0001102624-12-000759.txt : 20120924 0001102624-12-000759.hdr.sgml : 20120924 20120924101722 ACCESSION NUMBER: 0001102624-12-000759 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 20120921 DATE AS OF CHANGE: 20120924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Boston Therapeutics, Inc. CENTRAL INDEX KEY: 0001473579 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 270801073 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-184047 FILM NUMBER: 121105597 BUSINESS ADDRESS: STREET 1: 33 SOUTH COMMERCIAL STREET CITY: MANCHESTER STATE: NH ZIP: 03101 BUSINESS PHONE: 978-886-0421 MAIL ADDRESS: STREET 1: 33 SOUTH COMMERCIAL STREET CITY: MANCHESTER STATE: NH ZIP: 03101 FORMER COMPANY: FORMER CONFORMED NAME: AVANYX Therapeutics, Inc. DATE OF NAME CHANGE: 20091001 S-1 1 bostontherapeuticss1.htm FORM S-1 bostontherapeuticss1.htm


 
As filed with the Securities and Exchange Commission on September__, 2012
Registration No. 333-

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

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

BOSTON THERAPEUTICS, INC.
(Name of issuer in its charter)

Delaware
2834
27-0801073
(State or
jurisdiction of
incorporation or
organization)
(Primary Standard
Industrial
Classification
Code Number)
(IRS Employer
Identification No.)

1750 Elm Street, Suite 103
Manchester, NH 03104
603-935-9799
(Address and telephone number of principal executive offices
and principal place of business or intended principal place of business)

David Platt, Ph.D, Chief Executive Officer/Chief Financial Officer/Chairman
1750 Elm Street, Suite 103
Manchester, NH 03104
603-935-9799
(Name, address and telephone number of agent for service)

Copies to:

David E. Dryer, Esq.
Mark A. Katzoff, Esq.
Seyfarth Shaw LLP
2 Seaport Lane
Boston, Massachusetts 02210
Phone: (617) 946-4800
Fax: (617) 946-4801

Approximate date of proposed sale to the public: as soon as practicable after the effective date of this Registration Statement.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
 
 
 
 
 
 
 
 

 
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box. o

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

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company x

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


CALCULATION OF REGISTRATION FEE

Title of Each
Amount
Proposed Maximum
Proposed Maximum
Amount of
Class of Securities
To be Registered
Being
Registered (1)
Offering Price (2)
Aggregate Offering
Price
Registration
Fee
Common Stock, par
value $0.001 per share
20,000,000
$0.50
$10,000,000
$1,146.00
         
Warrants(3)
 
10,000,000
   
(3)
         
Shares of Common Stock, par value $0.001 per share, underlying Warrants
10,000,000
$1.00
$10,000,000
$1,146.00
         
Total(4)
30,000,000
 
$20,000,000
$2,292.00

(1)
Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”),the number of shares of common stock registered hereby shall also include an indeterminate number of additional shares of common stock issuable as a result of stock splits, stock dividends, recapitalizations or reorganizations in accordance with Rule 416.

(2)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) of the Securities Act.

 
(3)
 
Pursuant to Rule 457(g) under the Securities Act, no separate registration fee is required for the Warrants because the Registrant is registering these securities in the same Registration Statement as the underlying common stock to be offered pursuant thereto.
 
(4)
 
Excludes warrants.
 
 
 
 

 
 
 
The information in this prospectus is not complete and may be changed. The Company may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
Subject to Completion, dated September __________ , 2012
 
 
Preliminary Prospectus

Boston Therapeutics, Inc.

20,000,000 Shares of Common Stock
Warrants to purchase up to 10,000,000 Shares of Common Stock
10,000,000 Shares of Common Stock underlying the Warrants

This prospectus relates to the sale of up to 20,000,000 shares of our common stock, par value $0.001 per share, and  warrant(s) to purchase up to 10,000,000 shares of our common stock.  The common stock is being offered and sold at a price of $0.50 per share.  Purchasers of our common stock will automatically receive a warrant to purchase 1 share of common stock for each 2 shares of common stock that they purchase in this offering without the payment of additional consideration for the warrant.  The warrants are exercisable at any time after the closing date and on or before the fifth anniversary of their initial exercise date at an exercise price of $1.00 per share.  This prospectus also relates to the purchase of up to 10,000,000 shares of our common stock that are issuable upon the exercise of the warrants offered hereunder.

We are a Delaware corporation formed on August 24, 2009 for the purpose of developing, manufacturing and commercializing therapeutic molecules for diabetes and inflammatory diseases.  The Company’s initial focus is on SUGARDOWN®, a non-systemic chewable tablet designed to regulate post-meal blood glucose; PAZ320, a non-systemic chewable tablet that is a therapeutic drug designed to reduce elevation of post-meal blood glucose , and IPOXYN™, an injectable anti-hypoxia drug designed to universally carry oxygen to treat lower limb ischemia associated with diabetes. More information is available at www.bostonti.com.

Our common stock is traded on the over-the-counter (OTC) Bulletin Board. There is currently a limited market for our shares of common stock. There can be no assurance that a market for our common stock will be sustained. Therefore, purchasers of our shares registered hereunder may be unable to sell their securities because our shares are thinly traded. As a result, you may find it more difficult to dispose of, or obtain accurate quotes of our common stock. The Warrants being offered by this Prospectus, which are registered for sale under the Registration Statement of which this Prospectus forms a part, are not currently traded on the OTC Bulletin Board or on any other exchange and the Company has no present intention of causing them to be so traded.

INVESTMENT IN THE OFFERED SECURITIES INVOLVES SUBSTANTIAL RISK. IN REVIEWING THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE HEADING "RISK FACTORS".

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS September 21, 2012

 
 
 

 


TABLE OF CONTENTS

Prospectus Summary
  2
The Offering
  4
Risk Factors
  5
Use of Proceeds
 15
Dividend Policy
 15
Legal Proceedings
 15
Directors, Executive Officers, Promoters and Control Persons
 15
Security Ownership of Certain Beneficial Owners and Management
 17
Description of Business
 18
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 30
Description of Property
 32
Certain Relationships and Related Transactions
 32
Director and Executive Compensation
 33
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 36
Descriptions of Capital Stock
 37
Shares Available for Future Sale
 38
Plan of Distribution
 38
Determination of Price
 40
Market for Common Equity and Related Stockholder Matters
 40
Additional Information
 40
Indemnification of Directors and Officers
 41
Legal Matters
 42
Experts
 42 
Financial Statements
 F-1


 
1

 


PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this Prospectus. To understand this offering fully, you should read the entire Prospectus carefully. Unless the context otherwise requires, references contained in this Prospectus to the “Company,” “Avanyx,” “we,” “us,” or “our” shall mean Boston Therapeutics, Inc., a Delaware corporation formed on August 24, 2009, formerly known as Avanyx Therapeutics, Inc.

Overview

We were organized as a Delaware corporation (the “Company,” “we,” “our”, and “us”) on August 24, 2009 under the name “Avanyx Therapeutics, Inc.” On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in exchange for 100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of BTI and was a director and minority stockholder of BTI at the time of the Merger. Dr. Platt received 400,000 shares of our common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became our President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of BTI at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.
 
At the time of the merger, BTI was in the business of developing and commercializing, among other things, dietary supplements including its initial product, SUGARDOWN®, a complex carbohydrate based dietary supplement based on BTI’s proprietary processes and technology.  SUGARDOWN® is currently in the initial stage of market introduction. We believe that SUGARDOWN® has significant revenue and positive cash flow potential.

We are a development stage company with limited operating history, which makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment.

Our primary business is the development, manufacture and commercialization of therapeutic drugs and dietary supplements based on complex carbohydrate chemistry to initially treat diabetes and inflammatory diseases.   We are currently focusing on two products:  SUGARDOWN®, a non-systemic, chewable tablet dietary supplement designed to moderate post-meal blood glucose levels that we are currently marketing and PAZ320, a chewable table designed to lower after meal blood glucose levels.  PAZ320 recently completed a Phase ll clinical trial at Dartmouth Hitchcock Medical Center.
 
We intend to develop and manufacture IPOXYN™, a glyco-protein-based therapeutic agent that incorporates our proprietary processes and patented technology.  Our IPOXYN™ anti-hypoxia drug consists of a stabilized glycoprotein composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived of oxygen and in need of metabolic support.  IPOXYN™ is based on novel unproven technologies.  We may be unsuccessful in developing these technologies into drugs which the United States Food and Drug Administration (FDA) ultimately will approve.
 
We have completed development of SUGARDOWN® and are marketing it as a dietary supplement.     We are not required to attain FDA approval in order to offer SUGARDOWN® in this manner. We are required to either comply with certain FDA guidelines with respect to certain marketing claims for SUGARDOWN®, or to file those claims with the FDA. We believe that we comply with those guidelines.

We have voluntarily filed thirty structural and functional claims with the FDA with respect to SUGARDOWN® which describe the proposed mechanism of action of SUGARDOWN® in reducing post-meal elevation of glucose in the blood.   If we choose to offer SUGARDOWN® as a drug, it will be subject to a drug approval process with the FDA.
 
 
2

 
 
Our independent auditors noted in their report accompanying our financial statements for the year ending December 31, 2011 that the Company’s limited resources and operating history, as well as operating losses raise substantial doubt about the Company’s ability to continue as a going concern.  For the period from inception on August 29, 2009 through December 31, 2011, we had a net loss of $1,213,284, ($1,752,678 as of June 30, 2012) of which $827,168 was incurred during the fiscal year ended December 31, 2011. As of December 31, 2011, the Company had $225,995 cash on hand ($417,510 as of June 30, 2012).

We do not currently have sufficient capital resources to fund operations.  To stay in business and to continue the development of PAZ320 and IPOXYN™ we will need to raise additional capital through public or private sales of our securities, debt financing or short term bank loans, or a combination of the foregoing.  We believe that if we can raise $3,000,000 to $5,000,000 in this offering it will be sufficient to provide working capital over the next approximately 12 months, and we will be able to complete clinical trials of SUGARDOWN®, PAZ320 and pre-clinical studies of IPOXYN™.

Our shares of common stock are not listed on any national securities exchange.  Quotes for our common stock are available on the OTC Bulletin Board.  Our stock symbol is BTHE.  There can be no assurance that a market for such securities will develop.  We have an agreement with one broker dealer to make a market for our securities, and the lack of multiple relationships could adversely impact the price and liquidity of our securities.

We have not applied to register the shares in any state.  An exemption from registration will be relied upon in the states where the shares are distributed and may only be traded in such jurisdictions after compliance with applicable securities laws.  There can be no assurances that the shares will be eligible for sale or resale in such jurisdictions. We may apply to register the shares in several states for secondary trading; however we are under no requirement to do so.

Our only current officers are David Platt and Ken Tassey.  We are dependent upon both Dr. Platt and Mr. Tassey for implementation of our proposed expansion strategy and execution of our business plan. The loss of Dr. Platt or Mr. Tassey could have a material adverse effect upon our results of operations and financial position and could delay or prevent the achievement of our business objectives.
 
The preceding summary is qualified in its entirety by the detailed information appearing elsewhere in this Prospectus.  The securities offered hereby are speculative and involve a high degree of risk. See "Risk Factors."
 
 
3

 

 
THE OFFERING


Issuer
 
Boston Therapeutics, Inc.
Securities Offered
Up to 20,000,000 shares of our common stock, $0.001 par value per share; warrants to purchase up to 10,000,000 shares of common stock; and up to 10,000,000 shares of common stock issuable upon exercise of the warrants. Purchasers of our common stock will automatically receive a warrant to purchase 1 share of common stock for every 2 shares of common stock that they purchase in this offering without payment of additional consideration for the warrant.
 
Offering Price
 
 
$0.50 per share of common stock.
 
 
Description of Warrants
The warrants will be exercisable on or after the applicable closing date of this offering through and including the close of business on the fifth anniversary of the closing date at an exercise price of $1.00 per share.
 
Offering Price
 
 
$0.50 per share of common stock.  The offering price of the shares has been arbitrarily determined by us based on limited trading of our stock.  The offering price of the shares bears no relationship to the assets, earnings or book value.   This is an arbitrary price and we can offer no assurances that the $0.50 price bears any relation to the value of the shares as of the date of this Prospectus.
 
Common Stock  Outstanding Before the Offering
 
 
17,348,206 shares.
Common Stock  Outstanding After the Offering
 
Up to 37,348,206 shares, which does not include 10,000,000 shares of common stock issuable upon exercise of the warrants offered hereby.
   
No minimum
There is no minimum for this offering. No arrangements have been made to place funds into an escrow or any similar account. We may conduct one or multiple closings.  Upon receipt, offering proceeds will be deposited into our operating account and used to conduct our business and operations.  We will then issue and deliver the securities.
 
Use of Proceeds
 
 
 
 
We intend to use the net proceeds from this offering to continue to develop and market SUGARDOWN®, PAZ320, IPOXYN™ to build a management team, for general corporate purposes and working capital.
OTC BB Symbol for Common Stock
BTHE
   
Transfer Agent and Registrar for our Shares:
Worldwide Stock Transfer, LLC
433 Hackensack Ave - Level L
Hackensack, NJ 07601
Phone: 201-820-2008
Fax: 201-820-2010
   
Issuer’s Address:
1750 Elm Street, Suite 103
 
Manchester, NH 03104
Telephone Number:
603-935-9799
 
 
 
4

 
 
 
RISK FACTORS

The securities offered herein are highly speculative. You should carefully consider the following risk factors and other information in this Prospectus. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent, and you may lose all or part of your investment.

The Company considers the following to be all the material risks to an investor regarding this offering. The Company should be viewed as a high-risk investment and speculative in nature. An investment in our common stock may result in a complete loss of the invested amount. Please consider the following risk factors before deciding to invest in our common stock.

RISKS RELATED TO OUR COMPANY


IF WE DO NOT RECEIVE ADDITIONAL FUNDING, WE WOULD HAVE TO CURTAIL OR CEASE DEVELOPMENT STAGE OPERATIONS.

For the period from inception on August 29, 2009 through December 31, 2011, we had a net loss of $1,213,284, ($1,752,678 as of June 30, 2012) of which $827,168 was incurred during the fiscal year ended December 31, 2011. As of December 31, 2011, the Company had $225,995 cash on hand ($417,510 as of June 30, 2012). We do not currently have sufficient capital resources to fund operations and clinical trials. Our Chief Executive Officer has made loans to the Company to fund operations, and the Company raised $522,997 in a private placement in 2011 and raised $500,000 of equity investment in two $250,000 tranches from a subsidiary of Advance Pharmaceutical Company Ltd. (APC) in 2012. APC is a privately-held company based in Hong Kong and has exclusive distribution rights for SUGARDOWN® in Hong Kong, China and Macau. To stay in business, we will need to raise additional capital through public or private sales of our securities, debt financing or short-term bank loans, or a combination of the foregoing.

We will need additional capital to fully implement our business, operating and development plans. However, additional funding from an alternate source or sources may not be available to us on favorable terms, if at all. To the extent that money is raised through the sale of our securities, the issuance of those securities could result in dilution to our existing security holders. If we raise money through debt financing or bank loans, we may be required to secure the financing with some or all of our business assets, which could be sold or retained by the creditor should we default in our payment obligations. If we fail to raise sufficient funds, we would have to curtail or cease operations.

Management has developed what it believes is a viable plan to continue as a going concern. The plan relies upon our ability to obtain additional sources of capital and financing. Our Chief Executive Officer intends to provide us with minimal cash to fund critical needs until we are able to raise additional capital from an offering of securities but there is no guarantee that he will do so or will do so for any extended period of time. Presently we do not have any existing sources or plans for financing other than the sale of securities in a private placement transaction, or loans from our Chief Executive Officer. We do not expect to generate significant revenues from the sale of SUGARDOWN® or other products in the near term. If we are unable to receive additional financing, we may be required to cease operations. There is no guarantee that we will be able to generate sufficient revenues from the sale of SUGARDOWN® or other products in the near term to fund our operations. If we are unable to generate sufficient revenues or receive additional financing, we may be required to cease operations.

WE ARE A DEVELOPMENT STAGE COMPANY WITH NO OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS.

We are a development-stage company with no operating history, and our proposed operations are subject to all of the risks inherent in establishing a new business enterprise. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business, the development of new technologies or those subject to clinical testing, and the competitive and regulatory environment in which we will operate. We have made initial sales of our SUGARDOWN® product as a dietary supplement and, while we expect to continue selling that product, we have no other products available for sale, and none are expected to be commercially available for at least eighteen months, if at all. We may never obtain Food and Drug Administration (“FDA”) approval of our products in development and, even if we do so and are also able to commercialize our products, we may never generate revenue sufficient to become profitable. Our failure to generate revenue and profit would likely cause our securities to decrease in value and/or become worthless.

 
 
5

 
 
 
ADDITIONAL FINANCING REQUIRED TO IMPLEMENT OUR BUSINESS PLAN MAY NOT BE AVAILABLE ON FAVORABLE TERMS OR AT ALL, AND WE MAY HAVE TO ACCEPT FINANCING TERMS THAT WOULD ADVERSELY AFFECT OUR SHAREHOLDERS.

We will need to continue to conduct significant research, development, testing and regulatory compliance activities for SUGARDOWN®, PAZ320 and IPOXYN™ that, together with projected general and administrative expenses, we expect will result in substantial operating losses for the foreseeable future. We do not expect to be generating sales or other revenue from SUGARDOWN® alone to fund operations and will remain dependent on outside sources of financing until that time and we will need to raise funds from additional financing. We have no commitments for any financing at this time, and any financing commitments may result in dilution to our existing stockholders. We may have difficulty obtaining additional funding, and we may have to accept terms that would adversely affect our stockholders. For example, the terms of any future financings may impose restrictions on our right to declare dividends or on the manner in which we conduct our business. Additionally, we may raise funding by issuing convertible notes, which if converted into shares of our common stock would dilute our then shareholders interests. Lending institutions or private investors may impose restrictions on a future decision by us to make capital expenditures, acquisitions or significant asset sales. If we are unable to raise additional funds, we may be forced to curtail or even abandon our business plan.

OUR ABILITY TO GROW AND COMPETE IN THE FUTURE WILL BE ADVERSELY AFFECTED IF ADEQUATE CAPITAL IS NOT AVAILABLE.

The ability of our business to grow and compete depends on the availability of adequate capital, which in turn depends in large part on our cash flow from operations and the availability of equity and debt financing. Our cash flow from operations may not be sufficient or we may not be able to obtain equity or debt financing on acceptable terms or at all to implement our growth strategy. As a result, adequate capital may not be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.

OUR PRODUCTS ARE BASED ON NOVEL, UNPROVEN TECHNOLOGIES.

Our drug candidates in development are based on novel unproven technologies using proprietary carbohydrate compounds in combination with FDA approved drugs currently used in the treatment of ischemia, anemia and trauma and other diseases. Carbohydrates are difficult to synthesize, and we may not be able to synthesize carbohydrates that would be usable as delivery vehicles for the anti-hypoxia drugs we are working with or other therapeutics we intend to develop. Although we have completed certain animal studies that we believe were successful, pre-clinical results in animal studies are not necessarily predictive of outcomes in human clinical trials. Clinical trials are expensive, time-consuming and may not be successful. They involve the testing of potential therapeutic agents, or effective treatments, in humans, typically in three phases, to determine the safety and efficacy of the products necessary for an approved drug. Many products in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Even if our products progress successfully through initial human testing, they may fail in later stages of development. We may engage others to conduct our clinical trials, including clinical research organizations and, possibly, government-sponsored agencies. These trials may not start or be completed as we forecast, or may not achieve desired results.

WE MAY BE UNABLE TO COMMERCIALIZE OUR PRODUCTS.

Even if our current and anticipated products achieve positive results in clinical trials, we may be unable to commercialize them. Potential products may fail to receive necessary regulatory approvals, and such products, along with products such as SUGARDOWN® which do not require regulatory approval, may be difficult to manufacture on a large scale, be uneconomical to produce, fail to achieve market acceptance, or be precluded from commercialization by proprietary rights of third parties. Our inability to commercialize our products would substantially impair the viability of our company.

 
 
6

 
 
 
WE HAVE ESTABLISHED PREFERRED STOCK WHICH CAN BE DESIGNATED BY THE COMPANY'S BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL.

The Company has authorized 5,000,000 shares of preferred stock. The shares of preferred stock of the Company may be issued from time to time in one or more series, each of which shall have a distinctive designation or title as shall be determined by the Board of Directors of the Company ("Board of Directors") prior to the issuance of any shares thereof. The preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the Board of Directors. Because the Board of Directors is able to designate the powers and preferences of the preferred stock without the vote of a majority of the Company's shareholders, shareholders of the Company will have no control over what designations and preferences the Company's preferred stock will have. If preferred stock is designated and issued, then depending upon the designation and preferences, the holders of the shares of preferred stock may exercise voting control over the Company. As a result of this, the Company's shareholders will have no control over the designations and preferences of the preferred stock and as a result the operations of the Company.

OUR MANAGEMENT AND ONE SIGNIFICANT SHAREHOLDER COLLECTIVELY OWN A SUBSTANTIAL MAJORITY OF OUR COMMON STOCK.

Collectively, our officers, our directors and one significant shareholder own or exercise voting and investment control around 78.68% of our outstanding common stock. As a result, investors may be prevented from affecting matters involving the Company, including:
 
the composition of our Board of Directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;
any determinations with respect to mergers or other business combinations;
our acquisition or disposition of assets; and
our corporate financing activities.
 
Furthermore, this concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number of stockholders.

WE ARE DEPENDENT UPON OUR TWO OFFICERS FOR MANAGEMENT AND DIRECTION AND THE LOSS OF THESE PERSONS COULD ADVERSELY AFFECT OUR OPERATIONS AND RESULTS.

Our only current officers are David Platt and Ken Tassey. We are dependent upon both Dr. Platt and Mr. Tassey for implementation of our proposed expansion strategy and execution of our business plan. The loss of Dr. Platt or Mr. Tassey could have a material adverse effect upon its results of operations and financial position. We do maintain “key person” life insurance for both Dr. Platt and Mr. Tassey. The loss of Dr. Platt or Mr. Tassey could delay or prevent the achievement of our business objectives.

OUR LACK OF OPERATING EXPERIENCE MAY CAUSE US DIFFICULTY IN MANAGING OUR GROWTH WHICH COULD LEAD TO OUR INABILITY TO IMPLEMENT OUR BUSINESS PLAN.

We have limited experience in manufacturing or procuring products in commercial quantities, conducting other later-stage phases of the regulatory approval process, selling pharmaceutical products, or negotiating, establishing and maintaining strategic relationships. Any growth of our company will require us to expand our management and our operational and financial systems and controls. If we are unable to do so, our business and financial condition would be materially harmed. If rapid growth occurs, it may strain our operational, managerial and financial resources.
 
 
 
7

 
 
 
WE WILL DEPEND ON THIRD PARTIES TO MANUFACTURE AND MARKET OUR PRODUCTS AND TO DESIGN TRIAL PROTOCOLS, ARRANGE FOR AND MONITOR THE CLINICAL TRIALS, AND COLLECT AND ANALYZE DATA.

We do not have, and do not now intend to develop, facilities for the manufacture of any of our products for clinical or commercial production. In addition, we are not a party to any long-term agreement with any of our suppliers, and accordingly, we have our products manufactured on a purchase-order basis from one of two primary suppliers. We will need to develop relationships with manufacturers and enter into collaborative arrangements with licensees or have others manufacture our products on a contract basis. We expect to depend on such collaborators to supply us with products manufactured in compliance with standards imposed by the FDA and foreign regulators.

In addition, we have limited experience in marketing, sales or distribution, and we do not intend to develop a sales and marketing infrastructure to commercialize our pharmaceutical products. While we currently have an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, China and Macau and have received a commercial purchase order from a distributor in Italy for SUGARDOWN®, if we develop additional commercial products, we will need to rely on licensees, collaborators, joint venture partners or independent distributors to market and sell those products and we may need to rely on additional third parties to market SUGARDOWN®.

Moreover, as we develop products eligible for clinical trials, we contract with independent parties to design the trial protocols, arrange for and monitor the clinical trials, collect data and analyze data. In addition, certain clinical trials for our products may be conducted by government-sponsored agencies and will be dependent on governmental participation and funding. Our dependence on independent parties and clinical sites involves risks including reduced control over the timing and other aspects of our clinical trials.

