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Agreement Of Merger And Plan Of Reorganization

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Sectors: Biotechnology / Pharmaceuticals
Governing Law: Delaware, View Delaware State Laws
Effective Date: May 23, 1997
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EXHIBIT 10.11
Agreement of Merger and Plan of
Reorganization
between
Access Pharmaceuticals, Inc.
and
Access Holdings, Inc.
and
Tacora Corporation
dated May 23, 1997


AGREEMENT OF MERGER AND PLAN OF REORGANIZATION


AGREEMENT dated as of May 23, 1997, among ACCESS Pharmaceuticals, Inc., a Delaware corporation ("Parent"), ACCESS Holdings, Inc., a Delaware corporation and direct wholly-owned subsidiary of the Parent ("Acquirer"), and Tacora Corporation, a Delaware corporation ("Target").


WHEREAS, the Boards of Directors of each of Parent, Acquirer, and Target believe that the merger of Acquirer into Target (the "Merger") would be advantageous and beneficial to their respective corporations and stockholders;


WHEREAS, this Agreement is intended to be and is adopted as a plan of reorganization within the meaning of paragraph 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");


NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto agree that Acquirer shall be merged into Target upon the terms and subject to the conditions set forth in this Agreement.


1. The Merger.


1.1. Closing and Effective Date of Merger. Subject to the closing conditions in paragraphs 7 and 8, at a closing to be held at the offices of Parent on June 4, 1997 at 10:00 a.m., or on such date and at such time prior to the termination date referred to in paragraph 13 as may be agreed to by the parties (the "Closing Date"), Target and Acquirer shall cause to be definitively executed and delivered to one another the Certificate of Merger substantially in the form attached hereto as Exhibit A (the "Certificate of Merger") and shall cause such document to be filed with the Secretary of State of Delaware, in order to cause the Merger contemplated by this Agreement to become effective under the laws of the State of Delaware. The Merger shall become effective on the date and at the time of the filing of the Certificate of Merger with the Secretary of State of Delaware (the "Effective Date"). References herein to the "Surviving Corporation" shall mean Target on and after the Effective Date.


1.2. Terms and Conditions of Merger. Upon the Effective Date, pursuant to the Certificate of Merger and this Agreement,


(a) Acquirer shall be merged with and into Target and the separate existence of Acquirer shall cease;


(b) Target shall continue as the Surviving Corporation organized under the laws of the state of Delaware, the authorized capital stock of which shall be one thousand (1,000) shares of common stock, par value $.01 per share;


(c) the Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of Acquirer in effect immediately prior to the Effective Date;


(d) all of the issued and outstanding shares of the capital stock of Target shall be deemed canceled, without further act by any person, and shall not represent any share of the capital stock of the Surviving Corporation, all of such shares of the capital stock of Target, together with the interests of certain holders of Target options, warrants and other rights to acquire capital stock of Target ("Claims"), being automatically converted (subject to statutory dissenters' rights of appraisal) into rights ("Rights") to receive shares of the common stock (subject to adjustments for any recapitalizations of Parent), $.04 par value per share, of Parent (the "Parent Common Stock") all as provided, and according to the priorities set forth, in paragraphs 2.1 and 2.2, with the certificates representing such shares of the capital stock of Target thereupon representing such Rights to receive such shares of Parent Common Stock (subject to statutory dissenters' rights of appraisal), such Rights shall not be transferable except by will or the laws of descent and distribution without the prior written consent of Parent and Parent shall be entitled to rely on the stock and other records of Target as of immediately before the Effective Date in determining any Target Stockholder or other third party entitled to receive any Rights or distributions thereon pursuant to this Agreement and shall not be liable to any person for any payments or distributions made in reliance on such records;


(e) The capital stock of Acquirer shall remain outstanding as the capital stock of Surviving Corporation, all of which shall be owned by Parent as of the Effective Date;


(f) the By-Laws of the Surviving Corporation shall be the By-Laws of Acquirer in effect immediately prior to the Effective Date;


(g) all of the estate, properties, rights, privileges, powers and franchises of Target and Acquirer and all of their property, real, personal and mixed, and all debts and obligations of any kind of Target or Acquirer shall vest in the Surviving Corporation, without further act or deed; and


(h) the directors and officers of the Surviving Corporation as of the Effective Date shall be those specified in the Certificate of Merger.


