made available to the Company a secured term credit facility in the aggregate principal amount of $1,000,000. In connection with the loan agreement, the Company also issued a secured promissory note to the lender, which note is secured by a first priority lien on all of the assets of the Company. The lender and its affiliates currently own all of the issued and outstanding shares of Series A Convertible Preferred Stock of the Company.
Under the loan agreement, interest is payable on the loan at a rate of 12% per annum, payable monthly. The loan matures and becomes due and payable on December 14, 2007. In connection with the closing of the loan, the Company agreed to the exchange of the warrants to purchase 27,452,973 shares at a price of $0.1967 per share previously issued to the lender and certain of its affiliates to (i) lower the exercise price of such warrants to $0.01 per share, (ii) permit the cash-less exercise of the warrants, and (iii) extend the expiration date thereof to September 30, 2013. The Company is currently evaluating the accounting effect of the loan agreement and the exchange of warrants.
Consultant Agreement
On September 14, 2007, the Company entered into a one-year agreement with a consultant for investor relations services. Under the agreement, the Company agreed to pay total compensation of $105,000 over the one-year term. As additional compensation, the Company issued 4,357,298 shares of restricted common stock to the consultant and granted piggyback registration rights for the stock to be registered in connection with the Company’s next registration of securities. The Company is currently evaluating the accounting treatment for this consulting agreement.
Conversion of Series A Preferred Stock
On September 17, 2007, the preferred stockholders gave notice to the Company and converted 5,492 shares of Series A Preferred Stock into 10,983,521 shares of common stock. The conversion price was $0.05 per share.
Release and Settlement Agreement
Mercator Momentum Fund, LP; Monarch Pointe Fund, Ltd.; and Mercator Momentum Fund III, LP, each a private investment entity (collectively, the MAG Funds) purchased shares of the Company’s Series A Preferred Convertible Stock in 2004 and in 2005. In connection with the 2005 investment, the Company agreed to eliminate the conversion price floor of the Series A Stock. The Company failed to file an amendment to the Series A Stock Certificate of Designations of Preferences and Rights for the Series A Stock that would have eliminated the conversion price floor. Accordingly, in connection with an intended conversion of some of their Series A Stock in September 2007, the MAG Funds were required to convert Series A Stock at a conversion price higher than the price that would have applied if the Amendment had been filed as agreed.
On October 22, 2007, the Company executed and entered into a Release and Settlement Agreement (the Release Agreement), with the MAG Funds to settle all losses and damages that MAG may have suffered, and may hereafter suffer, as result of the Company’s failure to file the amendment to the Series A Stock Certificate of Designations of Preferences and Rights for the Series A Stock. Pursuant to the Release Agreement, the Company issued to the MAG Funds a ten-year warrant to acquire up to 17,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share expiring October 17, 2017. The initial warrant price is subject to adjustments in connection with (i) the Company’s issuance of dividends in shares of Common Stock, or shares of Common Stock or other securities convertible into shares of Common Stock without consideration, (ii) any cash paid or payable to the holders of Common Stock other than as a regular cash dividend, and (ii) future stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting common stockholders.
The warrant issued to the MAG Funds contain beneficial ownership limitations, which preclude the MAG Funds from exercising its warrant if, as a result of such conversion or exercise, the MAG Funds would own beneficially more than 9.99% of the Company’s outstanding common stock then outstanding.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Release Agreement, the MAG Funds released the Company from any and all claims, past, present or future, relating to the losses or the Company’s failure to file the amendment. In addition, MAG has agreed not to sue the Company in connection with the losses or the Company’s failure to file the Amendment.
The Company is currently evaluating the accounting significance of this release and settlement agreement.
Issuance of Series B Preferred Stock
In order to obtain additional working capital, on November 6, 2007, the Company entered into a Securities Purchase Agreement with two accredited investors, pursuant to which the Company sold a total of 13,000 shares of our newly authorized Series B Convertible Preferred Stock (“Series B Shares”) for an aggregate purchase price of $1,300,000. Each share of the Series B Shares has a stated value of $100.
The Series B Shares may, at the option of each holder, be converted at any time or from time to time into shares of our common stock at the conversion price then in effect. The number of shares into which one Series B Share shall be convertible is determined by dividing $100 per share by the conversion price then in effect. The initial conversion price per share for the Series B Shares is $0.11, which is subject to appropriate adjustment for certain events, including stock splits, stock dividends, combinations, or other recapitalizations affecting the Series B Shares.
Each holder of Series B Shares is entitled to the number of votes equal to the number of shares of our common stockthat series and, if so, the terms and amounts payable into which the Series B Shares could be converted on the record date for such vote, and shall have votingsinking fund;
|
| 5. | The rights and powers equal to the voting rights and powers ofwhich the holders of the Company’s common stock. Inshares of that series shall be entitled in the event of ourvoluntary or involuntary liquidation, dissolution, distribution of assets or winding up, each sharewinding-up of the Series B Shares is entitled to be paid an amount equal to $100 (plus any declaredCorporation, and unpaid dividends) out of the assets of the Company then available for distribution to shareholders; subject, however, to the seniorrelative rights of priority, if any, of payment of shares of that series; |
| 6. | Whether the holdersshares of Series A Convertible Preferred Stock.
No dividends are required tothat series shall be paid to holdersconvertible into or exchangeable for shares of the Series B Shares. However, the Company may not declare, pay or set aside any dividends on sharescapital stock of any class or any other series of our capital stock (other than dividends on shares of our common stock payable in shares of common stock) unless the holders of the Series B Shares shall first receive, or simultaneously receive, an equal dividend on each outstanding share of Series B Shares.
ReleasePreferred Stock and, Settlement Agreement with Chief Executive Officer
On August 31, 2007, the Company entered into a Settlement and Release Agreement with Judy Robinett, the Company’s current Chief Executive Officer, pursuant to which Ms. Robinett agreed to continue to act as the Company’s transitional Chief Executive Officer. Under the agreement, Ms. Robinett agreed to, among other things, assist the Company in the sale of its legacy assets, complete the preparation and filing of the delinquent reports to the Securities and Exchange Commission (the SEC) that related to the periods prior to the appointment of Mr. Palmer, and provide certain shareholder and creditor related services. Upon the completion of the foregoing matters, in particular the filing of the delinquent reports to the SEC, Ms. Robinett will resign, and Mr. Palmer will thereafter assume the office of Chief Executive Officer. Under the agreement, Ms. Robinett agreed to (i) forgive her potential right to receive $1,851,805 in accrued and unpaid compensation, un-accrued and pro-rata bonuses, and severance pay and (ii) the cancellation of stock options to purchase 14,000,000 shares of common stock at an exercise price of $0.02 per share. In consideration for her services, the forgiveness of the foregoing cash payments, the cancellation of the foregoing stock options, and settlement of other issues, the Company agreed to (a) pay Ms. Robinett $500,000 upon the receipt of the Eucodis cash payment under the agreement to sell the SaveCream Assets, (b) pay Ms. Robinett a commission of fifteen percent of the gross proceeds received by the Company from the sale of the MDI-P asset, (c) pay Ms. Robinett $20,833 in monthly salary for serving as transitional Chief Executive Officer of the Company during the period from April 1, 2007 until the effective date of her resignation, and (d) permit Ms. Robinett to retain some of her previously granted incentive stock options in such an amount allowing her to purchase up to two million shares of common stock, which options shall continue to have the same terms and conditions as currently in existence, including an option price of $0.01 per share and expiration date of December 31, 2112.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consulting Agreement
In February 2007, the Company entered into another consulting agreement with an individual to assist it in the preparation of financial statements, reporting to the SEC, raising capital, disposing of the existing technologies, and otherwise assisting executive management and the Company’s other consulting firm in the development and execution of the Company’s business plan. The consulting agreement had a term of one year. As compensation for its services, the consultant was to receive $10,000 per month plus a warrant to purchase 5,000,000 shares of the Company’s common stock. The warrant has an exercise price of $0.03 per share, contains a cash-less exercise provision, and expires ten years from date of issue. Since the consulting agreement was terminated prior to its expiration date, the Company’s obligations under the consulting agreement, if any, for the period after the termination date are unclear. No demand for any additional compensation has been made against the Company under the consulting agreement. The Company is currently evaluating the accounting effect of this consulting agreement. This consulting agreement was terminated in May 2007.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
| (A Development Stage Company)
| CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited)
|
| | | September 30, | | December 31, | | | | | 2007 | | 2006 | | ASSETS | | | | | | | | | | | | | CURRENT ASSETS | | | | | | | Cash | | $ | 296,121 | | $ | 47,658 | | | Prepaid expenses | | | 66,031 | | | - | | Total Current Assets | | | 362,152 | | | 47,658 | | | | | | | | | | | Property and equipment, net | | | 29,870 | | | 789 | | Deferred offering costs | | | 1,530 | | | - | | Assets held for sale | | | - | | | 61,460 | | | | | | | | | | | TOTAL ASSETS | | $ | 393,552 | | $ | 109,907 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | Accounts payable | | $ | 1,111,501 | | $ | 663,691 | | | Accrued payroll and payroll taxes | | | 1,294,584 | | | 1,184,264 | | | Accrued interest payable | | | 291,585 | | | 267,739 | | | Notes payable to shareholders | | | 56,000 | | | 56,000 | | | Secured promissory note, less unamortized discount | | | 58,673 | | | - | | | Convertible notes payable | | | 193,200 | | | 193,200 | | | Financial instrument | | | 2,065,470 | | | 294,988 | | | Current liabilities associated with assets held for sale | | | 3,137,859 | | | 2,914,438 | | Total Current Liabilities | | | 8,208,872 | | | 5,574,320 | | | | | | | | | | | LONG-TERM LIABILITY | | | - | | | 90,000 | | | | | | | | | | | TOTAL LIABILITIES | | | 8,208,872 | | | 5,664,320 | | | | | | | | | | | STOCKHOLDERS' DEFICIT | | | | | | | | | Preferred stock - undesignated, Series A, convertible; no par value; | | | | | | | | | 50,000,000 shares authorized; 28,928 and 34,420 shares issued and | | | | | | | | | outstanding, respectively; (aggregate liquidation preference of | | | | | | | | | $2,892,800 and $3,442,000, respectively); the Company also has | | | | | | | | | designated Series B with no shares issued or outstanding | | | 514,612 | | | 514,612 | | | Common stock, no par value; 250,000,000 shares authorized; 170,238,669 | | | | | | | | | and 118,357,704 shares issued and outstanding, respectively | | | 16,403,248 | | | 15,299,017 | | | Additional paid-in capital | | | 1,468,057 | | | 1,056,020 | | | Deficit accumulated prior to the development stage | | | (1,399,577 | ) | | (1,399,577 | ) | | Deficit accumulated during the development stage | | | (24,801,660 | ) | | (21,024,485 | ) | Total Stockholders' Deficit | | | (7,815,320 | ) | | (5,554,413 | ) | TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 393,552 | | $ | 109,907 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
MEDICAL DISCLOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | For the Three Months | | | For the Nine Months | | | From Inception of the Development Stage on November 20, 1991 | | | | | | Ended | | | Ended | | | through | | | | | | September 30, | | | September 30, | | | September 30, | | | | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | | General and administrative | | $ | 564,268 | | $ | 160,773 | | $ | 919,273 | | $ | 350,954 | | $ | 5,869,946 | | | Research and development | | | 986,584 | | | - | | | 986,584 | | | - | | | 986,584 | | | | | | | | | | | | | | | | | | | | | Loss from Operations | | | (1,550,852 | ) | | (160,773 | ) | | (1,905,857 | ) | | (350,954 | ) | | (6,856,530 | ) | | | | | | | | | | | | | | | | | | | | Other Income (Expenses) | | | | | | | | | | | | | | | | | | Unrealized gain (loss) on financial instrument | | | (1,735,102 | ) | | 840,271 | | | (1,520,482 | ) | | 1,720,351 | | | 3,344,317 | | | Interest income | | | 124 | | | 519 | | | 394 | | | 2,295 | | | 58,558 | | | Interest expense | | | (11,501 | ) | | (7,538 | ) | | (27,252 | ) | | (22,382 | ) | | (1,212,872 | ) | | Interest expense from amortization of discount | | | | | | | | | | | | | | | | | | on secured promissory note | | | (58,673 | ) | | - | | | (58,673 | ) | | - | | | (58,673 | ) | | Gain on debt restructuring | | | 90,000 | | | 2,709 | | | 90,000 | | | 607,761 | | | 2,129,650 | | | Other income | | | - | | | 22 | | | - | | | 805 | | | 906,485 | | | | | | | | | | | | | | | | | | | | | Total Other Income (Expenses) | | | (1,715,152 | ) | | 835,983 | | | (1,516,013 | ) | | 2,308,830 | | | 5,167,465 | | | | | | | | | | | | | | | | | | | | | Income (Loss) from Continuing Operations | | | (3,266,004 | ) | | 675,210 | | | (3,421,870 | ) | | 1,957,876 | | | (1,689,065 | ) | | | | | | | | | | | | | | | | | | | | Loss from Discontinued Operations (net of | | | | | | | | | | | | | | | | | | gain on disposal of MDI-P of $258,809 in 2007) | | | (60,501 | ) | | (1,322,366 | ) | | (355,305 | ) | | (2,214,318 | ) | | (22,420,396 | ) | | | | | | | | | | | | | | | | | | | | Net Loss | | | (3,326,505 | ) | | (647,156 | ) | | (3,777,175 | ) | | (256,442 | ) | | (24,109,461 | ) | | | | | | | | | | | | | | | | | | | | Preferred stock dividend from beneficial | | | | | | | | | | | | | | | | | | conversion feature | | | - | | | - | | | - | | | - | | | (692,199 | ) | | | | | | | | | | | | | | | | | | | | Net Loss Applicable to Common Shareholders | | $ | (3,326,505 | ) | $ | (647,156 | ) | $ | (3,777,175 | ) | $ | (256,442 | ) | $ | (24,801,660 | ) | | | | | | | | | | | | | | | | | | | | Basic and Diluted Income (Loss) per Common Share: | | | | | | | | | | | | | | | | | | Income (Loss) from Continuing Operations | | $ | (0.025 | ) | $ | 0.006 | | $ | (0.028 | ) | $ | 0.018 | | | | | | Loss from Discontinued Operations | | $ | (0.001 | ) | $ | (0.011 | ) | $ | (0.003 | ) | $ | (0.020 | ) | | | | | | | | | | | | | | | | | | | | | | | Net loss | | $ | (0.026 | ) | $ | (0.005 | ) | $ | (0.031 | ) | $ | (0.002 | ) | | | | | | | | | | | | | | | | | | | | | | | Basic and Diluted Weighted-Average Common | | | | | | | | | | | | | | | | | | Shares Outstanding | | | 129,802,551 | | | 117,922,148 | | | 122,214,575 | | | 112,382,132 | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | From Inception of the Development Stage | | | | For the Nine Months | | on November 20, 1991 | | | | Ended | | through | | | | September 30, | | September | | | | | 2007 | | 2006 | | 30, 2007 | | Cash Flows From Operating Activities | | | | | | | | | Net loss | | $ | (3,777,175 | ) | $ | (256,442 | ) | $ | (24,109,461 | ) | | Adjustments to reconcile net loss to net cash used in | | | | | | | | | | | | operating activities | | | | | | | | | | | | Foreign currency transaction loss | | | 199,296 | | | 21,125 | | | 260,317 | | | Gain on debt restructuring | | | (90,000 | ) | | (607,761 | ) | | (2,129,650 | ) | | Common stock issued for services, expenses, litigation, and | | | | | | | | | | | | research and development | | | 986,584 | | | - | | | 5,254,301 | | | Commitment for research and development obligation | | | - | | | 1,712,745 | | | 2,378,445 | | | Depreciation | | | 10,438 | | | 13,928 | | | 137,610 | | | Reduction of escrow receivable from research and development | | | - | | | - | | | 272,700 | | | Unrealized loss (gain) on financial instrument | | | 1,520,482 | | | (1,720,351 | ) | | (3,344,317 | ) | | Share-based compensation for services | | | 529,684 | | | 67,350 | | | 5,486,687 | | | Interest expense from amortization of disocunt on secured | | | | | | | | | | | | promissory note | | | 58,673 | | | - | | | 58,673 | | | Reduction of legal costs | | | - | | | - | | | (130,000 | ) | | Write-off of subscriptions receivable | | | - | | | - | | | 112,500 | | | Impairment loss on assets | | | - | | | - | | | 9,709 | | | Gain on disposal of assets, net of losses | | | (258,809 | ) | | - | | | (228,445 | ) | | Write-off of receivable | | | - | | | 167,175 | | | 562,240 | | | Note payable issued for litigation | | | - | | | - | | | 385,000 | | | Changes in operating assets and liabilities | | | | | | | | | | | | Accounts receivable | | | - | | | (225,000 | ) | | (7,529 | ) | | Prepaid expenses | | | (66,031 | ) | | - | | | (66,031 | ) | | Accounts payable | | | 470,405 | | | 254,171 | | | 3,843,872 | | | Accrued expenses | | | 134,166 | | | 22,366 | | | 300,607 | | | Net Cash Used in Operating Activities | | | (282,287 | ) | | (550,694 | ) | | (10,952,772 | ) | Cash Flows From Investing Activities | | | | | | | | | | | | Proceeds from disposal of assets | | | 310,000 | | | - | | | 310,000 | | | Increase in deposits | | | - | | | - | | | (51,100 | ) | | Purchase of property and equipment | | | (29,250 | ) | | - | | | (250,584 | ) | | Issuance of note receivable | | | - | | | - | | | (313,170 | ) | | Payments received on note receivable | | | - | | | - | | | 130,000 | | | Net Cash Provided by (Used in) Financing Activities | | | 280,750 | | | - | | | (174,854 | ) | Cash Flows From Investing Activities | | | | | | | | | | | | Issuance of common stock, preferred stock, and warrants for cash | | | - | | | - | | | 10,033,845 | | | Contributed equity | | | - | | | - | | | 131,374 | | | Proceeds from notes payable and related warrants | | | 250,000 | | | - | | | 1,586,613 | | | Payments on notes payable | | | - | | | - | | | (801,287 | ) | | Proceeds from convertible notes payable | | | - | | | - | | | 571,702 | | | Payments on convertible notes payable | | | - | | | - | | | (98,500 | ) | | Net Cash Provided by Financing Activities | | | 250,000 | | | - | | | 11,423,747 | | Net Increase (Decrease) in Cash | | | 248,463 | | | (550,694 | ) | | 296,121 | | Cash at Beginning of Period | | | 47,658 | | | 654,438 | | | - | | Cash at End of Period | | | 296,121 | | | 103,744 | | | 296,121 | | | | | | | | | | | | | | Supplemental Disclosures of Cash Flow Information: | | | | | | | | | | | | Noncash Investing and Financing Activities: | | | | | | | | | | | | Conversion of preferred stock to common stock | | $ | - | | $ | 8,722 | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included and are of normal, recurring nature. These financial statements should be read in conjunction with the audited financial statements and notes thereto included for the year ended December 31, 2006 contained in this proxy statement. The results of operations for the nine months ended September 30, 2007, may not be indicative of the results that may be expected for the year ending December 31, 2007.
Income (Loss) per Common Share
Income (loss) per share amounts are computed by dividing income (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted income (loss) per share amounts are computed assuming the issuance of common stock for potentially dilutive common stock equivalents. All outstanding stock options, warrants, convertible notes, convertible preferred stock, and common stock held in escrow are currently antidilutive and have been excluded from the calculations of diluted income (loss) per share at September 30, 2007 and 2006, as follows:
| | | September 30, | | | | 2007 | | 2006 | | | Convertible notes | | | 128,671 | | | 128,671 | | | Convertible preferred stock | | | 57,856,000 | | | 62,018,018 | | | Warrants | | | 35,279,494 | | | 40,923,861 | | | Compensation-based stock options and warrants | | | 41,883,000 | | | 19,983,000 | | | Common stock held in escrow | | | 27,405,111 | | | - | | | | | | 162,552,276 | | | 123,053,550 | |
As of the date of these financial statements, the Company does not have enough authorized shares to meet the commitments it has entered into. Management is currently considering alternative solutions to this situation.
Recently Issued Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Certain aspects of this statement are effective for financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, the Company will adopt SFAS 157 in 2008 to the extent that it is effective. The Company is currently evaluating the impact of SFAS 157 on the financial statements.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. This statement is effective for fiscal years beginning after November 15, 2007. Accordingly, the Company will adopt SFAS 159 in 2008. The Company is in the process of evaluating the application of the fair value option and its effect on its financial position and results of operations.