WE ARE EXPOSED TO PRODUCT LIABILITY, PRE-CLINICAL AND CLINICAL LIABILITY RISKS WHICH COULD PLACE A SUBSTANTIAL FINANCIAL BURDEN UPON US, SHOULD WE BE SUED, BECAUSE WE DO NOT CURRENTLY HAVE PRODUCT LIABILITY INSURANCE OR GENERAL INSURANCE COVERAGE.

Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. Such claims may be asserted against us. In addition, the use in our clinical trials of pharmaceutical formulations and products that our potential collaborators may develop and the subsequent sale of these formulations or products by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

We currently maintain product liability insurance with respect to SUGARDOWN®. There is no guarantee that such insurance will provide adequate coverage against our potential liabilities. Since we do not currently have any FDA-approved products or formulations, we do not currently have any other product liability insurance covering commercialized products. We may not be able to obtain or maintain adequate product liability insurance, when needed, on acceptable terms, if at all, or such insurance may not provide adequate coverage against our potential liabilities. Furthermore, our current and potential partners with whom we have collaborative agreements or our future licensees may not be willing to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have sufficient liquidity to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by us could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may be unable to obtain or to maintain clinical trial or directors and officers liability insurance on acceptable terms, if at all. Any inability to obtain and/or maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any products we develop.
 
DEVELOPMENT OF OUR PRODUCTS MAY INVOLVE THE USE OF HAZARDOUS MATERIALS WHICH MAY INCREASE OUR EXPENSES OR DELAY THE COMPLETION OF OUR PRODUCTS.

Pharmaceutical research and development involves the controlled use of hazardous materials. Biotechnology and pharmaceutical companies must comply with laws and regulations governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. While we do not anticipate building in-house research, development or manufacturing facilities, and, accordingly, do not expect to have to comply directly with environmental regulations, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant compliance costs.  These costs could in turn could increase our expense or delay our completion of research or manufacturing programs.
 
 
8

 
 
IF USERS OF OUR PROPOSED PRODUCTS ARE UNABLE TO OBTAIN ADEQUATE REIMBURSEMENT FROM THIRD-PARTY PAYERS, OR IF NEW RESTRICTIVE LEGISLATION IS ADOPTED, MARKET ACCEPTANCE OF OUR PROPOSED PRODUCTS MAY BE LIMITED AND WE MAY NOT ACHIEVE REVENUES.

The continuing efforts of government and insurance companies, health maintenance organizations (“HMOs”) and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the U.S., given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could materially harm our business, financial condition and results of operations.

Our ability to commercialize our proposed products will depend in part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations and products and related treatments are obtained by governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payers are increasingly challenging the prices charged for medical drugs and services. Also, the trend toward managed health care in the U.S. and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and drugs, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products.

THERE ARE RISKS ASSOCIATED WITH OUR RELIANCE ON THIRD PARTIES FOR MARKETING, SALES AND DISTRIBUTION INFRASTRUCTURE AND CHANNELS.

We expect that we will be required to enter into agreements with commercial partners to engage in sales, marketing and distribution efforts around our products in development. We may be unable to establish or maintain third-party relationships on a commercially reasonable basis, if at all. In addition, these third parties may have similar or more established relationships with our competitors. If we do not enter into relationships with third parties for the sales and marketing of our proposed products, we will need to develop our own sales and marketing capabilities.

We may be unable to engage qualified distributors. Even if engaged, these distributors may:
 
fail to satisfy financial or contractual obligations to us;
fail to adequately market our products;
cease operations with little or no notice to us; or
offer, design, manufacture or promote competing formulations or products.

If we fail to develop sales, marketing and distribution channels, we would experience delays in generating sales and incur increased costs, which would harm our financial results.

WE WILL BE SUBJECT TO RISKS IF WE SEEK TO DEVELOP OUR OWN SALES FORCE.

If we choose at some point to develop our own sales and marketing capability, our experience in developing a fully integrated commercial organization is limited. If we choose to establish a fully integrated commercial organization, we will likely incur substantial expenses in developing, training and managing such an organization. We may be unable to build a fully integrated commercial organization on a cost effective basis, or at all. Any such direct marketing and sales efforts may prove to be unsuccessful. In addition, we will compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete against these other companies. We may be unable to establish a sufficient sales and marketing organization on a timely basis, if at all.
 
 
9

 

 
IF WE ARE UNABLE TO CONVINCE PHYSICIANS AS TO THE BENEFITS OF OUR PROPOSED PRODUCTS, WE MAY INCUR DELAYS OR ADDITIONAL EXPENSE IN OUR ATTEMPT TO ESTABLISH MARKET ACCEPTANCE.

Broad use of our proposed products may require physicians to be informed regarding our proposed products and the intended benefits. Inability to carry out this physician education process may adversely affect market acceptance of our proposed products. We may be unable to timely educate physicians regarding our proposed products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our products. In addition, we may expend significant funds toward physician education before any acceptance or demand for our proposed products is created, if at all.

RISKS RELATED TO OUR INDUSTRY


WE WILL NEED REGULATORY APPROVALS TO COMMERCIALIZE OUR PRODUCTS AS DRUGS

We currently offer SUGARDOWN® as a dietary supplement. We are not required to attain FDA approval in order to offer SUGARDOWN® in this manner. If we choose to offer SUGARDOWN®, PAZ320 or IPOXYN™, or any other product as a drug, we are required to obtain approval from the FDA in order to sell our products in the U.S. and from foreign regulatory authorities in order to sell our products in other countries. The FDA’s review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical and clinical data and supporting information must be submitted to the FDA for each indication for each product candidate in order to secure FDA approval. Before receiving FDA clearance to market our proposed products, we will have to demonstrate that our products are safe and effective on the patient population and for the diseases that are to be treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, regulatory approvals can take a number of years or longer to accomplish and require the expenditure of substantial financial, managerial and other resources. The FDA could reject an application or require us to conduct additional clinical or other studies as part of the regulatory review process. Delays in obtaining or failure to obtain FDA approvals would prevent or delay the commercialization of our product candidates, which would prevent, defer or decrease our receipt of revenues. In addition, if we receive initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation.

DATA OBTAINED FROM CLINICAL TRIALS ARE SUSCEPTIBLE TO VARYING INTERPRETATIONS, WHICH COULD DELAY, LIMIT OR PREVENT REGULATORY CLEARANCES.

Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later pre-clinical studies and clinical trials. Moreover, pre-clinical and clinical data is susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of the potential drug, resulting in delays to commercialization, and could materially harm our business. Our clinical trials may not demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.

OUR COMPETITIVE POSITION DEPENDS ON PROTECTION OF OUR INTELLECTUAL PROPERTY.

Development and protection of our intellectual property are critical to our business. All of our intellectual property, patented or otherwise, has been invented and/or developed by our CEO, David Platt. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success depends in part on our ability to obtain patent protection for our products or processes in the U.S. and other countries, protect trade secrets, and prevent others from infringing on our proprietary rights.
 
 
 
10

 
 
 
Since patent applications in the U.S. are maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we are the first to make the inventions to be covered by our patent applications. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents.

Some or all of our patent applications may not issue as patents or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or to protect our patent rights.

Although we will require our scientific and technical employees and consultants to enter into broad assignment of inventions agreements, and all of our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored. Currently, we do not have any scientific or technical employees. We have consultants and a network of uniquely experienced researchers, clinicians and drug developers, some of whom have signed or been asked to sign agreements.

PRODUCTS WE DEVELOP COULD BE SUBJECT TO INFRINGEMENT CLAIMS ASSERTED BY OTHERS.

We cannot assure that products based on our patents or intellectual property that we license from others will not be challenged by a third party claiming infringement of its proprietary rights. If we were not able to successfully defend our patents or licensed rights, we may have to pay substantial damages, possibly including treble damages, for past infringement.
 
It is not economically practicable to determine in advance whether our products, product components, manufacturing processes or the intended uses for our products infringe the patent rights of others. It is likely that, from time to time, we will receive notices from others of claims or potential claims of intellectual property infringement or we may be called upon to defend a customer, vendee or licensee against such third-party claims. Responding to these kinds of claims, regardless of merit, could consume valuable time, result in costly litigation or cause delays, all of which could harm our business.

Responding to these claims could also require us to enter into royalty or licensing agreements with third parties claiming infringement. Such royalty or licensing agreements, if available, may not be available on terms acceptable to us.

WE FACE INTENSE COMPETITION IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES.

The biotechnology and pharmaceutical industries are intensely competitive. We face direct competition from U.S. and foreign companies focusing on pharmaceutical products, which are rapidly evolving. Our competitors include major multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do. In addition, academic and government institutions are increasingly likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products based on technology developed at such institutions. Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than ours, or succeed in obtaining FDA or other regulatory approvals for product candidates before we do. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.

THE MARKET FOR OUR PROPOSED PRODUCTS IS RAPIDLY CHANGING AND COMPETITIVE, AND NEW DRUGS AND NEW TREATMENTS WHICH MAY BE DEVELOPED BY OTHERS COULD IMPAIR OUR ABILITY TO MAINTAIN AND GROW OUR BUSINESS AND REMAIN COMPETITIVE.

The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. Developments by others may render our proposed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.

 
 
11

 
 
 
As a development stage company with nominal revenues engaged in the development of drug technologies, our resources are limited and we may experience technical challenges inherent in such technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our proposed products.

Our competitors may develop drugs that are safer, more effective or less costly than our proposed products and, therefore, present a serious competitive threat to us.

The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medication. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of these competitive drugs may limit the potential for our technologies, formulations and products to receive widespread acceptance if commercialized.

HEALTH CARE COST CONTAINMENT INITIATIVES AND THE GROWTH OF MANAGED CARE MAY LIMIT OUR RETURNS.

Our ability to commercialize our products successfully may be affected by the ongoing efforts of governmental and third-party payers to contain the cost of health care. These entities are challenging prices of health care products and services, denying or limiting coverage and reimbursement amounts for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used for disease indications without FDA marketing approval.

Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.

RISKS RELATING TO OUR SECURITIES

STOCK PRICES FOR PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES ARE VOLATILE.

The market price for securities of pharmaceutical and biotechnology companies historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. Fluctuations in the trading price or liquidity of our common stock may adversely affect, among other things, the interest in our stock by purchasers on the open market and our ability to raise capital.

OUR SHARES OF COMMON STOCK AND WARRANTS MAY BE THINLY TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR EVEN AT ALL IF YOU NEED TO SELL YOUR SHARES OR WARRANTS TO RAISE MONEY OR OTHERWISE DESIRE TO LIQUIDATE YOUR SHARES OR WARRANTS.

We cannot predict the extent to which an active public market for our common stock and warrants will develop or be sustained. Our common stock is currently traded on The Over-the-Counter Bulletin Board and experiences periods when it could be considered "thinly-traded." This situation may be attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days, weeks or months when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained or not diminish.
 
 
 
12

 
 
THERE IS PRESENTLY NO PUBLIC MARKET FOR THE WARRANTS TO PURCHASE COMMON STOCK BEING SOLD IN THIS OFFERING.
 
There is presently no established public trading market for the warrants being offered in this offering and we do not expect a market to develop. Without an active market, the liquidity of the warrants will be limited. Further, the existence of the warrants may act to reduce both the trading volume and the trading price of our common stock.

WE HAVE NOT PAID ANY CASH DIVIDENDS IN THE PAST AND HAVE NO PLANS TO ISSUE CASH DIVIDENDS IN THE FUTURE, WHICH COULD CAUSE THE VALUE OF OUR COMMON STOCK TO HAVE A LOWER VALUE THAN OTHER SIMILAR COMPANIES WHICH DO PAY CASH DIVIDENDS.

We have not paid any cash dividends on our common stock to date and do not anticipate any cash dividends being paid to holders of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion. As we have no plans to issue cash dividends in the future, our common stock could be less desirable to other investors and as a result, the value of our common stock may decline, or fail to reach the valuations of other similarly situated companies who have historically paid cash dividends in the past.

STATE SECURITIES LAWS MAY LIMIT SECONDARY TRADING, WHICH MAY RESTRICT THE STATES IN WHICH AND CONDITIONS UNDER WHICH YOU CAN SELL SHARES.

Secondary trading in our common stock will not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted.

THERE IS A MARKET FOR OUR COMMON STOCK, HOWEVER, OUR STOCK PRICE MAY BE VOLATILE.

The market for our common stock could be subject to wide fluctuations in response to several factors, including, but not limited to:

 
(1)
actual or anticipated variations in our results of operations;
 
(2)
our ability or inability to generate new revenues;
 
(3)
increased competition; and
 
(4)
conditions and trends in the pharmaceutical industry and/or the market for our pharmaceutical products in general.

Further, if our common stock is traded on the over the counter bulletin board, as is our intention, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.
 
 
13

 
 
INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO FEDERAL REGULATION OF PENNY STOCKS.
 
We expect that for some period of time, our common stock will be quoted on the OTC Bulletin Board under the symbol “BTHE”. Our common stock will be subject to the requirements of Rule 15(g)-9, promulgated under the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains a number of “forward-looking statements”. Specifically, all statements other than statements of historical facts included in this prospectus regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management at the time these statements were made, as well as assumptions made by and information currently available to management. When used in this prospectus and the documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “continue” and “intend,” and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements. These statements reflect our current view with respect to future events and are subject to risks, uncertainties and assumptions related to various factors.

You should understand that the following important factors, in addition to those discussed in our periodic reports to be filed with the SEC under the Exchange Act, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements:

 
We may be unable to raise the capital we will need to maintain operations and fulfill our business objectives.
 
We are subject to extensive and costly regulation by the FDA, which must approve our product candidates in development and could restrict the sales and marketing of such products in development.
 
We may be unable to achieve commercial viability and acceptance of our proposed products.
 
We may be unable to improve upon, protect and/or enforce our intellectual property.
 
We may be unable to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product candidates.
 
We are subject to significant competition.
 
As a public company, we must implement additional and expensive finance and accounting systems, procedures and controls as we grow our business and organization to satisfy new reporting requirements, which will increase our costs and require additional management resources.

Although we believe that our expectations are reasonable, we cannot assure you that those expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this prospectus and the documents incorporated by reference herein as anticipated, believed, estimated, expected or intended.
 
Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to herein. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus and the documents incorporated by reference herein might not occur.

 
 
14

 

 
USE OF PROCEEDS

Our offering is being made in a direct public offering, without any involvement of underwriters or broker-dealers on a no minimum, 20,000,000 share maximum offering basis. Selling all of the shares in the offering could result in $10,000,000 gross proceeds.  We intend to use the proceeds from this offering for the further development, testing and approval of SUGARDOWN®, PAZ320 and IPOXYN™. More specifically, and consistent with FDA requirements, we intend to use the proceeds from this offering to (1) initiate a Phase IV clinical trial of SUGARDOWN® and Metformin, (2) initiate a Phase lll clinical trial of PAZ320 and Metformin (3) and initiate pre-clinical studies of  IPOXYN™. We also intend to use the proceeds from this offering to further develop and market SUGARDOWN®, build a management team and for general corporate purposes and working capital.  We could receive up to an additional $10,000,000 in gross proceeds if the warrants being offered were subsequently fully exercised. We intend to use those proceeds, if received, for general corporate purposes, including some of the purposes described in the preceding sentences.

 
DIVIDEND POLICY

To date, we have not declared or paid any dividends on our outstanding shares. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings to finance our operations and future growth, our Board of Directors will have discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements and other factors, which our Board of Directors may deem relevant.

LEGAL PROCEEDINGS

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.


DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
Our board of directors, executive officers and key employees are as follows:
         
Name
 
Age as of September 5,
2012
 
Position
DDaDavid Platt, Ph.D.
 
59
 
Chief Executive Officer, Chief
Financial Officer, Treasurer and
Chairman
KeKKenneth A. Tassey, Jr.
 
51
 
President Chief Operating Officer
and Director
DaDDale H. Conaway, D.V.M.
 
58
 
Director
RoRRom E. Eliaz
 
41
 
Director
CaCCarl L. Lueders
 
62
 
Director
Henry J. Esber, Ph.D.
 
74
Director

David Platt, Ph.D. is our Chief Executive Officer, Chief Financial Officer, Treasurer and Chairman. He also served as our President from the inception of the Company in August 2009 through November 2010. From 2001 to February 2009, Dr. Platt was Chief Executive Officer and Chairman of the Board of Directors of Pro-Pharmaceuticals, Inc., a public company with shares traded on the OTCBB that he co-founded and for which he was the co-developer of their core technology. From 1995 to 2000, Dr. Platt was Chief Executive Officer and Chairman of the Board of Directors of SafeScience Inc., a company he founded. From 1992 to 1995, Dr. Platt was the Chief Executive Officer, Chairman of the Board and a founder of International Gene Group, Inc., the predecessor company to SafeScience. Dr. Platt received a Ph.D. in Chemistry in 1988 from Hebrew University in Jerusalem. In 1989, Dr. Platt was a research fellow at the Weizmann Institute of Science, Rehovot, Israel, and from 1989 to 1991, was a research fellow at the Michigan Foundation (re-named Barbara Ann Karmanos Institute). From 1991 to 1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan. Dr. Platt has published peer-reviewed articles and holds many patents, primarily in the field of carbohydrate chemistry.
 
 
 
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Kenneth A Tassey Jr. is our President and a Director of the Company since November 2010, was President, CEO and co-founder of Boston Therapeutics, Inc., a New Hampshire corporation, from June 2009 until its acquisition by the Company in November 2010. From March 2007 thru March 2009 Mr. Tassey was President of TKCI, a consultant for commercial finance projects. From March 2005 thru June 2007 Mr. Tassey was President of Liberty Shore LLC, a consultant to businesses and commercial and residential lenders.

Dale H. Conaway, D.V.M., a Director of the Company since September 2009, is the Chief Veterinary Medical Officer for the Office of Research Oversight, an office within the Veterans Health Administration under the U.S. Department of Veterans Affairs. From 2001 to 2006, Dr. Conaway was the Deputy Regional Director (Southern Region). From 1998 to 2001, Dr. Conaway served as Manager of the Equine Drug Testing and Animal Disease Surveillance Laboratories for the Michigan Department of Agriculture. From 1994 to 1998, he was Regulatory Affairs Manager for the Michigan Department of Public Health Vaccine Production Division. Dr. Conaway received a D.V.M. degree from Tuskegee Institute and an M.S. degree in pathology from the College of Veterinary Medicine at Michigan State University.

Dr. Rom E. Eliaz, Ph.D., MBA, a Director of the Company since September 2009, has been a President and CEO of JJ Pharma Inc. since September 2009. He has also been CEO and Managing Director of Elrom Ventures Corp. since May 2007 and a strategic partner in The Colmen Group since June 2009. From January 2007 to October 2007 Dr. Eliaz was a Senior Director of Development at Intradigm Corp. From March 2004 to December 2006 Dr. Eliaz was a Director of Development at Pfizer Inc., (Rinat Neuroscience).

Henry J. Esber, Ph.D., a Director of the Company since December 2011, has been a Principal in Esber D&D consulting since 2005. From 2003 to 2005, Dr. Esber was a Senior Consultant, Business Development at Charles River Labs, Discovery and Development Services. From 2005 to 2006, Dr. Esber was a consultant and from 2006, he was Senior Vice President and Chief Business Officer for Bio-Quant which he had co-founded. Dr. Esber was also the co-founder of BioSignature Diagnostics, Inc. and Advanced Drug Delivery, Inc. He serves on the Scientific Advisory Boards of several biotechnology companies and is the author of more than 130 technical publications. Dr. Esber has more than 35 years of experience in the areas of oncology/tumor immunology and immunotherapy as well as strong knowledge in the field of toxicology and regulatory affairs. Dr. Esber received a B.S. degree in biology/pre-med from the College of William and Mary, an M.S. degree in public health and parasitology from the University of North Carolina, and a Ph.D. in immunology/microbiology from West Virginia University Medical Center. Dr. Esber was previously a Director of the Company from September 2009 through December 2010.

Carl L. Lueders, a Director of the Company since September 2009, has a broad range of experience in finance, operations, short- and long-term planning, forecasting, performance measurement, SEC reporting, and controls. He is currently Chief Financial Officer (CFO) for Micronetics, Inc. a manufacturer of microwave and radio frequency products for commercial wireless, defense and aerospace products. Prior to that he was CFO for Pro-Pharmaceuticals and before that CFO for R.F. Morse & Son, a privately held agri-based company. Prior to that Mr. Lueders spent 22 years with publicly held Polaroid in various finance positions, including Vice President and Controller, Treasurer and acting Chief Financial Officer. Polaroid filed for bankruptcy in the fall of 2001. Mr. Lueders is a CPA and received his B.A. in Economics from the University of Massachusetts at Amherst and his M.B.A. from Babson College.

Our Directors are elected annually and each holds office until the annual meeting of the shareholders of the Company and until their respective successors are elected and qualified. Our officers, including any officers we may elect moving forward, will hold their positions at the pleasure of the Board of Directors, absent any employment agreement. In the event we employ any additional officers or directors of the Company, they may receive compensation as determined by the Company from time to time by vote of the Board of Directors. Vacancies in the Board will be filled by majority vote of the remaining directors or in the event that a sole remaining Director vacates his position, by our majority shareholders. Our Directors may be reimbursed by the Company for expenses incurred in attending meetings of the Board of Directors.
 
 
 
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Employment Agreement

The only employment agreement between the Company and any of its officers or directors is the employment agreement with Ken Tassey executed in August 2011. His agreement is described in greater detail under “Director and Executive Compensation - Employment Contracts”.  There are no arrangements or plans in which we provide pension, retirement or similar benefits for our officers or directors. Our officers and directors may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our officers or directors, except that stock options may be granted at the discretion of our board of directors from time to time.

Change in Control and Severance Payments

The employment agreement between the Company and Mr. Tassey provides that if he is terminated without cause within 6 months after a change of control he is entitled to receive the lump-sum payment of 50% of Mr. Tassey’s annual salary then in effect in the event the agreement is terminated by the Company without cause other than as a result of the death or disability, which would result in a payment of $18,000 to Mr. Tassey based on his current salary level. There are no material terms of the contract that provide for payments in connection with the resignation, retirement or other termination of Mr. Tassey or in connection with a change of control.  Currently, none of our executive officers other than Mr. Tassey is entitled to receive any payments upon a change in control or termination of employment.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth certain information as of September 5, 2012 with respect to the beneficial ownership of shares of the Company’s common stock by (i) each person or group known to us, to beneficially own more than 5% of the outstanding shares of such stock (as we do not have a class of securities registered under Section 12 of the Exchange Act, holders of 5% or more of the outstanding shares of our common stock are not currently required to file Schedule 13D or Schedule 13G with the Securities and Exchange Commission), (ii) each director; (iii) each of our executive officers named in the summary compensation table under “Director and Executive Compensation” currently serving as an executive officer; and (iv) the executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of common stock (the only class of outstanding stock), except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of stock. The percentage of beneficial ownership is based upon 17,348,206 shares of common stock outstanding as of September 7, 2012. Except as otherwise indicated in the footnotes to the table, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws, where applicable.
 
 
 
Name and Address of Beneficial Owner
Number of Shares
Percent of Class (1)
David Platt (2)(3)
8,603,584(3)
49.59%
Kenneth A. Tassey, Jr.(2)
3,040,000
17.52%
Offer Binder
2, 000,000
11.53%
Via Armand Fedeli 121
   
    Perugia PG 06132    
    Italy    
Dale H. Conaway, D.V.M.(2)
2,100
*%
Rom E. Eliaz(2)
100
*
Henry J. Esber(2)
4,000
*
Carl L. Lueders(2)
-
*
All Officers and Directors as a Group (6 persons)
11,649,784
67.15%
 
(1)
The percentage shown in the table is based on 17,348,206 shares of Common Stock outstanding on September 7, 2012.
(2)
The business address for these individuals is 1750 Elm Street, Manchester, NH 03104.
(3)
Includes 520,000 shares owned by Dr. Platt's wife.
 
 
 
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DESCRIPTION OF BUSINESS

Overview

We were organized as a Delaware corporation (the “Company,” “we,” “our”, and “us”) on August 24, 2009 under the name “Avanyx Therapeutics, Inc.” On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in exchange for 100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of BTI and was a director and minority stockholder of BTI at the time of the Merger. Dr. Platt received 400,000 shares of our common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became our President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of BTI at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.

At the time of the merger, BTI was in the business of developing and commercializing, among other things, dietary supplements including its initial product, SUGARDOWN®, a complex carbohydrate based dietary supplement based on BTI’s proprietary processes and technology.  SUGARDOWN® is currently in the initial stage of market introduction. We believe that SUGARDOWN® has significant revenue and positive cash flow potential.