2. Conversion of Shares, Payments, etc.


2.1. Conversion of Shares. As provided in paragraph 1.2(d), upon the Effective Date, the issued and outstanding shares of the capital stock of Target and all Claims shall be automatically converted, without further act by any person, into Rights to acquire shares of the Parent Common Stock in accordance with the following provisions of this paragraph 2.1, and the earn-out payments specified in paragraph 2.2:


(a) Conversion; Exchange Rate. Each share of the capital stock of Target which is issued and outstanding at the Effective Date and each Claim shall, at the Effective Date, be converted (subject to statutory dissenters' rights of appraisal) without any further act by any person, into the right to receive such number of shares of Parent Common Stock as determined in accordance with paragraph 2.2 and the priorities set forth therein.


(b) Procedures. Each of the former Target Stockholders shall, from and after the Effective Date and upon surrender to Parent at its main office located in Dallas, Texas of the certificate or certificates formerly representing all of the shares of the capital stock of Target held by the former Target Stockholder, receive in exchange therefor the right to receive the number of shares of Parent Common Stock as determined in accordance with paragraph 2.2 and the priorities set forth therein. The aggregate amount of such shares of Parent Common Stock exchanged pursuant to this paragraph 2, shall hereinafter be referred to as the "Exchanged Shares." All certificates representing the Exchanged Shares shall bear federal securities law and other applicable securities law restrictive legends.


(c) Fractional Shares. No fractional shares of, and no scrip or fractional share certificates for Parent Common Stock will be issued or delivered pursuant to this Agreement, and no right to vote or receive any dividend or other distribution or any other right of a stockholder shall attach to any fractional interest in Parent Common Stock to which any former Target Stockholder would otherwise be entitled. In lieu thereof, there shall be paid to each former Target Stockholder who would otherwise have been entitled to a fractional share of Parent Common Stock pursuant to paragraph 2.1(a) and (b), a cash payment in respect of such fractional interest determined by valuing Parent Common Stock at its unweighted average closing price on the OTC Bulletin Board for the five (5) trading days before the Effective Date.


(d) Rights After Effective Date and Until Surrender, etc. No former Target Stockholder shall be entitled to exercise any rights with respect to Target after the Effective Date (except prosecution of statutory dissenters' rights of appraisal). Each former Target Stockholder entitled to receive Exchanged Shares hereunder shall be entitled to receive dividends and other distributions on or in respect of each Exchanged Share to which he or she is entitled, from and after the Effective Date and the date on which such Exchange Shares become vested, and to vote such shares, but will not be entitled to receive the certificate therefor until the surrender and exchange provided for in paragraph 2.1 (b) is completed.


(e) Exercise of Options, Warrants and Conversion of Notes. On or before the Effective Date, all outstanding stock options, warrants, Claims and other rights to purchase or acquire capital stock of the Target shall be exercised or exchanged as provided in paragraph 7.9 hereof, and all outstanding Convertible Promissory Notes of Target and other securities exchangeable for or convertible into capital stock of the Target shall be exchanged and/or converted into capital stock of the Target. For all purposes of this Agreement, the shares of the capital stock of Target issued upon exercise or in exchange for such outstanding stock options, warrants and other rights or upon conversion of such Convertible Promissory Notes and other securities exchangeable for or convertible into the capital stock of Target shall be deemed to be shares of the capital stock of Target for purposes of this Agreement and the recipients thereof shall be deemed to be Target Stockholders. 2.2. Consideration