Note 2 - Going Concern Considerations
The Company’s recurring losses from development-stage activities in the current and prior years raise substantial doubt about the Company’s ability to continue as a going concern. As further described in the following footnotes, management of the Company is restructuring and reorganizing the Company to reposition the Company’s future business and related operations. In February 2007, the Company engaged a consulting firm to assist it in resolving its financial issues, to obtain advice regarding any strategic alternatives that may be available to it, and to prevent the Company from losing all of its assets in bankruptcy. The Company has discontinued its bio-pharmaceutical operations and has sold certain assets of this business segment and has an agreement to sell the remainder of the assets of this business for cash and assumption of liabilities. The Company has also obtained a secured term credit facility to provide interim financing until the sale of assets closes, of which the Company has utilized $350,000. The Company has also entered into a share exchange agreement with an entity for the purpose of developing a business involving the production of bio-diesel. In connection with this new business direction, the Company has entered into an employment agreement for a new Chief Operating Officer, who will also become the Chief Executive Officer in the near future and has entered into other consulting and service agreements in connection with the bio-diesel operation.
The ability of the Company to continue as a going concern is dependent upon the success of these new planned operations. The financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 3 - Discontinued Operations
During the nine months ended September 30, 2007, the Board of Directors determined that it could no longer fund the development of its two drug candidates and could not obtain additional funding for these drug candidates. The Board evaluated the value of both of its developmental stage drug candidates. In March, 2007, the Board determined that the best course of action was to discontinue further development of these two drug candidates and sell these technologies.
Eucodis Agreement
On March 8, 2007, the Company entered into a binding letter of intent with Eucodis Pharmaceuticals Forschungs und Entwicklungs GmbH, an Austrian company (Eucodis), regarding their intent to proceed with the evaluation, negotiation, and execution of a sale and purchase agreement related to certain assets of the Company. On July 6, 2007, the Company entered into a sale and purchase agreement (the Asset Sale Agreement) with Eucodis, pursuant to which Eucodis agreed to acquire certain assets of the Company in consideration for a cash payment and the assumption by Eucodis of certain indebtedness of the Company. Pursuant to the Second Amendment to the Asset Sale Agreement, the sale is scheduled to be consummated on or before January 31, 2008 after the shareholders of the Company have approved the transaction.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
The assets to be acquired by Eucodis pursuant to the Asset Sale Agreement include all of the Company’s right, title and interest in all patents, patent applications, United States and foreign regulatory files and data, pre-clinical study data and anecdotal clinical trial data concerning SaveCream. In addition, at the closing of the sale, the Company will also assign to Eucodis all of its right, title and interest in a co-development agreement with Eucodis, dated as of July 29, 2006, related to the co-development and licensing of SaveCream (including the intellectual property rights acquired in connection with that development) and their rights under certain other contracts relating to SaveCream.
The purchase price to be paid by Eucodis for acquiring these assets will be €4,007,534 (approximately $5,906,000 under exchange rates in effect as of November 30, 2007), is comprised of (i) a cash payment of €1,538,462 (approximately $2,267,000 under exchange rates in effect as of November 30, 2007) less $200,000 received in March 2007 under the binding letter of intent, and (ii) Eucodis’ assumption of an aggregate of €2,469,072 (approximately $3,639,000 under exchange rates in effect as of November 30, 2007), constituting specific indebtedness currently owed and other commitments to certain creditors of the Company. In addition, at the closing of the sale, Eucodis will assume (i) all financial and other obligations of the Company under certain contracts to be assigned to Eucodis, and (ii) certain other costs incurred by the Company since February 28, 2007 in connection with preserving the acquired assets for the benefit of Eucodis until closing of the sale.
MDI-P Agreement
The Company also entertained various offers to purchase the Company’s rights to the assets related to the MDI-P compound. On August 9, 2007, the Company sold the MDI-P related assets for $310,000 in cash realizing a gain of $258,809. The sale included the patents, name, and other intellectual property, research results and test data, production units and equipment, and other assets related to this technology. No liabilities were assumed by the purchaser in this transaction. A liability in the amount of $90,000 was extinguished due to the sale. This liability was only payable when the Company received $1 million in cumulative license revenue from the MDI-P compound in any human indication. Due to the sale of
MDI-P for less than $1 million, this liability was no longer owed and was written off.
Accounting for Discontinued Operations
Pursuant to accounting rules for discontinued operations, the Company has classified all revenue and expense for 2007 and prior periods related to the operations of its bio-pharmaceutical business as discontinued operations. For all periods prior to March 2007, the Company has reclassified all revenue and operating expenses to discontinued operations, except for estimated general corporate overhead, because all of its operations related to the discontinued technologies. The assets being sold and the liabilities being assumed in the planned sales have been segregated in the accompanying balance sheets and are characterized as Assets Held for Sale and Current Liabilities Associated with Assets Held for Sale, respectively. Revenues of $200,000 and $800,000 for the nine months ended September 30, 2007 and 2006, respectively, are included in the loss from discontinued operations. The Company has recorded a gain from the sale of MDI-P of $258,809 during the three and nine months ended September 30, 2007, but has not recorded any gain or loss at September 30, 2007 associated with the planned sale of the SaveCream assets. The following table presents the main classes of assets and liabilities associated with the discontinued business.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
| | | | September 30, | | | December 31, | | | | | 2007 | | | 2006 | | | Property and equipment, net of accumulated depreciation | | $ | - | | $ | 61,460 | | | | | | | | | | | | Liabilities: | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 507,344 | | $ | 472,993 | | | Research and development obligation | | | 2,630,515 | | | 2,441,445 | | | | | $ | 3,137,859 | | $ | 2,914,438 | |
Note 4 - Global Clean Energy Holdings, LLC
Having agreed to discontinue its bio-pharmaceutical operations and dispose of the related assets, the Company considered entering into a number of other businesses that would enable it to be able to provide the shareholders with future value. The Company’s Board of Directors decided to develop a business to produce and sell seed oils, including seed oils harvested from the planting and cultivation of the Jatropha curcas plant, for the purpose of providing feedstock oil intended for the generation of methyl ester, otherwise known as bio-diesel (the “Jatropha Business”). The Company’s Board concluded that there was a significant opportunity to participate in the rapidly growing biofuels industry, which previously was mainly driven by high priced, edible oil-based feedstock. In order to commence its new Jatropha Business, effective September 1, 2007, the Company (i) hired Richard Palmer, an energy consultant, and a member of Global Clean Energy Holdings LLC (“Global”) to act as its new President, Chief Operating Officer and future Chief Executive Officer, (ii) engaged Mobius Risk Group, LLC, a Texas company engaged in providing energy risk advisory services, to provide it with consulting services related to the development of the Jatropha Business, and (iii) acquired certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the cultivation and production of seed oil from the Jatropha plant for the production of bio-diesel from Global.
Share Exchange Agreement
The Company entered into a share exchange agreement (the Global Agreement) pursuant to which the Company acquired all of the outstanding ownership interests in Global Clean Energy Holdings, LLC, a Delaware limited liability company (Global) on September 7, 2007 from Mobius Risk Group, LLC (Mobius) and from Richard Palmer (Mr. Palmer). Global is an entity that has certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the start-up of a business related to the cultivation and production of seed oil from the seed of the Jatropha plant, for the purpose of providing feedstock oil intended for the production of bio-diesel. Under the Global Agreement, the Company issued 63,945,257 shares of its common stock for all of the issued and outstanding membership interests of Global. Of the 63,945,257 shares issued under the Global Agreement, 36,540,146 shares were issued and delivered at the closing of the Global Agreement without any restrictions. The remaining 27,405,111 shares of common stock were, however, held in escrow by the Company, subject to forfeiture in the event that certain specified performance and market-related milestones are not achieved. Upon the satisfaction, from time to time, of the operational and market capitalization condition milestones, the restricted shares will be released by the Company from escrow and delivered to the buyers in accordance withso, the terms and conditions of such conversion or exchange including the Global Agreement. Inrate of conversion or exchange, the date upon or after which they shall be convertible or exchangeable, the duration for which they shall be convertible or exchangeable, the event that allupon or after which they shall be convertible or exchangeable at whose option they shall be convertible or exchangeable, and the method of adjusting the milestone conditions are not achieved,rate of conversion or exchange in the restrictedevent of a stock split, stock dividend, combination of shares that have not been released from escrow will be cancelled by the Company and thereafter cease to be outstanding.or similar event;
|
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
Prior | 7. | Whether the shares of that series shall have voting rights in addition to the exchangevoting rights provided by law and, if so, the terms of common stock, Global had no tangible assets or operations, but rather had certain trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the start-up of a business related to the cultivation and production of seed oil from the seed of the Jatropha plant. Accordingly, Global was not considered a business in accordance with FASB Emerging Issues Task Force Issue 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business. With the exchange of the 36,540,146 shares of common stock, the Company acquired the trade secrets, know-how, business plans, term sheets, business relationships, and other information relating to the start-up of this new business. Accordingly, the Company has recorded research and development expense of $986,584, or $0.027 per share, for the value of the shares issued. The closing price of the Company’s common stock on September 7, 2007 was $0.027 per share.
Of the restricted shares issued under the Global Agreement, 13,702,556 shares will be released from escrow if and when certain land lease agreements suitable for the planting and cultivation of Jatropha curcas are executed and certain operation management agreements with a third-party land and operations management company with respect to the management, planting and cultivation of Jatropha curcas are executed. These restricted shares will be held in escrow subject to the satisfaction of these milestones, at which time such shares will be released from escrow and delivered to the sellers. The Company has accounted for these potentially issuable shares as share-based compensation under SFAS No. 123R, Share-Based Compensation, for shares of common stock that contain a performance or service condition. The Company has determined the value of these shares to be $369,969, or $0.027 per share, and is amortizing this compensation over four months, the period of time in which the satisfaction of the operational milestones is expected to be fulfilled that will result in the release of the 13,702,556 shares from escrow. For accounting purposes, shares held in escrow are not considered outstanding, but are deemed to be potential dilutive shares for loss per share calculations. During the three and nine months ended September 30, 2007, the Company recognized $70,911 of share-based compensation related to these shares.
The remaining 13,702,555 restricted shares issued under the Global Agreement will be released from escrow upon satisfaction of certain market capitalization levels (based on the number of outstanding shares at the average closing price of the previous sixty trading days) and average daily trading volume (for the previous sixty trading days). These potentially issuable shares will be released as follows:
a. | 4,567,518 shares will be released upon the achievement of $6 million market capitalization and 75,000 shares of average daily trading volume,voting rights; |
b. | 4,567,518 shares will be released upon the achievement of $12 million market capitalization and 100,000 shares of average daily trading volume, and |
c. | 4,567,519 shares will be released upon the achievement of $20 million market capitalization and 125,000 shares of average daily trading volume. |
These restricted shares will be held in escrow subject to the satisfaction of these milestones, at which time such shares will be released from escrow and delivered to the sellers. As of November 30, 2007, a total of 4,567,518 shares had been released from escrow and delivered to the sellers. The Company has accounted for these potentially issuable shares as share-based compensation under SFAS No. 123R, for shares of common stock that contain a market condition. The Company has determined the value of these shares to be $369,969, or $0.027 per share, and is amortizing this compensation over the periods of time in which the satisfaction of each of the three market capitalization and trading volume milestones is expected to be fulfilled that will result in the release of the 13,702,555 shares from escrow. The Company currently estimates these time periods to be approximately three months for the first tranche of stock and two years for the second and third tranches. For accounting purposes, shares held in escrow are not considered outstanding, but are deemed to be potential dilutive shares for loss per share calculations. During the three and nine months ended September 30, 2007, the Company recognized $41,474 of share-based compensation related to these shares.
| 8. | Whether the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series; and |
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
Mobius Consulting Agreement
Concurrent with | 9. | Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualification, limitation or restriction of such series, as the execution of the Global Agreement, the Company entered into a consulting agreement with Mobius pursuant to which Mobius has agreed to provide consulting services to the Company in connection with the Company’s new Jatropha bio-diesel feedstock business. The Company engaged Mobius as a consultant to obtain Mobius’ experience and expertise in the feedstock/bio-diesel market to assist the Company and Mr. Palmer in developing this new line of operations for the Company. Mobius has agreed to provide the following services to the Company: (i) manage and supervise a contemplated research and development program contracted by the Company and conducted by the University of Texas Pan American regarding the location, characterization, and optimal economic propagation of the Jatrophaplant; and (ii) assist with the management and supervision of the planning, construction, and start-up of plant nurseries and seed production plantations in Mexico, the Caribbean or Central America.
The term of the agreement is twelve (12) months, or until the scope of work under the agreement has been completed. Mobius will supervise the hiring of certain staff to serve in management and operations roles of the Company, or hire such persons to provide similar services as independent contractors. Mobius’ compensation for the services provided under the agreement is a monthly retainer of $45,000. The Company will also reimburse Mobius for reasonable business expenses incurred in connection with the services provided. The agreement contains customary confidentiality provisions with respect to any confidential information disclosed to Mobius or which Mobius receives while providing services under the agreement. The Company has paid $45,000 during the three and nine months ended September 30, 2007, of which $15,750 was expensed as compensation to Mobius and $29,250 was capitalized as plantation development costs pursuant to AICPA Statement of Position 85-3, Accounting by Agricultural Producers and Agricultural Cooperatives.
Palmer Employment Agreement
Effective September 1, 2007, the Company entered into an employment agreement with Richard Palmer pursuant to which the Company hired Mr. Palmer to serve as its President and Chief Operating Officer. Mr. Palmer was also appointed to serve as director on the Company’s Board of Directors to serve until the next election of directors by the Company’s shareholders. Upon the resignation of the current Chief Executive Officer, Mr. Palmer also will become the Company’s Chief Executive Officer. The Company hired Mr. Palmer to take advantage of his experiencemay deem advisable and expertise in the feedstock/bio-diesel space, and in particular, in the Jatropha bio-diesel and feedstock business. The term of employment commenced September 1, 2007 and ends on September 30, 2010, unless terminated in accordanceas shall not be inconsistent with the provisions of the agreement.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
Mr. Palmer’s compensation package includes a base salarythis Certificate of $250,000, subject to annual increases based on changes in the Consumer Price Index,Incorporation and a bonus payment based on Mr. Palmer’s satisfaction of certain performance criteria established by the compensation committee of the Company’s Board of Directors. The bonus amount in any fiscal year will not exceed 100% of Mr. Palmer’s base salary. Mr. Palmer is eligible to participate in the Company’s employee stock option plan and other welfare plans. The Company granted Mr. Palmer an incentive option to purchase up to 12,000,000 shares of its common stock at an exercise price of $0.03 (the trading price on the date the agreement was signed). The options vest upon the Company’s achievement of certain market capitalization goals. When the Company’s market capitalization reaches $75 million, the incentive option will vest with respect to 6,000,000 shares. When the Company’s market capitalization reaches $120 million, the incentive option will vest with respect to the remaining 6,000,000 shares. The option expires five years after grant.
If Mr. Palmer’s employment is terminatedfull extent now or hereafter permitted by the Company without “cause” or by Mr. Palmer for “good reason”, he will be entitled to severance payments including 100% of his then-current annual base salary, plus 50% of the target bonus for the fiscal year in which his employment is terminated, and the incentive option to purchase 12,000,000 shares of common stock shall vest following termination of Mr. Palmer’s employment.
The Company has accounted for the options under Mr. Palmer’s employment agreement as share-based compensation under SFAS No. 123R, for options to purchase common stock that contain a market condition. The Company valued these options at $264,000 using the Black-Scholes pricing model. The weighted average fair value of the stock options was $0.022 per share. The weighted-average assumptions used for the calculation of fair value were risk-free rate of 4.21%, volatility of 116%, expected life of five years, and dividend yield of zero. The Company is amortizing this compensation over the period of time in which the satisfaction of each of the two market capitalization milestones is expected to be fulfilled that will result in the vesting of these stock options. The Company currently estimates these time periods to be approximately three years. During the three and nine months ended September 30, 2007, the Company recognized $7,652 of share-based compensation related to these options.
Note 5 - Loan Agreement
In order to fund ongoing operations pending closing of the sale to Eucodis, the Company entered into the Loan Agreement with, and issued a promissory note in favor of, with Mercator Momentum Fund III, L.P. (Mercator). Pursuant to the loan agreement, Mercator made available to the Company a secured term credit facility in principal amount of $1,000,000. The promissory note initially was due and payable on December 14, 2007. As of December 13, 2007, the Company owed Mercator $250,000 under the loan. Mercator has agreed to extend the maturity date of the $250,000 to February 21, 2008. The foregoing loan is secured by a lien on all of our assets. The lender and its affiliates currently own all of the issued and outstanding shares of Series A Convertible Preferred Stock of the Company.
Under the loan agreement, interest is payable on the loan at a rate of 12% per annum, payable monthly. In connection with the closing of the loan, the Company agreed to (i) the cancellation of certain warrants to purchase 27,452,973 shares of common stock at $0.1967 per share previously issued to the lender and certain of its affiliates and (ii) the issuance of new warrants to purchase 27,452,973 shares of common stock at $0.01 per share. The new warrants permit the cash-less exercise of the warrants and expire on September 30, 2013.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
The warrants that were cancelled were being accounted for as a liability in the accompanying financial statements because the Company was unable to guarantee that there would be enough shares of common stock to settle other “freestanding instruments.” The carrying value of the liability related to these warrants on the date of cancellation was $62,205. For the same reasons as described above, the new warrants that were issued in connection with this loan agreement are also characterized as a liability in these financial statements. The fair value of the new warrants was determined to be $691,815, or $0.252 per share, using the Black-Scholes pricing model. The weighted-average assumptions used for the calculation of fair value were risk-free rate of 4.10%, volatility of 123%, expected life of approximately six years, and dividend yield of zero. On the date of issuance, the fair value of the new warrants has been recorded as (i) a discount to the note of $250,000 and (ii) a charge of $441,815 to “unrealized gain (loss) on financial instrument” in the accompanying Condensed Consolidated Statement of Operations. As of September 30, 2007, these and certain other warrants being accounted for as a liability were revalued and are carried at $2,065,470 in the accompanying balance sheet. The fair value of these warrants at September 30, 2007 was determined using the Black-Scholes pricing model. The weighted-average assumptions used for the calculation of fair value at September 30, 2007 were risk-free rate of 4.18%, volatility of 143%, expected life of approximately 4.7 years, and dividend yield of zero. For the three and nine months ended September 30, 2007, the Company has recorded an unrealized loss on financial instrument of $1,735,102 and $1,520,482, respectively. For the comparative three and nine months ended September 30, 2006, the Company recorded an unrealized gain on financial instrument of $840,271 and $1,720,351, respectively. The discount to the note is being amortized over the term of the loan agreement from September 7, 2007 to December 14, 2007, and recorded as “interest expense from amortization of discount on secured promissory note.” For the three and nine months ended September 30, 2007, the Company amortized $58,673 of the discount.
At September 30, 2007, this loan is carried in the accompanying balance sheet as follows:
| Secured promissory note | | $ | 250,000 | | | Less unamortized discount | | | (191,327 | ) | | Balance at September 30, 2007 | | $ | 58,673 | |
Note 6 - Conversion of Series A Preferred Stock
On September 17, 2007, the preferred stockholders gave notice to the Company and converted 5,492 shares of Series A Preferred Stock into 10,983,521 shares of common stock. For reasons further discussed under the caption “Release and Settlement Agreement” in Note 10 to the Condensed Consolidated Unaudited Financial Statements, the conversion price was $0.05 per share.
Note 7 - Consulting Agreements
In February 2007, the Company engaged the Emmes Group, a consulting firm, to assist it in resolving its financial issues, to obtain advice regarding any strategic alternatives that may be available to it, and to prevent the Company from losing all of its assets in bankruptcy. During the past several months, the Company has explored a number of transactions that would (i) prevent the Company’s shareholders from losing their entire investment in the Company and (ii) enable the Company to repay some of its currently outstanding debts and liabilities. The consulting agreement has a term of one year. As compensation for its services, the consultant is to receive $15,000 per month plus a warrant to purchase 5,000,000 shares of the Company’s common stock. The warrant has an exercise price of $0.03 per share, contains a cash-less exercise provision, and expires ten years from date of issue. The Company valued this warrant at $146,000 using the Black-Scholes pricing model. The weighted average fair value of the stock options was $0.0292 per share. The weighted-average assumptions used for the calculation of fair value were risk-free rate of 4.84%, volatility of 134%, expected life of ten years, and dividend yield of zero. The fair value of the warrant was expensed as share-based compensation on the date of issue.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
In February 2007, the Company entered into another consulting agreement with an individual to assist it in the preparation of financial statements and reporting to the SEC. The consulting agreement had a term of one year. As compensation for its services, the consultant was to receive $10,000 per month plus a warrant to purchase 5,000,000 shares of the Company’s common stock. The warrant has an exercise price of $0.03 per share, contains a cash-less exercise provision, and expires ten years from date of issue.The Company valued this warrant at $146,000 using the Black-Scholes pricing model. The weighted average fair value of the stock options was $0.0292 per share. The weighted-average assumptions used for the calculation of fair value were risk-free rate of 4.84%, volatility of 134%, expected life of ten years, and dividend yield of zero. The fair value of the warrant was expensed as share-based compensation on the date of issue. This consulting agreement was terminated in May 2007. Since the consulting agreement was terminated prior to its expiration date, the Company’s obligations under the consulting agreement, if any, for the period after the termination date are unclear. No demand for any additional compensation has been made against the Company under the consulting agreement.