We are a development stage company with limited operating history, which makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment.

Our primary business is the development and commercialization of therapeutic drugs and dietary supplements with an initial focus on diabetes and inflammatory diseases. We are a leader in the field of complex carbohydrate chemistry. Initially, our product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: SUGARDOWN®, a non-systemic chewable complex carbohydrate dietary supplement designed to moderate post-meal blood glucose; PAZ320, a non-systemic chewable therapeutic compound designed to reduce post-meal glucose elevation, and IPOXYN™, an injectable anti-hypoxia drug specifically designed to treat lower limb ischemia associated with diabetes. More information is available at www.bostonti.com.

SUGARDOWN®

We have developed SUGARDOWN®, a non-systemic complex carbohydrate-based dietary supplement to moderate post-meal blood glucose using proprietary processes and technology. We have unrestricted access to both sufficient raw materials at commodity pricing and processing facilities to produce sufficient supply of SUGARDOWN® to support product distribution across multiple sales channels as a dietary supplement. Our SUGARDOWN® dietary supplement consists of a stabilized complex carbohydrate composition. We have completed development of SUGARDOWN® as a dietary supplement, and we currently offer SUGARDOWN® as a dietary supplement.

We have voluntarily filed thirty structural and functional claims with the FDA with respect to SUGARDOWN® which describe the proposed mechanism of action of SUGARDOWN® in reducing post-meal elevation of glucose in the blood. If we choose to offer SUGARDOWN® as a drug, it will be subject to a drug approval process with the FDA.

Status of Development of SUGARDOWN®
We have completed development of SUGARDOWN® as a dietary supplement. We have filed a structure and function claim application with the United States Food and Drug Administration (FDA) with respect to SUGARDOWN® which describes the proposed mechanism of action of SUGARDOWN® in reducing post-meal elevation of glucose in the blood. The Company submitted thirty structural and functional claims with the FDA. We have filed a provisional patent with the United States Patent and Trademark Office with regard to SUGARDOWN®. We have received a trademark for SUGARDOWN®. General Product Liability Insurance for SUGARDOWN® has been in effect since April 2010. On December 29, 2011 the Company announced that it has secured its first purchase order for distribution of SUGARDOWN® in Italy. On April 12, 2012 the Company announced it had received its first commercial purchase order for $157,000 from Advance Pharmaceutical Trading Co., a privately-held company based in Hong Kong.
 
 
 
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On January 24, 2012 the Company announced the clinical trial results in healthy volunteers conducted at the University of Sydney on SUGARDOWN®.  SUGARDOWN® data were collected for postprandial blood sugar elevation with a 50g glucose challenge. In a randomized, crossover design study, SUGARDOWN® was tested at two doses in 10 healthy, non-smoking subjects (6 males, 4 females; ages 25.6-36.8; BMI=25.5-28.7).  The results of this study showed that the postprandial AUC for glucose and insulin were significantly lowered following consumption of SUGARDOWN® tablets prior to a high carbohydrate meal in a dose-dependent manner. This resulted in a 32% reduction in postprandial glucose and a 24% decrease in the postprandial insulin response compared to the rice consumed alone. In summary, the study results demonstrate that SUGARDOWN® tablets, when used as a functional dietary supplement, can have a significant impact in reducing postprandial glucose and insulin responses. Such a nutritional approach may be valuable in the management of glycemic excursions and could enhance the role of functional dietary supplements as part of a diabetes management plan.

Competitive Products: SUGARDOWN®

Nutritional Supplements
Products in the non-prescription, dietary supplements category which may be useful to prediabetics and diabetics, and could be potential competitors with SUGARDOWN® include a variety of tablets, capsules and powders and include Cinnamon, Chromium, Vanadium, Banaba Leaf, Alpha Lipoic Acid, Fenugreek, Glucomannan, and Gymnema Sylvestra.

Secretagogues
Secretagogues, which include Sulfonylureas and Meglitinides, help enhance insulin secretion.
Sulfonylureas were the first widely used oral hypoglycemic medications. They are insulin secretagogues, triggering insulin release by direct action on the KATP channel of the pancreatic beta cells. Glipizide (Glucotrol®) falls into this category with side effects including GI discomfort, diarrhea and hypoglycemia.

Meglitinides help the pancreas produce insulin and are often called "short-acting secretagogues." Their mode of action is original, affecting potassium channels By closing the potassium channels of the pancreatic beta cells, they open the calcium channels, hence enhancing insulin secretion. They are taken with or shortly before meals to boost the insulin response to each meal. If a meal is skipped, the medication is also skipped. Repaglinide (Prandin®) falls into this category with side effects including hypoglycemia and hyperglycemia.
 
 
Sensitizers

Insulin sensitizers address the core problem in type 2 diabetes—insulin resistance—and include Biguanides and Thiazolidinediones. Among oral hypoglycemic agents, insulin sensitizers are the largest category. Biguanides reduce hepatic glucose output and increase uptake of glucose by the periphery, including skeletal muscle. Although it must be used with caution in patients with impaired liver or kidney function, metformin, a biguanide, has become the most commonly used agent for type 2 diabetes in children and teenagers. Amongst common diabetic drugs, metformin is the only widely used oral drug that does not cause weight gain. Metformin is the most prescribed drug in this category whose side effects may be hypoglycemia and lactic acidosis. Thiazolidinediones (TZDs), also known as "glitazones," bind to PPARγ, a type of nuclear regulatory protein involved in transcription of genes regulating glucose and fat metabolism. Rosiglitazone (Avandia®) and Pioglitazone (Actos®) fall into this category of anti-diabetic agent.

Scientific Overview

Diabetes Mellitus

Diabetes Mellitus, known simply as Diabetes, is a chronic metabolic disorder in which a person has abnormally high levels of glucose in the circulating blood. This condition is caused by a failure of the pancreas to produce insulin and/or an inability of the body to respond adequately to circulating insulin. When glucose builds up in the blood instead of going into cells, it can lead to diabetes complications, which include limb Ischemia and neuropathy, retinopathy, kidney, cardiovascular and cerebrovascular diseases. Diabetes affects 25 million people in the United States.
 
 
 
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Pre-Diabetes

Pre-diabetes is the state in which a person has higher than normal blood glucose level, but not high enough to be diagnosed with Diabetes. While in this range between normal and diabetic, patients are at risk for not only developing type 2 diabetes, but also for cardiovascular complications. Pre-diabetes affects 79 million Americans.

Diabetes Mellitus is categorized into three general areas:

Type 1 diabetes: results from the body's failure to produce insulin, and presently requires the person to inject insulin. Only 5-10% of people with diabetes have this form of the disease. It is considered an auto-immune disease, since the body's immune system attacks and destroys insulin producing beta cells in the pancreas.

Type 2 diabetes: results from insulin resistance by the body’s cells, deficient insulin production by the Pancreas or a combination of both. Insulin resistance is a condition in which the cells in the body ignore or have become desensitized to insulin.

Gestational diabetes: is determined when pregnant women, who have never had diabetes before, have a high blood glucose level during pregnancy. It may precede development of type 2 diabetes and affects approximately 4% of all pregnant women.

Type 2 and Type 1 diabetics generally manage their blood glucose level on a meal-to-meal basis. High levels of glucose in the bloodstream for prolonged periods can lead to complications of diabetes caused by reduced oxygen supply and nerve tissue damage to eyes, kidney, brain, heart and limbs.

Standard therapies for Diabetes include physician-recommended exercise and diet, oral hypoglycemic drugs such as Metformin for type 2 diabetics, and insulin injection regimens for type 1 diabetics. The objective of each is to maintain a daily blood glucose level range recommended by a physician.

Marketing: SUGARDOWN®
 
We believe SUGARDOWN® is a safe and effective dietary supplement for assisting pre-diabetics and diabetics in their daily management of blood glucose levels, fulfilling an unmet clinical need. We believe this supplement may provide individuals with a non-systemic tool to reduce post-meal elevation of blood glucose. The product is ready for limited market release and is currently available on the company product website, www.sugardown.com.

We envision a sizable over-the-counter market in the U.S. In 2010, the Center for Disease Control estimated that there were 18.8 million diagnosed and 7.0 million undiagnosed diabetics and an estimated 79 million pre-diabetics in the US. The Company entered SUGARDOWN® into a limited clinical trial, entitled “DETERMINATION OF THE POSTPRANDIAL GLUCOSE AND INSULIN RESPONSES OF WHITE RICE ALONE AND WHITE RICE CONSUMED WITH SUGARDOWN™ in 2011. We intend to leverage data from this study in the marketing of SUGARDOWN®. We intend to engage a medical advisory board consisting of leading physicians who have participated in relevant clinical studies and who are leaders in the field of diabetes, who will guide us through an ongoing clinical trials program. We do not currently have agreements with any potential candidates for such board. We may seek to enter into licensing or co-marketing agreements for regions of the world in order to avail the Company of the marketing expertise of one or more seasoned marketing and/or pharmaceutical companies. We intend to assemble a team of marketing and sales professionals, and to engage third party sales and distribution organizations in order to leverage the expertise and market exposure of those companies. We are currently under agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, China and Macau and we have entered into an agreement to market SUGARDOWN® in Italy. We have engaged in direct marketing efforts to market SUGARDOWN® in the United States but have not yet entered into any agreements with third party distributors for U.S. sales.
 
 
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PAZ320
PAZ320 is a non-systemic, non-toxic, chewable drug candidate for prevention of diabetes and its complications. PAZ320 inhibits the enzymes that release glucose from complex carbohydrate in foods during digestion, reducing the amount of available glucose absorbed through the intestine. We believe PAZ320 is a safe and effective drug compound for pre-diabetics and diabetics in their daily management of blood glucose levels, fulfilling an unmet medical need. We believe this compound may provide individuals with a means by which to slow the onset of Type 2 diabetes and/or the onset of diabetes complications such as heart disease, stroke, kidney damage, retinopathy and Diabetic Foot. As further described below under “Government Regulation - Drug Approval Process,” PAZ320 will require FDA approval for marketing as a drug and will be subject to extensive regulation by governmental authorities in the United States and other countries.
 
Status of Development of PAZ320
On June 22, 2012, the Company announced that it has completed enrollment in a Phase ll clinical trial to evaluate the safety and efficacy of PAZ320 when added to oral agents or insulin in patients with Type 2 diabetes at Dartmouth-Hitchcock Medical Center in Lebanon, NH. PAZ320 is a non-systemic chewable tablet designed to reduce post-meal elevation of blood glucose.  On April 10, 2012, the Company announced that interim data analysis of the Phase ll clinical trial showed that there were no serious adverse events from PAZ320. 24 patients with Type 2 diabetes were included in the open label, dose escalation crossover trial. The patients were adults age 18-75 with Type 2 diabetes, on insulin or oral agents, with a body mass index of 25-40 kg/m2 and with an A1C of less than or equal to 9%. The A1C test is a blood test that provides information about a person's average levels of blood glucose, also called blood sugar, over the past three months. The Company expects to report Phase ll final results by year-end 2012.

Competitive Products: PAZ320

Anti-diabetic drugs
Anti-diabetic drugs treat diabetes mellitus by lowering glucose levels in the blood. With the exceptions of insulin, exenatide marketed as Byetta®, Bydureon®, and pramlintide, marketed as Symlin®, all are administered orally and are thus also called oral hypoglycemic agents or oral antihyperglycemic agents. There are different classes of anti-diabetic drugs, and their selection depends on the nature of the diabetes, age and situation of the person, as well as other factors. The Company’s non-systemic compounds for prediabetes and diabetes, SUGARDOWN® and PAZ320, belong to the class of carbohydrate-hydrolyzing enzyme inhibitors. Acarbose marketed by Bayer as Prandase® and Glucobay® belong to the same class.

Alpha-glucosidase inhibitors are "diabetes pills" but not technically hypoglycemic agents because they do not have a direct effect on insulin secretion or sensitivity. These agents slow the digestion of starch in the small intestine, so that glucose from the starch of a meal enters the bloodstream more slowly, and can be matched more effectively by an impaired insulin response or sensitivity. These agents are effective by themselves only in the earliest stages of impaired glucose tolerance, but can be helpful in combination with other agents in type 2 diabetes. Acarbose, marketed as Prandase® and Glucobay® is an Alpha-glucosidase Inhibitor.

IPOXYN™

We intend to develop IPOXYN™, a glyco-protein-based therapeutic agent that incorporates our proprietary processes and patented technology. Our IPOXYN™ anti-hypoxia drug consists of a stabilized glycoprotein composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived of oxygen and in need of metabolic support. IPOXYN™ is based on novel unproven technologies. We may be unsuccessful in developing these technologies into drugs which the United States Food and Drug Administration (FDA) ultimately will approve.

We have not commenced human clinical trials for IPOXYN™. We will contract with outside vendors to produce sufficient quantities of IPOXYN™ to complete our pre-clinical pharmacokinetic, safety and efficacy studies in support of an investigative new drug (“IND”) filing in the United States and Europe in 2013.
 
 
 
21

 
 
 
In addition to potential uses for human patients, we also intend to file a registration for IPOXYN™ for veterinary applications under the name OXYFEX™. We are unaware of any drug currently on the market for animals that can deliver oxygen, and there is only limited “blood banking” for animals despite a constant need. OXYFEX™ can serve as the only available oxygen delivery mechanism for animals suffering ischemia or traumatic and surgical blood loss events.

We hope to be able to commence marketing OXYFEX™ for veterinary applications, which we view as a potentially lucrative market, in 2015 in various locations around the world. However, there is no assurance that we will be able to successfully commercialize our products.

Approval of OXYFEX™ for veterinary use requires the filing of a New Animal Drug Application (NADA) with, and approval by the Center for Veterinary Medicine Division of, the FDA. The requirements for approval are similar to those for new human drugs, exclusive of human trials. Obtaining NADA approval often requires safety and efficacy clinical field trials in the applicable species and disease, after submission of an Investigational New Animal Drug Application, which for non-food animals becomes effective upon acceptance for filing. We have not conducted any clinical trials or filed any applications with the FDA with respect to IPOXYN™ or OXYFEX™.

Scientific Overview - Hypoxia
Hypoxic conditions are detrimental to maintaining normal functionality in all living tissues. In mammals, red blood cells (RBCs) deliver oxygen throughout the body using hemoglobin, a protein responsible for carrying and releasing oxygen to the body's tissues. Under normal conditions, approximately 98% of oxygen is delivered by hemoglobin in the RBCs, while less than two percent is dissolved in the plasma, the fluid part of the blood.  As the heart pumps blood, RBCs take up oxygen in the lungs and carry it to various parts of the body. Blood travels through progressively smaller blood vessels to the capillaries, some of which are so narrow that RBCs can only pass through them in single file. Most of the oxygen release occurs in the capillaries. Oxygen depleted RBCs return to the lungs to be reloaded. Adequate blood flow, pressure and RBC counts are crucial to this process. Hypoxia, or oxygen deprivation, even for several minutes, can result in cell damage, organ dysfunction and, if prolonged, death.

The causes of inadequate tissue oxygenation generally can be classified into three major categories:

Ischemia -- inadequate RBC flow for tissue oxygenation. Ischemia may be caused by obstructed or constricted blood vessels and can lead to stroke, heart attack or other organ or tissue dysfunction.

Cardiopulmonary failure -- impaired function of the heart or lungs. Cardiopulmonary failure may be caused by the inability of the heart to pump sufficient quantities of blood to meet the needs of the tissues or the failure of the lungs to oxygenate blood adequately.

Anemia -- insufficient RBCs in circulation. This condition can be caused by chronic disorders affecting RBCs functionality or production like chemotherapy and radiation for treatment of cancer, or blood borne diseases like bone marrow diseases. Anemia may be also caused by acute blood loss from accidental injury or surgery.
The standard therapy for acute anemia resulting from blood loss is infusion of RBCs mainly from supplies of donated blood. For prophylactic or long term treatment of anticipated or chronic anemia, medications that stimulate the creation of new RBCs are frequently used.

Presently, there is no substitute for human blood to deliver oxygen to the body; and transfusions involve certain risks and limitations. Despite the effort by blood banks around the world to screen the blood supply for HIV, hepatitis and other blood borne diseases, there is a continuing risk of an unsafe blood supply in many parts of the world; donated blood continues to carry the risk of disease transmission.

Blood compatibility and handling and storage requirements and limitations limit the use of RBCs transfusions to hospital environments only. Shortages of certain types of blood thus occur due to seasonal factors or disasters. Since RBCs’ oxygen-delivering capacity breaks down with storage (approximately 75% capacity remains after eight days of storage) their shelf-life is less than 42 days, limiting the ability for significant stockpiles of RBCs. In addition, for ischemic conditions due to constricted blood vessels where normal passage of RBCs is restricted or due to impaired heart or lung function, RBC transfusions are generally not effective.
 
 
 
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IPOXYN™ and OXYFEX™
IPOXYN™ is designed for delivery as an intravenous solution, with the expectation that it can reverse an inadequate supply of oxygen and support various metabolic functions in the body in a manner and with effects similar to those resulting from the infusion of RBCs - but without the limitations of compatibility, availability, short shelf life, volume and logistical challenges commonly associated with transfusions of whole blood. Other intravenous fluids commonly used in emergency trauma to restore blood volume, such as Ringer’s lactate or saline, are not designed to and do not effectively carry oxygen. We have not conducted any clinical trials to confirm the efficacy of, or filed any applications with the FDA with respect to, IPOXYN™. IPOXYN™ will not be ready for commercialization until these steps are completed. Preclinical animal study results for IPOXYN™ were presented at the XIII International Symposium on Blood Substitutes and Oxygen Therapeutics in July 2011.

We are planning to introduce this product in clinical trials for hypoxic medical conditions. Hypoxia promotes resistance to conventional treatments, as well as treatments for other diseases. IPOXYN™ has the potential to greatly improve survival of patients in multiple indications in which hypoxia is a factor. Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. It is widely known through research that lack of oxygen will result in a cascade of biochemical reactions which promote resistance to many helpful therapeutic substances and which interfere with the body’s own repair mechanisms. Antibiotics for the treatment of infection are less effective when hypoxic conditions are involved. Similarly, hypoxic cancer cells are resistant to chemotherapy treatments; most chemotherapy drugs rely on rapid cell division which requires normal oxygenation of cells, but in a hypoxic condition, cells divide slowly and therefore resist many chemotherapy treatments.

Another unmet clinical need is in various acute ischemic conditions, where hypoxia can develop from a local restriction of constrained blood vessels, or poor and compromised flow which leads to insufficient supply of oxygen by otherwise well-oxygenated and distributed RBCs, e.g. cerebral ischemia, ischemic heart disease and intrauterine hypoxia which is an unchallenged cause of perinatal death. In these cases IPOXYN™, as a rechargeable soluble oxygen delivery agent, may not be restrained whereas well-oxygenated RBCs may be prevented from flow and delivery of oxygen. This is so because RBCs are large biological structures compared to the size of IPOXYN™, which is a modified single-protein function oxygen carrier. In ischemic and hypoxic conditions, RBCs may not be able to penetrate the small vessels which have lost their integrity to support RBC distribution and thus oxygen availability. Due to its small molecular size, IPOXYN™ can carry and distribute oxygen widely without risk of clot formation and flow stoppage.

In veterinary medicine applications, OXYFEX™ will be used as an oxygen delivery agent similar to a blood substitute for ischemia and trauma, as well as for blood loss during surgery.

Status of development of IPOXYN™
We are in the process of developing IPOXYN™ for pre-clinical studies, in order to conduct clinical trials and to file applications with the FDA as applicable.

Competitive Products
Many biotechnology and pharmaceutical companies are developing new technologies for the treatment of hypoxia and other diseases. The standard therapy for reversing hypoxia due to acute blood loss may be blood infusion, RBCs or hyperbaric oxygen. Hyperbaric medicine, also known as hyperbaric oxygen therapy (HBOT), is the medical terminology for using oxygen at a level higher than atmospheric pressure. There are many conditions being treated using this approach including acute blood loss (Hart GB, Lennon PA, Strauss MB. (1987) "Hyperbaric oxygen in exceptional acute blood-loss anemia". J. Hyperbaric Med 2 (4): 205–210). In the United States, HBOT is recognized as a reimbursable treatment for 14 "approved" conditions and an HBOT session can cost anywhere from $200 in private clinics, to over $1,000 in hospitals. The sessions require the use of a heavy chamber. The most common intervention in hypoxic patients is RBC transfusion. The need for intervention to reduce hypoxia can also be affected by medical conditions such as ischemia or cardiopulmonary failure, claudication (cramping caused by blocked arteries in the leg), poor perfusion and other indications, where a combination of below optimal flow and capacity are compromising oxygen delivery.

When compared to RBC transfusion we believe IPOXYN™ has the following advantages:

Availability: readily available, with a two year shelf-life, much longer than the two week shelf life for RBCs and easier to perfuse.
 
 
 
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Stability: stored at room temperature for months while maintaining its full capacity for oxygen delivery and release and logistical convenience
Sterile: when manufactured and processed consistently through good manufacturing practices, free of infectious agents and unnecessary elements.
Compatibility: safe for all blood types in a wide range of conditions and does not require pre-infusion typing or testing for compatibility.
Critical care: IPOXYN™ can be safely applied outside the hospital to treat or prevent ischemic conditions in cases like shock and trauma, heart attack or stroke where low flow or suspended local flow are disrupted. A readily available infusion package makes it a straightforward tool for emergency medical teams to use on site in order to save a patient’s life, when time is of the essence for survival.
Molecular structure: Chemically IPOXYN™ features a small molecular size compared to RBCs, so it possesses better flow characteristics and circumvents constricted vessels that restrict flow of RBCs and thus the supply of oxygen to tissues and organs.
Oxygenation: Due to its high solubility, it has high capacity and faster exchange of oxygen in tissues, as well as facilitating the release of oxygen from RBCs for overall unparallel efficiency.
 
For chronic anemia situations, erythropoietin-based formulations are available from two suppliers. Erythropoietin stimulates the erythropoietic system in the bone marrow to produce its own RBCs. These products are slow acting, and only administered in anticipation of blood loss during surgery, and are not effective for temporary use or in emergency situations when acute blood loss requires RBC infusion to deliver oxygen.

The fields of treatment of oxygen-deprived states have been approached in many ways for the past 70 years. These include such techniques at high oxygen concentration, hyperbaric chambers, as well as the more mechanical approaches of vessel dilation and blood thinning. All have met with minor measures of improvement. In the early 1980’s a number of companies focused on creating specific oxygen carriers that were either (a) blood derived elements, (b) synthetics consisting of Perfluoro chemicals or (c) elements created using recombinant and molecular engineering approaches (red cell modifiers). Companies including Baxter, Abbot, and Biopure, and now OPK in Cambridge, MA, for example, used the blood derived approach; Green Cross, Alliance Pharmaceuticals and Synthetic blood focused on synthetics, and Somatogen and Allos Therapeutics tried recombinant and molecular engineering. All of these approaches were early attempts to meet a need whose main focus has been on a “blood substitute”. Our approach is fundamentally different. Instead of a blood substitute, we are offering a new chemical entity that will deliver oxygen to hypoxic cells.

We expect IPOXYN™ to compete with traditional therapies and with other oxygen delivery pharmaceuticals. Some of our competitors and potential competitors may have greater financial and other resources to develop, manufacture and market their products. We believe the most immediate competition comes from companies currently conducting clinical trials of investigational hemoglobin solutions. Privately held Sangart Inc. uses hemoglobin extracted from human red blood cells as the raw material for its products. Sangart reports that it has completed a 90-patient clinical safety trial in Sweden in patients undergoing hip replacement and is conducting a single-center Phase 2 safety trial in the U.S. in cancer patients undergoing radical prostatectomies. It appears that a privately held company may begin a Phase 2 trial of a human-derived hemoglobin solution in the U.S. for treatment of cardiogenic shock.

We are aware of other companies researching the use of hemoglobin as a therapeutic, including programs in China and Japan. We believe that these programs are in the preclinical stage of development, although China’s government-funded initiative may enter clinical testing as early as this year. In the field of perfluorocarbons, publicly traded Synthetic Blood International Inc. has recently completed an open-label, proof-of-concept Phase 2a clinical trial in eight patients with traumatic brain injury. Alliance Pharmaceutical Corporation has received regulatory authorization in France to initiate a Phase 2 clinical trial to prevent post-operative ileus resulting from hypoxia during major surgery. We believe that the Russian open joint-stock company Scientific and Production Firm “Perftoran” has received regulatory approval to market its perfluorocarbon in Russia, Ukraine, Kazakhstan and Mexico. In 2009 a company called OPK Biotech bought certain assets of now defunct Biopure Corporation and continues to develop Hemopure for human use. In the cardiovascular area we expect competition from medical devices and drugs on the market or which are currently under development. For example, privately held KAI Pharmaceuticals Inc. has reported the completion of a Phase 1/2 clinical trial of its protein kinase C (PKC) inhibitor to reduce ischemia and reperfusion injury during treatment of acute myocardial infarction. We believe that our use of bovine red blood cells for the production of IPOXYN™ is an advantage over products made from donated human red blood cells stored for a long period of time and other competitive approaches because of the availability, abundance, ability to control source, cost and relative safety of bovine red blood cells.
 