As consideration for the Merger, the Target Stockholders, holders of Claims and other persons or entities entitled hereunder to receive shares of Parent Common Stock (subject to payments made to creditors as set forth in this paragraph2.2) shall be issued shares of Parent Common Stock, if any, in the amounts and according to the priorities set forth in this paragraph 2.2:


(a) Effective Date Amounts. Upon the Effective Date, such number of shares of Parent Common Stock as shall equal $100,000 divided by the average of the closing prices of the Parent Common Stock on the OTC Bulletin Board for each of the five trading days prior to the Effective Date plus such number of shares of Parent Common Stock as shall equal $500,000 divided by the share price of the Parent Common Stock as determined in accordance with paragraph 2.2(d).


(b) Milestone Amounts. On the achievement, as determined by a majority of the members of the Development Committee (as defined below), of each of the following milestones (each a "Milestone" and together the "Milestones"), such number of Unvested Parent Common Shares as have an aggregate value, as determined pursuant to paragraphs 2.2(c) and 2.2(d) as of the date on which the Milestone shall have been achieved and payable in accordance with the terms of paragraph 2.2(b) and 2.2(c), equal to the value of the Milestone as set forth below shall be released in accordance with the provisions of paragraphs 2.2(b) and 2.2(c) as of the Closing Date, at the end of the fiscal quarter of Parent during which the Milestone shall have been achieved; provided, however, that the Milestone must have been achieved prior to the date that is the last day of the thirtieth (30th) month after the Commencement Date for such Milestone as determined by reference to the following table, provided that if, in the determination of the Development Committee, work on or towards a Milestone is ceased or materially affected by reason of strikes, riots, war, invasion, acts of God, fire, explosion, floods, acts of civil or military government agencies or instrumentalities (except for delays in or the refusal to grant approvals or clearances for drugs, products or devices by the United States Food and Drug Administration or any similar or successor United States government agency (the "FDA") or by any non-United States government agency having similar functions or a similar mandate as the FDA or delays in or the refusal to grant or award patents or patent allowances by the United States Patent and Trademark Office or any successor United States government agency (the "PTO") or by any non-United States government agency having similar functions or a similar mandate as the PTO) and other similar contingencies beyond the reasonable control of Parent or any of the Target Stockholders, the date for achievement of such Milestone shall be extended to such date that the Development Committee shall select (the "Milestone Deadline Date"); provided, further, that if at the date such shares vest there shall have been delivered to the Representative any Notice of Indemnification pursuant to paragraph 14.2(b), then all such shares of Parent Common Stock shall be held by Parent pending resolution of any claims for indemnification in such Notice(s) of Indemnification:


Commencement
Value Payable Date (in calendar)
in Parent days after the
Milestone Common Stock Closing Date - ----------------------------------------- ------------ ------------ 1. EORTC approval to initiate human studies with Cisplatin or other polymer platinates based on animal efficacy and toxicity achieving the EORTC's predetermined parameters. $ 3 million 45 2. Completion of Phase I/II study with Cisplatin and agreement by the technology development committee to proceed to Phase III or Phase II B Studies. $ 2 million 45 3. Commercial alliance for Cisplatin development. $1 million 45 4. Commencing process of commercialization of one additional Tacora oncology compound and EORTC or IND approval of Phase I studies. $500,000 90 5. Loaded particle with triggered pore stable in plasma with positive efficacy in an animal model with agreement to proceed to development. $1 million 90 6. Filing of an IND for a product being developed under the Mayo/Fernandez technology license. $1 million 90 7. Acceptance for publication of "Landmark" manuscript in Nature, Science or a journal of similar stature including the Journal of Controlled Release. $250,000 0 8. Successful formulation of antigen/adjuvant with in vivo proof of principal of incremental efficacy. $500,000 90 9. Completion of commercial alliance with an antigen/adjuvant to commence development. $500,000 45 10. U.S. notice of allowance of Cisplatin patent covering product development. $350,000 0 11. European Patent Office Notice of Allowance of Cisplatin patent covering product development. $150,000 0 12. U.S. notice of allowance of pore-forming protein patent or new Tacora core patent. $350,000 0 13. European Patent Office Notice of Allowance of pore-forming protein patent or new Tacora patent. $150,000 0 14. Commercial agreement to develop an ultrasound triggered release condensed particle therapeutic system. $500,000 90 15. Commercial agreement to develop a product in an additional field of use. $500,000 0