On September 14, 2007, the Company entered into a one-year agreement with a consultant for investor relations services. Under the agreement, the Company agreed to pay total compensation of $105,000 over the one-year term. As additional compensation, the Company issued 4,357,298 shares of restricted common stock to the consultant and granted piggyback registration rights for the stock to be registered in connection with the Company’s next registration of securities. The issuance of the common stock was expensed as share-based compensation in the amount of $117,647, or $0.027 per share on the date of the agreement.
Note 8 - Stock Options and Warrants
Compensation-Based Stock Warrants and Options
The Company has two incentive stock option plans wherein 24,000,000 shares of the Company’s common stock are reserved for issuance thereunder.
As described in Notes 4 and 7 to the condensed consolidated financial statements, the Company issued compensation-based warrants to purchase 10,000,000 shares of common stock on February 1, 2007 to two consultants and options to purchase 12,000,000 shares of common stock on September 7, 2007 under an employment agreement. The warrants and option have an exercise price of $0.03 per share, and expire ten and five years, respectively, from date of issue. During the nine months ended September 30, 2006, the Company granted a stock option to a former officer and director. The option is for 500,000 shares exercisable at $0.25 per share through December 31, 2010. The option was fully vested on January 1, 2006. No income tax benefit has been recognized for share-based compensation arrangements and no compensation cost has been capitalized in the balance sheet.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
A summary of the status of the compensation-based warrants and options outstanding at September 30, 2007, and changes during the nine months then ended is presented in the following table:
| | | | | | | Weighted | | | | | | | | Weighted | | Average | | | | | | Shares | | Average | | Remaining | | Aggregate | | | | Under | | Exercise | | Contractual | | Intrinsic | | | | Option | | Price | | Life | | Value | | | | | | | | | | | | | | Outstanding at January 1, 2007 | | | 19,883,000 | | $ | 0.05 | | | | | | | | | Granted | | | 22,000,000 | | | 0.03 | | | | | | | | | Expired | | | - | | | - | | | | | | | | | | | | | | | | | | | | | | | | Outstanding at September 30, 2007 | | | 41,883,000 | | $ | 0.04 | | | 6.3 years | | $ | 1,927,500 | | | | | | | | | | | | | | | | | | Exercisable at September 30, 2007 | | | 29,883,000 | | $ | 0.04 | | | 6.9 years | | $ | 1,387,500 | |
At September 30, 2007, 80,000 of the options outstanding have no stated contractual life. The fair value of each stock option granted or compensation-based warrant issued to an employee or consultant is estimated on the date of grant or issue using the Black-Scholes pricing model. The weighted average fair value of compensation-based stock warrants issued and stock options granted during the nine months ended September 30, 2007 was $0.0253 per share. The weighted-average assumptions used for compensation-based warrants issued and stock options granted during the nine months ended September 30, 2007 were risk-free rate of 4.50%, volatility of 124%, expected life of 7.3 years, and dividend yield of zero. The weighted average fair value of stock options granted to the employee during the nine months ended September 30, 2006 was $0.13 per share. The weighted-average assumptions used for options granted during the nine months ended September 30, 2006 were risk-free rate of 4.3%, volatility of 152%, expected life of five years, and dividend yield of zero.
The assumptions employed in the Black-Scholes option pricing model include the following. The expected life of stock options represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The expected volatility is based on the historical price volatility of our common stock. The risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related stock warrants. The dividend yield represents our anticipated cash dividend over the expected life of the stock warrants.
The Company recognized $151,473 and $417,152 of share-based compensation for compensation-based warrants issued, stock options granted, and common stock held in escrow during the three and nine months ended September 30, 2007, respectively. The Company recognized $0 and $67,350 of share-based compensation for options granted during the three and nine months ended September 30, 2006. As of September 30, 2007, there was $883,900 of unrecognized compensation cost related to stock options and common stock held in escrow that will be recognized over a weighted average period of approximately 0.75 years.
Other Stock Warrants
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
A summary of the status of the other warrants outstanding at September 30, 2007, and changes during the nine months then ended is presented in the following table:
| | | | | Weighted | | | | Shares | | Average | | | | Under | | Exercise | | | | Warrant | | Price | | | Outstanding at January 1, 2007 | | | 38,973,861 | | $ | 0.19 | | | Issued | | | 27,452,973 | | | 0.01 | | | Cancelled | | | (27,452,973 | ) | | 0.20 | | | Expired | | | (3,694,367 | ) | | 0.12 | | | Outstanding at September 30, 2007 | | | 35,279,494 | | $ | 0.05 | |
Note 9 - Release and Settlement Agreement with Chief Executive Officer
On August 31, 2007, the Company entered into a Settlement and Release Agreement with Judy Robinett, the Company’s current Chief Executive Officer, pursuant to which Ms. Robinett agreed to continue to act as the Company’s transitional Chief Executive Officer. Under the agreement, Ms. Robinett agreed to, among other things, assist the Company in the sale of its legacy assets, complete the preparation and filing of the delinquent reports to the Securities and Exchange Commission (the SEC) that related to the periods prior to the appointment of Mr. Palmer, and provide certain shareholder and creditor related services. Upon the completion of the foregoing matters, in particular the filing of the delinquent reports to the SEC, Ms. Robinett will resign, and Mr. Palmer will thereafter assume the office of Chief Executive Officer. Under the agreement, Ms. Robinett agreed to (i) forgive her potential right to receive $1,851,805 in accrued and unpaid compensation, un-accrued and pro-rata bonuses, and severance pay and (ii) the cancellation of stock options to purchase 14,000,000 shares of common stock at an exercise price of $0.02 per share. In consideration for her services, the forgiveness of the foregoing cash payments, the cancellation of the foregoing stock options, and settlement of other issues, the Company agreed to (a) pay Ms. Robinett $500,000 upon the receipt of the Eucodis cash payment under the agreement to sell the SaveCream Assets, (b) pay Ms. Robinett a commission of fifteen percent of the gross proceeds received by the Company from the sale of the MDI-P asset, (c) pay Ms. Robinett $20,833 in monthly salary for serving as transitional Chief Executive Officer of the Company during the period from April 1, 2007, until the completion of the transitional period and the issuance of the Company’s delinquent SEC reports, and (d) permit Ms. Robinett to retain some of her previously granted incentive stock options in such an amount allowing her to purchase up to two million shares of common stock, which options shall continue to have the same terms and conditions as currently in existence, including an option price of $0.01 per share and expiration date of December 31, 2112. Upon the fulfillment of all obligations under this agreement, currently anticipated to occur with the closing of the sale of the SaveCream assets to Eucodis, the Company will record the settlement of amounts owing to Ms. Robinett and record a gain on the settlement in the approximate amount of $400,000. At that date, the Company will also record the cancellation of the options currently held by Ms. Robinett to purchase 14,000,000 shares of common stock.
Note 10 - Subsequent Events
LODEMO Agreement
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
On October 15, 2007, the Company entered into a service agreement with Corporativo LODEMO S.A DE CV, a Mexican corporation (the LODEMO Group).
The Company has decided to initiate its Jatropha Business in Mexico, and has already identified parcels of land in Mexico to plant and cultivate Jatropha. In order to obtain all of the logistical and other services needed to operate a large-scale farming and transportation business in Mexico, the Company entered into the service agreement with the LODEMO Group, a privately held Mexican company with substantial land holdings, significant experience in diesel distribution and sales, liquids transportation, logistics, land development and agriculture.
Under the supervision of the Company’s management and Mobius, the LODEMO Group will be responsible for the establishment, development, and day-to-day operations of the Jatropha Business in Mexico, including the extraction of the oil from the Jatropha seeds, the delivery of the Jatropha oil to buyers, the purchase or lease of land in Mexico, the establishment and operation of one or more Jatropha nurseries, the clearing, planting and cultivation of the Jatropha fields, the harvesting of the Jatropha seeds, the operation of the Company’s oil extraction facilities, and the logistics associated with the foregoing. Although the LODEMO Group will be responsible for identifying and acquiring the farmland, ownership of the farmland or any lease thereto will be held directly by the Company or by a Mexican subsidiary of the Company. The LODEMO Group will be responsible for hiring and managing all necessary employees. All direct and budgeted costs of the Jatropha Business in Mexico will be borne by the Company.
The LODEMO Group will provide the foregoing and other necessary services for a fee primarily based on the number of hectares of Jatropha under cultivation. The Company has agreed to pay the LODEMO Group a fixed fee per year of $60 per hectare of land planted and maintained with minimum payments based on 10,000 hectares of developed land, to follow a planned planting schedule. The Agreement has a 20-year term but may be terminated earlier by the Company under certain circumstances. The LODEMO Group also will potentially receive incentive compensation for controlling costs below the annual budget established by the parties, production incentives for increase yield and a sales commission for biomass sales.
Release and Settlement Agreement
Mercator Momentum Fund, LP; Monarch Pointe Fund, Ltd.; and Mercator Momentum Fund III, LP, each a private investment entity (collectively, the MAG Funds) purchased shares of the Company’s Series A Preferred Convertible Stock in 2004 and in 2005. In connection with the 2005 investment, the Company agreed to eliminate the conversion price floor of the Series A Stock. The Company failed to file an amendment to the Series A Stock Certificate of Designations of Preferences and Rights for the Series A Stock that would have eliminated the conversion price floor. Accordingly, in connection with an intended conversion of some of their Series A Stock in September 2007, the MAG Funds were required to convert Series A Stock at a conversion price higher than the price that would have applied if the Amendment had been filed as agreed.
On October 22, 2007, the Company executed and entered into a Release and Settlement Agreement (the Release Agreement), with the MAG Funds to settle all losses and damages that MAG may have suffered, and may hereafter suffer, as result of the Company’s failure to file the amendment to the Series A Stock Certificate of Designations of Preferences and Rights for the Series A Stock. Pursuant to the Release Agreement, the Company issued to the MAG Funds a ten-year warrant to acquire up to 17,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share expiring October 17, 2017. The warrant contains a cash-less exercise provision, and the initial warrant price is subject to adjustments in connection with (i) the Company’s issuance of dividends in shares of Common Stock, or shares of Common Stock or other securities convertible into shares of Common Stock without consideration, (ii) any cash paid or payable to the holders of Common Stock other than as a regular cash dividend, and (ii) future stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting common stockholders.
MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
The warrant issued to the MAG Funds contain beneficial ownership limitations, which preclude the MAG Funds from exercising its warrant if, as a result of such conversion or exercise, the MAG Funds would own beneficially more than 9.99% of the Company’s outstanding common stock then outstanding.
Pursuant to the Release Agreement, the MAG Funds released the Company from any and all claims, past, present or future, relating to the losses or the Company’s failure to file the amendment. In addition, MAG has agreed not to sue the Company in connection with the losses or the Company’s failure to file the Amendment.
The Company is currently evaluating the accounting significance of this release and settlement agreement.
Issuance of Series B Preferred Stock
In order to obtain additional working capital, on November 6, 2007, the Company entered into a Securities Purchase Agreement with two accredited investors, pursuant to which the Company sold a total of 13,000 shares of our newly authorized Series B Convertible Preferred Stock (“Series B Shares”) for an aggregate purchase price of $1,300,000. Each share of the Series B Shares has a stated value of $100.
The Series B Shares may, at the option of each holder, be converted at any time or from time to time into shares of our common stock at the conversion price then in effect. The number of shares into which one Series B Share shall be convertible is determined by dividing $100 per share by the conversion price then in effect. The initial conversion price per share for the Series B Shares is $0.11, which is subject to appropriate adjustment for certain events, including stock splits, stock dividends, combinations, or other recapitalizations affecting the Series B Shares.
Each holder of Series B Shares is entitled to the number of votes equal to the number of shares of our common stock into which the Series B Shares could be converted on the record date for such vote, and shall have voting rights and powers equal to the voting rights and powers of the holders of the Company’s common stock. In the event of our dissolution or winding up, each share of the Series B Shares is entitled to be paid an amount equal to $100 (plus any declared and unpaid dividends) out of the assets of the Company then available for distribution to shareholders; subject, however, to the senior rights of the holders of Series A Stock.
No dividends are required to be paid to holders of the Series B Shares. However, the Company may not declare, pay or set aside any dividends on shares of any class or series of our capital stock (other than dividends on shares of our common stock payable in shares of common stock) unless the holders of the Series B Shares shall first receive, or simultaneously receive, an equal dividend.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States require management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We are a development stage company as defined by the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises.” Accordingly, all losses accumulated since inception have been considered as part of our development stage activities. Certain other critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Note A to the Consolidated Financial Statements included in this proxy statement. However, we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements.
Results Of Operations
Twelve Months Ended December 31, 2006 Compared to Twelve Months Ended December 31, 2005
Revenues and Gross Profit. We are a development stage company that does not sell any products. Accordingly, other than an $800,000 up-front licensing fee we received during the year ended December 31, 2006 under our co-licensing and development agreement with Eucodis, we did not realize any revenues during 2006. We entered into the co-licensing and development agreement with Eucodis in July 2006. We did not recognize any revenue for the comparable period in 2005.
Operating Expenses and Operating Loss. We incurred $2,026,907 in research and development expenses for the year ended December 31, 2006, of which $1,712,745 is related to our acquisition of the patents and patent rights relating to SaveCream. We incurred $2,172,461 in research and development expenses for the same period of 2005, of which $665,700 relates to our acquisition of the patents and patent rights relating to SaveCream. Our general and administrative expenses were $1,986,052 during the year ended December 31, 2006, as compared to $1,878,027 during the year ended December 31, 2005. The increase in general and administrative expenses in 2006 was the result of the additional activities related to our SaveCream product that we acquired during the 2005 fiscal year. While our total expenses for both 2005 and 2006 were substantially similar, because of the $800,000 licensing fee payment we received in 2006, our operating loss decreased to $3,212,959 for the year ended December 31, 2006 as compared to the operating loss of $4,050,488 for the same period of 2005.
Other Income/ Expense and Net Loss. We recorded $2,564,608 as unrealized gain on financial instrument to record the accounting of warrants resulting from the issuance of the Series A Convertible Preferred Stock entered into in October 2004 and March 2005, as compared with an unrealized gain of $2,300,191 for the comparable period in 2005. This non-cash income recognition is the result of the periodic revaluation of certain warrants classified as a liability in the financial statements.
Certain of our liabilities are denominated in euros. As a result of the decrease in the value of the U.S. dollar compared to the euro, during the year ended December 31, 2006 we realized a foreign currency loss of $117,501; in 2005, we realized a foreign currency exchange gain of $56,480.
Because of our limited financial resources and our large unpaid balance of current liabilities, we periodically have attempted to compromise certain outstanding liabilities through negotiated settlements with our creditors. In addition, certain of our liabilities have been extinguished following expiration of the applicable statute of limitations collection periods. As a result of the extinguishment of certain of our liabilities at less than the recorded amount of those liabilities, as well as our write-off of certain liabilities and commitments due to expiration of the statute of limitations, we recorded $607,761 in gain on forgiveness of indebtedness in 2006 and $196,353 of such gain in 2005.
Despite our $3,212,959 operating loss, as a result of non-cash income recognized on the change in value of financial instruments and the financial statement gain recognized from the extinguishment of debts, our net loss applicable to common shareholders for the year ended 2006 was only $183,771 compared to a net loss applicable to common shareholders of $1,486,781 in fiscal 2005.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
As discussed previously, during March 2007, the Board of Directors determined to discontinue our prior bio-pharmaceutical operations. Pursuant to accounting rules for discontinued operations, we have classified all revenue and expense for 2007 and prior periods related to the operations of our bio-pharmaceutical business as discontinued operations. Since all of our prior operations related to the bio-pharmaceutical business, all of our revenue and expense, with the exception of estimated general corporate overhead, has been reclassified into “Loss from Discontinued Operations” in the accompanying Condensed Consolidated Statements of Operations for all periods presented.
Revenues and Gross Profit. We are a development stage company and have not had significant revenues from our operations or reached the level of our planned operations. We have discontinued our prior bio-pharmaceutical operations during March 2007. In September 2007, we commenced operations in our new Jatropha business, but we are still in the pre-development agricultural stage of our operations and, therefore, do not anticipate generating significant revenues from the sale of bio-fuel products until 2009. We are, however, attempting to generate operating cash in 2008 from the forward sale of carbon credits and possibly from future oil delivery contracts. During the nine months ended September 31, 2007 and 2006, we recognized revenue of $200,000 and $800,000, respectively, related to our discontinued bio-pharmaceutical business, which revenue has been netted against expenses of discontinued operations and is included in Loss from Discontinued Operations in the accompanying Condensed Consolidated Statement of Operations.
Operating Expenses. Our general and administrative expenses related to continuing operations for the three and nine months ended September 30, 2007 were $564,268 and $919,273 compared to $160,773 and $350,954 for the three and nine months ended September 30, 2006. In 2007, general and administrative expense includes general corporate overhead of $326,584 and $506,389 for the three and nine months ended September 30, 2007, respectively, and includes share-based compensation of $237,684 and $412,884 for the three and nine months ended September 30, 2007. In 2006, general and administrative expense principally consisted of estimated general corporate overhead. We have included expenses such as director fees, accounting costs, certain legal costs, certain consulting expenses, and an allocation of our employees’ compensation as general corporate overhead. Other general and administrative expenses more directly related to the operation and disposal of our bio-pharmaceutical business have been included in Loss from Discontinued Operations.
For the three and nine months ended September 30, 2007, we have recorded research and development costs of $986,584 related to the value of common stock issued in exchange for certain trade secrets, know-how, business plans, term sheets, business relationships, and other information in connection with the share exchange with Global Clean Energy Holdings, LLC. Otherwise, we did not incur any research and development expenses for the three months and nine months ended September 30, 2007 due to our Board of Directors’ decision to discontinue funding development of the SaveCream and MDI-P drug candidate assets. We incurred $1,667,080 and $1,994,322 of research and development expenses for the three and nine month periods ended September 30, 2006, respectively, which principally related to our acquisition of the patents and patent rights relating to SaveCream, which are included in Loss from Discontinued Operations.
Other Income/ Expense and Net Loss. Our interest income decreased to $124 and $394 for the three and nine months ended September 30, 2007, respectively, from $519 and $2,295 for the corresponding periods of 2006 because of our decreased cash balances that we maintained in 2007.
During the three and nine months ended September 30, 2007, we recorded $1,735,102 and $1,520,482 as unrealized loss on financial instrument to record the accounting for warrants resulting from the issuance of the Series A Convertible Preferred Stock entered into in October 2004 and March 2005, and the cancellation and reissuance in September 2007 of certain related warrants to purchase 27,452,973 shares of common stock. During the same periods of 2006, we recorded unrealized gains as a result of the accounting for these warrants of $840,271 and $1,720,351, respectively. This non-cash gain recognition is the result of the periodic revaluation of certain warrants classified as a liability in the financial statements.
In connection with the accounting for the cancellation and reissuance of warrants mentioned in the previous paragraph, we recorded a discount to the associated secured promissory note of $250,000. The discount to the note is being amortized over the term of the loan agreement from September 7, 2007 to December 14, 2007, and being recorded as “interest expense from amortization of discount on secured promissory note.” For the three and nine months ended September 30, 2007, the Company amortized $58,673 of the discount.
In conjunction with our sale of MDI-P, a liability in the amount of $90,000 was extinguished due to the sale and recorded as “Gain on debt restructuring”. This liability was only payable if and when we received $1 million in cumulative license revenue from the MDI-P compound in any human indication. Due to the sale of MDI-P for less than $1 million, this liability was no longer owed and was written off. For the nine months ended September 30, 2006, we recorded “Gain on debt restructuring” of $607,761 principally related to recognizing certain previously recorded liabilities as having passed the statute of limitations for collection.
Our Loss from Discontinued Operations was $60,501 and $355,305 for the three months and nine months ended September 30, 2007, respectively, compared to $1,322,366 and $2,214,318 for the corresponding periods of 2006.
Liquidity And Capital Resources
As of September 30, 2007, we had $296,121 in cash and had a working capital deficit of $7,846,720. Since our inception, we have financed our operations primarily through private sales of equity and debt financing. Accordingly, early in 2007 we re-evaluated our future operations thereafter elected to terminate our bio-pharmaceutical operations.
In July 2007, we executed the Asset Sale Agreement with Eucodis pursuant to which we agreed to sell our SaveCream asset for an aggregate of €4,007,534 (approximately $5,906,000 based on the currency conversion rate in effect as of November 30, 2007), a portion of which comprised (i) a cash payment of €1,538,462 (approximately $2,267,000 based on the currency conversion rate in effect as of November 30, 2007), which is due and payable to us at the closing, less $200,000 already received from Eucodis in March 2007 upon the signing of the Letter of Intent, and (b) Eucodis’ assumption of an aggregate of €2,469,072 (approximately $3,639,000 based on the currency conversion rate in effect as of November 30, 2007), constituting specific indebtedness currently owed to certain of our creditors. The sale is scheduled to close on or before January 31, 2008.