 
 
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Marketing
We believe IPOXYN™ is a safe and effective intervention for reversing acute hypoxia, fulfilling an unmet clinical need; and that IPOXYN™ can alleviate acute deficiency of oxygen and avert further life threatening complications and muscle and tissue death which can result from a sustained deficiency of oxygen. Our belief about the safety and efficacy of IPOXYN™ is based on preliminary good laboratory practices (GLP) testing of a material bio-similar to IPOXYN™, where it was found that such bio-similar formulation had no material toxicity on a small group of animals. We understand that this testing of GLP produced bio-similar materials or, for that matter, pre-clinical testing, will not necessarily predict levels of toxicity and efficacy in humans. However, if clinical trials ultimately support this belief, in many clinical situations IPOXYN™ could become a significant new management tool to moderate the inconsistencies of RBC transfusion and become the treatment of choice in critical situations when RBCs are not immediately available.

In addition to the expansive and broad application development in the field of human medical management, we envision a sizable market in the veterinary field and expect to make a registration filing for this market as soon as we can complete pre-clinical safety and efficacy studies. Clinical safety and efficacy studies under Good Manufacturing Practices have not yet been initiated by the Company.

Preliminary data from animal testing conducted by third parties suggests successful use of IPOXYN™ in hypoxia and critical anemic situations, where hypoxic conditions were critical to animal survival. Early experiments with dogs suggest intervention with IPOXYN™ will significantly improve survival in induced canine anemia models. This veterinary treatment of canine anemia will be our first target for seeking early regulatory approval in the European Union. As there is substantial commonality between the metabolic functions of humans and other mammals, animal testing becomes a starting point for many clinical development programs that can directly translate into clinical development programs for humans. The third party testing described here was conducted by a company that developed a bio-similar product to IPOXYN™. Testing included repeated intravenous infusions of the product in dogs that was reported in well documented literature and regulatory filings, and the testing did not result in reported mortality/morbidity of the subject animals. Reports concerning anemic dogs infused with the bio-similar product showed increased plasma hemoglobin levels resulting in an increase of the oxygen carrying capacity of the treated animals. We have no agreements with the third party that conducted these toxicity tests, or its successors.

We intend to engage a medical advisory board consisting of leading physicians who have participated in relevant clinical studies and who are leaders in the field as well as other physician-specialists that will guide us in other indications. We do not currently have agreements with any potential candidates for such board. We may seek to enter into licensing or co-marketing agreements for regions or all of the world in order to avail the Company of the marketing expertise of one or more seasoned pharmaceutical companies. Alternatively, we may engage contract sales organizations from vendors, contract pharmaceutical companies that supply sales services. Similarly in the veterinary market, we may engage wholesale distributors on national or regional levels. Marketing programs may include web based advertising, direct mail, educational seminars, conference calls and attendance at trade shows. We may establish a core group of veterinary practices that will start to use the product regularly. These veterinarians can serve as effective advocates of the product when interacting with other veterinarians.
 
We do not currently have sufficient capital resources to fund operations. To stay in business and to continue the development of IPOXYN™ we will need to raise additional capital through public or private sales of our securities, debt financing or short term bank loans, or a combination of the foregoing. We believe that if we can raise $3,000,000 to $5,000,000 in this offering it will be sufficient to provide working capital over the next approximately 12 months, and we will be able to initiate clinical trials of SUGARDOWN®, PAZ320 and conduct pre-clinical experiments to file an IND for IPOXYN™ in preparation for an NADA filing.

Our shares of common stock are listed on the Over-the-Counter Bulletin Board and trade under the stock symbol: “BTHE”.

We have not applied to register these shares in any state. We may simultaneously apply in NY, MA, FL, NJ, IL, CA, CT, and TX.   An exemption from registration will be relied upon in the states where the shares are distributed and may only be traded in such jurisdictions after compliance with applicable securities laws. There can be no assurances that the shares will be eligible for sale or resale in such jurisdictions. We may apply to register the shares in several states for secondary trading; however we are under no requirement to do so.

Our only current officers are David Platt and Ken Tassey. We are dependent upon both Dr. Platt and Mr. Tassey for implementation of our proposed expansion strategy and execution of our business plan. The loss of Dr. Platt or Mr. Tassey could have a material adverse effect upon our results of operations and financial position and could delay or prevent the achievement of our business objectives.

The preceding summary is qualified in its entirety by the detailed information appearing elsewhere in this Prospectus. The securities offered hereby are speculative and involve a high degree of risk. See "Risk Factors."
 
Our Strengths and Strategies

Leverage Extensive Regulatory Expertise. Dr. Platt, a PhD. chemical engineer, has approximately 20 years experience in the development of therapeutic drugs and holds many patents. He has been substantially involved in the FDA approval process for a number of drugs, and we anticipate that his expertise shall be crucial as we develop our drugs through the trial and approval process.

Focus on Novel Therapeutic Opportunities Provided by Carbohydrates. We believe our company is one of the pioneers focused on development of carbohydrate-based anti-hypoxia therapeutics and carbohydrate-based dietary supplements for blood glucose management. As a result of their structural complexity, carbohydrates have not received as much scientific attention as nucleic acids and proteins.
 
 
 
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Carbohydrate molecules, which are essential to the transmission and recognition of cellular information, have been shown to play an important role in major diseases including cancer, cardiovascular disease, Alzheimer’s disease, inflammatory disease and viral infections. We believe this offers a largely untapped area for treatment by utilizing hemoglobin as modified by carbohydrate chemistry to deliver oxygen to cells in a hypoxic condition.

Our independent auditors noted in their report accompanying our financial statements for the year ending December 31, 2011 that the Company’s limited resources and operating history, as well as operating losses raise substantial doubt about the Company’s ability to continue as a going concern. As of December 31, 2011, we had a cumulative net loss of $1,213,284. As of June 30, 2012, the Company had $417,510 cash on hand.
 
Subsidiaries

We currently have no subsidiaries.

Employees

Other than Dr. Platt and Mr. Tassey, we currently have no full-time employees. Mr. Tassey entered into an employment agreement with the Company in August 2011. Dr. Platt does not have an employment agreement with the Company.

Facilities

We currently lease an office located at 1750 Elm Street, Suite 103, Manchester, NH 03104.

Manufacturing

We currently manufacture SUGARDOWN® and PAZ320 in the United States at a Good Manufacturing Practices (GMP) compliant facility. We expect to have access to a pilot-scale manufacturing facility with adequate capacity to produce IPOXYN™ for clinical trials and market introduction following European Medicines Evaluation Agency (EMEA) / FDA approval, but no agreement for such access is currently in place. We intend to only utilize manufacturing facilities that we believe are fully compliant with Good Manufacturing Practices (GMP) as required by the regulatory authorities in Europe or the United States.
 
 
 
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Environmental Regulation

Pharmaceutical research and development involves the controlled use of hazardous materials. Biotechnology and pharmaceutical companies must comply with laws and regulations governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We do not anticipate building in-house research, development or manufacturing facilities, and, accordingly, do not expect to have to comply directly with environmental regulation. However, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant compliance cost, and this could in turn could increase our expense or delay our completion of research or manufacturing programs.

Lack of Major Customers

To date we have had limited sales of our SUGARDOWN® product and have one potentially significant customer. We have entered into an agreement with Advance Pharmaceutical Co. Ltd., a Hong Kong-based pharmaceutical company, for distribution of SUGARDOWN® in the Hong Kong and mainland China markets and have received initial purchase orders. There can be no assurances that this agreement will lead to significant or, in fact any, sales of SUGARDOWN®. We have received our first commercial purchase order from a distributor in Italy.

Patents, Trademarks and Licenses

Patents, trademarks, trade secrets, technological know-how and other proprietary rights are important to our business.

Our proprietary technologies embodied in IPOXYN™ and OXYFEX™ include claims under patent number 6,245,316 (Enhancement of Delivery of Radioimaging and Radioprotective Agents) which expires in 2018, and a provisional patent relating to a Hybrid Hemoglobin Molecule and Methods of Use, Application No. 61/285,281, both of which were assigned to the Company by our CEO. Also, PCT Applications filed for Sugardown {Composition of Purified Soluble Mannans from Legumes’ Seeds for Palatable Dietary Supplements} and IPOXYN {Hemoglobin Compositions and Methods of Use}.

Our CEO also has assigned the trademark IPOXYN™ (U.S. Trademark Application No. 77754473) to the Company. Our CEO and our President have assigned the trademark SUGARDOWN® (U.S. Trademark Reg. No. 3,955,414, registered May 3, 2011) to the Company.

It is not economically practicable to determine in advance whether our products, product components, manufacturing processes or the intended uses for our products infringe the patent rights of others. It is likely that, from time to time, we will receive notices from others of claims or potential claims of intellectual property infringement or we may be called upon to defend a customer, vendee or licensee against such third-party claims. Responding to these kinds of claims, regardless of merit, could consume valuable time, result in costly litigation or cause delays, all of which could harm our business.

Responding to these claims could also require us to enter into royalty or licensing agreements with third parties claiming infringement. Such royalty or licensing agreements, if available, may not be available on terms acceptable to us.

Government Regulation

New drug approval for clinical use requires extensive research, manufacturing, pre-clinical and clinical studies, packaging, labeling, advertising, promotion, export and marketing, among other things. Both IPOXYN™ and PAZ320 will be subject to extensive regulation by governmental authorities in the United States and other countries. As a therapeutic product administered by intravenous infusion IPOXYN™ will be regulated as a drug and will require extensive safety and efficacy studies for regulatory approval before it may be commercialized.


 
27

 
 
 
Dietary Supplements
We currently offer SUGARDOWN® as a dietary supplement. We are not required to obtain FDA approval in order to offer SUGARDOWN® in this manner. We are required to either comply with certain FDA guidelines with respect to certain marketing claims for SUGARDOWN®, or to file those claims with the FDA. We believe that we comply with those guidelines and have voluntarily filed structural and functional claims with the FDA. If we choose to offer SUGARDOWN® as a drug, it will be subject to the drug approval process described below.

Drug Approval Process
In the United States, IPOXYN is a new chemical entity and will require FDA approval. PAZ320, as a drug candidate, will also require FDA approval. Before final approval for marketing for either IPOXYN™ or PAZ320 could occur, the following steps must be completed: preclinical safety animal studies, GMP manufacturing, submission of Investigational New Drug, or IND application for extensive clinical trials to show proof of concept to significant health benefit.

After approval and during clinical studies FDA can put the drug on "clinical hold." In such case, the IND sponsor and the FDA must resolve any outstanding concerns before the use of the drug can proceed. FDA may stop marketing, or clinical trials, or particular types of trials, by imposing a clinical hold because of safety concerns and potential risk to patients.

Clinical trials involve the administration of the investigational products to healthy volunteers or patients under the supervision of a qualified principal investigator consistent with an informed consent. Each clinical protocol is submitted, reviewed and approved by an independent Institutional Review Board, or IRB, or Ethical Committee (EC) at a participating hospital at which the study will be conducted. The IRB/EC will consider, among other things; ethical factors, safety to human subjects and the possible liability of the institution.

Clinical trials required for FDA approval typically are conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug into human subjects, the drug is usually tested for safety or adverse effects, dosage tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population to evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage and identify possible adverse effects and safety risks.

Phase III clinical trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population and at multiple clinical sites.

After FDA approval, Phase IV clinical trials may be conducted to gain additional experience from the treatment of patients in the intended therapeutic indication. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase III/IV post-approval clinical trials.

The results of the preclinical studies and clinical trials, together with detailed information on the manufacture and composition of the product, are submitted to the FDA in the application requesting approval to market the product. The FDA may delay approval of any product submitted by the Company. The FDA may limit the indicated uses for which an approval is given.

New Drug Approval for Veterinary Use
The use of new drugs for companion animals requires the filing of a New Animal Drug Application, or NADA with, and approval by, the FDA. The requirements for approval are similar to those for new human drugs, exclusive of human trials. Obtaining NADA approval often requires safety and efficacy clinical field trials in the applicable species and disease, after submission of an Investigational New Animal Drug Application, or INADA, which for non-food animals becomes effective upon acceptance for filing.


 
28

 


Pervasive and Continuing Regulation
Any FDA approvals that may be granted will be subject to continual review, and newly discovered or developed safety or efficacy data may result in withdrawal of products from marketing. Moreover, if and when such approval is obtained, the manufacture and marketing of our products remain subject to extensive regulatory requirements administered by the regulatory bodies, including compliance with current Good Manufacturing Practices, serious adverse event reporting requirements and the FDA's general prohibitions against promoting products for unapproved or "off-label" uses.

We are subject to inspection and market surveillance by the FDA for compliance with these regulatory requirements. Failure to comply with the requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or withdrawals of regulatory approvals and termination of marketing. Any such enforcement action could have a material adverse effect on us. Unanticipated changes in existing regulatory requirements, state and local work and environmental laws or the adoption of new requirements could also have a material adverse effect on us.

Foreign Regulation
We will be subject to a variety of regulations governing clinical trials and sales of our products in the United States and outside the United States. Whether or not FDA approval has been obtained, approval of a product by the comparable non-U.S. regulatory authorities must be obtained prior to the commencement of marketing of the product in any country.

The approval process varies from country to country and can be complicated and time consuming; the time needed to secure approval may be longer or shorter than that required for FDA approval. For example, the European Union requires approval of a Marketing Authorization Application by the European Medicines Evaluation Agency. These applications require the completion of extensive preclinical studies, clinical studies and manufacturing and controls information.

Reimbursement
Our ability to successfully commercialize our human product will also depend on the extent to which reimbursement of the cost of such product and related treatment will be approved by the government health administration authorities, private health insurers and other health providers’ organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products. As third-party payors are increasingly challenging the price of medical products, there can be no assurance that adequate reimbursement of the cost will be available to enable us to maintain price levels sufficient for realization of an appropriate return on its investment. Recently the public and the federal government have focused significant attention on reforming the health care system in the United States. A number of health care reform measures have been suggested, including price controls on therapeutics. Public discussion of such measures is likely to continue, and concerns about the potential effects of different possible proposals have been reflected in the volatility of the stock prices of companies in the health care and related industries.

 
 
29

 
 
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is based on and should be read in conjunction with our financial statements and accompanying notes that are included elsewhere in this Prospectus. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Prospectus, and other factors that we may not know.
 
Overview

We are a development-stage company that was formed on August 24, 2009.

Our Chief Executive Officer (“CEO”) and founder contributed a provisional patent, a patent and know-how to the Company.   In accordance with ASC 845-1-S99, Transfers of Non-Monetary Assets from Promoters or Shareholders, the transfer of non-monetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under Generally Accepted Accounting Principles (“GAAP”).  Because no records exist to support a historical cost basis in accordance with GAAP, the patent, provisional patent and know-how were valued at the CEO’s historical cost basis of zero.

On November 10, 2010, we entered into an Agreement and Plan of Merger with Boston Therapeutics, Inc. (“BTI”).  BTI was in the business of developing, manufacturing and selling, among other things, dietary supplements including its initial product, SUGARDOWN®, a complex carbohydrate based dietary supplement based upon BTI’s proprietary processes and technology. SUGARDOWN® is currently in the initial stage of market introduction, and in June 2011 we entered into an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, China and Macau for SUGARDOWN®.  We believe that SUGARDOWN® has significant revenue and positive cash flow potential.

We issued 4,000,000 shares of common stock to the stockholders of BTI in exchange for all the outstanding common stock of BTI, and the Company’s name was changed to Boston Therapeutics, Inc.  The CEO is also a founder of BTI and was a 10% shareholder of BTI at the time of the merger. A valuation of the Company’s common stock was performed resulting in a fair value per share of $0.2466.   Based on the 4,000,000 shares of common stock issued for BTI the total consideration was valued at $986,400.  However, because the Company’s CEO was a 10% shareholder of BTI, 10% of BTI was valued at his historical cost basis and 90% of Target was valued at fair value.

We must raise new capital to continue our business operations and intend to use the provisional patent, patent and know-how contributed by our CEO and the assets acquired from BTI to raise capital.   Our CEO intends to provide minimal cash to fund critical needs until shares are sold to raise capital.   We anticipate the need for approximately  $3,000,000 to $5,000,000 in  additional  funding  to  support  the  planned  expansion  of  our  operations  over  the  next  approximately  12 months.  There is no guarantee that we will be successful in raising additional funds.

Results of Operations
 
Three- and Six Months Period Ended June 30, 2012

Revenue for the three and six month periods ended June 30, 2012 was $2,376 and $21,230, respectively, compared to $1,767 and $2,247, respectively, for the same periods in the prior year, an increase of $609 and $18,983, respectively.  Revenues for both periods were generated from the sale of the SUGARDOWN® product.  The increase was a result of increased distribution through a new reseller, primarily in the first quarter of 2012.


 
30

 


Costs of Goods Sold

Cost of goods sold for the three and six months ended June 30, 2012 were $4,162 and $31,757, respectively, compared to $1,287 and $2,250, respectively, for the same periods in the prior year, an increase of $2,875 and $29,507, respectively. Cost of goods sold consisted primarily of the cost of the materials and labor to manufacture SUGARDOWN® product, shipping and fulfillment costs.   The increase was a result of additional cost moving to a new fulfillment operation and costs scaling production for additional sales.

Operating Expenses

Research and development expense for the three and six months ended June 30, 2012 was $67,924 and $119,552, respectively, compared to $16,072 and $33,211, respectively, for the same period in the prior year, an increase of $51,852 and $86,341.   These increases primarily consist of costs associated with clinical trials of PAZ320 of $52,000 and $77,000 during the three and six months ended June 30, 2012 and 2011, respectively, as well as costs associated with the development of SUGARDOWN® of $0 and $10,000 during the three and six month periods ended June 30, 2012, respectively.

Sales and marketing expense for the three and six months ended June 30, 2012 was $66,898 and $134,078, respectively, compared to $1,542 and $1,997, respectively, for the same periods in the prior year, an increase of $65,356 and $132,081,  respectively.   These increases are primarily the result of advertising and promotion of the SUGARDOWN® product of $20,000 and $39,000, respectively, for the three and six month periods ended June 30, 2012, and stock based compensation of  $43,000 and $86,000 related to sales and marketing consultants, respectively, for the three and six month periods ended June 30, 2012.

General and administrative expense for the three and six months ended June 30, 2012 was $139,435 and $263,971, respectively, compared to $75,459 and $150,295, respectively, for the same periods in the prior year, an increase of $63,976 and $113,676,  respectively.   These increases consist primarily of increases in consulting expenses of $30,000 for the three and six month periods respectively, payroll expenses of $7,000 and $16,000 for the three and six month periods, respectively, increases in audit fees of $3,000 and $4,000 for the three and six month periods, respectively, and other professional fees of $9,000 and $15,000 for the three and six month periods, respectively.

 
 
 
31

 
 
Other than our CEO’s and our President's intention to provide minimal cash, we have no current commitment from our officers and directors or any of our shareholders, to supplement our operations or provide us with financing in the future.  If we are unable to raise additional capital from conventional sources and/or additional sales of stock in the future, we may be forced to curtail or cease our operations.  Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results.  In the future, we may be required to seek additional capital by selling debt or equity securities, and we may be required to cease operations, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency.  The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders.  We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
 
Year ended December 31, 2011

Revenue for the year ended December 31, 2011 was $4,112 compared to $428 in the prior year, an increase of $3,684 primarily because SUGARDOWN® was sold for a full year. Cost of goods sold for the year ended December 31, 2011 was $6,375 compared to $398 in the prior year, an increase of $5,977 primarily due to a full year of cost for a fulfillment operation and expensing of expired raw materials of $1,667.

Research and development expense for the year ended December 31, 2011 was $194,276 compared to $10,772 in the prior year, an increase of $183,504. Amortization of the intangible asset of SUGARDOWN® represented $53,000 of the increase due to a full year of amortization with the costs associated with clinical trials of SUGARDOWN® representing the remaining $130,000.

Sales and marketing expense for the year ended December 31, 2011 was $206,517 compared to $3,676 in the prior year, an increase of $202,841. Marketing and promotion costs represented $65,000 of the increase with stock—based compensation representing the remaining $137,000.

General and administrative expense for the year ended December 31, 2011 was $408,454 compared to $226,790 in the prior year, an increase of $181,664 or 80%. General and administrative expense consists primarily of legal and accounting fees associated with the filings with the SEC and the preparation of financial statements for the Company. Legal and accounting fees represented $90,000 of the increase. The balance of the increase is attributable to payroll, stock-based compensation, travel and product liability insurance.
 
LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2012, we had cash of $417,510 and accounts payable and accrued expenses and other current liabilities of $469,805.  The cash is largely attributable to proceeds from our private placement of common stock in June 2012 in which the Company issued 1,000,000 shares to an investor in a private placement for net proceeds of $500,000. Based on our cash position as of June 30, 2012, we believe we can fund core operations into the second quarter of 2013.

We have received minimal revenues from the SUGARDOWN® product.   Without substantial revenue and known, adequate and available financing, there is uncertainty regarding the Company's ability to continue as a going concern.

Management has plans to seek additional capital through private placements and public offerings of its common stock.   There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.

Our CEO and our President intend to provide minimal cash to fund critical needs once the proceeds of the private placement are exhausted until additional shares are sold to raise capital or SUGARDOWN® or other products generate sufficient revenues to fund the operations of the Company.

Our CEO also contributed a provisional patent, a patent and know-how to the Company.  We intend to use these assets and SUGARDOWN® to attract investors in order to raise the capital required to fund operations.

 
Contractual obligations

We do not currently have any material contractual obligations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

DESCRIPTION OF PROPERTY

We do not currently own any real property. We currently lease approximately 1,500 feet of office space with access to common areas located at 1750 Elm Street, Suite 103, Manchester, NH 03104 on a three year lease that can be terminated either by us or by the landlord at any time. The base rent for this facility is $2,000 per month.

CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

During the last two fiscal years, we have not entered into any material transactions or series of transactions that would be considered material in which any officer, director or beneficial owner of 5% or more of any class of our capital stock, or any immediate family member of any of the preceding persons, had a direct or indirect material interest, and there are no transactions presently proposed, except as follows:
 
   
 
 
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1.
Between July 3, 2009 and May 7, 2012, David Platt, the Company’s CEO and CFO loaned an aggregate of $277,820 to the Company and BTI to fund start-up costs and current operations of the Company and BTI pursuant to a series of unsecured promissory notes. The Company assumed BTI’s obligations on the notes issued by BTI to Dr. Platt when BTI merged into the Company in November 2009. The notes carry interest at 6.5%. The notes initially became due and payable at various times between March 31, 2011 and June 30, 2012. On January 16, 2012, the maturity dates of each of the notes were amended to June 29, 2013.  On August 6, 2012, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2014.  As of June 30, 2012, and December 31, 2011, $33,996 and $25,641, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet.  The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital.
 
2.
On May 7, 2012, Ken Tassey, the Company’s COO loaned the Company $20,000 to fund current operations of the Company pursuant to an unsecured promissory note.  The note carries interest at 6.5%. The note initially became due and payable on June 29, 2013.  On August 6, 2012, the note was amended to extend the maturity date to June 29, 2014.
 
3.
On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in exchange for 100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt is a founder of BTI and was a director and minority stockholder of BTI at the time of the Merger. Dr. Platt received 400,000 shares of our common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became our President shortly after the Merger, was the President and principal stockholder of BTI at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger. The Company did not obtain an independent valuation of BTI prior to the Merger. The Company determined the aggregate consideration for the Merger based on an assessment of the technology owned by BTI, including the rights to SUGARDOWN®, and of the potential revenues that could be derived from such technology.

DIRECTOR AND EXECUTIVE COMPENSATION

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to (i) all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last two completed fiscal years, regardless of compensation level, and (ii) the Company’s two most highly compensated executive officers other than the principal executive officers serving at the end of the last two completed fiscal years (collectively, the “Named Executive Officers”). The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the Company’s chief executive officer and chief financial officer and to the Company’s President since the Company’s inception (August 24, 2009), regardless of compensation level. The Company’s chief executive officer and Chief Financial Officer and the Company’s President are the only officers of the Company for whom compensation disclosure is required pursuant to instruction 1 to Item 402(a)(3) of Regulation S-K.