Upon EORTC approval to initiate human studies with Cisplatin or other polymer platinates, Milestone 1, the Milestone payment will be calculated based on such approval date and the Parent Common Stock issuable will be held in escrow by Parent pending successful completion of the scale-up, production and stability testing of the final formulation and completion for the formal toxicology studies to enable commencement of Phase 1 clinical testing.


(c) Milestone Payment Priorities. (i) The Parties anticipate that Target's unaudited balance sheet as of the Closing Date will reveal total liabilities of approximately $1,455,000. Such liabilities shall become liabilities of the Surviving Corporation after the Closing Date. Parent shall contribute to the capital of the Surviving Corporation and the Surviving Corporation shall be obligated to pay the first $250,000 of such liabilities (to creditors on a pro rata basis) within thirty (30) days after the Closing without any offset against Milestones that are otherwise due to the Target Stockholders and holders of Claims hereunder. Any liabilities of the Surviving Corporation in excess of $250,000 shall first be offset dollar for dollar against Parent Common Stock otherwise due to Target Stockholders and holders of Claims (or creditors) under the next Milestone(s) to come due; provided however that shares of Parent Common Stock issued under paragraph 2.2(a) shall be used to pay any such liabilities in excess of such $250,000. Unless one or more creditors of Target agrees in writing to subordinate its position to other creditors, the Surviving Corporation shall be entitled to pay all creditors of Target on a pro rata basis or in such order of priority as determined by Parent in its sole discretion, based upon the amount then due and owing to such creditors.


(ii) At such time as all outstanding liabilities to creditors of Target are satisfied (other than liabilities to creditors as set forth in paragraphs 2.2(c)(iii), (iv) and (v) below), the Parent Common Stock issued for the next Milestone(s) achieved will be used to settle Target's outstanding loan to Medical Innovation Partners which is estimated at the Closing Date to be $365,500. Medical Innovation Partners will be entitled to receive a number of shares which equals the amount of such debt divided by the Parent's current share price; provided, however, that the Milestone payment in Parent Common Stock will be calculated in accordance with paragraphs 2.2(d).


(iii) Proceeds from the next Milestone(s) achieved will be used to satisfy, pro rata, Target's outstanding obligations relating to the Glynn Wilson and Donald McCarren settlement agreements, executed copies of which have been delivered to Parent. Target's obligations under such settlement agreements are estimated to be $78,269 for Glynn Wilson and $180,000 for Donald McCarren. These amounts are subject to adjustment for any subsequent payments made under such settlement agreements. The Milestone payment in Parent Common Stock shall be calculated in accordance with paragraph 2.2(d).


(iv) After satisfaction of all obligations to creditors set forth in paragraphs 2.2(c)(i)-(iii) set forth above, proceeds from the next Milestone(s) achieved shall be payable as follows:


(x) to Dr. Glynn Wilson as per the employment settlement agreement dated as of February 1, 1997 between Target and Dr. Wilson as follows:


(A) 1% of any Milestone achieved; (B) 1% of any Milestone achieved within the timetable for Milestones set forth on Schedule 2.2 hereto; and (C) 1% of any Milestone achieved within the thirty (30) month time period for achievement thereof under this Agreement if and to the extent employed full-time by Parent, with a proportionate reduction in such percentage if Wilson is then employed less than full time by Parent.