In August 2007, we sold our second drug candidate, the MDI-P compound, for $310,000 in cash.
In order to fund ongoing operations pending closing of the sale to Eucodis, we entered into the Loan Agreement with, and issued a promissory note in favor of, Mercator Momentum Fund III, L.P. (“Mercator”). Pursuant to the loan agreement, Mercator made available to us a secured term credit facility in principal amount of $1,000,000. Initially, all loans under the credit facility became due and payable on December 14, 2007. As of December 13, 2007, $250,000 was outstanding under the credit facility. Mercator has agreed to extend the maturity date of this $250,000 loan to February 21, 2008. The foregoing loan is secured by a lien on all of our assets.
In November 2007, we issued 13,000 shares of our newly created Series B Convertible Preferred Stock to two accredited investors for an aggregate of $1,300,000.
We are currently funding our operations from the Mercator loan and from the proceeds of the sale of the Series B Convertible Preferred Stock. Assuming that the sale of SaveCream to Eucodis is completed in early 2008, we intend to use the net proceeds from that sale to fund our operating expenses, and to pay the $500,000 payment due to our former Chief Executive Officer under a certain release and settlement agreement. However, our business plan calls for significant infusion of additional capital to establish our Jatropha plantations in Mexico and other locations. We currently do not have the funds necessary to acquire and cultivate those plantations, nor will the projected proceeds from the Eucodis sale be sufficient for those purposes. Accordingly, in addition to the proceeds we expect to receive upon the sale of SaveCream to Eucodis, we will have to obtain significant additional capital through the sale of additional equity and/or debt securities, the forward sale of Jatropha oil and carbon offset credits, and from other financing activities, such as strategic partnerships. While we have commenced negotiations with third parties to obtain additional funding from strategic partnerships and for the sale of carbon credits, no assurance can be given that we will have sufficient capital available to continue to operate our business in 2008 or that we will be able to effect our new business plan in the Jatropha Business.
We have no off-balance sheet arrangements.
Changes in and disagreements with accountants on accounting and financial disclosure.
There were no changes or disagreements with our accountants on accounting and financial disclosure for the fiscal year ended December 31, 2006, and the quarters ended March 31, 2007, June 30, 2007, and September 30, 2007, respectively.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
The following table sets forth information regarding persons known by us to beneficially own, as defined by Rule 13d-3 under the Securities Exchange Act of 1934, more than 5% of Common Stock as of December 30, 2007, based solely on information regarding such ownership available in filings by such beneficial owners with the SEC on Schedules 13D and 13G. The following table also sets forth information regarding beneficial ownership of Common Stock as of December 30, 2007, by our Directors and Judy Robinett, our Chief Executive Officer until December 26, 2007 (our sole named executive officer), and by the Directors and the named executive officer as a group.
| Name and Address of Beneficial Owner (1) | | Shares Beneficially Owned (2) | | Percent of Class | Certain Beneficial Owners: | | | | | | | | | | | Mercator Momentum Fund, LP 555 S. Flower St., Suite 4500 Los Angeles, CA 90071 | | 47,572,974 (3)(13) | | 20.4% | Mercator Momentum Fund III, LP 555 S. Flower St., Suite 4500 Los Angeles, CA 90071 | | 39,910,011 (4)(13) | | 17.1% | Monarch Pointe Fund, Ltd. 555 S. Flower St., Suite 4500 Los Angeles, CA 90071 | | 34,002,509 (5)(13) | | 14.9% | David Firestone 555 S. Flower St., Suite 4500 Los Angeles, CA 90071 | | 121,485,494 (6)(13) | | 40.5% | Mobius Risk Group, LLC Three Riverway, Suite 1700 Houston, Texas 77056 | | 54,810,220 (7) | | 27.7% | | | | | | | Directors/Named Executive Officers: | | | | | | | | | | | | Judy M. Robinett | | 2,030,000 (8) | | 1.0% | | Richard Palmer | | 9,135,037 (9) | | 4.6% | | David R. Walker | | 1,153,539 (10) | | * | Eric J. Melvin Three Riverway, Suite 1700 Houston, Texas 77056 | | 54,810,220 (11) | | 27.7% | Martin Schroeder 92 Natoma Street, Suite 200 San Francisco, California 94105 | | 5,000,000 (12) | | 2.5% | | | | | | | All Named Executive Officers and Directors as a group (5 persons) | | 72,128,796 | | 35.1% |
* Less than 1%
(1) Unless otherwise indicated, the business address of each person listed is c/o Medical Discoveries, Inc., 6033 W. Century Blvd, Suite 1090, Los Angeles, California.
(2) For purposes of this table, shares are considered beneficially owned if the person directly or indirectly has the sole or shared power to vote or direct the voting of the securities or the sole or shared power to dispose of or direct the disposition of the securities. Shares are also considered beneficially owned if a person has the right to acquire beneficial ownership of the shares within 60 days of September 30, 2007.
(3) Includes 18,638,877 shares that may be acquired upon the exercise of currently exercisable warrants, and 17,430,000 shares of common stock issuable upon conversion of 8,715 shares of Series A convertible preferred stock based on an assumed conversion price of $0.05, which is the minimum price at which such shares of Series A convertible preferred stock can be converted.
(4) Includes 15,411,001 shares that may be acquired upon the exercise of currently exercisable warrants, and 20,590,000 shares of common stock issuable upon conversion of 10,295 shares of Series A convertible preferred stock based on an assumed conversion price of $0.05, which is the minimum price at which such shares of Series A convertible preferred stock can be converted.
(5) Includes 10,403,095 shares that may be acquired upon the exercise of currently exercisable warrants, and 19,834,000 shares of common stock issuable upon conversion of 9,917 shares of Series A convertible preferred stock based on an assumed conversion price of $0.05, which is the minimum price at which such shares of Series A convertible preferred stock can be converted.
(6) David Firestone is the managing member of MAG Capital, LLC, a California limited liability company (“MAG”). Mercator Momentum Fund, LP, and Mercator Momentum Fund III, LP, are private investment limited partnerships organized under California law. The general partner of each fund is MAG. Monarch Pointe Fund, Ltd. is a corporation organized under the laws of the British Virgin Islands. MAG controls the investment of Monarch Pointe Fund, Ltd.
(7) Includes 23,490,095 shares subject to forfeiture in the event the company has not satisfied certain conditions by September 7, 2009.
(8) Includes 2,000,000 shares that may be acquired upon the exercise of currently exercisable options.
(9) Includes 3,262,514 shares subject to forfeiture in the event the company has not satisfied certain conditions by September 7, 2009. Mr. Palmer owns 13.33% of the outstanding membership interests of Mobius. Mr. Palmer has options to acquire 12,000,000 shares of common stock, which options are not currently exercisable and will not become exercisable unless certain conditions are met. Neither the shares held by Mobius, nor the foregoing options to purchase 12,000,000 shares have not been included in the table.
(10) Includes 750,000 shares that may be acquired upon the exercise of currently exercisable options.
(11) Includes 54,810,220 shares held in the name of Mobius Risk Group, LLC, a Texas limited liability company (“Mobius”). Mr. Melvin is the Chief Executive Officer and a director of Mobius.
(12) Includes 5,000,000 shares that may be acquired upon the exercise of currently exercisable warrants held by Emmes Consulting Group, LLC, a California limited liability company. Mr. Schroeder is the Executive Vice President and Managing Director of Emmes Consulting Group, LLC.
(13) Notwithstanding the foregoing percentages, each person identified herein, individually or in the aggregate is limited by the terms of our Series A convertible preferred stock and by applicable warrants to owning no more than 9.99% of our outstanding common stock at any given time.
OTHER MATTERS
Management does not intend to present any other items of business and knows of no other matters that will be brought before the special meeting. Whether or not you plan to attend the special meeting, please sign and date the enclosed proxy card and return it in the enclosed envelope to ensure your representation at the special meeting.
WHERE YOU CAN FIND MORE INFORMATION
Medical Discoveries, Inc. files reports, proxy statements, and other information with the SEC. You can read and copy these reports, proxy statements, and other information concerning our company at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the operation of the SEC’s Public Reference Room. The SEC also maintains an Internet site that contains all reports, proxy statements and other information that we file electronically with the SEC. The address of that website is http://www.sec.gov.
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY GIVING WRITTEN NOTICE OF REVOCATION TO THE COMPANY PRIOR TO THE SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO COMPANY’S CORPORATE SECRETARY PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
| By Order of the Board of Directors, | | | | Richard Palmer | | President and Chief Executive Officer | January __, 2008 | |
MEDICAL DISCOVERIES, INC.
6033 W. Century Blvd, Suite 1090,
Los Angeles, California 90045
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 29, 2008
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, having received notice of the Special Meeting of Shareholders of Medical Discoveries, Inc. (the “Company”) to be held at 10:00 A.M. local time on Tuesday, January 29, 2008, hereby designates and appoints Richard Palmer and___________, and each of them, as attorney and proxy for the undersigned, with full power of substitution, to vote all shares of common stock of Medical Discoveries, Inc. that the undersigned is entitled to vote at such meeting or at any adjournment thereof, with all the powers the undersigned would possess if personally present, such proxies being directed to vote as specified below and in their discretion on any other business that may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
PROPOSAL I. To approve the sale of our SaveCream assets to Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbH.
PROPOSAL II. To approve an amendment to our Amended and Restated Articles of Incorporation to increase the authorized number of shares of common stock from 250,000,000 to 500,000,000.
PROPOSAL III. To approve an amendment to our Amended and Restated Articles of Incorporation to change our company’s name to “Global Clean Energy Holdings, Inc.”
In their discretion the proxies are authorized to vote upon such other business as may properly come before the meeting.
The undersigned reserves the right to revoke this Proxy at any time prior to the Proxy being voted at the Meeting. The Proxy may be revoked by delivering a signed revocation to Medical Discoveries, Inc. at any time prior to the Meeting, by submitting a later-dated Proxy, or by attending the Meeting in person and casting a ballot. The undersigned hereby revokes any proxy previously given to vote such shares at the Meeting.
| | Signature | | | Date: | | | | | | | | Signature | | | Date: | | | | NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, please give full title as such. |
APPENDIX A
SALE AND PURCHASE AGREEMENT
SALE AND PURCHASE AGREEMENT
AMONG
MEDICAL DISCOVERIES INC.
AND
MDI ONCOLOGY, INC.
AND
EUCODIS PHARMACEUTICALS FORSCHUNGS-und ENTWICKLUNGS GmbH
Dated
July 6, 2007
SALE AND ASSET PURCHASE AGREEMENT
This Sale and Asset Purchase Agreement (this “Agreement”, which term is intended to include all exhibits, schedules and other documents attached hereto or referred to herein) is made and entered into on July 6, 2007 (the “Effective Date”) by and among Medical Discoveries, Inc., a Utah corporation, whose principal place of business is 1338 South Foothill Drive, #266, Salt Lake City, Utah 84108 (“MDI”), MDI Oncology, Inc., a Delaware corporation and wholly-owned subsidiary of MDI, whose principal place of business is 1338 South Foothill Drive, #266, Salt Lake City, Utah 84108 (“MDI Oncology” and, together with MDI, the “MDI Parties”) and Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company whose principal place of business is Brunnerstrasse 59, 1230, Vienna, Austria (“EUCODIS”; collectively, the MDI Parties and EUCODIS are referred to as the “Parties”).
RECITALS
MDI purchased substantially all of the intellectual property assets of Savetherapeutics AG a German company in liquidation pursuant to an agreement with its liquidator dated March 11, 2005 (the “Savetherapeutics Contract”), as a result of which the MDI Parties own, among other things, patents, patent applications, pre-clinical study data and anecdotal clinical trial data concerning “SaveCream”, a developmental topical aromatase inhibitor cream (the “Product”).
MDI Oncology and EUCODIS entered into an agreement for the co-development and license of the Product as of July 29, 2006 (the “Co-Development Contract”).
On March 8, 2007, the Parties entered into a letter of intent for the acquisition by EUCODIS of all of the MDI Parties’ rights under the Savetherapeutics Contract, and all intellectual property and other rights belonging to the MDI Parties, whether subsequently acquired or developed by or though the efforts of the MDI Parties or otherwise which are related to the Product.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties herein, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following definitions shall apply unless specifically stated otherwise
1.1 “Affiliate” shall mean, with respect to any Person, any other Person controlling, controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation (or other entity) if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation (or other entity), whether through the ownership of voting securities, by contract or otherwise
1.2 “Agreement” shall have the meaning set forth in the heading of this document.
1.3 “Assigned Contracts” shall have the meaning set forth in Section 3.2(a) of this Agreement.
1.4 “Closing” shall have the meaning set forth in Section 4.1(b).
1.5“Co-Development Contract” shall have the meaning set forth in the Recitals to this Agreement.
1.6 “Commitment” shall have the meaning set forth in Section 4.1 of this Agreement.
1.7 “Confidential Information” shall have the meaning set forth in Section 8.1 of this Agreement.
1.8 “Creditor Indebtedness” shall have the meaning set forth in Section 3.1(a) of this Agreement.
1.9 “Effective Date” shall have the meaning set forth in the heading of this Agreement.
1.10 “Encumbrance” shall mean any title defect, mortgage, assignment, pledge, hypothecation, security interest, lien, charge, option, claim of others or encumbrance of any kind.
1.11 “Escrow Agent” shall mean the New York City law firm of Otterbourg, Steindler, Houston & Rosen, P.C.
1.12 “EUCODIS” shall have the meaning set forth in the heading of this Agreement.
1.13 “Excess Portion” shall have the meaning set forth in Section 3.1(b) of this Agreement.
1.14 “MDI” shall have the meaning set forth in the heading of this Agreement.
1.15 “MDI Creditor” shall have the meaning set forth in Section 3.1(a) of this Agreement.
1.16 “MDI Oncology” shall have the meaning set forth in the heading of this Agreement.
1.17 “MDI Parties” shall have the meaning set forth in the heading of this Agreement.
1.18 “MDI Retained Creditors” shall have the meaning set forth in Section 6.1(s) of this Agreement.
1.19 “Parties” shall have the meaning set forth in the heading of this Agreement.
1.20 “Patent Rights” shall mean all of the MDI Parties' right, title and interest in the patents and patent applications acquired under the Savetherapeutics Contract or in connection therewith, and any other patent and/or patent application pertaining to the Product, owned or in possession or control of or under contract for the MDI Parties, and any division, continuation, continuation-in-part, renewal, extension, reexamination or reissue of each such patent and any and all corresponding US and foreign counterpart patent applications or patents.
1.21 “Product” shall have the meaning set forth in the Recitals to this Agreement.
1.22 “Purchased Assets” shall have the meaning set forth in Section 2.1 of this Agreement.
1.23 “Purchase Price” shall have the meaning set forth in Section 3.1 of this Agreement.
1.24 “Person” shall mean any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind.
1.25 “Savetherapeutics Contract” shall have the meaning set forth in the Recitals to this Agreement.
1.26 “Schmidt Litigation” shall have the meaning set forth in Section 3.2(b) of this Agreement.
1.27 “Transfer Documents” shall have the meaning set forth in Section 2.5 of this Agreement.
ARTICLE 2
SALE, ASSIGNMENT AND TRANSFER OF PURCHASED ASSETS
2.1 Subject to the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Parties herein set forth, promptly following satisfaction of the conditions to the Closing set forth in Article 4 of this Agreement, the MDI Parties are selling, assigning, transferring, conveying and delivering, as the case may be, to EUCODIS, and EUCODIS shall purchase and, as set forth in Article 3 of this Agreement, pay for, all of the MDI Parties’ rights, title and interests in and relating to the Product and the following related assets of the MDI Parties (collectively, the “Purchased Assets”):
(a)All of the intellectual property and all contractual and other rights, if any, acquired by the MDI Parties pursuant to the Savetherapeutics Contract;
(b)All of the rights of the MDI Parties under the Co-Development Contract, including without limitation the intellectual property and all contractual and other rights acquired by the MDI Parties pursuant to the Co-Development Contract;
(c)Any and all Patent Rights, inventions, discoveries, rights in confidential data (including know-how and trade secrets), manufacturing methods and processes, trademarks, trade names, brand names, logos, trade dress, copyrights and other intellectual property and goodwill associated with the Product, owned or in possession or control of or under contract to acquire by the MDI Parties, in each case whether registered or unregistered, and including without limitation all applications for and renewals or extensions of such rights, and all similar or equivalent rights or forms of protection;
(d)Any and all United States and foreign regulatory files and data relating to the Product in the possession or control of the MDI Parties, including without limitation marketing authorization procedures and preclinical and clinical studies; and,
(e)All rights of the MDI Parties under the Assigned Contracts.
2.2 The Purchased Assets are being sold, assigned, transferred, conveyed and delivered to EUCODIS free of any and all liabilities, obligations and Encumbrances except only for those as may be described in reasonable detail in Exhibit 2.2 (to the extent that Exhibit 2.2 has been attached to this Agreement prior to the Effective Date).
2.3 Upon the Closing, all of the Purchased Assets and all non-publicly available information relating thereto shall be considered to be Confidential Information belonging to EUCODIS, and the MDI Parties shall no longer have any rights thereto or therein.
2.4 The MDI Parties shall be solely responsible for all sales, use, transfer, value added and other related taxes, if any, arising out of the sale by MDI Parties of the Purchased Assets to EUCODIS pursuant to this Agreement.
2.5 Simultaneously with the execution and delivery of this Agreement by the Parties, the MDI Parties shall deliver to the Escrow Agent (in original, fully executed form) all assignments, bills of sale and other documents which are necessary, sufficient or reasonably desirable to effect the transfer of the Purchased Assets to EUCODIS, along with all other documents referred to in this Agreement as being delivered to EUCODIS on or prior to the Closing (collectively, the “Transfer Documents”). The Transfer Documents shall be held by the Escrow Agent for delivery as set forth in Article 4 of this Agreement.
ARTICLE 3
PURCHASE PRICE; TIMING OF PAYMENTS; DISCHARGE OF CERTAIN DEBTS
3.1 The purchase price for the Purchased Assets (the “Purchase Price”) shall consist of the following:
(a)Relief of the MDI Parties from an aggregate of two million four hundred sixty-nine thousand seventy-two Euros (2,469,072€) of indebtedness, which is comprised of the following amounts (each a “Creditor Indebtedness”) owed to the following creditors of the MDI Parties (each an “MDI Creditor”):
(i)1,850,000 € owed to the Liquidator of Savetherapeutics AG;
(ii)205,000 € owed to Professor Wieland;
(iii)188,197€ owed to Mayer, Brown, Rowe and Maw, LLP;
(iv)127,875 € owed to Epstein, Becker and Green, LLP;
(v)46,000 € owed to H3 Pharma;
(vi)31,000 € owed to Millbank Tweed (Bob Koch); and
(vii)21,000 € owed to Marc Kessemeier
(b)An aggregate of one million five hundred thirty-eight thousand four hundred and sixty-two Euros (1,538,462€) (herein, the “Excess Portion”).
(c)On or before September 30, 2007, EUCODIS shall pay the Excess Portion to the MDI Parties or to another party as the MDI Parties may so direct.
(d)MDI Parties shall be responsible to cause the transfer of the Purchased Assets to EUCODIS by the Closing.
(e) On Closing, EUCODIS shall deliver to the MDI Parties, in form and substance reasonably satisfactory to the MDI Parties, releases from each of the MDI Creditors forever discharging and releasing the MDI Parties from any liability for any of their respective Creditor Indebtedness.
3.2 In addition, on the Closing, EUCODIS shall assume and shall be financially responsible for:
(a)The financial obligations of the MDI Parties arising under the assigned contracts described in reasonable detail in Exhibit 3.2(a) (to the extent that Exhibit 3.2(a) has been attached to this Agreement prior to the Effective Date); provided, however, that the benefits of each of such assigned contracts (the “Assigned Contracts”) has been validly assigned to EUCODIS in accordance with the terms thereof.
(b)All costs accruing after February 28, 2007 which were necessarily incurred by or on behalf of the MDI Parties to maintain any of the Purchased Assets, including but not limited to: (i) the costs to file and maintain, throughout the world, any of the Patent Rights, and (ii) the legal fees and related legal costs incurred in connection with the legal proceedings in Hamburg, Germany to obtain certain rights belonging to the MDI Parties by co-inventor Dr. Alfred Schmidt (the “Schmidt Litigation”); provided, however, that a reasonably detailed description of such costs are set forth in Exhibit 3.2(b) (to the extent that Exhibit 3.2(b) has been attached to this Agreement prior to the Effective Date) and that such costs are backed up by duly rendered invoices (or receipts) and the amounts set forth thereon for any costs do no exceed the amounts listed on Exhibit 3.2(b) by more than ten percent (10%). After the Effective Date, the MDI Parties shall continue to vigorously prosecute the Schmidt action (which shall be conducted at the direction, and under the control, of EUCODIS) at the sole expense of EUCODIS until such time, if any, as EUCODIS can be substituted for the MDI Parties in such action. For purposes of clarification, the reasonably incurred out-of-pocket expenses of the MDI Parties and their representatives (including legal fees and costs), in furnishing such assistance as may be reasonably requested by EUCODIS, shall be at the sole expense of EUCODIS.