Summary Compensation Table
Name and Principal Position
Year
 
Salary
 
Bonus
 
Stock
Awards (1)
 
Total
Compensation
David Platt, Chief Executive Officer and Chief Financial Officer
2011
 
$
-
 
$
-
 
$
-
 
$
-
 
2010
 
$
-
 
$
-
 
$
-
 
$
-
Kenneth A. Tassey, Jr., President(1)
2011
 
$
19,800
 
$
-
 
$
   
$
-
 
2010
 
$
-
 
$
-
 
$
   
$
-
(1) Mr. Tassey became President of the Company in November 2010. Dr. Platt served as president prior to that time.

Grants of Plan-Based Awards
There were no equity or non-equity awards granted to the Named Executive Officers in 2011.

 
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Outstanding Equity Awards at December 31, 2011
There were no outstanding unvested stock options held by the Company’s Named Executive Officers at December 31, 2011.

Option Exercises and Stock Vested in 2011
Our Named Executive Officers did not exercise any stock options or have any stock awards vest during fiscal year 2011.

Director Compensation

All compensation, if any, paid to our employee directors is set forth in the tables summarizing executive officer compensation above.  For the 2011 fiscal year, non-employee directors were not entitled to receive, and did not receive, any stock options or other forms of compensation and there are currently no agreements in effect entitling them to compensation.
 
Employment Contracts
 
In August 2011, Mr. Tassey entered into an employment contract with the Company, pursuant to which he is engaged to serve in the position set forth below. The employment contract sets forth the officer’s annual salary, hours of work and other terms. The terms of the employment contract include the following:
 
Name
Term
       Monthly Wage
Job Title
Kenneth A. Tassey, Jr.
August 11, 2011 through December 31, 2012
 
$3,000
President and Chief Operating Officer

The employment agreement between the Company and Mr. Tassey provides for the lump-sum payment of 50% of Mr. Tassey’s annual salary then in effect in the event the agreement is terminated by the Company without cause other than as a result of the death or disability, which would result in a payment of $18,000 to Mr. Tassey based on his current salary level. In the event of the termination of the agreement as a result of Mr. Tassey’s death or disability, he or his estate is entitled to receive payment of his salary for the balance of the month in which such termination occurs, which would result in a payment of no more than $3,000 to Mr. Tassey based on his current salary level. In both instances, Mr. Tassey is entitled to receive any unpaid non-discretionary bonus for the year prior to the year in which the termination occurs.

The employment agreement between the Company and Mr. Tassey further entitles Mr. Tassey to receive benefits on the same basis as employee benefits are generally made available to other senior executives of the Company, including among other items, health, life and disability insurance and participation in any non-discretionary executive bonus or similar plans.

The employment agreement between the Company and Mr. Tassey provides that if he is terminated without cause within 6 months after a change of control he is entitled to receive the lump-sum payment of 50% of Mr. Tassey’s annual salary then in effect in the event the agreement is terminated by the Company without cause other than as a result of the death or disability, which would result in a payment of $18,000 to Mr. Tassey based on his current salary level. There are no material terms of the contract that provide for payments in connection with the resignation, retirement or other termination of Mr. Tassey or in connection with a change of control. Other than the agreement with Mr. Tassey described above, there are currently no employment or consulting contracts between the Company and its Named Executive Officers or directors. There are no arrangements or plans in which we provide pension, retirement or similar benefits for Named Executive Officers or directors. Our Named Executive Officers and directors may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our Named Executive Officers or directors, except that stock options may be granted at the discretion of our board of directors from time to time.
 
 
 
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Other than the agreement with Mr. Tassey described above, there are no arrangements between the Company and the Named Executive Officers that provide for payments in connection with the resignation, retirement or other termination of a Named Executive Officer or in connection with a change of control or any other arrangements with any Named Executive Officer with respect to termination of employment or change of control transactions.

Compensation Risk Assessment

We recently formed a Compensation Committee. Prior to the formation of the committee, compensation decisions, including the contract with Mr. Tassey described above, were made by the full Board. In setting compensation, the Compensation Committee considers (and the Board previously considered) the risks to the Company’s stockholders and to achievement of its goals that may be inherent in its compensation programs. The Compensation Committee (and the Board previously) reviewed and discussed its assessment with management and outside legal counsel and concluded that the Company’s compensation programs are within industry standards and are designed with the appropriate balance of risk and reward to align employees’ interests with those of the Company and do not incent employees to take unnecessary or excessive risks. We believe our compensation plans are appropriately structured and are not reasonably likely to result in a material adverse effect on the Company.

Outstanding Equity Awards at Fiscal Year End.

The following table includes the information as of the end of 2011 for our equity compensation plans:
Plan category
Number of
securities to
be issued upon
exercise
of outstanding
options,
warrants and rights
(a)
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a) )
(c)
Equity compensation plans approved by security holders (1)
78,400
$1.85
4,921,600
Equity compensation plans not approved by security holders (2)
1,500,000
$0.10
600,000
Total
1,578,400
 
5,521,600
 
(1)
Consists of our 2010 Stock Plan (the “2010 Plan”). See Note 4—“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this Prospectus. The Company’s stockholders approved the 2010 Plan by written consent on June 16, 2010.
(2)
Consists of our 2011 Non-Qualified Stock Plan (the “2011 Plan”). See Note 4 —“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this Prospectus. The 2011 Plan has not been presented to the Company’s stockholders for their consent.


Compensation, if any, paid to our employee directors is set forth in the tables summarizing executive officer compensation above. For the 2011 fiscal year, non-employee directors were not entitled to receive, and did not receive, any stock options or other forms of compensation and there are currently no agreements in effect entitling them to compensation.

Corporate Governance

The Company has established separate audit, compensation and nominating committees of its board of directors.
 
 
 
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Code of Ethics. A code of business conduct and ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations, (d) the prompt reporting violation of the code and (e) accountability for adherence to the code. We are not currently subject to any law, rule or regulation requiring that we adopt a code of ethics; however, we intend to adopt one in the near future.
Audit Committee. The Board of Directors has not yet established a separate audit committee, and the functions of the audit committee are currently performed by our Board of Directors as a whole in accordance with Section 3(a)(58) of the Exchange Act. We are not currently subject to any law, rule or regulation requiring that we establish or maintain a separate audit committee.

Board of Directors Independence. Our Board of Directors consists of six members. We are not currently subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors. Four of the members of the Board of Directors, Dale H. Conaway, D.V.M., Rom E. Eliaz, Henry Esber  and Carl Lueders, are “independent” as defined in Section 4200(a)(15) of NASDAQ Stock Market Rules.

Audit Committee Financial Expert. The Board of Directors has determined that Carl L. Lueders is an “audit committee financial expert” who is “independent” as defined in Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934, as amended and Mr. Lueders serves as acting chairman when the Board performs audit committee functions.

Nominating Committee. Our Board of Directors has established a nominating committee. We are not currently subject to any law, rule or regulation requiring that we establish a nominating committee.

Compensation Committee. Our Board of Directors has established a compensation committee. We are not currently subject to any law, rule or regulation requiring that we establish a compensation committee. We intend to establish a compensation committee if the Board determines it to be advisable or we are otherwise required to do so by applicable law, rule or regulation.

Indemnification Agreements

None.

Director Independence

Four of the members of the board of directors are “independent” as defined under the rules of the NASDAQ Stock Market.

CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
On July 21, 2010, the Company was notified that effective July 20, 2010, McGladrey LLP (“McGladrey”) acquired certain assets of Caturano and Company, Inc., the Company’s independent registered public accounting firm (“Caturano”), and substantially all of the officers and employees of Caturano joined McGladrey. As a result, on October 26, 2010, Caturano resigned as the independent registered public accounting firm for the Company and, concurrent with such resignation, McGladrey was appointed by the Company as its new independent registered public accounting firm by the Company’s Board of Directors.
 
The audit report of Caturano on the financial statements of the Company for the period ending December 31, 2009 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified to the uncertainty, audit scope or accounting principles, except that it did contain an explanatory paragraph disclosing the uncertainty regarding the ability of the Company to continue as a going concern. During the fiscal period ended December 31, 2009 and through October 26, 2010 there were: (1) no disagreements between the Company and Caturano on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Caturano would have caused them to make reference thereto in their reports on the Company’s financial statements for such years, and (2) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

During the Company’s fiscal period ended December 31, 2009 and through October 26, 2010, the Company did not consult with McGladrey on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and McGladrey did not provide either a written report or oral advice to the Company that McGladrey concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
 
 
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DESCRIPTION OF CAPITAL STOCK

We have authorized capital stock consisting of 100,000,000 shares of common stock, $0.001 par value per share ("Common Stock") and 5,000,000 shares of preferred stock, $0.001 par value per share ("Preferred Stock"). As of_September 7, 2012, we had 17,348,206 shares of common stock issued and outstanding and no shares of Preferred Stock issued and outstanding.

PREFERRED STOCK

Shares of Preferred Stock may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by our Board of Directors ("Board of Directors") prior to the issuance of any shares thereof. Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of our capital stock entitled to vote generally in the election of the directors, voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.

Additionally, while it is not possible to state the actual effect of the issuance of any shares of Preferred Stock on the rights of holders of the common stock until the Board of Directors determines the specific rights of the holders of any shares of Preferred Stock, such rights may be superior to those associated with our common stock, and may include:

o
Restricting dividends on the common stock;

o
Rights and preferences including dividend and dissolution rights, which are superior to our common stock;

o
Diluting the voting power of the common stock;

o
Impairing the liquidation rights of the common stock; or
o
Delaying or preventing a change in control of the Company without further action by the stockholders.

COMMON STOCK

Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Directors are appointed by a plurality of the votes present at any special or annual meeting of shareholders (by proxy or in person), and a majority of the votes present at any special or annual meeting of shareholders (by proxy or in person) shall determine all other matters. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and in such amounts as the board from time to time may determine. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this Offering will be, duly and validly issued, fully paid and non-assessable.

Director Independence

Four of the members of the board of directors are “independent” as defined under the rules of the NASDAQ Stock Market.
 
 
 
37

 
 
Provisions of the Company’s Charter or By-Laws which would delay, deter or prevent a change in control of the Company

There are no special provisions of the Company’s Certificate of Incorporation or By-Laws which would specifically delay, deter or prevent a change in control of the Company. Additionally, the Company has 5,000,000 shares of preferred stock authorized and undesignated. Shares of preferred stock designated by our Board of Directors in the future may have voting powers superior to our common stock, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the Board of Directors. Such preferred stock, if authorized in the future, may contain provisions (including voting rights) which could delay, deter or prevent a change in control of the Company.

SHARES AVAILABLE FOR FUTURE SALE

Assuming that all 20,000,000 common shares in this offering are issued and sold, and the 10,000,000 warrants are issued and exercised, we will have 47,348,206 shares of common stock outstanding. Of those 47,348,206 shares of common stock outstanding, only 30,000,000 shares issued in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares held by an “affiliate” of us, which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act.

Rule 144 governs resale of "restricted securities" for the account of any person (other than an issuer), and restricted and unrestricted securities for the account of an "affiliate" of the issuer. Restricted securities generally include any securities acquired directly or indirectly from an issuer or its affiliates which were not issued or sold in connection with a public offering registered under the Securities Act. An affiliate of the issuer is any person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. Affiliates of the Company may include its directors, executive officers, and persons directly or indirectly owning 10% or more of the outstanding common stock. Under Rule 144, non-affiliates are able to sell restricted securities pursuant to Rule 144, after six months, subject to certain conditions, including if the Company is current in its reporting obligations with the Commission and remains current for an additional period of six months, and thereafter after one year, with no volume or reporting obligations.

Under Rule 144, affiliates are able to sell restricted securities pursuant to Rule 144 after six months, subject to certain conditions, including if the Company is current in its reporting obligations with the Commission and remains current for an additional period of six months, as well as other requirements described below. Resales by the Company's affiliates of restricted and unrestricted common stock are subject to volume limitation, aggregation, broker transaction, notice filing requirements, and requirements concerning publicly available information about the Company ("Applicable Requirements"). The volume limitations provide that a person (or persons who must aggregate their sales) cannot, within any three-month period, sell more than the greater of one percent of the then outstanding shares, or the average weekly reported trading volume during the four calendar weeks preceding each such sale.
 
PLAN OF DISTRIBUTION

We are offering for sale a maximum of 20,000,000 shares of our common stock in a self-underwritten offering directly to the public at a price of $0.50 per share, plus a maximum of 10,000,000 shares of our common stock underlying the warrants exercisable at price of $1.00 per share. There is no minimum number of shares that we must sell in our direct offering, and therefore no minimum amount of proceeds will be raised. No arrangements have been made to place funds into an escrow or any similar account. Upon receipt, offering proceeds will be deposited into our operating account and used to conduct our business and operations. We are offering the shares without any underwriting discounts or commissions. If all 20,000,000 shares are not sold within 180 days from the date hereof the offering for the balance of the shares will terminate and no further shares will be sold.

Our offering price of $0.50 per share was determined based on very light trading volume with a limited float, $0.50 is the approximate trading price decided upon by our management and is not based upon earnings or operating history, does not reflect our actual value, and bears no relation to our earnings, assets, book value, net worth, or any other recognized criteria of value. No independent investment banking firm has been retained to assist in determining the offering price for the shares. Such offering price was not based on the price of the issuance to our founders. Accordingly, the offering price should not be regarded as an indication of any future price of our stock.
 
 
 
38

 
 
 
Our common stock is traded on the over-the-counter (OTC) Bulletin Board. There is currently a limited market for our shares of common stock. There can be no assurance that a market for our common stock will be sustained. Therefore, purchasers of our shares registered hereunder may be unable to sell their securities because our shares are thinly traded. As a result, you may find it more difficult to dispose of, or obtain accurate quotes of our common stock. Any purchaser of our securities should be in a financial position to bear the risks of losing their entire investment.

Shares in This Offering Will Be Sold By Our Officers and Directors

This is a self-underwritten offering with no minimum sale requirement. Our officers and directors will sell the Shares directly to the public, with no commission or other remuneration payable to them for any Shares that are sold by them. Dr. Platt will register as the issuer-agent in those states requiring such registration. In offering the securities on our behalf, he will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934.

Rule 3a4-1 sets forth those conditions under which a person associated with an Issuer may participate in the offering of the Issuer’s securities and not be deemed to be a broker-dealer. Those conditions are as follows:

 
a.
Our officers and directors are not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Act, at the time of their participation; and
 
b.
Our officers and directors will not be compensated in connection with their participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities; and
 
c.
Our officers and directors are not, nor will they be at the time of their participation in the offering, an associated person of a broker-dealer; and

Our officers and directors meet the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that they (A) primarily perform, or intend primarily to perform at the end of the offering, substantial duties for or on behalf of our Company, other than in connection with transactions in securities; and (B) are not a broker or dealer, or have been associated person of a broker or dealer, within the preceding twelve months; and (C) have not participated in selling and offering securities for any Issuer more than once every twelve months other than in reliance on Paragraphs (a)(4)(i) and (a)(4)(iii).

There are no current plans or arrangements to enter into any contracts or agreements to sell the Shares with a broker or dealer. However, we may enter into such agreements and pay commissions and expenses of up to 10% of all proceeds raised by brokers, dealers, finders or selling agents who may participate in this offering.

Our officers, directors, control persons and affiliates of same do not intend to purchase any shares in this offering.
Under the securities laws of certain states, the Shares may be sold in such states only through registered or licensed brokers or dealers or persons exempt from such registration. In addition, in certain states the Shares may not be sold unless the Shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. We will only offer and sell the Shares in those states where we register or qualify the Shares for sale or where an exemption from such registration or qualification requirement is available and we have complied with such exemption.

We intend to sell our shares in the Commonwealth of Massachusetts, New York, New Jersey, Connecticut, Texas, California, Florida and Illinois.  However we may expand the offering into additional states should the officers deem it appropriate to do so.

Terms of the Offering

The shares will be sold at the fixed price of $0.50 per share until the completion of this offering. There is no minimum amount of subscription required per investor, and subscriptions, once received, are irrevocable. This offering will commence on the effective date of this Prospectus and continue for a period not to exceed 180 days (the “Expiration Date”).
 
 
 
39

 
 
 
Deposit of Offering Proceeds

This is a “best efforts” offering and, as such, we will be able to spend any of the proceeds. The funds will be transferred to our business account for use in the implementation of our business plans

Procedures and Requirements for Subscription

If you decide to subscribe for any shares in this offering, you will be required to execute a Subscription Agreement and tender it, together with a check or certified funds to us. Subscriptions, once received by the Company, are irrevocable. All checks for subscriptions should be made payable to the Company. There is no minimum purchase requirement.

DETERMINATION OF PRICE

The offering of 20,000,000 shares of our common stock described in this Prospectus, and 10,000,000 shares of our common stock upon exercise of the warrants will represent approximately 173% of our outstanding common stock. For purposes of calculating the registration fee for the common stock included in this Prospectus, we have used an estimated public offering price of $0.50 per share. This is an arbitrary price and we can offer no assurances that the $0.50 price per share bears any relation to the value of the shares as of the date of this Prospectus.

MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

No established public trading market exists for our common stock. We have no shares of common stock subject to outstanding options or warrants to purchase, or securities convertible into, our common stock. Except for this offering, there is no common stock that is being, or has been proposed to be, publicly offered.

Holders of Common Stock
As of the date of this prospectus, we have 1,676 holders of record of our common stock. The number of record holders does not include persons, if any, who hold our common stock in nominee or “street name” accounts through brokers. Our primary stockholders are Dr. David Platt, our chairman of the board, chief executive officer and chief financial officer, Kenneth Tassey, our President, and Offer Binder, who own 8,603,584; 3,040,000, and 2,000,000 shares respectively of our common stock, or an aggregate of 13,643,584 of our 17,348,206 outstanding shares.

Dividends
There have been no cash dividends declared on our common stock since our company was formed. Dividends are declared at the sole discretion of our Board of Directors. Our intention is not to declare cash dividends and retain all cash for our operations.

ADDITIONAL INFORMATION

We have filed a registration statement on Form S-1 with the Securities and Exchange Commission for our common stock offered in this offering. This Prospectus does not contain all of the information set forth in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make references in this Prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for the copies of the actual contract, agreement or other document.

Our fiscal year ends on December 31. We plan to furnish our shareholders annual reports containing audited financial statements and other appropriate reports, where applicable. In addition, we intend to become a reporting company and file annual, quarterly, and current reports, and other information with the SEC, where applicable. You may read and copy any reports, statements, or other information we file at the SEC's public reference room at 100 F. Street, N.E., Washington D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings are also available to the public on the SEC's Internet site at http\\www.sec.gov.
 
 
40

 


INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the corporation. Section 145 of the Delaware General Corporation Law also provides that expenses (including attorneys’ fees) incurred by a director or officer in defending an action may be paid by a corporation in advance of the final disposition of an action if the director or officer undertakes to repay the advanced amounts if it is determined such person is not entitled to be indemnified by the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Company’s Bylaws provide that, to the fullest extent permitted by law, the Company shall indemnify and hold harmless any person who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person, or the person for whom he is the legally representative, is or was a director or officer of the Company, against all liabilities, losses, expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding.

Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (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) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Company’s Certificate of Incorporation provides for such limitation of liability.

The Company’s By-laws provide for the indemnification of, and advancement of expenses to, directors and officers of the Company (and, at the discretion of the Board of Directors of the Company, employees and agents of the Company to the extent that Delaware law permits the Company to provide indemnification to such persons) in excess of the indemnification and advancement otherwise permitted under Section 145 of the DGCL, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Company, its stockholders and others. The provision does not affect directors’ responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws.

The Company intends to enter into agreements with its directors and executive officers, that will require the Company to indemnify such persons to the fullest extent permitted by law, against expenses, judgments, fines, settlements and other amounts incurred (including attorneys’ fees), and advance expenses if requested by such person, in connection with investigating, defending, being a witness in, participating, or preparing for any threatened, pending, or completed action, suit, or proceeding or any alternative dispute resolution mechanism, or any inquiry, hearing, or investigation (collectively, a “Proceeding”), relating to any event or occurrence that takes place either prior to or after the execution of the indemnification agreement, related to the fact that such person is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by such person in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company. Indemnification is prohibited on account of any Proceeding in which judgment is rendered against such persons for an accounting of profits made from the purchase or sale by such persons of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

 
 
41

 
 
 
Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise against liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against liability under the provisions of this section. The Company currently maintains such insurance.

Settlement by the Company. The right of any person to be indemnified is subject always to the right of the Company by its Board of Directors, in lieu of such indemnity, to settle any such claim, action, suit or proceeding at the expense of the Company by the payment of the amount of such settlement and the costs and expenses incurred in connection therewith.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees as to which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in claims for indemnification.
LEGAL MATTERS

Certain legal matters with respect to the issuance of shares of common stock offered hereby will be passed upon by Seyfarth Shaw LLP, Boston, Massachusetts.

EXPERTS

The financial statements of the Company as of and for the years ended December 31, 2011 and 2010 and for the period from inception (August 24, 2009) to December 31, 2011, appearing in this Prospectus and Registration Statement, have been audited by McGladrey LLP (Formerly McGladrey & Pullen, LLP), an independent registered public accounting firm, as stated in their report appearing elsewhere herein, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's ability to continue as a going concern) and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.

The financial statements of the Company as of December 31, 2009 and for the period from inception (August 24, 2009) to December 31, 2009, appearing in this Prospectus and Registration Statement, have been audited by Caturano and Company, Inc., an independent registered public accounting firm, as stated in their report appearing elsewhere herein, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's ability to continue as a going concern) and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.

 
 
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FINANCIAL STATEMENTS

The Financial Statements required by Article 8 of Regulation S-X are stated in U.S. dollars and are prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“US GAAP”). The following financial statements pertaining to Boston Therapeutics, Inc. are filed as part of this Prospectus.

 



 
 
 
C O N T E N T S
 
 
 Unaudited interm financial statements for the three and six month periods ended June 30, 2012 and 2011
 
    Balance Sheet
F-2
    Statement of Operations
F-3
    Statements of Cash Flows
F-4
    Notes to Financial Statements
F-5
 


Audited Financial Statements for the years ended December 31, 2011and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
Page
Reports of Independent Registered Public Accounting Firms
F-12
Reports of Independent Registered Public Accounting Firms F-13
Financial Statements:
 
 
Balance Sheets
F-14
 
Statements of Operations
F-15
 
Statements of Changes in Stockholders’ Equity (Deficit)
F-16
 
Statements of Cash Flows
F-17
 
Notes to Financial Statements
F-18
 
 
 
F-1

 
 
 
 
(Formerly Avanyx Therapeutics, Inc.)
           
(A Development Stage Company)
           
Balance Sheets (Unaudited)
           
June 30, 2012 and December 31, 2011
 
June 30,
2012
   
December 31,
2011
 
             
             
Cash
  $ 417,510     $ 225,995  
Prepaid expenses
    5,495       5,331  
Inventory, net
    24,726       23,596  
Total current assets
    447,731       254,922  
Property and equipment, net
    4,297       -  
Intangible assets
    792,857       825,000  
Goodwill
    69,782       69,782  
Other assets
    2,125       -  
Total assets
  $ 1,316,792     $ 1,149,704  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable
  $ 335,954     $ 341,873  
Accrued expenses and other current liabilities
    133,851       125,316  
Total current liabilities
    469,805       467,189  
Advances - related parties
    297,820       257,820  
Total liabilities
    767,625       725,009  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
               
    none issued and outstanding
    -          
           Common stock, $0.001 par value, 100,000,000 shares
               
    authorized, 17,348,206 and 16,223,206 shares issued and  outstanding
               
    at June 30, 2012 and December 31, 2011,  respectively
    17,348       16,223  
Additional paid-in capital
    2,284,497       1,621,756  
          Deficit accumulated during the development stage
    (1,752,678 )     (1,213,284 )
               Total stockholders’ equity
    549,167       424,695  
                 
            Total liabilities and stockholders’ equity
  $ 1,316,792     $ 1,149,704  
 

The accompanying notes are an integral part of these financial statements.
 
 
 
F-2

 
 
Boston Therapeutics, Inc.
                         
(Formerly Avanyx Therapeutics, Inc.)
                   