The parties agree that Dr. Wilson shall be entitled to receive an amount of Parent Common Stock equal to the 1% commissions described in (A), (B), and (C) above at the fair market value of the Parent Common Stock at the time of the achievement of any such Milestones. These commissions shall accrue and will be paid out subordinate to and after the priority payments described in paragraphs 2.2(c) (i-iii) to Dr. Wilson upon the achievement, if at all, of sufficient Milestones to make such payments in addition to any subsequent commissions earned and payable as a result of the ongoing achievement of Milestones. These commissions shall be deductions from any such Milestone payments to Target Stockholders.


(y) to Grayson & Associates, Inc. ("Grayson") as per the letter agreement between Target and Grayson, dated October 30, 1995 commissions on total consideration paid by Parent under this paragraph 2.2 including any payments made to satisfy outstanding liabilities, payments to trade creditors, outstanding loans, and other payments made to Target creditors under this paragraph 2.2, such commissions to be calculated as follows:


5% of the first $2,000,000; 4% of amounts over $2,000,000 and up to $4,000,000; 3% of amounts over $4,000,000 and up to $6,000,000; 2% of amounts over $6,000,000 and up to $8,000,000; 1% of amounts over $8,000,000.


The parties agree that Grayson shall be entitled to receive an amount of Parent Common Stock equal in value to the amount calculated from the table above at the fair market value of the Parent Common Stock at the time of any payments made on behalf of Target described in paragraph (y) above. These commissions shall accrue and shall be paid out subordinate to and after such priority payments described in paragraphs 2.2(c) (i- iii) above. These accrued commissions shall be paid out upon achievement, if at all, of sufficient Milestones to make such payments in addition to any subsequent commissions earned and payable as a result of the ongoing achievement of Milestones. These commissions shall be deductions from any such Milestone payments to Target Stockholders and holders of Claims.


(v) The actual, direct out-of-pocket costs and expenses incurred by Target representative with observation rights on the Parent's Board of Directors, the Development Committee members appointed by the Target Shareholders and the Representatives incurred in carrying out their responsibilities under this Merger Agreement shall be treated as general creditors' claims and shall be paid, if at all, only in shares of Parent Common Stock issued under paragraph 2.2(a) based on the fair market value of Parent Common Stock payable as Milestones are met; provided that Parent shall not be required to make any payments over and above any amounts that would be otherwise due with respect to the achievement of Milestones.


(vi) Proceeds from the next Milestone(s) will be used to satisfy the liquidation preference of Target's Preferred Shareholders and applicable Claim holders (i.e., those Claim holders who voluntarily waived and released their claim to receive Target Preferred Stock in exchange for treatment hereunder equivalent to a Target Preferred Shareholder) of $1.00 per share (representing up to an aggregate of $5,922,832) pursuant to the liquidation preference provisions of Target's Series A Preferred Stock contained in Target's Certificate of Incorporation. At such time as such liquidation preference has been satisfied, thereafter, Target Preferred and Common shareholders and any other persons entitled to receive consideration equivalent to that of a Common Shareholder (i.e., those Claim holders who voluntarily waived and released their rights under Target's outstanding options and warrants) will participate on a pro rata basis in all future Milestone(s) payments as calculated in accordance with paragraph 2.2(d).


(d) For purposes of this paragraph 2.2, the number of Common Parent Shares which will become vested and shall be released to the Target Stockholders on the achievement of a Milestone shall be calculated by averaging the closing price of the Parent Common Stock for each of the five (5) trading days preceding the day on which the Milestone was achieved divided into the value attributed to the Milestone; provided, however, in order to provide a floor and ceiling on the number of shares of Parent Common Stock to be issued, in no event will the closing price of Parent Common Stock used in such calculation be at prices below the floor share price or above the ceiling share price as determined by the following schedule:


Time of Milestone Achievement Floor Share Price
Ceiling Share Price Effective Date thru and including month 6 2.50 3.50 Beginning of month 7 thru and including month 12 3.50 5.00 Beginning of month 13 thru and including month 18 4.50 6.00 Beginning of month 19 thru and including month 30 5.50 6.50


;provided, further, that in the event of any reorganization, recapitalization or reclassification of the capital stock of Parent, or if at any time or from time to time after the date of this Agreement Parent shall subdivide or recapitalize its outstanding shares of capital stock, or if at any time after the date of this Agreement Parent shall declare a dividend or make any other distribution upon any class or series of capital stock of Parent payable in Parent Common Stock or securities convertible into Parent Common Stock, the Floor Share Prices and the Ceiling Share Prices set forth above shall be adjusted proportionately to reflect such reorganization, recapitalization or reclassification, such subdivision or the payment of such stock dividend, as applicable.


(e) Cash Payment for Achievement of Milestones Prior to Closing. Up to $400,000 of any revenues of Target received as a result of ongoing business activities of Target prior to the Closing Date may be used by Target to satisfy any outstanding liabilities as set forth on Target's current unaudited balance sheet a copy of which is attached to Schedule 3.7; provided, however, that an amount equal to the total amount of any such payments shall be deducted from the stated value of the appropriate Milestone relating to any such revenues.


(f) Research and Development Commitment. Parent will commit at least $320,000, to be used as set forth on Exhibit B attached hereto, to achieve the Milestones. In addition, Parent will use commercially reasonable efforts to support achievement of the Development Plan, whether through the Surviving Corporation or any third party licensee or alliance partner involved with the Technology, towards achieving the Milestones. As used herein, "Technology" means the Surviving Corporation's intellectual property, know-how, trade secrets and other technology. The Development Committee will monitor and oversee research and development activities towards achieving the Milestones pursuant to the Product Development Plan. The Development Committee shall meet no less often than every three (3) months in order to monitor progress towards meeting the approved Product Development Plan. Parent will ensure that the Target Stockholder representatives on the Development Committee receive copies of all relevant correspondence to and from any governmental agency concerning the Technology as well as all relevant correspondence to and from any third party concerning the licensing, research, development or use of the Technology. Parent will ensure that the Surviving Corporation diligently and in good faith files, prosecutes and maintains any and all patents and patent applications concerning any Technology.


(g) Parent Covenant to Maintain Technology. From and after the date of this Agreement to the Milestone Deadline Date, Parent shall not transfer, assign or sell any of the Technology; provided that the sole remedy of the Target, the Target Stockholders and all Claim holders for a breach of this covenant by Parent shall be that all then remaining Milestones to which, in the determination of the Development Committee, the transferred, assigned or sold Technology relates will be deemed to be accomplished as of the date of such transfer, assignment or sale and payment on any such Milestone as determined pursuant to paragraphs 2.2(c) and (d) shall be made within ten (10) business days after such date.


(h) Establishment of Development Committee; Meetings. The Development Committee shall be created within one (1) month after the Effective Date and shall be comprised of two (2) representatives appointed by the Parent and two (2) representatives appointed by a majority of the Target Stockholders. The party appointing a representative to the Development Committee shall have the sole right to remove and replace such individual. All decisions of the Development Committee shall be made by the affirmative vote of at least three (3) committee members in the exercise of good faith to benefit the interests of the Surviving Corporation and the optimum use of the Technology. Within three (3) months of the Effective Date, the Development Committee shall prepare and approve a Product Development Plan, establishing the means for accomplishing the Milestones. All matters submitted to the Development Committee shall be decided upon at the time of the meeting of the Development Committee or within thirty (30) days thereafter. Such decision shall take into consideration such goals as adhering to ethical standards for the research-based pharmaceutical industry, the use of commercially reasonable efforts to develop the Technology, and obtaining patent protection and other governmental approvals concerning the Technology. In the event that a decision cannot be reached by the Development Committee within the time period set forth above, the Pr
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