ARTICLE 4
CONDITIONS TO THE CLOSING
4.1. The Closing shall occur if the following conditions are met:
(a)The MDI Parties shall have delivered to the Escrow Agent all of the Transfer Documents,
(b)The Escrow Agent shall not deliver the Transfer Documents to EUCODIS until such time as EUCODIS has delivered to the MDI Parties (i) the Excess Portion of the Purchase Price without any off set or deduction, and (ii) releases from each of the MDI Creditors in which such MDI Creditors forever discharges and releases the MDI Parties from any liability for any of their respective Creditor Indebtedness, or paid in full the amounts set forth in Section 3.1(a) to the MDI Parties for the account of such MDI Creditor.
4.2 In the event that the Closing does not occur by September 30, 2007, and unless the parties have otherwise agreed in writing, the Escrow Agent shall deliver the Transfer Documents to the MDI Parties or to whomever as the MDI Parties may so direct.
4.3 Irrespective of any provision of this Agreement to the contrary, the obligation of EUCODIS to purchase the Purchased Assets is subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by EUCODIS in its sole discretion):
(a)Each of the representations and warranties made by the MDI Parties in this Agreement shall be true and correct in all material respects on and as of the Closing as though such representation or warranty was made on and as of the Closing.
(b)The MDI Parties shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the MDI Parties at or before the Closing.
(c)The MDI Parties shall have delivered to the Escrow Agent all of the Transfer Documents.
(d)Since the Effective Date, MDI shall have obtained additional capital or a credit facility aggregating in the amount of at least $250,000.00.
(e)The MDI Parties shall have delivered or caused to be delivered to the Escrow Agent or to EUCODIS any and all originals and copies of documents pertaining to Purchased Assets and the Product, which are within the possession or control of the MDI Parties, along with any additional documents reasonably requested by EUCODIS.
4.4 In the event that, before the Creditor Indebtedness of any MDI Creditor has been fully satisfied, actions are taken pursuant to which either of the MDI Parties voluntarily declares bankruptcy (however evidenced), or involuntary is caused to become bankrupt, then the unpaid amount(s) of any still outstanding Creditor Indebtedness shall be paid into the court having jurisdiction over the bankrupt’s estate.
4.5 If valid transfer of title to any Purchased Assets or portion thereof is not made on the Closing and can not be made by the MDI Parties promptly thereafter, or if the circumstances that make such assignment or transfer or any claim to any of the Purchased Assets to EUCODIS questionable or impracticable for any reason, it shall be the obligation of the MDI Parties to determine another way by which EUCODIS shall be able to utilize the Purchased Assets with equal or at least substantially similar economical effect, including (if agreeable to EUCODIS) under an exclusive, royalty-free, perpetual license with the right to sublicense.
ARTICLE 5
DELIVERIES BY THE MDI PARTIES; RESIDUAL RIGHTS
5.1 As soon as possible, but no later than within fifteen (15) business days after the Effective Date, the MDI Parties shall deliver or cause to be delivered to the Escrow Agent any and all originals and copies of documents pertaining to Purchased Assets and the Product, which are within the possession or control of the MDI Parties. All of such documents after the Closing are considered to be Confidential Information of EUCODIS in accordance with Article 8 of this Agreement.
5.2 Promptly after the Effective Date, the MDI Parties shall deliver to the Escrow Agent (or if the Closing has occurred, to EUCODIS) such additional assignments and bills of sale transferring title to the Purchased Assets and the Product as EUCODIS reasonably shall request, and promptly following the Closing shall cause the change of title to such assets to be recorded by applicable patent offices as appropriate
5.3 The MDI Parties shall be entitled to retain one copy of any documents being delivered, but only in its legal files for evidential purposes in respect of its confidentiality obligations in relation to this Agreement or other matters related hereto.
5.4 It is expressly understood and agreed that EUCODIS is not the successor to either of the MDI Parties in their business affairs, and EUCODIS undertakes no responsibility, obligation or liability, expressed or implied, under any contract of the MDI Parties that are not Assigned Contracts, and that such other contracts shall remain the sole responsibility of the MDI Parties.
5.5 For the period of five (5) years from the Closing, neither of the MDI Parties, nor any of its or their Affiliates shall be a party to, or assist with or undertake, either on its own, with third parties or on behalf of third parties, any research and development with respect to the Product or any product which could be used in reasonable substitution thereof, nor commercialize any products based on the Product, save as requested by EUCODIS.
ARTICLE 6
REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 The MDI Parties represent, warrant and covenant to EUCODIS as of the Effective Date and at the Closing as follows:
(a)MDI is a corporation duly and validly existing and in good standing under the laws of the State of Utah. MDI Oncology is a corporation wholly-owned by MDI which is duly and validly existing and in good standing under the laws of the State of Delaware, and does not conduct business in any other jurisdiction. Each of the MDI Parties has all requisite power and authority to own its assets, including the Purchased Assets, and to carry on its business as presently conducted.Delaware.
|
| B. | Series B Preferred Stock |
1.DESIGNATION OF SERIES. There is hereby established a series of preferred stock, $0.001 par value per share, of the Corporation, which new series is designated as “Series B Convertible Preferred Stock” (“Series B Preferred Stock”). The number of shares constituting such series is 13,000, which number may from time to time be increased or decreased (but not below the number then outstanding) by the Board of Directors. The Series B Preferred Stock shall have a stated value of $100 per share for the purpose of calculating amounts payable upon liquidation, dissolution or winding up, and adjustments to the Conversion Price. Shares of Series B Preferred Stock may be issued in fractional shares, which fractional shares shall entitle the holder, in proportion to such holder’s fractional share, to all rights of a holder of a whole share of this series. 2.RANK. The Series B Preferred Stock shall, with respect to the rights of the Corporation’s shareholders upon liquidation, dissolution or winding up of the affairs of the Corporation, rank senior and prior to the Corporation’s Common Stock. 3.DIVIDENDS. No dividends are required to be paid to the holders of Series B Preferred Stock. However, no dividend shall be declared or paid on the Common Stock, other than dividends payable solely in capital stock, unless an equivalent dividend (computed in proportion to the number of shares of Common Stock into which each share of Series B Preferred Stock is then convertible) is paid and declared for all outstanding shares of Series B Preferred Stock. Each dividend shall be paid to the holders of record of shares of the Series B Preferred Stock as they appear on the stock register of the Corporation on a date determined by the Board of Directors (the “Dividend Record Date”). Holders of shares of the Series B Preferred Stock converted between the close of business on a Dividend Record Date and the close of business on the dividend payment date shall, in lieu of receiving such dividend on the dividend payment date fixed therefor, receive such dividend payment on the date of conversion. The holders of shares of the Series B Preferred Stock shall not be entitled to any dividends other than the dividends provided for in this Paragraph 3. 4.LIQUIDATION. i. The liquidation value per share of shares of the Series B Preferred Stock, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, shall be $100 per share, plus an amount equal to the dividends declared and unpaid with respect to each such share, to the payment date (such aggregate amount being hereinafter referred to as the “Liquidation Preference”). Whenever the distribution provided for in this Paragraph 4 shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation. ii. In the event of a distribution in connection any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of shares of the Series B Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, an amount per share equal to the Liquidation Preference of such shares held by them in preference to and in priority over any distributions made to the holders of Common Stock. If, upon the occurrence of a liquidation, dissolution or winding up, the assets and funds of the Corporation legally available for distribution to shareholders shall be insufficient to permit the payment in full to holders of Series B Preferred Stock of the Liquidity Preference, then all of the assets and funds of the Corporation legally available for distribution to holders of the Series B Preferred Stock shall be distributed ratably among the holders of Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. Upon payment of the Liquidation Preference to which the holders of shares of the Series B Preferred Stock are entitled in accordance with this paragraph, the Series B Preferred Stock shall be cancelled and the holders of shares of the Series B Preferred Stock shall not thereafter be entitled to any further participation in any distribution of assets by the Corporation. iii. Neither a consolidation or merger of the Corporation with or into any other entity, nor a merger of any other entity with or into the Corporation, nor a sale or transfer of all or any part of the Corporation’s assets for cash or securities or other property shall be considered a liquidation, dissolution or winding-up of the Corporation within the meaning of this Paragraph 4. iv. Written notice of any liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 30 days prior to any payment date stated therein to the holders of shares of the Series B Preferred Stock at their respective addresses as the same shall appear on the books of the transfer agent with respect to the Series B Preferred Stock. 5.VOTING. The holders of Series B Preferred Stock shall be entitled to vote upon all matters presented to the Corporation’s shareholders, together with the holders of the Common Stock as one class. Each share of Series B Preferred Stock shall entitle the holder thereof to that number of votes equal to the number of shares of Common Stock into which each such share of Series B Preferred Stock would have been convertible, if such conversion had taken place on the record date set for determining stockholders entitled to vote at a meeting or the date of the consent of stockholders if action is being taken by written consent. 6.CONVERSION. The holder of any shares of Series B Preferred Stock shall have the right at any time commencing from the date of issuance to convert any and all of such holder’s shares of Series B Preferred Stock into duly authorized, validly issued, fully paid and nonassessable shares of Common Stock of the Corporation at the Conversion Price, as defined herein, and upon the terms set forth herein. The holder of any shares of the Series B Preferred Stock may exercise such holder’s right to voluntarily convert such shares into shares of Common Stock by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the shares of Series B Preferred Stock to be converted, accompanied by a written notice stating that such holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Paragraph 6 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by (i) payment of any transfer taxes payable upon the issuance of shares of Common Stock in such name or names and (ii) evidence, satisfactory to the Corporation, that the transfer of such shares will not violate any applicable securities or other laws. As promptly as practicable, and in any event within ten (10) business days after the surrender of such certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock to which the holder of the Series B Preferred Stock so converted shall be entitled, (ii) any payment (in either cash of shares of Series B Preferred Stock) required to be made with respect to declared but unpaid dividends on the converted shares of Series B Preferred Stock, and (iii) if less than the full number of shares of the Series B Preferred Stock evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversions shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of the Series B Preferred Stock to be converted so that the rights of the holder thereof shall cease except for the right to receive Common Stock and any accrued dividend in accordance herewith, and the converting holder shall be treated for all purposes as having become the record holder of such Common Stock at such time. 7.CONVERSION PRICE. Each share of Series B Preferred Stock shall be converted into a number of shares of Common Stock determined by dividing (i) $100 by (ii) the Conversion Price of such shares as in effect on the date of conversion. The initial Conversion Price shall be $0.11 per share. The initial Conversion Price shall be subject to further adjustment as set forth in Paragraph 9 below. 8.CONVERSION PROCEDURE. Upon any conversion of any shares of Series B Preferred Stock under Paragraph 6 above, the holder of the converted Series B Preferred Stock shall be entitled to receive (i) shares of Common Stock in exchange for the shares of Series B Preferred Stock submitted for, or subject to conversion, and (ii) if applicable, declared but unpaid dividends in respect of the shares so converted. 9.CONVERSION PRICE ADJUSTMENTS. The initial Conversion Price for each respective issuance of shares of Series B Preferred Stock shall be subject to adjustment from time to time upon the occurrence of certain events as follows: i.Stock Dividends, Subdivisions, Reclassifications or Combinations. If the Corporation shall (i) declare a dividend or make a distribution in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding Common Stock into a smaller number of shares, the Conversion Price in effect at the time of the record date of such dividend or distribution on the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of any shares of Series B Preferred Stock surrendered for conversion immediately after such record date shall be entitled to receive the number of shares of Common Stock which he or she would have owned or been entitled to receive had such Series B Preferred Stock been converted immediately prior to such record date. Successive adjustments in the Conversion Price shall be made whenever any event specified above shall occur. ii.Other Distributions. In case the Corporation shall hereafter fix a record date for the making of a distribution to all holders of shares of Common Stock, (i) of shares of any class of capital stock of the Corporation other than shares of Common Stock, or (ii) of evidences of indebtedness of the Corporation, or (iii) of assets (excluding cash dividends or distributions, and dividends or distributions referred to in subparagraph 9a hereof), or (iv) of rights or warrants entitling the holders of Common Stock to subscribe for or purchase shares of Common Stock; in each such case, the Conversion Price in effect immediately prior thereto shall be reduced immediately thereafter to the price determined by dividing (1) an amount equal to the difference resulting from (A) the number of shares of Common Stock outstanding on such record date multiplied by the Conversion Price per share on such record date, less (B) the fair market value (as determined by the Board of Directors in their reasonable discretion) of said shares or evidences of indebtedness or assets or rights or warrants to be so distributed by (2) the number of shares of Common Stock outstanding on such record date. Such adjustment shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Conversion Price then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to distribute such shares, evidences of indebtedness, assets, rights or warrants, as the case may be, to the Conversion Price which was in effect prior to the fixing of the record date (subject to any adjustments made pursuant to this Paragraph 9 since such record date). iii.Rounding of Calculations; Minimum Adjustment. All calculations under this Paragraph 9 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. No adjustment in the Conversion Price shall be made if the amount of such adjustment would be less than $0.01, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. iv.Adjustments for Consolidation, Merger, etc. In case the Corporation, (i) shall consolidate with or merge into any other person and shall not be the continuing or surviving corporation of such consolidation or merger, (ii) shall permit any other person to consolidate with or merge into the Corporation and the Corporation shall be the continuing or surviving person, but, in connection with such consolidation or merger, the Common Stock shall be changed into or exchanged for stock or other securities of any other person or cash or any other property, or (iii) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification resulting in the issue of additional shares of Common stock for which adjustment is provided in this Paragraph 9); then, and in each such case, proper provision shall be made so that each share of Series B Preferred Stock then outstanding shall be converted into, or exchanged for, one share of preferred stock of the acquiring corporation entitling the holder thereof to all of the rights (including voting rights), powers, privileges and preferences with respect to the acquiring corporation to which the holder of a share of Series B Preferred Stock is entitled with respect to the Corporation, and being subject with respect to the acquiring corporation to the qualifications, limitations and restrictions to which a share of Series B Preferred Stock is subject with respect to the Corporation. 10.VOLUNTARY ADJUSTMENT. The Corporation may make, but shall not be obligated to make, such decreases in the Conversion Price so as to increase the number of shares of Common Stock into which the Series B Preferred Stock may be converted, in addition to those required by Paragraph 9 above, as it considers to be advisable in order to avoid federal income tax treatment as a dividend of stock or stock rights. 11.NOTICE OF ADJUSTMENT OF CONVERSION PRICE. Whenever the Conversion Price is adjusted as herein provided, the Corporation shall forthwith file with any transfer agent or agents for the Series B Preferred Stock, if any, and at the principal office of the Corporation, a statement signed by the Chief Executive Officer, President or a Vice President and by the Chief Financial Officer or the Secretary of the Corporation setting forth the adjusted Conversion Price. The statement so filed shall be open to inspection by any holder of record of shares of Series B Preferred Stock. The Corporation shall also, at the time of filing any such statement, mail notice to the same effect to the holders of shares of Series B Preferred Stock at their addresses appearing on the books of the Corporation or supplied by such holder to the Corporation for the purpose of notice. 12.FRACTIONAL SHARES IN CONVERSION. The Corporation shall not be required to issue fractions of shares of Common Stock on the conversion of Series B Preferred Stock. If any fraction of a share of Common Stock would be issuable upon the conversion of a share, except for the provisions hereof, the Corporation shall purchase such fraction for an amount in cash equal to the Conversion Price multiplied by such fraction. If more than one certificate for shares of Series B Preferred Stock shall be presented for conversion at any one time by the same registered holder, the number of shares of Common Stock which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Common Stock issuable upon conversion of the shares so presented. All calculations under this Paragraph 12 shall be made to the nearest one-hundredth of a share. 13.MUTILATED OR MISSING PREFERRED STOCK CERTIFICATES. If any of the Series B Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange and substitution for and upon cancellation of the mutilated Series B Preferred Stock certificate, or in lieu of and in substitution for the Series B Preferred Stock certificate lost, stolen or destroyed, a new Series B Preferred Stock certificate of like tenor and representing an equivalent amount of shares of Series B Preferred Stock, but only upon receipt of evidence of such loss, theft or destruction of such Series B Preferred Stock certificate and indemnity, if requested by the transfer agent for the Series B Preferred Stock or the Corporation. 14.REISSUANCE OF PREFERRED STOCK. Any shares of Series B Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series B Preferred Stock that the Corporation shall be authorized to issue. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock, and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any Certificate of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law. 15.BUSINESS DAY. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that banks are not open in the State of California, such payment, redemption or exchange shall be made on the immediately succeeding day on which such banks are open. 16.HEADINGS OF SUBDIVISIONS. The headings of various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 17.SEVERABILITY OF PROVISIONS. If any right, preference or limitation of the Series B Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other rights, preferences and limitations set forth herein which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein. 18.NOTICE TO THE COMPANY. All notices and other communications required or permitted to be given to the Corporation hereunder shall be made by courier to the Corporation at its principal executive offices located at 6033 W. Century Blvd, Suite 895, Los Angeles, 90045, Attention: Chief Executive Officer. Minor imperfections in any such notice shall not affect the validity thereof. 19.LIMITATIONS. Except as may otherwise be required by law, the shares of Series B Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this Certificate of Incorporation of the Corporation. The shares of Common Stock shall be alike and equal in all respects and shall have one vote for each share. After any requirements with respect to preferential dividends, if any, on the Preferred Stock have been met, then, and not otherwise, dividends payable in cash or in any other medium may be declared by the Board of Directors and paid on the shares of Common Stock. After distribution in full of the preferential amount, if any, to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. FIFTH – The Corporation, to the full extent permitted by Section 145 of the DGCL, as amended from time to time, shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or by reason of the fact that such person, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. No amendment or repeal of this Article shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. SIXTH – A director of the Corporation shall not be personally liable to the Corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director except for liability to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any act or omission of such director occurring prior to such amendment or repeal. SEVENTH – In the furtherance and not in limitation of the objects, purposes and powers conferred by the laws of the State of Delaware, the directors of the Corporation shall have the power to adopt, repeal, rescind, alter or amend in any respect the Bylaws of the Corporation. EIGHTH – The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him or incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law. NINTH – The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereinafter prescribed by statute, and all rights conferred upon stockholders are herein granted subject to this reservation. TENTH – The name and mailing address of the incorporator of the Corporation are: Ekong Udoekwere TroyGould PC 1801 Century Park East, 16th Floor Los Angeles, California 90067
I, the undersigned, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this Certificate hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this ___ day of ______ 2010. | | | Ekong Udoekwere, Incorporator |
APPENDIX E BYLAWS OF
GLOBAL CLEAN ENERGY HOLDINGS, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of Global Clean Energy Holdings, Inc. (the “Corporation”) shall be at 40 East Division Street, Suite A, Dover, Delaware 19901, County of Kent. The registered agent at this address is Paracorp Incorporated. Section 2.Other Offices. The Corporation may also have offices at such other places both within and without the United States as the Board of Directors of the Corporation (the “Board of Directors”) may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1.Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.Annual Meetings. (a) The annual meeting of stockholders shall be held on such date and at such time as may be fixed by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these bylaws (“Bylaws”). (b) Written notice of an annual meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting at his, her or its address last known as the same appears on the books of the Corporation, not less than ten (10) nor more than sixty (60) days before the date of the meeting. (c) To be properly brought before the annual meeting, business must be either (i) specified in the notice of annual meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the annual meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the annual meeting by a stockholder. In addition to any other applicable requirements, for business (other than with respect to the election of directors) to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days prior to the anniversary of the date on which the proxy statement for the immediately preceding annual meeting was mailed to stockholders, or if the Corporation did not hold an annual meeting in the prior year or if the date of the annual meeting occurs more than thirty (30) days before or after the anniversary of such immediately preceding annual meeting, not later than the close of business on the later of the (i) 60th day prior to such annual meeting, and (ii) 10th day following the date on which public announcement of the date of such annual meeting is first made. A stockholder’s notice to the Secretary of the Corporation shall set forth (a) as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, and (ii) any material interest of the stockholder in such business; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder, and (ii) the class, series and number of shares of capital stock of the Corporation that are beneficially owned by the stockholder. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Article II, Section 2. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Article II, Section 2, and if such officer should so determine, such officer shall so declare to the annual meeting and any such business not properly brought before the meeting shall not be transacted. Section 3.Special Meetings. Unless otherwise prescribed by law or by the certificate of incorporation of the Corporation (the “Certificate of Incorporation”), special meetings of stockholders, for any purpose or purposes, may only be called by a majority of the entire Board of Directors, the Chairman of the Board or the Chief Executive Officer. Written notice of a special meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. Business transacted at any special meeting shall be limited to the purposes stated in the notice. The written certificate of the officer or officers calling any special meeting setting forth the substance of the notice, and the time and place of the mailing of same to the stockholders, and the respective addresses to which the same were to be mailed, shall be prima facie evidence of the manner and fact of the calling and giving such notice. Section 4.Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of outstanding shares of capital stock representing a majority of the voting power of the Corporation, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the holders of the shares representing a majority of the voting power, present in person or represented by proxy, and entitled to vote at the meeting, may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 5.Voting. Unless otherwise required by law, the Certificate of Incorporation, the rules or regulations of any stock exchange applicable to the Corporation or these Bylaws, any matter or proposal (other than the election of directors) brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. At all meetings of stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder, unless otherwise provided by the Certificate of Incorporation. Such votes may be cast in person or by proxy, but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 6.Determination of Stockholders of Record. (a)Meetings of Stockholders. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day immediately preceding the day on which notice is given, or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. (b)Consent of Stockholders. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law (the “DGCL”), shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware or its principal place of business, or to an officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the DGCL, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c)Dividends. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 7.List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 8.Inspectors of Election. (a)Appointment. All elections of directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation; the vote upon any other matter need not be by ballot. In advance of any meeting of stockholders, the Board of Directors may appoint one or more inspectors, who need not be stockholders, to act at the meeting and to make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the person’s best ability.