(A Development Stage Company)
                             
Statements of Operations (Unaudited)
                             
For the Three and Six Month Periods Ended June 30, 2012 and 2011
                   
and the Period from Inception (August 24, 2009) through June 30, 2012
                   
                               
                           
Period from Inception (August 24,
2009)
 
   
For the Three Months Ended
   
For the Three Months Ended
 
               
to
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
 
2012
   
2011
   
2012
   
2011
   
2012
 
                               
Revenue
  $ 2,376     $ 1,767     $ 21,230     $ 2,247     $ 25,770  
Cost of goods sold
    4,162       1,287       31,757       2,250       38,530  
Gross margin
    (1,786 )     480       (10,527 )     (3 )     (12,760 )
                                         
Operating expenses:
                                       
Research and development
    67,924       16,072       119,552       33,211       324,600  
Sales and marketing
    66,898       1,542       134,078       1,997       344,271  
General and administrative
    139,435       75,459       263,971       150,295       1,036,109  
    Total operating expenses
    274,257       93,073       517,601       185,503       1,704,980  
Operating loss
    (276,043 )     (92,593 )     (528,128 )     (185,506 )     (1,717,740 )
Interest expense
    (4,178 )     (4,104 )     (8,356 )     (7,210 )     (32,028 )
Foreign currency loss
    (1,768 )     -       (2,910 )     -       (2,910 )
Net loss
  $ (281,989 )   $ (96,697 )   $ (539,394 )   $ (192,716 )   $ (1,752,678 )
                                         
                                         
Net loss per share- basic and diluted
  $ (0.02 )   $ (0.01 )   $ (0.03 )   $ (0.01 )        
Weighted average shares outstanding basic and diluted
    16,287,381       14,264,914       16,255,293       14,153,075          
 
The accompanying notes are an integral part of these financial statements.

 
 
F-3

 
 
 
 
 
 
Boston Therapeutics, Inc.
                 
(Formerly Avanyx Therapeutics, Inc.)
             
(A Development Stage Company)
                 
Statement of Cash Flows (Unaudited)
                 
For the Six Month Periods Ended June 30, 2012 and 2011
                 
and the Period from Inception (August 24, 2009) through June 30, 2012
             
Period from
Inception
(August 24, 2009)
to
June 30, 2012
 
             
   
For the Three Months Ended
 
   
June 30,
   
June 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
                 
Net loss
  $ (539,394 )   $ (192,716 )   $ (1,752,678 )
Adjustments to reconcile net loss to net cash
used in operating activities:
                       
Amortization of intangible assets
    32,143       32,143       107,143  
Stock based compensation
    116,866       13,118       266,715  
Issuance of common stock for consulting services
    25,000       -       70,250  
  Changes in:
                       
               Inventory
    (1,130 )     (10,280 )     (20,356 )
               Prepaid expenses
    (164 )     18       (2,578 )
               Other assets
    (2,125 )     -       (2,125 )
               Accounts payable
    (5,919 )     157,046       335,954  
               Accrued expenses
    8,535       (154,112 )     87,032  
                         
                  Net cash used in operating activities
    (366,188 )     (154,783 )     (910,643 )
                         
Cash flows from investing activities:
                       
  Purchase of property and equipment
    (4,297 )     -       (4,297 )
  Net cash acquired in acquisition of Boston Therapeutics, Inc.
    -       -       8,397  
Net cash (used in) provided by investing activities
    (4,297 )     -       4,100  
                         
Cash flows from financing activities:
                       
  Proceeds from advances - related parties
    40,000       80,000       237,820  
  Proceeds from issuance of common stock - related party
    -       -       21,236  
  Proceeds from issuance of common stock
    522,000       500,000       1,064,997  
Net cash provided by financing activities
    562,000       580,000       1,324,053  
Net increase in cash and cash equivalents
    191,515       425,217       417,510  
                         
Cash and cash equivalents, beginning of period
    225,995       15,193       -  
Cash and cash equivalents, end of period
  $ 417,510     $ 440,410     $ 417,510  
 
 
Supplemental disclosure of cash flow information:
                 
Cash paid during the period for:
                 
Interest
  $ -     $ -     $    
- Income taxes
  $ -     $ -     $    
Acquisition of Boston Therapeutics, Inc.:
                       
Fair value of assets acquired
  $ -     $ -     $ 985,466  
Assumed liabilities
    -       -       (106,819 )
Fair value of assets acquired
  $ -     $ -     $ 878,647  
Subscription receivable
  $ -     $ 8,867     $ 8,867  

The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
 
F-4

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012

 
1.             GENERAL ORGANIZATION AND BUSINESS
 
Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“Target”) providing for the merger of Target into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of Target in exchange for 100% of the outstanding common stock of Target, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of Target and was a director and minority stockholder of Target at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of Target at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.
 
Boston Therapeutics, headquartered in Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry.  The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: SUGARDOWN®, a non-systemic chewable complex carbohydrate dietary supplement designed to moderate post-meal blood glucose; PAZ320, a non- systemic chewable therapeutic compound designed to reduce post-meal glucose elevation, and IPOXYN™, an injectable anti-hypoxia drug specifically designed to treat lower limb ischemia associated with diabetes. More information is available at www.bostonti.com.
 
The Company has minimal operations and is considered to be in the development stage as of June 30, 2012.  The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity with limited resources and operating history. As shown in the accompanying financial statements, the Company has incurred net losses of $1,752,678 for the period from August 24, 2009 (inception) to June 30, 2012 and has negative working capital of $22,074 as of June 30, 2012. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities.
 
Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.
 
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
 
 
 
F-5

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
 
2.             SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
 
Basis of  Presentation
 
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information and the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q. It is suggested that these condensed financial statements be read in conjunction with the Company's financial statements for its year ended December 31, 2011 included in its Form 10-K. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of June 30, 2012 and the results of operations for the three and six month periods ended June 30, 2012 and 2011 and the period from inception (August 24, 2009) through June 30, 2012.

The year-end balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
 
The results disclosed in the Statements of Operations for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year.
 
Use  of Estimates
 
The preparation of financial statements in conformity with US GAAP requires management to make estimates and  assumptions that affect the reported amounts  of assets  and liabilities  and disclosure of contingent assets  and  liabilities  at the date of the financial statements and the reported amounts of revenue and expenses during the  reporting period.   Actual results could differ from those estimates.
 
Segment Information
 
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
 
Cash  and  Cash Equivalents
 
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents.
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation.

Revenue  Recognition
 
The Company generates revenues from sales of SUGARDOWN®.  Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured.

Revenue is recognized as product is shipped from an outside fulfillment operation.  Terms of product sales provide for 30 day money back guarantee.  In practice, the Company has not experienced or granted significant returns of product.  Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.

Inventory
 
Inventory consists of raw materials and finished goods of SUGARDOWN®. Inventory is stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This reserve was $1,667 at June 30, 2012 and December 31, 2011. The Company continues to monitor the valuation of its inventories.
 
 
 
F-6

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
 
   2.             SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
 
Property and Equipment
 
Property and equipment is depreciated using the straight-line method over the following estimated useful lives:
 
 
 
  Estimated Useful
Asset  Category     Life
Office Furniture and Equipment    5 years
Computer Equipment and  
Software 3 years

 
The Company begins to depreciate assets when they are placed in service. The costs of repairs and maintenance are expensed as incurred; major renewals and betterments are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations.

Goodwill
 
The Company follows the guidance of Financial Accounting Standards Board (FASB) Accounting    Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually.

Impairment of  Long-lived  Assets
 
The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made.

Loss  per Share
 
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method.    The weighted average number of common shares for the three and six months ended June 30, 2012 and 2011 did not include 1,898,400 and 138,577 options and warrants, respectively, because of their anti-dilutive effect.
 
Fair Value  of Financial  Instruments
 
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.

The carrying value of the notes payable as of June 30, 2012 and December 31, 2011 is not materially different from the fair value of the notes payable.
 
Stock-Based  Compensation
 
Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight- line basis over the vesting period of the award.
 

 
F-7

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
 
   2.             SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued

The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of the common stock as, and as such volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight- line basis over the vesting period, based on awards that are ultimately expected to vest.
 
The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period.

Recent Accounting Pronouncements
 
Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment is effective for the Company’s tests performed for fiscal year 2011.  This statement is not expected to have a material impact on the Company’s results from operations.
 
3.             STOCKHOLDERS EQUITY
 
The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 100,000,000 shares of its $0.001 par value common stock.

Common Stock
 
On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders.  Eight million shares were issued to the Company’s Chief Executive Officer (CEO), Chairman of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP.  As a result, the value of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009.  The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.
 
On March 31, 2010, the Company issued 20,000 shares of common stock for $10,000 cash to an investor.  On April 9, 2010, the Company issued 11,236 shares of common stock in exchange for $11,236 to a related party.  On October 4, 2010, the Company issued 10,000 shares for $10,000 cash to an investor.  On November 6, 2010, the Company issued 4,000,000 shares of common stock in connection with the merger transaction described in Note 1.
 
On June 21, 2011, the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement.  On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250.  On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000.

On March 20, 2012 the Company entered into a subscription agreement to sell 20,000 shares of common stock at price per share of $1.10 and issue a warrant to purchase an additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000.   The warrant associated with the subscription agreement is exercisable immediately and has five year term.  The Company estimated the relative fair value of the warrant to be $9,000 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. On May 7, 2012, the subscription agreement closed and the Company issued 20,000 shares of its common stock for $22,000.
 
 
 
F-8

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
 
    3.             STOCKHOLDERS EQUITY...continued
 
During June 2012, the Company issued 105,000 shares of its common stock in exchange for professional consulting services valued at $25,000. On June 29, 2012, the Company issued 1,000,000 shares to an affiliate of Advance Pharmaceutical Co., Ltd. (APC) in a private placement for net proceeds of $500,000. APC is licensed to distribute SUGARDOWN® in Hong Kong, China and Macau.  The Company reviewed the private placement issuance and determined that the issuance price of $0.50 per share approximates fair value as of the date of issuance.  No other issuances of preferred or common stock have been made during the period cover by the accompanying financial statements.
 
4.             STOCK OPTION  PLAN AND STOCK-BASED COMPENSATION
 
During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of June 30, 2012 and 2011, there were 78,400 and 499,637 and options outstanding under the 2010 Plan, respectively.
 
During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock.  As of June 30, 2012, there were 1,800,000 options outstanding under the 2011 Plan. There were no options outstanding as of June 30, 2011 under the 2011 Plan.
 
Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options expire ten years from the date of grant.
 
The fair value of stock options granted or revalued for six months ended June 30, 2012 and 2011 was calculated with the following assumptions:
 

   
2012
   
2011
 
Risk-free interest rate
    0.43 - 1.27 %     0.60 - 0.84 %
Expected dividend yield
    0 %     0 %
Volatility factor
    90 %     90 %
Expected life of option
 
3.15 - 7.0 years
   
4.75 - 10.0 years
 

The weighted-average fair value of stock options granted during the periods ended June 30, 2012 and 2011, under the Black-Scholes option pricing model was $0.21 and $0.21 per share, respectively.

The Company recognized $43,384 and $4,261 of stock-based compensation costs in the accompanying statement of operations for the three months ended June 30, 2012  and  2011,  respectively.  The Company recognized $116,866 and $13,118 of  stock-based compensation costs in the accompanying statement of operations for the six months ended June 30, 2012 and 2011, respectively. No actual tax benefit was realized from stock option exercises  during these  periods. As of June 30, 2012, there was $317,270 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.6 years.

The following table summarizes the activity under the Stock Plans:
 
 
   
Shares
   
Exercise
Price Per
Share
   
Weighted
Average
Exercise
Price
 
               
 
 
Outstanding as of December 31, 2011
    1,578,400     $ 0.10-1.85       0.19  
Granted
    300,000       0.10       0.10  
Exercised
    -       -       -  
Options forfeited/cancelled
    -       -       -  
Outstanding as of June 30, 2012
    1,878,400       0.10-1.85       0.17  
 
 
 
F-9

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
 
    4.             STOCK OPTION  PLAN AND STOCK-BASED COMPENSATION...continued
 
The following table summarizes information about stock options that are vested or expected to vest at June 30, 2012:

   
       Vested or Expected to Vest
   
Exercisable Options
                                                     
Exercise
 
Number of
 
Weighted
 
Weighted
 
Aggregate
   
Aggregate
 
Weighted
 
Weighted
 
Aggregate
Price
 
Options
 
Average
 
Average
 
Intrinsic
   
Intrinsic
 
Average
 
Average
 
Intrinsic
       
Exercise
 
Remaining
 
Value
   
Value
 
Exercise Price
 
Remaining
 
Value
       
Price Per
 
Contractual
           
Per Share
 
Contractual
   
       
Share
 
Life (Years)
               
Life (Years)
   
$
0.10
   
1,800,000
   
0.10
   
4.41
 
$
738,000
     
1,093,750
   
0.10
   
4.50
 
$
448,438
 
1.85
   
78,400
   
1.85
   
3.15
   
-
     
58,800
   
1.85
   
3.15
   
-
                                                     
$
0.10-1.85
   
1,878,400
   
0.17
   
4.36
 
$
738,000
     
1,152,550
   
0.19
   
4.43
 
$
448,438
 
 
At June 30,  2012,  the Company  has  300,000  and 4,921,600  options  available for grant under  the 2011  Plan  and  2010  Plan, respectively.
 
5.             RELATED PARTY TRANSACTIONS
 
Through December 31, 2011, the CEO advanced $197,820 to the Company and $60,000 to Target to fund start-up costs and operations of the Company and Target.  Advances by the CEO carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, the Company’s CEO and COO entered into promissory notes to advance to the Company an aggregate of $40,000.  The notes accrue interest at 6.5% per year and are due June 30, 2013.  As of June 30, 2012, and December 31, 2011, $33,996 and $25,641, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet.  On August 6, 2012, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2014. The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital.
 
6.             INTANGIBLE ASSETS
 
The SUGARDOWN® technology and provisional patents are being amortized on a straight-line basis over their useful lives of 14 years.  Goodwill is not amortized, but is evaluated annually for impairment.

Intangible assets consist of the following at June 30, 2012 and December 31, 2011:

   
2012
   
2011
 
SUGARDOWN® technology and provisional patents
  $ 900,000     $ 900,000  
Less accumulated amortization
    (107,143 )     (75,000 )
Intangible assets, net
  $ 792,857     $ 825,000  

Amortization expense was $16,071 and $32,143 for the three and six months ended June 30, 2012 and 2011, respectively.

7.             COMMITMENTS AND CONTINGENCIES
 
The Company entered into a three year lease agreement for their office facility commencing August 1, 2012 which requires monthly installment payments of $2,125 in year one, $2,208 in year two and $2,292 in year three. The lease continues through July 31, 2015 for a total future contractual obligation of $79,500.
 
 
 
F-10

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012

8.             SUBSEQUENT  EVENTS

The Company has evaluated events and transactions that occurred from June 30, 2012 through the date of filing, for possible disclosure and recognition in the financial statements. Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.

On August 6, 2012, the outstanding notes of $297,820 were amended to extend the various maturity dates to June 29, 2014.
 
On July 8, 2012, the Company entered into a consulting agreement whereby the Company will pay the consultant a combination of $4,000 cash and 7,500 shares of restricted stock per month during the first 90 days, with an increase to $5,000 cash and 7,500 shares of restricted stock per month if the agreement extends beyond the first 90 days.  The agreement is on a month-to-month basis.
 
On September 1, 2012, the Company granted a consultant a non-qualified stock option to purchase up to 500,000 shares of the Company’s common stock at an exercise price of $0.51 per share.  The option has a 7 year term and vests 25% upon grant with the balance vesting in 6 equal quarterly installments at the end of each calendar quarter starting on December 31, 2012.
               
 
 
F-11

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and stockholders of
Boston Therapeutics, Inc.
Manchester, New Hampshire

We have audited the accompanying balance sheets of Boston Therapeutics, Inc. (a development stage company) as of December 31, 2011 and 2010, and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended and for the period from inception (August 24, 2009) to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from inception (August 24, 2009) to December 31, 2009 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts included for such prior periods, is based solely on the report of other such 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Therapeutics, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended and for the period from inception (August 24, 2009) to December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s limited resources and operating history, as well as operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ McGladrey & Pullen, LLP
Boston, Massachusetts
March 30, 2012
 
 
 
F-12

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and stockholders of Boston Therapeutics, Inc. (formerly Avanyx Therapeutics, Inc.) Manchester, New Hampshire
 
We have audited the statement of operations, changes in stockholders’ deficit and cash flows of Boston Therapeutics, Inc. (formerly Avanyx Therapeutics, Inc.) (a development stage company) for the period from August 24, 2009 (date of inception) to December 31, 2009 (not separately presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Boston Therapeutics, Inc. for the period from August 24, 2009 (date of inception) to December 31, 2009 (not separately presented herein) in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company’s limited resources and operating history, as well as operating losses raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ CATURANO AND COMPANY, INC.
 
September 17, 2010
Boston, Massachusetts
 
 
F-13

 
 
Boston Therapeutics, Inc.
           
(Formerly Avanyx Therapeutics, Inc.)
           
(A Development Stage Company)
           
Balance Sheets
           
December 31, 2011 and 2010
           
             
   
December 31, 2011
   
December 31, 2010
 
ASSETS
           
Cash
 
$
225,995
   
$
15,193
 
Prepaid expenses
   
5,331
     
1,728
 
Inventory, net
   
23,596
     
4,149
 
Total current assets
   
254,922
     
21,070
 
                 
Intangible assets
   
825,000
     
889,286
 
Goodwill
   
69,782
     
69,782
 
                 
Total assets
 
$
1,149,704
   
$
980,138
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable
 
$
341,873
   
$
45,917
 
Accrued expenses
   
125,316
     
222,512
 
Total current liabilities
   
467,189
     
268,429
 
                 
Advances - related party
   
257,820
     
177,820
 
Total liabilities
   
725,009
     
446,249
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
Stockholders’ equity:
               
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding
   
-
     
-
 
                 
Common stock, $0.001 par value, 100,000,000 shares authorized, 16,223,206 and 14,041,236 shares issued and outstanding at December 31, 2011 and 2010, respectively
   
16,223
     
14,041
 
Additional paid-in capital
   
1,621,756
     
905,964
 
Deficit accumulated during the development stage
   
(1,213,284
)
   
(386,116
)
Total stockholders’ equity
   
424,695
     
533,889
 
                 
Total liabilities and stockholders’ equity
 
$
1,149,704
   
$
980,138
 
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-14

 
 
  
            
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
 
(A Development Stage Company)
 
Statements of Operations
 
For the Years Ended December 31, 2011 and 2010
 
and the Periods from Inception (August 24, 2009) through December 31, 2011
   
Year Ended December 31, 2011
   
Year Ended December 31, 2010
   
Period From Inception (August 24, 2009) to December 31, 2011
 
                   
Revenue
 
$
4,112
   
$
428
   
$
4,540
 
                         
Cost of goods sold
   
6,375
     
398
     
6,773
 
                         
Gross margin
   
(2,263
)
   
30
     
(2,233
)
                         
Operating expenses:
                       
Research and development
   
194,276
     
10,772
     
205,048
 
Sales and marketing
   
206,517
     
3,676
     
210,193
 
General and administrative
   
408,454
     
226,790
     
772,138
 
Total operating expenses
   
809,247
     
241,238
     
1,187,379
 
                         
Operating loss
   
(811,510
)
   
(241,208
)
   
(1,189,612
)
                         
Interest expense-related party
   
15,658
     
7,087
     
23,672
 
                         
Net loss
 
$
(827,168
)
 
$
(248,295
)
 
$
(1,213,284
)
                         
                         
Net loss per share - basic and diluted
 
$
(0.05
)
 
$
(0.02
)
       
                         
Weighted average shares outstanding basic and diluted
   
15,147,196
     
10,699,567
         
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-15

 
 
 
 
 
 
 
 
 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficit)
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
         
Additional
   
Deficit Accumulated
   
Total
 
   
Common Stock
   
Paid-in
   
During the
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Development
Stage
   
Equity (Deficit)
 
Inception, August 24, 2009
   
-
   
$
-
   
$
-
   
$
-
 
$
-
 
                                       
Issuance of common stock
   
10,000,000
     
10,000
     
-
     
-
   
10,000
 
                                       
Net loss
   
-
     
-
     
-
     
(137,821
)
 
(137,821
)
                                       
Balance, December 31, 2009
   
10,000,000
     
10,000
     
-
     
(137,821
)
 
(127,821
)
                                       
Issuance of common stock
   
41,236
     
41
     
31,195
     
-
   
31,236
 
                                       
Stock based compensation
   
-
     
-
     
122
     
-
   
122
 
                                       
Issuance of common stock to acquire Boston Therapeutics, Inc.
(See Note 7)
   
4,000,000
     
4,000
     
874,647
     
-
   
878,647
 
                                       
Net loss
   
-
     
-
     
-
     
(248,295
)
 
(248,295
)
                                       
Balance, December 31, 2010
   
14,041,236
     
14,041
     
905,964
     
(386,116
)
 
533,889
 
                                       
Issuance of common stock
   
2,091,470
     
2,091
     
520,906
     
-
   
522,997
 
                                       
Issuance of common stock in exchange for consulting services
   
90,500
     
91
     
45,159
     
-
   
45,250
 
                                       
Stock based compensation
   
-
     
-
     
149,727
     
-
   
149,727
 
                                       
Net loss
   
-
     
-
     
-
     
(827,168
)
 
(827,168
)
                                       
Balance, December 31 , 2011
   
16,223,206
   
$
16,223
   
$
1,621,756
   
$
(1,213,284
)
$
424,695
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-16

 
 
 
Boston Therapeutics, Inc.
     
(Formerly Avanyx Therapeutics, Inc.)
     
(A Development Stage Company)
     
Statements of Cash Flows
     
For the Years Ended December 31, 2011 and 2010
     
and the Periods from Inception (August 24, 2009) through December 31, 2011
   
                   
   
 
The Year Ended December 31, 2011
   
 
The Year Ended December 31, 2010
   
Period From Inception
(August 24, 2009) to
December 31, 2011
 
Cash flows from operating activities:
                 
Net loss
 
$
(827,168
)
 
$
(248,295
)
 
$
(1,213,284
)
Adjustments to reconcile net loss to cash
                       
used in operating activities:
                       
   Amortization of intangible assets
   
64,286
     
10,714
     
75,000
 
   Stock based compensation
   
149,727
     
122
     
149,849
 
Issuance of common stock in exchange for
c
onsulting services
   
45,250
     
-
     
45,250
 
Changes in:
                       
Inventory
   
(19,447
)
   
221
     
(19,226
)
Prepaid expenses
   
(3,603
)
   
1,189
     
(2,414
)
Accounts payable
   
295,956
     
(2,337
)
   
341,873
 
Accrued expenses
   
(97,196
)
   
121,416
     
78,497
 
                         
Net cash used in operating activities
   
(392,195
)
   
(116,970
)
   
(544,455
)
                         
Cash flows from investing activities:
                       
Net cash acquired in acquisition of
    Boston Therapeutics, Inc.
   
-
     
8,397
     
8,397
 
Net cash provided by investing activities
   
-
     
8,397
     
8,397
 
                         
Cash flows from financing activities
                       
    Proceeds from advances - related party
   
80,000
     
69,000
     
197,820
 
    Proceeds from issuance of common stock - related party
   
-
     
11,236
     
21,236
 
    Proceeds from issuance of common stock
   
522,997
     
20,000
     
542,997
 
Net cash provided by financing activities
   
602,997
     
100,236
     
762,053
 
                         
Net increase (decrease) in cash and cash equivalents
    210,802       (8,337 )     225,995  
Cash and cash equivalents, beginning of period
    15,193       23,530       -  
                         
Cash and cash equivalents, end of period
  $ 225,995     $ 15,193     $ 225,995  
                         
Supplemental disclosure of cash flow information:
                       
                         
Cash paid during the period for:
                       
Interest
  $ -     $ -     $ -  
                         
Income taxes
  $ -     $ -     $ -  
                         
Acquisition of Boston Therapeutics, Inc.:
                       
Fair value of assets acquired
          $ 985,466     $ 985,466  
Assumed liabilities
            (106,819 )     (106,819 )
Fair value of common stock issued
          $ 878,647     $ 878,647  
 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-17

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
1. GENERAL ORGANIZATION AND BUSINESS

Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“Target”) providing for the merger of Target into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of Target in exchange for 100% of the outstanding common stock of Target, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of Target and was a director and minority stockholder of Target at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of Target at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger. The Company’s primary business is the development and commercialization of therapeutic drugs and dietary supplements to treat diabetes and inflammatory diseases.  We are currently focusing on three products: SUGARDOWN®, a complex carbohydrate-based chewable dietary supplement that we are currently marketing, PAZ320, a non-systemic, chewable drug candidate for reduction of blood glucose in diabetics currently in Phase ll clinical trial, and IPOXYN™, an injectable anti-hypoxia drug that we are currently developing to treat lower limb ischemia.