(b)Duties. The inspectors shall ascertain the number of shares outstanding and the voting power of each, shall determine the shares represented at the meeting and the validity of proxies and ballots, shall count all votes and ballots, shall determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and shall certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c)Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless a court with appropriate jurisdiction upon application by a stockholder shall determine otherwise. (d)Reconciliation of Proxies and Ballots. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to Subsection (b), above, shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable. Section 9.Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 10.Adjournment. Any meeting of the stockholders, including one at which directors are to be elected, may be adjourned for such periods as the presiding officer of the meeting or the stockholders present in person or by proxy and entitled to vote shall direct. Section 11.Stockholder Action Without a Meeting. Any action required to be taken at any annual or special meeting of stockholders, or any action that may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1.Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as maybe otherwise provided by law or in the Certificate Incorporation. The number of directors that shall constitute the Board of Directors shall be not less than three (3) or more than seven (7). The exact number of directors shall be fixed from time to time by the Board of Directors, within the limits specified in this Article III, Section 1 or in the Certificate of Incorporation. Directors need not be stockholders of the Corporation.
Section 2.Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until the next annual meeting of stockholders or until such director’s earlier resignation, removal from office, death or incapacity. Any director may resign at any time upon written notice to the Board of Directors or to the Chief Executive Officer or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board of Directors may be removed by that vote of the stockholders of the Corporation required under the DGCL. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors or from any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so chosen shall hold office until the next annual meeting of stockholders and until such director’s successor shall be duly elected and shall qualify, or until such director’s earlier resignation, removal from office, death or incapacity. Section 3.Nominations. Nominations of persons for election to the Board of Directors of the Corporation at a meeting of stockholders of the Corporation may be made at such meeting by or at the direction of the Board of Directors, by any committee or persons appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article III, Section 3. Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days prior to the anniversary of the date on which the proxy statement for the immediately preceding annual meeting was mailed to stockholders, or if the Corporation did not hold an annual meeting in the prior year or if the date of the annual meeting occurs more than thirty (30) days before or after the anniversary of such immediately preceding annual meeting, then not later than the close of business on the later of the (i) 60th day prior to such annual meeting, and (ii) 10th day following the date on which public announcement of the date of such annual meeting is first made. Such stockholder’s notice to the Secretary shall set forth (1) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person, and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended, and (2) as to the stockholder giving the notice (a) the name and record address of the stockholder and (b) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 4.Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board or the Chief Executive Officer of the Corporation, or by a majority of the entire Board of Directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 5.Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors or any committee thereof, a majority of the entire Board of Directors or such committee, as the case may be, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors or such committee, as the case may be. If a quorum shall not be present at any meeting of the Board of Directors or of any committee thereof, a majority of the directors present thereat may adjourn the meeting from time to time until a quorum shall be present.
Section 6.Board Action without Meeting. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7.Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8.Committees of the Board of Directors. (a) The Board of Directors may from time to time establish standing committees or special committees of the Board of Directors including, but not limited to, an Audit Committee, a Compensation Committee and a Nomination Committee, each of which shall have such powers and functions set forth below or as may be delegated to it by the Board of Directors. The Board of Directors may abolish any committee established by or pursuant to this Article III, Section 8, as it may deem advisable. Each such committee shall consist of one or more directors, the exact number being determined from time to time by the Board of Directors. Designations of the chairman and members of each such committee, and, if desired, a vice chairman and alternates for members, shall be made by the Board of Directors. Each such committee may have a secretary who shall be designated by its chairman and shall keep regular minutes and report to the Board of Directors as directed by the committee. The vice chairman of a committee shall act as the chairman of the committee in the absence or disability of the chairman. (b) The Board of Directors, or any committee, officer or employee of the Company may establish additional standing committees or special committees to serve in an advisory capacity or in such other capacities as may be permitted by law, by the Certificate of Incorporation and by these Bylaws. The members of any such committee need not be members of the Board of Directors. Any committee established pursuant to this paragraph may be abolished by the person or body by whom it was established as he, she or it may deem advisable. Each such committee shall consist of two or more members, the exact number being determined from time to time by such person or body. Designations of members of each such committee and, if desired, alternates for members, shall be made by such person or body, at whose will all such members and alternates shall serve. Section 9.Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed amount (in cash or other form of consideration) for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV OFFICERS Section 1.General. The officers of the Corporation shall be elected by the Board of Directors and shall consist of: a Chairman of the Board, Chief Executive Officer, a President, a Chief Financial Officer/Treasurer, and a Secretary. The Board of Directors, in its discretion, may also elect one or more Vice Presidents, Assistant Secretaries and such other officers as in the judgment of the Board of Directors may be necessary or desirable. Any number of offices may be held by the same person and more than one person may hold the same office, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor need such officers be directors of the Corporation.
Section 2.Election. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Except as otherwise provided in this Article IV, any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 3.Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, President or any Vice President, and any such officer may, in the name and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4.Chairman of the Board. The Chairman of the Board shall be a member of the Board of Directors, and shall exercise and perform such duties and have such powers as may be prescribed by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the Board of Directors. The Chairman of the Board of Directors shall be responsible for scheduling all Board of Directors meetings, annual stockholder meetings, Board of Directors retreats and other activities pertaining to the Board of Directors. He shall also ensure that meeting agendas cover all matters of importance to the Board of Directors and be responsible for making all arrangements for meetings, to include proper notice as provided for herein. The Chairman of the Board of Directors shall also insure that the agenda of meetings is followed and be responsible for communication between the Board of Directors and management, during the period between meetings of the Board of Directors. The Chairman shall monitor the performance of the Board of Directors as a collective body and as individual members and shall otherwise insure the setting and maintaining of policies and procedures adopted by the Board of Directors. Section 5.Chief Executive Officer. The Chief Executive Officer of the Corporation shall supervise, coordinate and manage the Corporation’s business and activities and supervise, coordinate and manage its operating expenses and capital allocation, shall have general authority to exercise all the powers necessary for the Chief Executive Officer of the Corporation and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the Board of Directors. In the absence or disability of the Chairman of the Board, the duties of the Chairman of the Board shall be performed and the Chairman of the Board’s authority may be exercised by the Chief Executive Officer and, in the event the Chief Executive Officer is absent or disabled, such duties shall be performed and such authority may be exercised by a director designated for such purpose by the Board of Directors. Section 6.President. The President shall have general authority to exercise all the powers necessary for the President of the Corporation and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the Board of Directors and the Chief Executive Officer. In the absence or disability of the Chief Executive Officer, the duties of the Chief Executive Officer and the Chief Executive Officer’s authority (other than the Chief Executive Officer’s authority to perform the duties of the Chairman of the Board in the absence or disability of the Chairman of the Board) may be exercised by the President. In the event the President is absent or disabled, such authority may be exercised by a director designated for such purpose by the Board of Directors.
Section 7.Chief Financial Officer/Treasurer. The Chief Financial Officer and/or Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Chief Financial Officer and/or Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Chief Financial Officer and/or Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Chief Financial Officer and/or Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 8.Vice Presidents. The Board of Directors may appoint one or more Vice Presidents. Each Vice President shall perform such duties and have such powers as the Board of Directors from time to time may prescribe. In the absence or disability of the President, the duties of the President and the President’s authority (other than the President’s authority to perform the duties of the Chief Executive Officer in the absence or disability of the Chief Executive Officer) may be exercised by any Vice-President. If the Board of Directors has appointed more than one Vice President, then the Board of Directors shall establish the order of succession of the Vice Presidents to the duties and authority of the President. Section 9.Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 10.Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE V STOCK Section 1.Certificates of Stock. Shares of the capital stock of the Corporation may be certificated or uncertificated, as provided under the DGCL. Each stockholder, upon written request to the transfer agent or registrar of the Corporation, shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall bear the Corporation seal and shall be signed (i) by the Chief Executive Officer, the President or a Vice President, and (ii) by the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. The Corporation seal and the signatures by corporation officers may be facsimiles if the certificate is manually countersigned by an authorized person on behalf of a transfer agent or registrar other than the Corporation or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. The Corporation shall be permitted to issue fractional shares. Section 2.Signatures. Any or all of the signatures on the certificate may be a facsimile, including, but not limited to, signatures of officers of the Corporation and countersignatures of a transfer agent or registrar. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3.Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4.Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock may be transferred only on the books of the Corporation, if such shares are certificated, by the surrender to the Corporation or its transfer agent of the certificate therefore properly endorsed or accompanied by a written assignment or power of attorney properly executed, or upon proper instructions from the holder of uncertificated shares, in each case with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. ARTICLE VI DIVIDENDS Section 1. The Board of Directors shall have power to reserve over and above the capital stock paid in, such an amount in its discretion as it may deem advisable to fix as a reserve fund, and may, from time to time, declare dividends from the accumulated profits of the Corporation in excess of the amounts so reserved, and pay the same to the stockholders of the Corporation, and may also, if it deems the same advisable, declare stock dividends of the unissued capital stock of the Corporation.
ARTICLE VII AMENDMENTS Section 1.By Stockholders. Amendments and changes to these Bylaws may be made by a vote of, or a consent in writing signed individually or collectively by, the holders of issued and outstanding capital stock of the Corporation having that number of votes equal to at least a majority of the votes entitled to vote on matters presented to stockholders (other than the election of directors). Section 2.By Directors. Amendments and changes to these Bylaws may be made at any regular or special meeting of the Board of Directors by a vote of not less than a majority of the entire Board of Directors, or may be made by a consent in writing signed individually or collectively by all of the entire Board of Directors. ARTICLE VIII CORPORATE SEAL Section 1. The Corporation shall have a corporate seal, which shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX INDEMNIFICATION Section 1.Nature of Indemnity. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “Proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent which it is empowered to do so by the DGCL, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys’ fees) actually and reasonably incurred by such person in connection with such Proceeding and such indemnification shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Article IX, Section 2, below, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the Board of Directors. The right to indemnification conferred in this Article IX shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 2.Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the Corporation under Section 1 of this Article IX or advance of expenses under Section 5 of this Article IX shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Article IX is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnity, the Corporation shall be deemed to have approved the request. If the Corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this Article IX shall be enforceable by the director or officer in any court of competent jurisdiction. Such person’s costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 3.Article Not Exclusive. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors, or otherwise. Section 4.Insurance. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary or agent of the Corporation or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the Corporation would have the power to indemnify such person against such liability under this Article IX. Section 5.Expenses. Expenses incurred by any person described in Section 1 of this Article IX in defending a proceeding shall be paid by the Corporation in advance of such proceeding’s final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 6.Employees and Agents. Persons who are not covered by the foregoing provisions of this Article IX and who are or were employees or agents of the Corporation, or who are or were serving at the request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the Board of Directors. Section 7.Contract Rights. The provisions of this Article IX shall be deemed to be a contract right between the Corporation and each director or officer who serves in any such capacity at any time while this Article IX and the relevant provisions of the DGCL or other applicable law are in effect, and any repeal or modification of this Article IX or any such law shall not affect any rights or obligations then existing with respect to any state of facts proceeding then existing. ARTICLE X WAIVERS OF NOTICE AND EXCEPTIONS TO NOTICE REQUIREMENTS Section 1.Waivers of Notice. (a)Written Waiver. Whenever notice is required to be given, under any provision of the DGCL or of the Certificate of Incorporation or these Bylaws, a written waiver, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, Board of Directors or members of a committee of the Board of Directors need be specified in any written waiver of notice of such meeting.
(b)Waiver by Attendance. Attendance of a person at a meeting, either in person or by proxy, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. Section 2.Exception to Requirements of Notice. (a)General Rule. Whenever notice is required to be given, under any provision of the DGCL or of the Certificate of Incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. (b)Stockholders Without Forwarding Addresses. Whenever notice is required to be given, under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two (2), payments (if sent by first class mail) of dividends or interest on securities during a twelve (12) month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice setting forth the person’s then current address, the requirement that notice be given to such person shall be reinstated.
APPENDIX F FORM OF AMENDMENT TO CERTIFICATE (ARTICLES) OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT “Upon the effective date of this amendment to the Certificate of Incorporation of the Corporation [or if the Reincorporation Merger is not approved, the “Amended and Restated Articles of Incorporation of the Corporation”], and without further action on the part of the Corporation or its stockholders, each _______ shares of the Corporation’s Common Stock then issued and outstanding shall be combined into and become one fully paid and nonassessable share of Common Stock. Fractional shares shall be [rounded up to the next whole share] [exchanged for the money value thereof]. To reflect such reverse stock split, each certificate representing shares of Common Stock issued and outstanding prior to the reverse stock split (subject to the treatment of fractional shares, as provided above) shall represent one-______ of the number of shares of Common Stock issued and outstanding prior to such reverse stock split; and the holder of record of each such certificate may receive a new certificate representing one-______ of the number of shares of Common Stock represented by said certificate for theretofore issued and outstanding shares.”
APPENDIX G DISSENTERS’ RIGHTS UTAH REVISED BUSINESS CORPORATION ACT SECTIONS 16-10(a)-1301 ET. SEQ. 16-10a-1301. Definitions. For purposes of Part 13: (1) “Beneficial shareholder” means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (2) “Corporation” means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (3) “Dissenter” means a shareholder who is entitled to dissent from corporate action under Section 16-10a-1302 and who exercises that right when and in the manner required by Sections 16-10a-1320 through 16-10a-1328. (4) “Fair value” with respect to a dissenter’s shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action. (5) “Interest” means interest from the effective date of the corporate action until the date of payment, at the statutory rate set forth in Section 15-1-1, compounded annually. (6) “Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares that are registered in the name of a nominee to the extent the beneficial owner is recognized by the corporation as the shareholder as provided in Section 16-10a-723. (7) “Shareholder” means the record shareholder or the beneficial shareholder.
16-10a-1302. Right to dissent. (1) A shareholder, whether or not entitled to vote, is entitled to dissent from, and obtain payment of the fair value of shares held by him in the event of, any of the following corporate actions: (a) consummation of a plan of merger to which the corporation is a party if: (i) shareholder approval is required for the merger by Section 16-10a-1103 or the Certificate of Incorporation; or (ii) the corporation is a subsidiary that is merged with its parent under Section 16-10a-1104; (b) consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired; (c) consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of the corporation for which a shareholder vote is required under Subsection 16-10a-1202(1), but not including a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale; and (d) consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of an entity controlled by the corporation if the shareholders of the corporation were entitled to vote upon the consent of the corporation to the disposition pursuant to Subsection 16-10a-1202(2). (2) A shareholder is entitled to dissent and obtain payment of the fair value of his shares in the event of any other corporate action to the extent the Certificate of Incorporation, bylaws, or a resolution of the board of directors so provides. (3) Notwithstanding the other provisions of this part, except to the extent otherwise provided in the Certificate of Incorporation, bylaws, or a resolution of the board of directors, and subject to the limitations set forth in Subsection (4), a shareholder is not entitled to dissent and obtain payment under Subsection (1) of the fair value of the shares of any class or series of shares which either were listed on a national securities exchange registered under the federal Securities Exchange Act of 1934, as amended, or on the National Market System of the National Association of Securities Dealers Automated Quotation System, or were held of record by more than 2,000 shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to determine the shareholders entitled to receive notice of the shareholders’ meeting at which the corporate action is submitted to a vote; (b) the record date fixed under Section 16-10a-704 to determine shareholders entitled to sign writings consenting to the proposed corporate action; or (c) the effective date of the corporate action if the corporate action is authorized other than by a vote of shareholders. (4) The limitation set forth in Subsection (3) does not apply if the shareholder will receive for his shares, pursuant to the corporate action, anything except: (a) shares of the corporation surviving the consummation of the plan of merger or share exchange; (b) shares of a corporation which at the effective date of the plan of merger or share exchange either will be listed on a national securities exchange registered under the federal Securities Exchange Act of 1934, as amended, or on the National Market System of the National Association of Securities Dealers Automated Quotation System, or will be held of record by more than 2,000 shareholders; (c) cash in lieu of fractional shares; or (d) any combination of the shares described in Subsection (4), or cash in lieu of fractional shares. (5) A shareholder entitled to dissent and obtain payment for his shares under this part may not challenge the corporate action creating the entitlement unless the action is unlawful or fraudulent with respect to him or to the corporation.
16-10a-1303. Dissent by nominees and beneficial owners. (1) A record shareholder may assert dissenters’ rights as to fewer than all the shares registered in his name only if the shareholder dissents with respect to all shares beneficially owned by any one person and causes the corporation to receive written notice which states the dissent and the name and address of each person on whose behalf dissenters’ rights are being asserted. The rights of a partial dissenter under this subsection are determined as if the shares as to which the shareholder dissents and the other shares held of record by him were registered in the names of different shareholders. (2) A beneficial shareholder may assert dissenters’ rights as to shares held on his behalf only if: (a) the beneficial shareholder causes the corporation to receive the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights; and (b) the beneficial shareholder dissents with respect to all shares of which he is the beneficial shareholder. (3) The corporation may require that, when a record shareholder dissents with respect to the shares held by any one or more beneficial shareholders, each beneficial shareholder must certify to the corporation that both he and the record shareholders of all shares owned beneficially by him have asserted, or will timely assert, dissenters’ rights as to all the shares unlimited on the ability to exercise dissenters’ rights. The certification requirement must be stated in the dissenters’ notice given pursuant to Section 16-10a-1322.
16-10a-1320. Notice of dissenters’ rights. (1) If a proposed corporate action creating dissenters’ rights under Section 16-10a-1302 is submitted to a vote at a shareholders’ meeting, the meeting notice must be sent to all shareholders of the corporation as of the applicable record date, whether or not they are entitled to vote at the meeting. The notice shall state that shareholders are or may be entitled to assert dissenters’ rights under this part. The notice must be accompanied by a copy of this part and the materials, if any, that under this chapter are required to be given the shareholders entitled to vote on the proposed action at the meeting. Failure to give notice as required by this subsection does not affect any action taken at the shareholders’ meeting for which the notice was to have been given. (2) If a proposed corporate action creating dissenters’ rights under Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to Section 16-10a-704, any written or oral solicitation of a shareholder to execute a written consent to the action contemplated by Section 16-10a-704 must be accompanied or preceded by a written notice stating that shareholders are or may be entitled to assert dissenters’ rights under this part, by a copy of this part, and by the materials, if any, that under this chapter would have been required to be given to shareholders entitled to vote on the proposed action if the proposed action were submitted to a vote at a shareholders’ meeting. Failure to give written notice as provided by this subsection does not affect any action taken pursuant to Section 16-10a-704 for which the notice was to have been given.
16-10a-1321. Demand for payment — Eligibility and notice of intent. (1) If a proposed corporate action creating dissenters’ rights under Section 16-10a-1302 is submitted to a vote at a shareholders’ meeting, a shareholder who wishes to assert dissenters’ rights: (a) must cause the corporation to receive, before the vote is taken, written notice of his intent to demand payment for shares if the proposed action is effectuated; and (b) may not vote any of his shares in favor of the proposed action. (2) If a proposed corporate action creating dissenters’ rights under Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to Section 16-10a-704, a shareholder who wishes to assert dissenters’ rights may not execute a writing consenting to the proposed corporate action. (3) In order to be entitled to payment for shares under this part, unless otherwise provided in the Certificate of Incorporation, bylaws, or a resolution adopted by the board of directors, a shareholder must have been a shareholder with respect to the shares for which payment is demanded as of the date the proposed corporate action creating dissenters’ rights under Section 16-10a-1302 is approved by the shareholders, if shareholder approval is required, or as of the effective date of the corporate action if the corporate action is authorized other than by a vote of shareholders. (4) A shareholder who does not satisfy the requirements of Subsections (1) through (3) is not entitled to payment for shares under this part.
16-10a-1322. Dissenters’ notice. (1) If proposed corporate action creating dissenters’ rights under Section 16-10a-1302 is authorized, the corporation shall give a written dissenters’ notice to all shareholders who are entitled to demand payment for their shares under this part. (2) The dissenters’ notice required by Subsection (1) must be sent no later than 10 days after the effective date of the corporate action creating dissenters’ rights under Section 16-10a-1302, and shall: (a) state that the corporate action was authorized and the effective date or proposed effective date of the corporate action; (b) state an address at which the corporation will receive payment demands and an address at which certificates for certificated shares must be deposited; (c) inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (d) supply a form for demanding payment, which form requests a dissenter to state an address to which payment is to be made; (e) set a date by which the corporation must receive the payment demand and by which certificates for certificated shares must be deposited at the address indicated in the dissenters’ notice, which dates may not be fewer than 30 nor more than 70 days after the date the dissenters’ notice required by Subsection (1) is given; (f) state the requirement contemplated by Subsection 16-10a-1303(3), if the requirement is imposed; and (g) be accompanied by a copy of this part.
16-10a-1323. Procedure to demand payment. (1) A shareholder who is given a dissenters’ notice described in Section 16-10a-1322, who meets the requirements of Section 16-10a-1321, and wishes to assert dissenters’ rights must, in accordance with the terms of the dissenters’ notice: (a) cause the corporation to receive a payment demand, which may be the payment demand form contemplated in Subsection 16-10a-1322(2)(d), duly completed, or may be stated in another writing; (b) deposit certificates for his certificated shares in accordance with the terms of the dissenters’ notice; and
(c) if required by the corporation in the dissenters’ notice described in Section 16-10a-1322, as contemplated by Section 16-10a-1327, certify in writing, in or with the payment demand, whether or not he or the person on whose behalf he asserts dissenters’ rights acquired beneficial ownership of the shares before the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action creating dissenters’ rights under Section 16-10a-1302. (2) A shareholder who demands payment in accordance with Subsection (1) retains all rights of a shareholder except the right to transfer the shares until the effective date of the proposed corporate action giving rise to the exercise of dissenters’ rights and has only the right to receive payment for the shares after the effective date of the corporate action. (3) A shareholder who does not demand payment and deposit share certificates as required, by the date or dates set in the dissenters’ notice, is not entitled to payment for shares under this part.
16-10a-1324. Uncertificated shares. (1) Upon receipt of a demand for payment under Section 16-10a-1323 from a shareholder holding uncertificated shares, and in lieu of the deposit of certificates representing the shares, the corporation may restrict the transfer of the shares until the proposed corporate action is taken or the restrictions are released under Section 16-10a-1326. (2) In all other respects, the provisions of Section 16-10a-1323 apply to shareholders who own uncertificated shares.
16-10a-1325. Payment. (1) Except as provided in Section 16-10a-1327, upon the later of the effective date of the corporate action creating dissenters’ rights under Section 16-10a-1302, and receipt by the corporation of each payment demand pursuant to Section 16-10a-1323, the corporation shall pay the amount the corporation estimates to be the fair value of the dissenter’s shares, plus interest to each dissenter who has complied with Section 16-10a-1323, and who meets the requirements of Section 16-10a-1321, and who has not yet received payment. (2) Each payment made pursuant to Subsection (1) must be accompanied by: (a) (i) (A) the corporation’s balance sheet as of the end of its most recent fiscal year, or if not available, a fiscal year ending not more than 16 months before the date of payment; (B) an income statement for that year; (C) a statement of changes in shareholders’ equity for that year and a statement of cash flow for that year, if the corporation customarily provides such statements to shareholders; and (D) the latest available interim financial statements, if any; (ii) the balance sheet and statements referred to in Subsection (i) must be audited if the corporation customarily provides audited financial statements to shareholders; (b) a statement of the corporation’s estimate of the fair value of the shares and the amount of interest payable with respect to the shares; (c) a statement of the dissenter’s right to demand payment under Section 16-10a-1328; and (d) a copy of this part.
16-10a-1326. Failure to take action. (1) If the effective date of the corporate action creating dissenters’ rights under Section 16-10a-1302 does not occur within 60 days after the date set by the corporation as the date by which the corporation must receive payment demands as provided in Section 16-10a-1322, the corporation shall return all deposited certificates and release the transfer restrictions imposed on uncertificated shares, and all shareholders who submitted a demand for payment pursuant to Section 16-10a-1323 shall thereafter have all rights of a shareholder as if no demand for payment had been made. (2) If the effective date of the corporate action creating dissenters’ rights under Section 16-10a-1302 occurs more than 60 days after the date set by the corporation as the date by which the corporation must receive payment demands as provided in Section 16-10a-1322, then the corporation shall send a new dissenters’ notice, as provided in Section 16-10a-1322, and the provisions of Sections 16-10a-1323 through 16-10a-1328 shall again be applicable.
16-10a-1327. Special provisions relating to shares acquired after announcement of proposed corporate action. (1) A corporation may, with the dissenters’ notice given pursuant to Section 16-10a-1322, state the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action creating dissenters’ rights under Section 16-10a-1302 and state that a shareholder who asserts dissenters’ rights must certify in writing, in or with the payment demand, whether or not he or the person on whose behalf he asserts dissenters’ rights acquired beneficial ownership of the shares before that date. With respect to any dissenter who does not certify in writing, in or with the payment demand that he or the person on whose behalf the dissenters’ rights are being asserted, acquired beneficial ownership of the shares before that date, the corporation may, in lieu of making the payment provided in Section 16-10a-1325, offer to make payment if the dissenter agrees to accept it in full satisfaction of his demand. (2) An offer to make payment under Subsection (1) shall include or be accompanied by the information required by Subsection 16-10a-1325(2).
16-10a-1328. Procedure for shareholder dissatisfied with payment or offer. (1) A dissenter who has not accepted an offer made by a corporation under Section 16-10a-1327 may notify the corporation in writing of his own estimate of the fair value of his shares and demand payment of the estimated amount, plus interest, less any payment made under Section 16-10a-1325, if: (a) the dissenter believes that the amount paid under Section 16-10a-1325 or offered under Section 16-10a-1327 is less than the fair value of the shares; (b) the corporation fails to make payment under Section 16-10a-1325 within 60 days after the date set by the corporation as the date by which it must receive the payment demand; or (c) the corporation, having failed to take the proposed corporate action creating dissenters’ rights, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares as required by Section 16-10a-1326. (2) A dissenter waives the right to demand payment under this section unless he causes the corporation to receive the notice required by Subsection (1) within 30 days after the corporation made or offered payment for his shares.
16-10a-1330. Judicial appraisal of shares — Court action. (1) If a demand for payment under Section 16-10a-1328 remains unresolved, the corporation shall commence a proceeding within 60 days after receiving the payment demand contemplated by Section 16-10a-1328, and petition the court to determine the fair value of the shares and the amount of interest. If the corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose demand remains unresolved the amount demanded. (2) The corporation shall commence the proceeding described in Subsection (1) in the district court of the county in this state where the corporation’s principal office, or if it has no principal office in this state, Salt Lake County. If the corporation is a foreign corporation, it shall commence the proceeding in the county in this state where the principal office of the domestic corporation merged with, or whose shares were acquired by, the foreign corporation was located, or, if the domestic corporation did not have its principal office in this state at the time of the transaction, in Salt Lake County. (3) The corporation shall make all dissenters who have satisfied the requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether or not they are residents of this state whose demands remain unresolved, parties to the proceeding commenced under Subsection (2) as an action against their shares. All such dissenters who are named as parties must be served with a copy of the petition. Service on each dissenter may be by registered or certified mail to the address stated in his payment demand made pursuant to Section 16-10a-1328. If no address is stated in the payment demand, service may be made at the address stated in the payment demand given pursuant to Section 16-10a-1323. If no address is stated in the payment demand, service may be made at the address shown on the corporation’s current record of shareholders for the record shareholder holding the dissenter’s shares. Service may also be made otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under Subsection (2) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (5) Each dissenter made a party to the proceeding commenced under Subsection (2) is entitled to judgment: (a) for the amount, if any, by which the court finds that the fair value of his shares, plus interest, exceeds the amount paid by the corporation pursuant to Section 16-10a-1325; or (b) for the fair value, plus interest, of the dissenter’s after-acquired shares for which the corporation elected to withhold payment under Section 16-10a-1327.
16-10a-1331. Court costs and counsel fees. (1) The court in an appraisal proceeding commenced under Section 16-10a-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds that the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under Section 16-10a-1328. (2) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (a) against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Sections 16-10a-1320 through 16-10a-1328; or (b) against either the corporation or one or more dissenters, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this part. (3) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to those counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.
APPENDIX H CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF GLOBAL CLEAN ENERGY HOLDINGS, INC. PURPOSE The primary function of the Audit Committee (the “Committee”) is to assist the Board of Directors of Global Clean Energy Holdings, Inc., (the “Corporation”) in fulfilling its oversight responsibilities with respect to (i) the financial reports and other financial information provided by the Corporation to its shareholders and others, (ii) the Corporation’s system of internal control, and (iii) the Corporation’s audit, accounting, and financial reporting processes generally. In particular, and without limiting the generality of the foregoing, a purpose of the Committee is to undertake the duties of an audit committee described in applicable rules of the Securities and Exchange Commission (the “Commission”) and any other similar rules of any securities exchange or trading facility to which the Corporation may become subject. In carrying out its purpose, the Committee shall (i) serve as an independent and objective monitor of the performance of the Corporation’s financial reporting process and system of internal control, (ii) review and appraise the audit efforts of the Corporation’s independent accountants and internal accounting and finance department, and (iii) provide for open, ongoing communication among the independent accountants, financial and senior management and the Board of Directors concerning the Corporation’s financial condition and results of operations. COMPOSITION The Committee shall be comprised of two or more directors, as determined by the Board of Directors. The members of the Committee shall be appointed annually by the Board of Directors. Each member shall meet the applicable independence and experience requirements of the NASD, and at least one member of the Committee shall have accounting or related financial management expertise. Except as otherwise expressly provided herein, a majority of the Committee shall constitute a quorum and shall be empowered to conduct any business that the Committee is empowered to conduct. One member of the Committee shall be designated the Chair, provided, however, that, in the absence of the designated Chair, another member of the Committee shall be designated by the members present, in person or by conference telephone call, and shall serve as Chair. MEETINGS The Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Committee shall meet at least annually, and more often as warranted, with the independent accountants to discuss any matters that the Committee or the auditors believes should be discussed privately. The Committee shall maintain a high degree of independence both in establishing its agenda and directly accessing various members of management. The Committee shall meet annually with management regarding their systems of internal control, results of audits, and accuracy of financial reporting. All such meetings may be held in person or, at the option of the Chair, by conference telephone call or any combination of the above. If any participant in any such meeting will participate by conference telephone call, such participant shall, whenever reasonably possible, be furnished with copies of financial statements, reports or other significant documents to be discussed at the meeting so as to permit such participant to engage in discussions of the subject matter of the meetings in all material respects as if such participant had attended in person; provided, however, that written or other materials generated at the meeting may, at the option of the Chair, be described to a participant by conference telephone call if, as a practical matter, such materials cannot be concurrently electronically transmitted to such participant.
RESPONSIBILITIES AND DUTIES The Committee’s responsibility is oversight, and it recognizes that the Corporation’s management is responsible for preparing the Corporation’s financial statements. Additionally, the Committee recognizes that financial management, as well as the independent accountants, have more knowledge and more detailed information about the Corporation than do the members of the Committee. Consequently, in carrying out its oversight responsibilities the Committee is not providing any expert or special assurance as to the Corporation’s financial statements or any professional certification as to the independent accountants’ work. The following functions shall be the common recurring activities of the Committee in carrying out its oversight responsibility. In particular, and without limiting the generality of the foregoing, the Committee shall, to the extent it may reasonably do so, undertake the responsibilities and duties prescribed by the NASD, the Commission or other similar regulatory bodies having jurisdiction over the financial affairs of the Corporation and the following list of functions shall be deemed to include such responsibilities and duties, as they may be promulgated from time to time, as if they were specifically listed below. The functions listed below are set forth as a guide with the understanding that the Committee may diverge from this guide as appropriate in the circumstances. | · | Review with a representative of financial management and the independent accountants the financial information contained in the Corporation’s Quarterly Report on Form 1O-Q prior to its filing, the Corporation’s earnings announcements prior to release, and the results of the MDI Parties has all requisite power and authorityindependent accountants’ review of Interim Financial Information pursuant to execute and deliver and perform its obligations underStatement of Accounting Standards (SAS) 71. The Chair may represent the entire Committee, either in person or by telephone conference call, for purposes of this Agreement and to consummate the transactions contemplated by this Agreement.review. |
(c)All acts (corporate | · | Review with management and the independent accountants following the completion of the annual audit of the Corporation’s consolidated financial statements included in the Annual Report on Form 10-K for the last fiscal year, and prior to its filing: |
(1) the Corporation’s annual consolidated financial statements and related footnotes; (2) the independent accountants’ audit of the consolidated financial statements and their report; (3) any significant changes required in the independent accountants’ examination plan; (4) any serious difficulties or disputes with management encountered during the course of the audit; and (5) other matters related to the conduct of the audit which are to be communicated to the Committee under generally accepted auditing standards including discussions relating to the independent accountants’ judgments about such matters as the quality, not just the acceptability, of the Corporation’s accounting practices and other items set forth in SAS 61 (Communication with Audit Committees) or other such auditing standards that may in time modify, supplement or replace SAS 61. | · | On an annual basis, the Committee should ensure receipt of, and review with the independent accountants, a written statement required by Independence Standards Board (ISB) Standard No. 1, as may be modified or otherwise) requiredsupplemented. The Committee will actively engage the independent accountants in a dialogue regarding any disclosed relationships or services that may impact their objectivity and independence. The Committee will recommend that the Board of Directors take appropriate action on any disclosed relationships that may reasonably be thought to be taken by orbear on the part of, and all approvals required to be obtained by, eachindependence of the MDI Parties necessary to enter into this Agreement, consummateaccountants and satisfy itself that the transactions contemplatedCorporation has engaged independent accountants as required by this Agreementthe Securities Acts administered by the Commission. |
| · | The Committee will have prepared and perform its obligations under this Agreement have been duly and properly taken by such MDI Party.review the Audit Committee Report for inclusion in the proxy statement for the annual shareholders’ meeting. The Audit Committee Report must state whether the Committee: |
(1) has reviewed and discussed the audited consolidated financial statements with management; (2) has discussed with the independent accountants the matters required to be discussed by SAS 61, as may be modified, supplemented or replaced; and (3) has received the written disclosures from the independent accountants regarding the independent accountants’ independence required by ISB Standard No. 1, as may be modified or supplemented, and has discussed with the accountants their independence; and (4) has recommended to the Board of Directors, based on the review and discussions referred to in above items (1) through (3), that the Corporation’s audited consolidated financial statements be included in the Annual Report on Form 10-K for the last fiscal year for filing with the Commission. (d)This Agreement has been duly | · | The Committee and validly executedBoard of Directors are responsible for the selection, evaluation and, delivered by the MDI Parties, and constitutes the legal, valid and binding obligationwhere appropriate, replacement of the MDI Parties enforceable againstindependent accountants. Selection for the MDI Parties in accordanceensuing calendar year will be submitted to the shareholders for ratification or rejection at the annual meeting of shareholders. Consistent with its terms, subjectthese responsibilities, it is recognized that the independent accountants are ultimately accountable to applicable bankruptcy, moratorium, reorganization, insolvencythe Board of Directors and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether a proceesings is brought in equity or at law).Committee. |
(e)The Purchased Assets do not constitute all or substantially all | · | Review and reassess the adequacy of the assets of MDI.Audit Committee Charter on an annual basis. The charter will be included as an appendix to the annual shareholders’ meeting proxy statement triennially or in the next annual shareholders’ meeting proxy statement following any significant amendment to the charter. |
(f)The execution | · | In consultation with the independent accountants and delivery of this Agreement by eachthe internal auditors, regularly review the integrity of the MDI Parties,Corporation’s financial reporting processes and system of internal control. |
| · | Review and concur in the consummation by itappointment, replacement, reassignment or dismissal of the transactions contemplated by this Agreement,internal auditors. Confirm and assure the performance by itobjectivity of its obligations under this Agreement does not, and will not at all relevant times (i) violate or conflict with any provision of its respective Certificate of Incorporation or By-Laws, or (ii) result in a violation by such MDI Party of any law to which it or any of its properties or assets are subject.the internal auditors. |
(g)The execution and delivery of this Agreement by each of the MDI Parties, the consummation by it of the transactions contemplated by this Agreement, and the performance by it of its obligations under this Agreement does not, and will not at all relevant times violate, or conflict with, or result in a breach of any provision of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any agreement lease, instrument, obligation, understanding or arrangement to which such MDI Party is a party or by which any of its properties or assets is subject.
(h)Except as set forth in Exhibit 6.1(h) (to the extent that Exhibit 6.1(h) has been attached to this Agreement prior to the Effective Date), there is no litigation, proceeding, investigation, arbitration or claim pending, or, to the best of the knowledge of the MDI Parties, threatened against the MDI Parties, and there is, to the best of the MDI Parties’ knowledge, no reasonable basis for any such action, which affects in whole or in part either MDI Party’s ability to consummate the transactions contemplated by this Agreement, | · | Review the performance of the MDI Parties obligations hereunder orinternal accounting and finance department, including the ability of EUCODIS to fully enjoy the Purchased Assets.(i)To the best of the MDI Parties’ knowledge, the use of the Purchased Assets does not infringe intellectual property rights of third parties, except to the extent as may have been alleged in the Schmidt Litigation, (ii) the Purchased Assets are free from any liens, chargesobjectivity and Encumbrances or other rights of third parties, (iii) the full enjoyment of the Purchased Assets are not dependant on any rights of third parties, (iv) no fraudulent or other improper document has been filed with any third governmental agency which may invalidate any of the rights enjoyed by the Purchased Assets, and (v) the Purchased Assets are, to the best knowledge of the MDI Parties, valid and enforceable against third parties, and there are no grounds for revocation, invalidation or re-examination of any of the Purchased Assets
(j)Except as set forth in Exhibit 6.1(j) (to the extent that Exhibit 6.1(j) has been attached to this Agreement prior to the Effective Date), no permit, consent, approval or authorization of, or declaration, filing or registration with, any governmental authority or other third party is or will be necessary to be made or obtained by the MDI Parties in connection with (i) the execution and delivery by MDI of this Agreement, (ii) the consummation by them of the transactions contemplated under this Agreement, or (iii) the performance by the MDI Parties of their obligations under this Agreement.
(k)One or both of the MDI Parties are a party to each of the Assigned Contracts, all of which (i) are in full force and effect, (ii) constitute binding and enforceable obligations, (iii) subject to the terms and conditions thereof, are assignable to EUCODIS, and (iv) are being duly assigned to EUCODIS at the Closing.
(l)Except as set forth in Exhibit 6.1(l) (to the extent that Exhibit 6.1(l) has been attached to this Agreement prior to the Effective Date), all of the Purchased Assets are legally, beneficially, and solely owned by the MDI Parties, and there are no pending or threatened claims or any other undisclosed liabilities that could impair any right or claim of the MDI Parties is assigning and transferring that may be deemed to be part of, or arise under or are related to, the Purchased Assets to EUCODIS under this Agreement or that may cause any liability to be incurred by EUCODIS as the result of its use ofreporting obligations, the Purchased Assets after the Closing.
(m)The MDI Parties have not granted any third parties any rights relating to the Product or relating in any way to any of the rights obtained pursuant to the Savetherapeutics Contract.
(n)Schedule 6.1(n) contains a complete and correct list of (i) all documents relating to the Savetherapeutics Contract, including without limitation the Savetherapeutics Contract, all exhibits and schedules thereto, all amendments thereof and all correspondence pertaining thereto with, or on behalf of, the liquidator of Savetherapeutics AG, dated subsequent to March 11, 2005, (ii) all invoices and other debit memoranda from each of the MDI Creditors which support the Creditor Indebtedness, and (iii) all contracts, findings and correspondence with any other third parties, including consultants, which relate to the Purchased Assets and which were obtained on or after March 11, 2005. Prior to or on the Effective Date, the MDI Parties have delivered or are delivering to EUCODIS or as it may direct a true and complete copy of each item listed on Schedule 6.1(n).
(o)As specifically set forth in this Agreement, the MDI Parties shall timely fulfill obligations which relate to or otherwise affect, in any respect, the Purchased Assets. The MDI Parties shall indemnify and reimburse EUCODIS and its officers, directors, employees, consultants and agents from and against all liabilities, claims, damages, costs and expenses incurredby EUCODIS and its officers, directors, employees, consultants and agents arising from any claims by the contractual parties of the Assigned Contracts in relation to the non-fulfillment of any obligations of the MDI Parties prior to the Effective Date.
(p)The MDI Parties shall be responsible for obtaining any consents and approvals by the contractual parties to the Assigned Contracts necessary to effectuate the assignment of the Assigned Contracts to EUCODIS, and to obtain the consent and approval of the MDI Creditorsproposed audit plans for the assumptioncoming year, and transferthe coordination of their debt to EUCODIS; provided, however, that EUCODIS shall render the MDI Parties reasonable help in obtaining such consents and approvals.