The Company has minimal operations and is considered to be in the development stage as of December 31, 2011. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity with limited resources and operating history. As shown in the accompanying financial statements, the Company has incurred net losses of $1,213,284 for the period from August 24, 2009 (inception) to December 31, 2011 and has negative working capital of $212,267 as of December 31, 2011. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities.

Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepting in the United States of America (“US GAAP”).

Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Segment Information
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
 
 
 
F-18

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
 
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents.  The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation.

Revenue Recognition
The Company generates revenues from sales of SUGARDOWN®. Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured. Revenue is recognized as product is shipped from an outside fulfillment operation. Terms of product sales contain no contractual rights of return or multiple elements. In practice, the Company has not experienced or granted returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.

Inventory
Inventory consists of raw materials and finished goods of SUGARDOWN®. Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This adjustment for the years ended December 31, 2011 and 2010 was $1,667 and $0, respectively. The Company continues to monitor the valuation of its inventories.

Intangible Assets
Intangible assets consist of identifiable finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition. Certain acquired intangible assets, including developed technology, products and trade names, are amortized over their economic useful lives on a straight line basis.

Goodwill
The Company tests goodwill for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The test is based on a comparison of the reporting unit’s book value to its estimated fair value. The Company has concluded that no impairment existed at the 2011 testing date. A considerable amount of judgment is required in calculating this impairment analysis, principally in determining financial forecasts and discount rates. Differences in actual cash flows as compared to the discounted cash flows could require the Company to record an impairment loss in the future.

Impairment of Long-lived Assets
The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made.

Loss per Share
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the years ended December 31, 2011 and 2010 did not include consideration of 1,578,400 and 78,400 common stock options, respectively, because of their anti-dilutive effect.

Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the gross deferred tax asset will not be realized.
 
 
 
F-19

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
 
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.

The carrying value of the notes payable as of December 31, 2011 and 2010, is not materially different from the fair value of the notes payable.

Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash and cash equivalent balances with financial institutions that occasionally exceed federally insured limits. The Company has not experienced any losses related to these balances, and management believes its credit risk to be minimal.

Stock-Based Compensation
Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight-line basis over the vesting period of the award.

The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of the common stock as, and as such volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vesting period, based on awards that are ultimately expected to vest.

The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period.

The fair value of stock options granted was calculated with the following assumptions:


   
2011
   
2010
 
Risk-free interest rate
    0.28-0.77 %     0.54-0.84 %
Expected dividend yield
    0 %     0 %
Volatility factor
    90 %     90 %
Expected life of option
 
4.75-5.0 years
   
3.75-4.75 years
 

The weighted-average fair value of stock options granted during the years ended December 31, 2011 and 2010, under the Black-Scholes option pricing model was $0.20 and $0.08 per share, respectively. For the years ended December 31, 2011 and 2010, the Company recorded stock-based compensation expense of $149,727 and $122, respectively, in connection with share-based payment awards. As of December 31, 2011, there was $172,953 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.1 years.
 
 
 
F-20

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
 
Recent Accounting Pronouncements
Accounting Standards Update (“ASU”) 2010-28, Intangibles – Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts - a consensus of the FASB Emerging Issues Task Force, modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment
This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

3. INVENTORIES
Inventories consist of material, labor and manufacturing overhead and are recorded at the lower of cost, using the weighted average cost method, or net realizable value.

The components of inventories at December 31, 2011 and 2010, net of inventory reserves, were as follows:

   
2011
 
2010
 
Raw materials
  $ 23,034   $ 956  
Finished goods
    562     3,193  
TotaTotal
  $ 23,596   $ 4,419  

The Company periodically reviews quantities of inventory on hand and compares these amounts to expected usage of each particular product or product line. The Company records, as a charge to cost of sales, any amounts required to reduce the carrying value to net realizable value.

4. STOCKHOLDERS’ EQUITY

The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 100,000,000 shares of its $0.001 par value common stock.

Preferred Stock

No shares of preferred stock have been issued and the terms of such preferred stock have not been designated by the Board of Directors.

Common Stock

On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders. Eight million shares were issued to the Company’s Chief Executive Officer (CEO), Chairman of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP. As a result, the value of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009. The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.
 
 
F-21

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
4. STOCKHOLDERS’ EQUITY...continued
 
On March 31, 2010, the Company issued 20,000 shares of common stock for $10,000 cash to an investor. On April 9, 2010, the Company issued 11,236 shares of common stock in exchange for $11,236 to a related party. On October 4, 2010, the Company issued 10,000 shares for $10,000 cash to an investor. On November 6, 2010, the Company issued 4,000,000 shares of common stock in connection with the merger transaction described in Note 7.

On June 21, 2011, the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement. On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250. On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000. No other issuances of preferred or common stock have been made.

5. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of December 31, 2011, there were 78,400 options outstanding under the 2010 Plan.

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock. As of December 31, 2011, there were 1,500,000 options outstanding under the 2011 Plan.

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options expire ten years from the date of grant.

The following table summarizes the activity under the Stock Plans.
   
Shares
   
Exercise Price Per Share
   
Weighted
Average Exercise Price
 
                   
Balance at December 31, 2009
   
-
   
$
-
   
$
-
 
Granted
   
78,400
     
1.85
     
1.85
 
Exercised
   
-
             
-
 
Options forfeited/cancelled
   
-
     
-
     
-
 
Outstanding, December 31, 2010
   
78,400
     
1.85
     
1.85
 
Granted
   
1,921,237
   
0.10 to
0.25
     
0.13
 
Exercised
   
-
             
-
 
Options forfeited/cancelled
   
(421,237
)
   
0.25
     
0.25
 
Outstanding, December 31, 2011
   
1,578,400
   
$
0.10 to
1.85
   
$
0.19
 

 
 
F-22

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
5. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION...continued
 
The following table summarizes information about stock options that are vested or expected to vest at December 31, 2011:

 
Vested or Expected to Vest
   
Exercisable Options
 
Exercise
Price
   
Number of
Options
   
Weighted
Average
Exercise
Price Per
Share
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Aggregate
Intrinsic
Value
   
Number of
Shares
Exercisable
   
Weighted
Average
Exercise Price
Per Share
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Aggregate
Intrinsic
Value
 
$
0.10
     
1,500,000
     
0.10
     
4.75
   
$
219,900
     
656,250
     
0.10
     
4.75
   
$
96,206
 
 
1.85
     
78,400
     
1.85
     
3.75
     
-
     
39,200
     
1.85
     
3.75
     
-
 
$
0.10 – 1.85
     
1,578,400
     
0.19
     
4.70
   
$
219,900
     
695,450
     
0.20
     
4.69
   
$
96,206
 


The weighted-average remaining contractual life for options exercisable at December 31, 2011 is 4.70 years. At December 31, 2011 the Company has 600,000 and 4,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.

The intrinsic value for fully vested, exercisable options was $96,206 and $0 at December 31, 2011 and 2010, respectively. No actual tax benefit was realized from stock option exercises during these periods.
 
6. RELATED PARTY TRANSACTIONS

Since inception, the CEO has advanced $197,820 to the Company and $60,000 to Target to fund start-up costs and operations of the Company and Target. The liability for Target advances was assumed by the Company upon closing of the Merger described in Note 7. These advances had a scheduled maturity date of June 30, 2012 and carry an annual interest rate of 6.5%. As of December 31, 2011 and 2010, $25,641 and $9,983 of accrued interest, respectively, is included in accrued expenses on the accompanying balance sheet. The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital. As discussed in Note 11, the Advances were amended subsequent to the year ended December 31, 2011 to extend the maturity dates to June 29, 2013.
 
7. ACQUISITION

Pursuant to the Agreement, and Plan of Merger dated November 10, 2010, between the Company and Target, the Company issued 4,000,000 shares of its common stock to the stockholders of Target in exchange for all the outstanding common stock of BTI. Under the terms of the agreement, Target merged into the Company with the Company being the surviving entity and the Company’s name was changed to Boston Therapeutics, Inc.

The total consideration consisted of 4,000,000 shares of the Company in exchange for all the issued and outstanding shares of Target. The liability for Target Advances was assumed by the Company upon closing of the Merger described in Note 7. A valuation of the Company’s common stock was performed resulting in a fair value per share of $0.2466. The adjusted net assets approach was selected to value the Stockholders' equity of the Company. This approach was deemed to be the most relevant method due to the lack of market transactions and a lack of available financial projections as of the valuation date. Based on the 4,000,000 shares of common stock issued for Target the total consideration was valued at $986,400. However, because the Company’s CEO was a 10% shareholder of Target, 10% of Target was valued at his historical cost basis and 90% of Target was valued at its fair value of $878,647. The acquisition of Target includes SUGARDOWN®, a ready for market dietary supplement to reduce the sharp spikes in blood sugar associated with eating high carbohydrate foods.
 
 
 
F-23

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
7. ACQUISITION...continued
 
The following table summarizes the fair value assigned to the acquired assets and liabilities:

Cash
 
$
8,397
 
Inventory
   
4,370
 
Prepaid expense
   
2,917
 
Accounts payable and accrued expenses
   
(46,819
)
Note payable shareholder
   
(60,000
)
SUGARDOWN® technology and provisional patent
   
900,000
 
Net assets acquired
   
808,865
 
Goodwill
   
69,782
 
         
   
$
878,647
 

The fair value of SUGARDOWN® was determined by estimating future cash flows associated with SUGARDOWN® and applying a 20% discount factor. The selected discount rate was based upon contemplating the inherent risk of the cash flows to the assets. The estimated useful life was determined to be 14 years based on the period of the associated estimated future cash flows. The fair value of the consideration exceeded the net assets acquired resulting in goodwill. The Company does not expect any of the goodwill to be deductible for tax purposes.

The Company’s Statement of Operations includes the results of operations of Target since the date of the acquisition.

Pro Forma Combined Results (unaudited)
The following unaudited pro forma financial information represents the combined results of operations of the Company and Target as if the acquisition had happened January 1, 2010. The unaudited pro forma results are not necessarily indicative of future results or the results that would have occurred had the acquisitions been consummated on January 1, 2010.
   
For the year ended
December 31, 2010
 
       
Pro forma revenue
 
$
3,377
 
Pro forma net loss
   
(352,176
)
Pro forma basic and diluted loss per share
 
$
(0.02
)

Pro forma adjustments include increased amortization of acquired intangible assets of $53,571 for the year ended December 31, 2010.

8. INTANGIBLE ASSETS

The SUGARDOWN® technology and provisional patents, which were obtained through the acquisition of the Target in 2010 are being amortized on a straight-line basis over their estimated useful lives of 14 years.

Intangible assets consist of the following:
   
December 31,
 
   
2011
   
2010
 
SUGARDOWN® technology and provisional patents
 
$
900,000
   
$
900,000
 
Less accumulated amortization
   
(75,000
)
   
(10,714
)
Intangible assets, net
 
$
825,000
   
$
889,286
 

Amortization expense for the years ended December 31, 2011 and 2010, was $64,286 and $10,714, respectively.

 
 
F-24

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
8. INTANGIBLE ASSETS...continued
 
The estimated remaining amortization expense related to intangible assets with finite lives for each of the five succeeding years and thereafter is as follows:
 
Year ending December 31:
 
     
       
2012
 
$
64,286
 
2013
   
64,286
 
2014
   
64,286
 
2015
   
64,286
 
2016
   
64,286
 
Thereafter
   
503,570
 
   
$
825,000
 

9. PROVISION FOR INCOME TAXES

Temporary differences that give rise to significant deferred tax assets are as follows:

   
December 31,
 
   
2011
   
2010
 
Start-up costs
 
$
21,786
   
$
21,786
 
Net operating loss carryforward
   
466,803
     
133,703
 
Valuation allowance
   
(488,589
)
   
(155,489
)
Net deferred tax asset
 
$
   -
   
$
-
 

As of December 31, 2011 and 2010, the Company had a deferred tax asset of $21,786 related to start-up costs which are amortizable for tax purposes. The Company also had a deferred tax asset related to net operating loss carryforwards of $1,213,284 and $ 386,116 that expire through 2031 as of December 31, 2011 and 2010, respectively.

The Company has provided a full valuation allowance for deferred tax assets since, based on the weight of available evidence, it is more likely than not that these benefits will not be realized. During 2011, the Company increased its valuation allowance by $333,100 due to the continued likelihood that realization of any future benefit from deductible temporary differences and net operating loss carryforwards cannot be sufficiently assured at December 31, 2011.

The primary factors affecting the Company’s income tax rate for the years ended December 31, 2011 and 2010 are as follows:

   
2011
   
2010
 
Tax benefit at U.S. statutory rate
   
(34.0
%)
   
(34.0
%)
State tax benefit
   
(6.3
%)
   
(6.3
%)
Valuation allowance
   
40.3
%
   
40.3
%
     
0.0
%
   
0.0
%

The Company applies the provisions of Financial Accounting Standard Board (FASB) Accounting Standard Codification (ASC) 740-10, Income Taxes, (originally issued as FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes). The Company has not recognized any liability for unrecognized tax benefits and does not believe there is any uncertainty with respect to its tax position. The Company’s policy with respect to unrecognized tax benefits is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
 
 
 
F-25

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
 
10. COMMITMENTS AND CONTINGENCIES

During the three months ended March 31, 2011, the Company entered into an agreement with a consultant whereby the consultant accrued monthly fees, commencing February 15, 2011, of $10,000 to be paid should the Company raise $1,000,000 in equity capital from investors prior to January 15, 2012. The Company terminated the agreement with the consultant in the quarter ended June 30, 2011. The Company did not raise $1,000,000 in equity capital prior to January 15, 2012, and as a result the Company is not obligated to pay the consultant $25,000 under the terms of the agreement as of the date of termination.

The Company entered into a lease arrangement in December 2011 which requires monthly installment payments of $557 through June 30, 2012 for a total future contractual obligation of $3,342.

11. SUBSEQUENT EVENTS

The Company has evaluated events and transactions that occurred from December 31, 2011 through the date of filing for possible disclosure and recognition in the financial statements.  Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.

On January 16, 2012, the outstanding notes of $257,820 were amended to extend the various maturity dates to June 29, 2013.

On January 1, 2012 the Company issued a non-qualified stock option under the 2011 Plan to a consultant to purchase up to 200,000 shares of common stock at an exercise price of $0.10 per share.

On February 1, 2012 the Company issued a non-qualified stock option under the 2011 Plan to a consultant to purchase up to 100,000 shares of common stock at an exercise price of $0.10 per share.
 
 
 
F-26

 
 
 
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses in connection with this registration statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission.

Description
 
Amount to be Paid
 
         
Filing Fee - Securities and Exchange Commission
 
$
2,292.00
 
Attorney's fees and expenses
   
10,000.00
*
Accountant's fees and expenses
   
10,000.00
*
Transfer agent's and registrar fees and expenses
   
1,500.00
*
Printing and engraving expenses
   
1,500.00
*
Miscellaneous expenses
   
5,326.00
*
Total
 
$
30,616.00
*
* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the corporation. Section 145 of the Delaware General Corporation Law also provides that expenses (including attorneys’ fees) incurred by a director or officer in defending an action may be paid by a corporation in advance of the final disposition of an action if the director or officer undertakes to repay the advanced amounts if it is determined such person is not entitled to be indemnified by the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Company’s Bylaws provide that, to the fullest extent permitted by law, the Company shall indemnify and hold harmless any person who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person, or the person for whom he is the legally representative, is or was a director or officer of the Company, against all liabilities, losses, expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding.
 
 
 
43

 
 
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (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) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Company’s Certificate of Incorporation provides for such limitation of liability.

The Company’s By-laws provide for the indemnification of, and advancement of expenses to, directors and officers of the Company (and, at the discretion of the Board of Directors of the Company, employees and agents of the Company to the extent that Delaware law permits the Company to provide indemnification to such persons) in excess of the indemnification and advancement otherwise permitted under Section 145 of the DGCL, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Company, its stockholders and others. The provision does not affect directors’ responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws.

The Company intends to enter into agreements with its directors and executive officers, that will require the Company to indemnify such persons to the fullest extent permitted by law, against expenses, judgments, fines, settlements and other amounts incurred (including attorneys’ fees), and advance expenses if requested by such person, in connection with investigating, defending, being a witness in, participating, or preparing for any threatened, pending, or completed action, suit, or proceeding or any alternative dispute resolution mechanism, or any inquiry, hearing, or investigation (collectively, a “Proceeding”), relating to any event or occurrence that takes place either prior to or after the execution of the indemnification agreement, related to the fact that such person is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by such person in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company. Indemnification is prohibited on account of any Proceeding in which judgment is rendered against such persons for an accounting of profits made from the purchase or sale by such persons of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise against liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against liability under the provisions of this section. The Company currently maintains such insurance.

Settlement by the Company. The right of any person to be indemnified is subject always to the right of the Company by its Board of Directors, in lieu of such indemnity, to settle any such claim, action, suit or proceeding at the expense of the Company by the payment of the amount of such settlement and the costs and expenses incurred in connection therewith.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
 
 
 
44

 
 
At present, there is no pending litigation or proceeding involving any of our directors, officers or employees as to which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in claims for indemnification.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On October 4, 2010, we issued 10,000 shares of our common stock to a foreign national for an aggregate price of $10,000.  The sales to a foreign national was made in reliance on the exemption from registration provided by Regulation S promulgated under the Securities Act for transactions deemed to occur outside of the United States.

On November 10, 2010, we issued 4,000,000 shares of our common stock to the stockholders of Boston Therapeutics, Inc., a New Hampshire corporation (“Target”) in exchange for all the outstanding common stock of Target pursuant to an Agreement and Plan of Merger we entered into with Target. Our CEO is also a founder of Target and was a 10% shareholder of Target at the time of the merger. A valuation of our common stock was performed resulting in a fair value per share of $0.2466. Based on the 4,000,000 shares of common stock issued for Target the total consideration was valued at $986,400. However, because our CEO was a 10% shareholder of Target, 10% of Target was valued at his historical cost basis and 90% of Target was valued at fair value. The shares were sold to the stock holders in reliance upon the exemption from the registration requirements provided in Section 4(2) of the Securities Act of 1933, as amended. There was no public advertising in connection with such sale, and no commissions were paid relating to any of the securities issued.

On June 21, 2011, the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement.

On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250.

On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000.

On March 20, 2012 the Company entered into a subscription agreement to sell 20,000 shares of common stock at price per share of $1.10 and issue a warrant to purchase an additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000.   The warrant associated with the subscription agreement is exercisable immediately and has a five year term.  The Company estimated the relative fair value of the warrant to be $9,000 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. On May 7, 2012, the subscription agreement closed and the Company issued 20,000 shares of its common stock for $22,000.

During June 2012, the Company issued 105,000 shares of its common stock in exchange for professional consulting services valued at $25,000.

On June 29, 2012, the Company issued 1,000,000 shares to an affiliate of Advance Pharmaceutical Co., Ltd. (APC) in a private placement for net proceeds of $500,000. APC is licensed to distribute SUGARDOWN® in Hong Kong, China and Macau.

Each of the preceding sales and issuances was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act for transactions not involving a public offering, except for the sale to APC which was made in reliance on the exemption from registration provided by Regulation S promulgated under the Securities Act for transactions deemed to occur outside of the United States.
 
 
 
45

 

 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Certificate of Incorporation, as amended
Bylaws
Exhibit 5.1*
Opinion and consent of Seyfarth Shaw LLP re: the legality of the shares being registered
Technology Assignment Agreement dated as of August 24, 2009 by and between the Company and David Platt
Avanyx Therapeutics, Inc. 2010 Stock Plan
Boston Therapeutics, Inc. 2011 Non-Qualified Stock Plan
Promissory Note dated as of February 9, 2010 issued by the Company to David Platt
Agreement and Plan of Merger dated November 10, 2010 by and among Avanyx Therapeutics, Inc. and Boston Therapeutics, Inc.
Certificate of Merger
Form of Subscription Agreement dated June 21, 2011, among Boston Therapeutics, Inc. and the Investors named therein
License and Manufacturing Agreement between Boston Therapeutics, Inc. and Advance Pharmaceutical Company Limited effective as of June 24, 2011
Employment Agreement between Boston Therapeutics, Inc. and Ken Tassey dated as of August 11, 2011
Exhibit 23.1
Consent of McGladrey LLP
Exhibit 23.2
Consent of Caturano and Company, Inc.
Exhibit 23.3*
Consent of Seyfarth Shaw LLP (included in Exhibit 5.1)
 
* To be filed by amendment to this Form S-1 Registration Statement

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

 
a.
To include any prospectus required by Section 10(a)(3) of the Securities Act;

 
b.
To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and rise represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and

 
c.
To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material changes to such information in the Registration Statement.

2.
For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
 
 
 
46

 
 
3.
To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
 

4.
For determining liability of the undersigned issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned issuer undertakes that in a primary offering of securities of the undersigned issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
 

 
i.
Any preliminary prospectus or prospectus of the undersigned issuer relating to the offering required to be filed pursuant to Rule 424;

 
ii.
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned issuer or used or referred to by the undersigned issuer;

 
iii.
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned issuer or its securities provided by or on behalf of the undersigned issuer; and

 
iv.
Any other communication that is an offer in the offering made by the undersigned issuer to the purchaser.

5.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

6.
For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.

7.
For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
 

8.
That, for the purpose of determining liability under the Securities Act to any purchaser:

 
a.
If the issuer is relying on Rule 430B:

 
1.
Each prospectus filed by the undersigned issuer pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 
2.
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
 
 
 
47

 
 
   
 
b.
If the issuer is subject to Rule 430C:

Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form S-1 and authorized this Registration Statement to be signed on its behalf by the undersigned in the City of Manchester, New Hampshire, on September 21, 2012.

 
BOSTON THERAPEUTICS, INC.
 
/s/ David Platt
   
 
Chief Executive Officer (Principal Executive Officer)
 
Chief Financial Officer (Principal Accounting Officer)

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Platt as true and lawful attorney-in-fact and agent with full power of substitution and re-substitution and for him/her and in his/her name, place and stead, in any and all capacities to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement, as well as any new registration statement filed to register additional securities pursuant to Rule 462(b) under the Securities Act, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.

Signature
 
Title
 
Date
         
/s/ David Platt
 
Director , Chief Executive Officer
 
September 21, 2012
   
(Principal Executive Officer) and
   
   
Chief Financial Officer
   
   
(Principal Financial and Accounting Officer)
   
         
/s/ Kenneth A. Tassey, Jr.
 
Director, President
 
September 21,2012
 
 
 
48

 
 
 
         
/s/ Dale H. Conaway D.V.M.
/s/ Henry Esber
 
Director
Director
 
September 21, 2012
September 21, 2012
/s/ Carl L. Lueders
 
Director
 
September 21,2012
/s/ Rom Eliaz
 
Director
 
September 21, 2012
 
 
 
 
 
 
 
49


 
EX-3.1 2 exh3_1.htm EXHIBIT 3.1 exh3_1.htm
 


Exhibit 3.1
 
CERTIFICATE OF INCORPORATION
 
OF
 
AVANYX THERAPEUTICS, INC.
 
FIRST.  The name of the Corporation is Avanyx Therapeutics, Inc.
 
SECOND.  The address of the Corporation’s registered office in the State of Delaware is 160 Greentree Drive, Suite 101, in the City of Dover, County of Kent, 19904.  The name of its registered agent at such address is National Registered Agents, Inc.
 
THIRD.  The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
 
FOURTH.  The total number of shares of all classes of stock which the Corporation shall have authority to issue is Thirty Million (30,000,000) shares, consisting of (i) Twenty Five Million (25,000,000) shares of Common Stock, $.001 par value per share (“Common Stock”), and (ii) Five Million (5,000,000) shares of Preferred Stock, $.001 par value per share (“Preferred Stock”).
 
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation:
 
I.           COMMON STOCK
 
A.           General.  The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series.
 
B.           Voting.  At all meetings of stockholders (and in actions in lieu of meetings) the holders of the Common Stock are entitled to one vote for each share held.  There shall be no cumulative voting.
 
C.           Dividends.  Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend or other rights of any then outstanding Preferred Stock.
 