(q)If valid transfer of title to any Purchased Assets or portion thereof is not made on the Closing and can not be made by the MDI Parties promptly thereafter, or if the circumstances that make such assignment or transfer or any claim to any of the Purchased Assets to EUCODIS questionable or impracticable for any reason, it shall be the obligation of the MDI Parties to determine another way by which EUCODIS shall be able to utilize the Purchased Assets with equal or at least substantially similar economical effect, including (if agreeable to EUCODIS) under an exclusive, royalty-free, perpetual licenseplans with the right to sublicense.
(r)Prior to or on the Effective Date, the MDI Parties have delivered or are delivering to the Escrow Agent an opinion of recognized counsel, addressed to EUCODIS, relating to the representations contained in clauses (a) through (f) above reasonably satisfactory to counsel for EUCODIS, which may contain such reasonable qualifications and exceptions as are customary.
(s)Schedule 6.1(s) contains a complete and correct list of creditors of the MDI Parties (including the MDI Creditors) and the amounts owed by the MDI Parties as of June 30, 2007, except for not more than in aggregate of $5, 000 of unlisted indebtedness. After subtracting from such list any Creditor Indebtedness of a MDI Creditor included on such list, the remaining balance is less than $1,850,000.
6.2 EUCODIS represents, warrants and covenants to the MDI Parties as follows:
(a)EUCODIS is a company duly organized, validly existing and in good standing under the laws of Austria and has all requisite power and authority to own its assets and to carry on its business as presently conducted.
(b)EUCODIS has all requisite power and authority to execute and deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
(c)All acts (corporate or otherwise) required to be taken by or on the part of, and all approvals required to be obtained by, EUCODIS necessary to enter into this Agreement, consummate the transactions contemplated by this Agreement and perform its obligations under this Agreement have been duly and properly taken by EUCODIS.
(d)This Agreement has been duly and validly executed and delivered by EUCODIS and constitutes the legal, valid and binding obligation of EUCODIS enforceable against EUCODIS in accordance with its terms, subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether a proceedings is brought in equity or at law).
(e)The execution and delivery of this Agreement by EUCODIS, the consummation by it of the transactions contemplated by this Agreement, and the performance by it of its obligations under this Agreement does not, and will not at all relevant times (i) violate or conflict with any provision of its operative governing documents, or (ii) result in a violation by EUCODIS of any law to which it or any of its properties or assets are subject.
(f)The execution and delivery of this Agreement by EUCODIS, the consummation by it of the transactions contemplated by this Agreement, and the performance by it of its obligations under this Agreement does not, and will not at all relevant times violate, or conflict with, or result in a breach of any provision of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any agreement lease, instrument, obligation, understanding or arrangement to which EUCODIS is a party or by which any of its properties or assets is subject.
(g)EUCODIS shall timely fulfill after the Closing all obligations incurred to the MDI Parties under or pursuant to this Agreement. EUCODIS shall indemnify and reimburse the MDI Parties and their officers, directors, employees and agents from and against all liabilities, claims, damages, costs and expenses incurredby the MDI Parties and their officers, directors, employees and agents arising from any claims by the contractual parties of the Assigned Contracts in relation to the non-fulfillment of any obligations of EUCODIS arising on or after the Closing..
(h)If any MDI Creditor does not agree to have its debt obligation assumed by, and transferred to, EUCODIS, then EUCODIS shall pay the amount set forth in Section 3.1(a) to MDI for the account of such MDI Creditor, and MDI shall immediately make payment to such MDI Creditor and will be solely responsible for such payment. MDI shall provide written notification to EUCODIS that said payment to such MDI Creditor has been made by MDI.
6.3 In addition to any obligations of indemnification by the MDI Parties set forth under this Agreement, the MDI Parties shall indemnify, defend and hold harmless EUCODIS and its officers, directors, employees, consultants and agents from and against all liabilities, claims, damages, costs and expenses (including reasonable attorney's fees) incurred by EUCODIS and its officers, directors, employees and agents arising from the breach of any of the representations, warranties or covenants made by the MDI Parties under this Agreement.
6.4 In addition to any obligations of indemnification by EUCODIS set forth under this Agreement, EUCODIS shall indemnify, defend and hold harmless the MDI Parties and their officers, directors, employees, consultants and agents from and against all liabilities, claims, damages, costs and expenses (including reasonable attorney's fees) incurred by the MDI Parties and its officers, directors, employees and agents arising from the breach of any of the representations, warranties or covenants made by EUCODIS under this Agreement.
ARTICLE 7
INDEMNIFICATION
7.1 From and after the Closing, the MDI Parties shall defend, indemnify and hold harmless EUCODIS and its officers, directors, employees, consultants and agents from and against all liabilities, claims, damages, costs and expenses (including reasonable attorney's fees) incurred by EUCODIS and its officers, directors, employees, consultants and agents arising from or out of (a) any breach of any representation, warranty, covenant or agreement made by the MDI Parties in this Agreement, (b) any act or omission by the MDI Parties (or their agents and employees) in connection with (i) the Purchased Assets, (ii) the Assigned Contracts, to the extent that the cause for such claim was existing prior to or on the Effective Date, or (iii) the transactions contemplated by this Agreement; provided, however, that with respect to the Creditor Indebtedness owing to the MDI Creditors, the MDI Parties shall have no liability.
7.2 From and after the Closing, EUCODIS shall defend, indemnify and hold harmless the MDI Parties and their officers, directors, employees, consultants and agents from and against all liabilities, claims, damages, costs and expenses (including reasonable attorney's fees) incurred by the MDI Parties and their officers, directors, employees, consultants and agents arising from or out of (a) any breach of any representation, warranty, covenant or agreement made by EUCODIS in this Agreement, (b) non-payment of the Creditor Indebtedness to the MDI Parties, or (c) any act or omission by EUCODIS (or its agents and employees) in connection with (i) the Purchased Assets, (ii) the Assigned Contracts, to the extent that the cause for such claim was created after the Effective Date, or (iii) the transactions contemplated by this Agreement.
7.3 No obligation of indemnification shall arise relating to a third party claim or cause of action unless the indemnified Party making such claim shall: (a) notify the indemnifying Party of such claim promptly upon becoming aware of the existence or threatened existence of any such claim giving rise to or that may give rise to a claim of indemnification hereunder, and (b) allow the indemnifying Party full control over the defense of such claim and (c) cooperate in the defense of such claim at the indemnifying Party’s expense. Notwithstanding any contrary provision in this Article, the failure to so notify, provide information and assistance shall not relieve the indemnifying Party of its obligations to the indemnified Party hereunder if and to the extent that the indemnifying Party is materially prejudiced thereby. If the indemnifying Party does not timely acknowledge its indemnification obligation hereunder with respect to such claim, or elects not to defend such claim, the indemnified Party shall have the right, but not the obligation, to defend and settle such claim until such time as the indemnifying Party acknowledges in writing its indemnification obligation hereunder with respect to such claim or elects in writing to defend and settle such claim in accordance with the indemnification provisions herein. The indemnified Party shall, at its own cost, have the right to participate in any legal proceeding, settlement negotiation or other like event, and to contest and defend a claim and to be represented by legal counsel of its choosing, but shall have no right to settle a claim without the prior written approval of the indemnifying Party.
7.4 Each Party shall cooperate with and provide to the other all information and assistance which the latter may reasonably request in connection with any claim entitling any party to indemnification hereunder.
7.5 No party shall be responsible for or bound by any settlement that imposes any obligation on it that is made without its prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.
7.6 For avoidance of any doubt, this Section applies to the situation when (a) both Parties are named defendants, as well as (b) a Party is named a defendant and deems that it may have any right to recourse or indemnification against the other Party under this Agreement.
ARTICLE 8
CONFIDENTIALITY
8.1 For purposes of this Agreement, “Confidential Information” shall mean information and data in any medium, including oral, written or electronic, disclosed in connection with this Agreement, relating to the Purchased Assets or the transactions contemplated by this Agreement, along with any trade secrets, business information, technical information, or marketing information that the party disclosing the information deems confidential and has appropriately marked as such prior to disclosing such information to the receiving party. The terms and conditions of this Agreement (but not its existence) are deemed to be Confidential Information that shall not be disclosed to third parties without the written consent of the Parties, with the exception of any regulatory filings, press releases as set forth in Section 9.11, or disclosures to investors that a Party may be required to make under either applicable laws and regulations. Irrespective of the foregoing, Confidential Information shall not include information that (a) was reported as nonconfidential by EUCODIS in writing prior to disclosure, (b) was lawfully in the public domain prior to Closing, or becomes publicly available other than through breach of this Agreement, (c) is publicly disclosed pursuant to legal, judicial or administrative proceedings or otherwise required by law (including, without limitation, regulations promulgated by the U.S. Securities and Exchange Commission), subject to the MDI Parties giving all reasonable prior notice and assistance to EUCODIS to allow it to seek protective or other court orders; and/or (d) is approved for release in writing by EUCODIS. From and after the Closing, all Confidential Information relating to the Purchased Assets shall be deemed to be Confidential Information belonging to EUCODIS.
8.2 Each Party shall:
(a)strictly protect and maintain the confidentiality of the Confidential Information belonging to any other Party with at least a reasonable standard of care that is no less than that which it uses to protect similar confidential information of its own;
(b)not disclose, nor allow to be disclosed, the Confidential Information belonging to any other Party to any person other than to employees, consultants and counsel, on a need to know basis; provided, however, that such recipients of the Confidential Information are bound by obligations of confidentiality no less strict than those contained herein;
(c)unless otherwise expressly provided for in this Agreement, not use the Confidential Information belonging to any other Party for any purpose other than in relation to the exercise of its rights and obligations under this Agreement; and,
(d)take all necessary precautions to restrict access of the Confidential Information belonging to any other Party to unauthorized personnel; and immediately notify the Party to which the Confidential Information belongs in the event of any unauthorized disclosure or loss of such Confidential Information.
8.3 The MDI Parties shall not publish or otherwise disclose any Confidential Information about or in relation to the Purchased Assets generated or known to them before or after the Effective Date, without the explicit prior written approval of EUCODIS.
8.4 No Party shall assert that anything disclosed or discussed constitutes a waiver of attorney-client privilege or attorney work-product.
8.5 The Parties acknowledge and agree that monetary damages may not be adequate in the event of a default under this Article and that the non-defaulting Party shall be entitled, without the posting of a bond, to seek injunctive relief by a court or other body granting such relief, in which event such relief or receipt of monetary damages shall not constitute an election of remedies; and the non-defaulting Party is independently entitled to each and every remedy available by law for a default under this Article.
8.6 The provisions of this Article, from and after the Effective Date, shall supersede and fully replace any confidentiality obligations established between the Parties in relation to the Purchased Assets prior to the Effective Date.
ARTICLE 9
MISCELLANEOUS
9.1 Notice. All notices, requests, demands or other communications to or upon the respective Parties hereto shall be deemed to have been given or made the earlier of (a) actual receipt or refusal to accept receipt, (b) two (2) business days after deposit with a recognized overnight courier service, (c) receipt by facsimile or electronic means, when such delivery is confirmed by the recipient or his agent, or (d) five business days after mailing when deposited in the mails, registered mail or certified, return receipt requested, postage prepaid, addressed to the respective party at the following address (or to such other person or address as is specified elsewhere in this Agreement for specific purposes):
| If to EUCODIS: | Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbHBrunnerstrasser 59, 1235
1230, Vienna, Austria
Attention: Wolfgang Schoenfeld, M.D.
| | | | | If to MDI: | Medical Discoveries, Inc.1338 South Foothill Drive # 266
Salt Lake City, Utah 84108
Attention: Judy M. Robinett
| | | | | If to MDI Oncology: | MDI Oncology, Inc.1338 South Foothill Drive # 266
Salt Lake City, Utah 84108
Attention: Judy M. Robinett
independent accountants. |
The above addresses for receipt | · | Review from time to time as reasonably necessary the Corporation’s policies and procedures with respect to officers’ expense accounts and perquisites, including their use of notice may be changedcorporate assets, and consider the results of any review of these areas by any Party by notice, given as provided herein, which notice shall be effective only upon actual receipt.the internal accounting and finance department or the independent accountants. |
9.2 Entire Agreement. This Agreement contains the entire understanding of the Parties with regard to the transactions contemplated by this Agreement, superseding in all respects any | · | Review legal and all prior oral or written agreements or understandings pertaining to the subject matter hereof, other than the Co-Development Contract. This Agreement can be amended, modified or supplemented only by an agreement in writing which is signed by the Parties to be charged.9.3 Incorporation of Exhibits and Schedules. The Exhibits and Schedules attached to this Agreement are incorporated herein and are hereby maderegulatory matters that may have a part of this Agreement.
9.4 Severability. If and to the extent that any court of competent jurisdiction holds any provision or part of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the remainder of this Agreement before any other court or in any other jurisdiction.
9.5 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties.
9.6 AssignmentThe benefits of this Agreement (but not the obligations set forth hereunder) can be assigned or otherwise transferred in whole or in part by either party without the transferring party receiving prior written consent of the other party; provided, however, that the rights of the non-transferring party under this Agreement remain unaffected.
9.7 Waiver. A waiver by any party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future.
9.8 Headings. Headings in this Agreement are included for ease of reference only and have no legal effect.
9.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
9.10 Applicable Law. This Agreement is governed by and shall be construed in accordance with the laws of the State of Delaware, regardless of any conflicts of laws provisions. Any disputes under this Agreement shall be first submitted to resolution by the chief executive of the MDI Parties and CEO of EUCODIS, and if the said persons (or their nominees) cannot reach agreementmaterial impact on the disputed issue within a period of thirty (30) days, the Parties shall refer the issue to arbitration under the Rules of Arbitration of the American Arbitration Association, to which the Parties hereby consent. The arbitration shall take place in New York City, New York with three arbitrators, two of whom shall have significant experience in the biotech/pharmaceutical licensing area. The arbitration proceedings shall be conducted in the English language. The arbitrators shall apportion the expenses of the arbitration (including the legal feesCorporation’s consolidated financial statements, related compliance policies and expenses incurred by the parties) between the parties. Any judgment of the arbitrators shall be enforceable in any court of competent jurisdiction.
9.11 Further Assurances. The Parties shall provide, grant and/or execute any additional documents or declarationsprograms, and shall provide any other assistance that may reasonably be requested to enable EUCODIS to acquire and manage the Purchased Assets properly and in full. Except (a) as otherwise provided herein to the contrary, and (b) for the costs of recording any assignments to EUCODIS for the Patent Rights in patent offices worldwide, which cost shall be at the expense of EUCODIS, each of the Parties shall bear its own expenses, including without limitation the expenses relating to the duplication and delivery of documents and the expenses relating to the preparation of this Agreement, the documents referred to herein and the actions being taken (whether before or after the Effective Date) to enable such Party to comply with its representations, warranties, covenants and agreements contained herein.
9.12 Press Release. The Parties shall have the right to issue press releases relating to its entry into this Agreement; provided, however, that prior to release, the releasing Party provides the other Parties with a draft of the press release in sufficient time for the non-releasing Party to comment on the release. At no time shall any Party issue a release which places the other Parties at risk with any governmental authority as such relates to its public company position.
reports received from regulators. |
SIGNATURE PAGE
In Witness Whereof, the Parties have caused this Agreement to be duly executed in their respective names and on their behalf, on the date first above written.
OTHER POWERS AND RESPONSIBILITIES | In addition to the activities described above, the Committee will perform such other functions as necessary or appropriate under law, the Corporation’s Articles of Incorporation or Bylaws, and the resolutions and other directives of the Board of Directors. The Committee shall have the power to conduct or authorize investigations into any matters within its scope of responsibilities and shall be empowered to retain independent counsel, accountants, or others to assist it in the conduct of any investigation. The duties and responsibilities of a member of the Committee are in addition to those duties generally pertaining to a member of the Board of Directors. The Committee will report its actions to the Board of Directors with such recommendations as the Committee may deem appropriate.
EUCODIS PHARMACEUTICALS FORSCHUNGS-UND ENTWICKLUNGS GmbH
By: __________________________
Wolfgang Schoenfeld, M.D.
Title:Chief Executive Officer
| MEDICAL DISCOVERIES, INC.
By: ___________________________
Judy Robinett
Title:President & CEO
| | MDI ONCOLOGY, INC.
By: ___________________________
Judy Robinett
Title:President & CEO
|
FIRST AMENDMENT TO SALE AND ASSET PURCHASE AGREEMENT
This Amendment (the “Amendment”) is made as of this 30th day of September 2007 to that that certain Sale and Asset Purchase Agreement, dated as of July 6, 2007 (the “Asset Agreement”), by and among Medical Discoveries, Inc., a Utah corporation (“MDI”), MDI Oncology, Inc., a Delaware corporation and wholly-owned subsidiary of MDI (“MDI Oncology”), and Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company (“Eucodis”). Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Asset Agreement.
WHEREAS, the Asset Agreement (including, but not limited to, Sections 3.1 and 4.2 thereof) contemplates that that the transactions thereunder (such transactions, the “Asset Sale”) shall close on or before September 30, 2007; and
WHEREAS, the Parties remain committed to closing the Asset Sale, however, desire to extend the period provided for closing the Asset Sale.
NOW, THEREFORE, in consideration of the mutual promises exchanged herein, the Parties agree as follows:
1. Amendment of Asset Agreement.
Section 1.11 of the Asset Agreement is hereby amended as of the Asset Agreement Effective Date and restated in its entirety to read as follows:
1.11“Escrow Agent shall mean Emmes Group Consulting LLC.”
Section 3.1 (c) of the Asset Agreement is hereby amended and restated in its entirety to read as follows:
(c) “On or before October 31, 2007, EUCODIS shall pay the Excess Portion to the MDI Parties or to another party as the MDI Parties may so direct.”
Section 4.2 of the Asset Agreement is hereby amended and restated in its entirety to read as follows:
4.2“In the event that the Closing does not occur by October 31, 2007, and unless the parties have otherwise agreed in writing, the Escrow Agent shall deliver the Transfer Documents to the MDI Parties or to whomever as the MDI Parties may so direct.”
2. No Further Changes. All other provisions of the Asset Agreement shall remain in full force and effect after the execution of this Amendment.
3. Delaware Law Governs. This Amendment shall be governed by and construed under the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
EUCODIS PHARMACEUTICALS FORSCHUNGS-UND ENTWICKLUNGS GmbH
By:/s/ WOLFGANG SCHOENFELD
Wolfgang Schoenfeld, M.D.
Title:Chief Executive Officer
| MEDICAL DISCOVERIES, INC.
By:/s/ JUDY ROBINETT
Judy Robinett
Title:Chief Executive Officer
| | MDI ONCOLOGY, INC.
By:/s/ JUDY ROBINETT
Judy Robinett
Title:Chief Executive Officer
|
SECOND AMENDMENT TO SALE AND ASSET PURCHASE AGREEMENT
This Amendment (the “Second Amendment”) is made as of this 30th day of October 2007 to that that certain Sale and Asset Purchase Agreement, dated as of July 6, 2007 (the “Asset Agreement”, (as previously amended by the First Amendment dated September 29, 2007), by and among Medical Discoveries, Inc., a Utah corporation (“MDI”), MDI Oncology, Inc., a Delaware corporation and wholly-owned subsidiary of MDI (“MDI Oncology”), and Eucodis Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company (“Eucodis”). Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Asset Agreement.
WHEREAS, the Asset Agreement (including, but not limited to, Sections 3.1 and 4.2 thereof), as amended by the First Amendment dated September 29, 2007, contemplates that that the transactions thereunder (such transactions, the “Asset Sale”) shall close on or before October 31, 2007; and
WHEREAS, the Parties remain committed to closing the Asset Sale, however, desire to extend the period provided for closing the Asset Sale.
NOW, THEREFORE, in consideration of the mutual promises exchanged herein, the Parties agree as follows:
1. Second Amendment of the Asset Agreement.
Section 3.1 (c) of the Asset Agreement is hereby amended and restated in its entirety to read as follows:
(c) “On or before January 31, 2008, EUCODIS shall pay the Excess Portion to the MDI Parties or to another party as the MDI Parties may so direct.”
Section 4.2 of the Asset Agreement is hereby amended and restated in its entirety to read as follows
4.2“In the event that the Closing does not occur by January 31, 2008, and unless the parties have otherwise agreed in writing, the Escrow Agent shall deliver the Transfer Documents to the MDI Parties or to whomever as the MDI Parties may so direct.”
2. No Further Changes. All other provisions of the Asset Agreement shall remain in full force and effect after the execution of this Second Amendment.
3. Delaware Law Governs. This Second Amendment shall be governed by and construed under the internal laws of the State of Delaware.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first written above.
EUCODIS PHARMACEUTICALS FORSCHUNGS-UND ENTWICKLUNGS GmbH
By: __________________________
Wolfgang Schoenfeld, M.D.
Title:Chief Executive Officer
| MEDICAL DISCOVERIES, INC.
By: ___________________________
Judy Robinett
Title:Chief Executive Officer
| | MDI ONCOLOGY, INC.
By: ___________________________
Judy Robinett
Title:Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