D.           Liquidation.  Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock.
 
 
 
Certificate of Incorporation  Page 1
 
 
 

 
II.           PREFERRED STOCK
 
Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided.  Any share of Preferred Stock redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law.  Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided.
 
Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional, preemptive or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware.  Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law.  No vote of the holders of the Preferred Stock or the Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of the Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation.
 
FIFTH.  The name and business address of the sole incorporator is: David Platt, 12 Appleton Street, Newton, MA  02459.
 
SIXTH.  In furtherance of, and not in limitation of, powers conferred by statute, it is further provided:
 
A.           The Board of Directors of the Corporation may adopt, amend or repeal the By-laws of the Corporation at any time after the original adoption of the By-laws according to Section 109 of the General Corporation Law of the State of Delaware; provided, however, that any amendment to provide for the classification of directors of the Corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an amendment to this Certificate of Incorporation, in an initial By-law, or in a By-law adopted by the stockholders of the Corporation entitled to vote.
 
B.           Election of directors need not be by written ballot unless the By-laws of the Corporation shall so provide.
 
C.           The books and records of the Corporation may be kept at such place within or without the State of Delaware as the By-laws of the Corporation may provide or as may be designated from time to time by the Board of Directors.
 
Certificate of Incorporation  Page 2
 
 
 

 
D.           The business of the Corporation shall be conducted by the officers of the Corporation under the supervision of the Board of Directors.
 
SEVENTH.  Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.
 
EIGHTH.  A director of the Corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (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 Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit.  If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporation action further eliminating or limiting the personal liability of directors then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended.  Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time, or increase the liability of any director of this Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
 
NINTH.  The Corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of the Corporation or while a director or officer is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require the Corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding or claim initiated by or on behalf of such person or any counterclaim against the Corporation initiated by or on behalf of such person.  Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person.  Any person seeking indemnification under this Article NINTH shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established.  Any repeal or modification of the foregoing provisions of this Article NINTH shall not adversely affect any right or protection of a director or officer of the Corporation with respect to any acts or omissions of such director or officer occurring prior to such repeal or modification.
 
Certificate of Incorporation  Page 3
 
 
 

 
TENTH.  The provisions of Section 203 of the General Corporation Law shall not apply to this Corporation.
 
ELEVENTH.  Except as otherwise provided in the provisions establishing a class of stock, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of a majority of the voting power of the Corporation entitled to vote irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.
 
TWELFTH.  Notwithstanding any provision of law, the Corporation may, by contract, grant to some or all of the security holders of the Corporation preemptive rights to acquire stock of the Corporation, but no stockholders shall have any preemptive rights except as specifically granted.
 
THIRTEENTH.  The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation (as it may, from time to time, be amended, altered or changed), and all rights conferred upon stockholders herein are granted subject to this reservation.
 
 
 
 
Certificate of Incorporation  Page 4
 
 
 

 
IN WITNESS WHEREOF, the undersigned sole incorporator has executed this Certificate of Incorporation this 24th day of August, 2009.
 

 
   /s/ David Platt _____________________________
   David Platt, Incorporator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificate of Incorporation  Signature Page
 
 

 
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AVANYX THERAPEUTICS, INC.


AVANYX THERAPEUTICS, INC. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:

FIRST:  That, by unanimous written consent of the directors of the Corporation, a resolution approving an amendment to the Certificate of Incorporation of the Corporation to increase the authorized stock of the Corporation was duly adopted and declared to be advisable.  The resolution setting forth the amendment is as follows:
 

 
RESOLVED:
That the Certificate of Incorporation of AVANYX Therapeutics, Inc. be amended by changing Article 4 thereof so that, as amended, said Article shall be and read as follows:
 
 
“The total number of shares of all classes of stock which the Corporation shall have authority to issue is Fifty Million (50,000,000) shares, consisting of (i) Forty Five Million (45,000,000) shares of Common Stock, $0.001 par value per share (“Common Stock”), and (ii) Five Million (5,000,000) shares of Preferred Stock, $.001 par value per share (“Preferred Stock”).”
 

SECOND:  That in lieu of a meeting and vote of the stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.

THIRD:  That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, I have signed this Certificate of Amendment on behalf of the Corporation as of this 17th day of December, 2009.



 
   /s/ David Platt, Ph.D. 
   David Platt, Ph.D., President
 
 
 

 
 

 
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AVANYX THERAPEUTICS, INC.

 
AVANYX THERAPEUTICS, INC. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:

FIRST:  That, by unanimous written consent of the directors of the Corporation, a resolution approving an amendment to the Certificate of Incorporation of the Corporation to increase the authorized stock of the Corporation was duly adopted and declared to be advisable.  The resolution setting forth the amendment is as follows:
 

 
RESOLVED:
That the Certificate of Incorporation of AVANYX Therapeutics, Inc. be amended by changing Article 4 thereof so that, as amended, said Article shall be and read as follows:
 
 
“The total number of shares of all classes of stock which the Corporation shall have authority to issue is One Hundred Five Million (105,000,000) shares, consisting of (i) One Hundred Million (100,000,000) shares of Common Stock, $0.001 par value per share (“Common Stock”), and (ii) Five Million (5,000,000) shares of Preferred Stock, $.001 par value per share (“Preferred Stock”).”
 

SECOND:  That in lieu of a meeting and vote of the stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.

THIRD:  That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, I have signed this Certificate of Amendment on behalf of the Corporation as of this 16th day of June, 2010.


 
 
   /s/ David Platt, Ph.D. 
   David Platt, Ph.D., President
 
 
 
 
 


EX-3.2 3 exh3_2.htm EXHIBIT 3.2 exh3_2.htm
 


Exhibit 3.2
 
 
 
BY LAWS

OF

AVANYX THERAPEUTICS, INC.

Adopted as of August 24, 2009
 
ARTICLE I
OFFICES
 
1.1 Registered Office. The registered office of Avanyx Therapeutics, Inc. (the “Corporation”) in the State of Delaware shall be established and maintained at 160 Greentree Drive, Suite 101, in the City of Dover, County of Kent, State  of Delaware 19904 and National Registered Agents, Inc. shall be the registered agent of the corporation in charge thereof.
 
1.2 Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors of the Corporation (the “Board of Directors”) may from time to time determine or the business of the Corporation may require.
 
ARTICLE II
MEETINGS OF STOCKHOLDERS
 
2.1 Place of Meetings. All meetings of the stockholders 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.
 
2.2 Annual Meetings. 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 (the “Bylaws”).
 
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 not less than ten (10) nor more than sixty (60) days before the date of the annual meeting.
 
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 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 sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by a stockholder, to be timely, must be received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder’s notice to the Secretary 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 which 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.
 
 
 

 
2.3 Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), may only be called by a majority of the entire Board of Directors, or the Chairman, the Vice Chairman or the Chief Executive Officer, and shall be called by the Secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
 
Unless otherwise provided by law, written notice of a special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote at such meeting, not less than ten (10) or more than sixty (60) days before the date fixed for the meeting.  Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
 
2.4 Quorum. The holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation.  If, however, such quorum shall not be present or represented at any meeting of the stockholders, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. 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.

2.5 Organization.  The Chairman of the Board of Directors shall act as chairman of meetings of the stockholders. The Board of Directors may designate any other officer or director of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board of Directors, and the Board of Directors may further provide for determining who shall act as chairman of any stockholders meeting in the absence of the Chairman of the Board of Directors and such designee.
 
 
2

 
The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint any other person to act as secretary of any meeting.
 
2.6 Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question (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.  Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize any person or persons to act for him by proxy. All proxies shall be executed in writing and shall be filed with the Secretary of the Corporation not later than the day on which exercised.  No proxy shall be voted or acted upon after three (3) years from its date, unless the 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.
 
2.7 Action of Shareholders Without Meeting. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such 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, and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.  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.
 
2.8 Voting List. The officer 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, 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 election, either at a place within the city, town or village where the election is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held.  The list shall be produced and kept at the time and place of election during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

 
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2.9 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 8 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
 
2.10 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.
 
2.11 Ratification. Any transaction questioned in any stockholders’ derivative suit, or any other suit to enforce alleged rights of the Corporation or any of its stockholders, on the ground of lack of authority, defective or irregular execution, adverse interest of any director, officer or stockholder, nondisclosure, miscomputation or the application of improper principles or practices of accounting may be approved, ratified and confirmed before or after judgment by the Board of Directors or by the holders of Common Stock and, if so approved, ratified or confirmed, shall have the same force and effect as if the questioned transaction had been originally duly authorized, and said approval, ratification or confirmation shall be binding upon the Corporation and all of its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
 
2.12 Judges. All votes by ballot at any meeting of stockholders shall be conducted by two judges appointed for the purpose either by the directors or by the meeting.  The judges shall decide upon the qualifications of voters, count the votes and declare the result.
 
ARTICLE III
DIRECTORS
 
3.1 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 may be otherwise provided by law or in the Certificate of Incorporation. The number of directors which shall constitute the Board of Directors shall be not less than one (1) nor more than eight  (8). The exact number of directors shall be fixed from time to time, within the limits specified in this Article III Section 1 or in the Certificate of Incorporation, by the Board of Directors. Directors need not be stockholders of the Corporation. The Board may be divided into Classes as more fully described in the Certificate of Incorporation.
 
 
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3.2 Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until the next annual meeting of stockholders at which his Class stands for election or until such director’s earlier resignation, removal from office, death or incapacity.  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 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.

3.3 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 sixty (60) days nor more than ninety (90) days prior to the meeting; provided however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs.  Such stockholder’s notice to the Secretary shall set forth (i) 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 (ii) 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.
 
3.4 Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly elected Board of Directors shall be held immediately after and at the same place as the meeting of the stockholders at which it is elected and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, the Vice Chairman or the Chief Executive Officer or a majority of the entire Board of Directors then in office.  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, facsimile, telegram or e-mail 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.

 
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3.5 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.  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, without notice other than announcement at the meeting, until a quorum shall be present.
 
3.6 Organization of Meetings. The Board of Directors shall elect one of its members to be Chairman of the Board of Directors. The Chairman of the Board of Directors shall lead the Board of Directors in fulfilling its responsibilities as set forth in these By-Laws, including its responsibility to oversee the performance of the Corporation, and shall determine the agenda and perform all other duties and exercise all other powers which are or from time to time may be delegated to him or her by the Board of Directors.
 
Meetings of the Board of Directors shall be presided over by the Chairman of the Board of Directors, or in his or her absence, by the Vice Chairman of the Board, or the Chief Executive Officer, or in the absence of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors and the Chief Executive Officer by such other person as the Board of Directors may designate or the members present may select.
 
3.7 Actions of Board of Directors Without Meeting. Unless otherwise restricted 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 members of the Board of Directors or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filled with the minutes of proceedings of the Board of Directors or committee.
 
3.8 Removal of Directors by Stockholders. The entire Board of Directors or any individual director may be removed from office only with cause by a majority vote of the holders of the outstanding shares then entitled to vote at an election of directors. In case the Board of Directors or any one or more directors be so removed, new directors may be elected at the same time for the unexpired portion of the full term of the director or directors so removed.
 
3.9 Resignations. Any director may resign at any time by submitting his written resignation to the Board of Directors or Secretary of the Corporation.  Such resignation shall take effect at the time of its receipt by the Corporation unless another time be fixed in the resignation, in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective.
 
 
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3.10 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation.  In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by law and in the resolution of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution or amending the Bylaws of the Corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

3.11 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.
 
3.12 Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
 
 
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3.13 Meetings by Means of Conference Telephone. Members of the Board of Directors or any committee designed by the Board of Directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by means of 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 subsection shall constitute presence in person at such meeting.
 

ARTICLE IV
OFFICERS
 
4.1 General. The officers of the Corporation shall be elected by the Board of Directors and may consist of: a Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer. The Board of Directors, in its discretion, may also elect one or more Vice Presidents (including Executive Vice Presidents and Senior Vice Presidents), Assistant Secretaries and Assistant Treasurers 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.
 
4.2 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. The salaries of all officers who are directors of the Corporation shall be fixed by the Board of Directors.
 
4.3 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, the 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.
 
 
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4.4           Chairman of the Board of Directors.  The Chairman of the Board of Directors (the ”Chairman of the Board”) shall have general supervision, direction and control of the over-all business and affairs of the corporation, subject to the direction of the Board of Directors.  He shall preside at all meetings of the stockholders and of the Board of Directors.  The Chairman of the Board shall perform such other duties as may be prescribed by the Board of Directors from time to time.  The Chairman of the Board must be a director of the Corporation.

4.5           Vice Chairman of the Board of Directors.  The Vice Chairman of the Board of Directors (the “Vice Chairman of the Board”) shall be the officer next in line to the Chairman of the Board.  In the absence of the Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors.  The Vice Chairman of the Board shall perform such other duties as may be prescribed by the Board of Directors from time to time.  The Vice Chairman of the Board must be a director of the Corporation.

4.6 Chief Executive Officer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the Chief Executive Officer shall have ultimate authority for decisions relating to the general management and control of the affairs and business of the Corporation and shall perform such other duties and exercise such other powers which are or from time to time may be delegated to him or her 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.

4.7           President.  The President shall be the principal operating officer of the Corporation.  Subject to the direction and control of the Chief Executive Officer and the Board of Directors, he shall be in charge of the day-to-day business of the Corporation.  Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors or these by-laws, the President may execute for the Corporation certificates for its shares, and any contracts, deeds, mortgages, bonds or other instruments which the Board of Directors has authorized to be executed, and he may accomplish such execution either under or without the seal of the Corporation and either individually or with the secretary, and assistant secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument.
 
4.8 Chief Financial Officer. The Chief Financial Officer shall have general supervision, direction and control of the financial affairs of the Corporation and shall perform such other duties and exercise such other powers which are or from time to time may be delegated to him 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 of a named Treasurer, the Chief Financial Officer shall also have the powers and duties of the Treasurer as hereinafter set forth and shall be authorized and empowered to sign as Treasurer in any case where such officer’s signature is required.

4.9 Vice Presidents. At the request of the Chief Executive Officer or in the absence of the Chief Executive Officer, or in the event of his inability or refusal to act, the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon such office.  Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe.  If there be no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the Chief Executive Officer or in the event of the inability or refusal of such officer to act, shall perform the duties of such office, and when so acting, shall have all the powers of and be subject to all the restrictions upon such office.
 
 
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4.10           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 or the Chief Executive Officer, 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, then any Assistant Secretary shall perform such actions. If there be no Assistant Secretary, then the Board of Directors or the Chief Executive Officer 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.
 
4.11 Treasurer. The 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 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 Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the 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.

4.12 Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
 
 
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4.13 Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer.  If required by the Board of Directors, an Assistant 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.
 
4.14 Controller. The Controller shall establish and maintain the accounting records of the Corporation in accordance with generally accepted accounting principles applied on a consistent basis, maintain proper internal control of the assets of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer or any Vice President of the Corporation may prescribe.
 
4.15 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.
 
4.16 Vacancies. The Board of Directors shall have the power to fill any vacancies in any office occurring from whatever reason.
 
4.17 Resignations. Any officer may resign at any time by submitting his written resignation to the Corporation. Such resignation shall take effect at the time of its receipt by the Corporation, unless another time be fixed in the resignation, in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective.
 
4.18 Removal. Subject to the provisions of any employment agreement approved by the Board of Directors, any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors.
 

 
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ARTICLE V
CAPITAL STOCK
 
5.1 Form of Certificates.  Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chief Executive Officer or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation.
 
5.2 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.
 
5.3 Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates 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.
 
5.4 Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transactions upon its books, unless the Corporation has a duty to inquire as to adverse claims with respect to such transfer which has not been discharged. The Corporation shall have no duty to inquire into adverse claims with respect to such transfer unless (a) the Corporation has received a written notification of an adverse claim at a time and in a manner which affords the Corporation a reasonable opportunity to act on it prior to the issuance of a new, reissued or re-registered share certificate and the notification identifies the claimant, the registered owner and the issue of which the share or shares is a part and provides an address for communications directed to the claimant; or (b) the Corporation has required and obtained, with respect to a fiduciary, a copy of a will, trust, indenture, articles of co-partnership, Bylaws or other controlling instruments, for a purpose other than to obtain appropriate evidence of the appointment or incumbency of the fiduciary, and such documents indicate, upon reasonable inspection, the existence of an adverse claim. The Corporation may discharge any duty of inquiry by any reasonable means, including notifying an adverse claimant by registered or certified mail at the address furnished by him or, if there be no such address, at his residence or regular place of business that the security has been presented for registration of transfer by a named person, and that the transfer will be registered unless within thirty days from the date of mailing the notification, either (a) an appropriate restraining order, injunction or other process issues from a court of competent jurisdiction; or (b) an indemnity bond, sufficient in the Corporation’s judgment to protect the Corporation and any transfer agent, registrar or other agent of the Corporation involved from any loss which it or they may suffer by complying with the adverse claim, is filed with the Corporation.

 
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5.5 Fixing Record Date. In order that the Corporation may determine the stockholders entitled to notice or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or 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 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, nor more than ten (10) days after the date upon which the resolution fixing the record date of action with a meeting is adopted by the Board of Directors, nor more than sixty (60) days prior to any other action. If no record date is fixed:
 
(a) 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 next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
 
(b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent is delivered to the Corporation.
 
(c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
 
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; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
 
5.6 Registered Stockholders. Prior to due presentment for transfer of any share or shares, the Corporation shall treat the registered owner thereof as the person exclusively entitled to vote, to receive notifications and to all other benefits of ownership with respect to such share or shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State Delaware.
 
 
 
 
 
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ARTICLE VI
NOTICES
 
6.1 Form of Notice. Notices to directors and stockholders other than notices to directors of special meetings of the Board of Directors which may be given by any means stated in Article III, Section 4, shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation.  Notice by mail shall be deemed to be given at the time when the same shall be mailed.  Notice to directors may also be given by telegram.
 
6.2 Waiver of Notice. Whenever any notice is required to be given under the provisions of law or the Certificate of Incorporation or by these Bylaws of the Corporation, a written waiver, signed by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the 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 is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular, or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation.
 
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
7.1 The Corporation shall 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 is 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 expenses (including attorneys’ 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 he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
 
7.2 The Corporation shall indemnify any person 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 by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is 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 expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 
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7.3 To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 or 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.
 
7.4 Any indemnification under sections 1 or 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such section. Such determination shall be made:
 
(a) By the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or
 
(b) If such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or
 
(c) By the stockholders.
 
7.5 Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section. Such expenses (including attorneys’ fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. 
 
7.6 The indemnification and advancement of expenses provided by, or granted pursuant to the other sections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
 
 
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7.7 The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is 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 and 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 this Article.

7.8 For purposes of this Article, references to “the Corporation” shall include, in addition to the resulting Corporation, any constituent Corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer employee or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving Corporation as he would have with respect to such constituent Corporation of its separate existence had continued.
 
7.9 For purposes of this Article, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article.
 
7.10 The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
 
7.11 No director or officer of the Corporation shall be personally liable to the Corporation or to any stockholder of the Corporation for monetary damages for breach of fiduciary duty as a director or officer, provided that this provision shall not limit the liability of a director or officer (i) for any breach of the director’s or the officer’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 General Corporation Law of Delaware, or (iv) for any transaction from which the director or officer derived an improper personal benefit.
 
 
 
 
 
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ARTICLE VIII
GENERAL PROVISIONS
 
8.1 Reliance on Books and Records. Each Director, each member of any committee designated by the Board of Directors, and each officer of the Corporation, shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.

8.2 Dividends. Subject to the provisions of the Certificate of Incorporation, if any, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created.
 
8.3 Annual Statement. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation.
 
8.4 Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other persons as the Board of Directors may from time to time designate.
 
8.5 Fiscal Year. The fiscal year of the Corporation shall be as determined by the Board of Directors. If the Board of Directors shall fail to do so, the Chief Executive Officer shall fix the fiscal year.
 
8.6 Seal. The corporate seal 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 manner reproduced.
 
8.7 Amendments. The original or other Bylaws may be adopted, amended or repealed by the stockholders entitled to vote thereon at any regular or special meeting or, if the Certificate of Incorporation so provides, by the Board of Directors. The fact that such power has been so conferred upon the Board of Directors shall not divest the stockholders of the power nor limit their power to adopt, amend or repeal Bylaws.
 
8.8 Interpretation of Bylaws. All words, terms and provisions of these Bylaws shall be interpreted and defined by and in accordance with the General Corporation Law of the State of Delaware, as amended, and as amended from time to time hereafter.

 
 
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EX-10.1 4 exh10_1.htm EXHIBIT 10.1 exh10_1.htm
 


 
Exhibit 10.1
 
TECHNOLOGY ASSIGNMENT AGREEMENT
 
THIS TECHNOLOGY ASSIGNMENT AGREEMENT (this “Agreement”) is entered as of August 24, 2009, by and between Avanyx Therapeutics, Inc., a Delaware corporation (the “Company”), and David Platt, an individual (“Founder”).
 
1. Assignment
 
Founder hereby assigns, in consideration of the mutual promises and covenants set forth herein, to the Company exclusively throughout the world all rights, title and interests (whether or not now existing) Founder owns in the (i) subject matter referred to in Exhibit A (“Technology”), (ii) all precursors, portions and work in progress with respect thereto and all inventions, works of authorship, mask works, technology, information, know-how, materials and tools relating thereto or to the development, support or maintenance thereof, and (iii) all copyrights, patent rights, trade secret rights, trademark rights, mask works rights, sui generis database rights and all other intellectual and industrial property rights of any sort and all business, contract rights, causes of action, and goodwill in, incorporated or embodied in, used to develop, or related to any of the foregoing (collectively “Intellectual Property”).
 
2. Consideration
 
2.1 The Company agrees to issue to Founder 8,000,000 shares of common stock of the Company on the date of this Agreement.  Such shares shall be the only consideration required of the Company with respect to the subject matter of this Agreement.
 
2.2 The assignment and stock issuance hereunder is intended to qualify for tax-free treatment under Section 351 of the Internal Revenue Code of 1986, as amended.
 
3. Further Assurances; Moral Rights; Competition; Marketing
 
3.1 Founder agrees to assist the Company in every proper way to evidence, record and perfect the assignment as provided in Section 1 and to apply for and obtain recordation of and from time to time enforce, maintain, and defend the assigned rights.  If the Company is unable for any reason whatsoever to secure the Founder’s signature to any document it is entitled to under this Section 3.1, Founder hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as his agents and attorneys-in-fact with full power of substitution to act for and on his behalf and instead of Founder, to execute and file any such document or documents and to do all other lawfully permitted acts to further the purposes of the foregoing with the same legal force and effect as if executed by Founder.
 
3.2 To the extent allowed by law, the assignment as provided in Section 1 includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral” or the like (collectively “Moral Rights”).  To the extent Founder retains any such Moral Rights under applicable law, Founder hereby ratifies and consents to, and provides all necessary ratifications and consents to, any action that may be taken with respect to such Moral Rights by or authorized by the Company; Founder agrees not to assert any Moral Rights with respect thereto.  Founder will confirm any such ratifications, consents, and agreements from time to time as requested by the Company.
 
 
 

 
 
4. Confidential Information
 
Founder will not use or disclose anything assigned to the Company hereunder or any other technical or business information or plans of the Company, except to the extent Founder (i) can document that it is generally available (through no fault of Founder) for use and disclosure by the public without any charge, license or restriction, or (ii) is permitted to use or disclose such information or plans pursuant to agreement by and between Founder and the Company.  Founder recognizes and agrees that there is no adequate remedy at law for a breach of this Section 4, that such a breach would irreparably harm the Company and that the Company is entitled to equitable relief (including, without limitations, injunctions) with respect to any such breach or potential breach in addition to any other remedies.
 
5. Warranty
 
Founder represents and warrants to the Company that the Founder (i) was the owner of certain rights, title and interest in the Intellectual Property and the Technology, (ii) has not assigned, transferred, licensed, pledged or otherwise encumbered any Intellectual Property or the Technology or agreed to do so, (iii) has full power and authority to enter into this Agreement and to make the assignment as provided in Section 1, (iv) is not aware of any violation, infringement or misappropriation of any third party’s rights (or any claim thereof) by the Intellectual Property or the Technology, (v) was not acting within the scope of employment by any third party when conceiving, creating or otherwise performing any activity with respect to anything purportedly assigned in Section 1, and (vi) is not aware of any questions or challenges with respect to the patentability or validity of any claims of any existing patents or patent applications relating to the Intellectual Property.
 
6. Miscellaneous
 
This Agreement is not assignable or transferable by Founder without the prior written consent of the Company; any attempt to do so shall be void.  The Company shall be free to transfer this Agreement to a third party.  Any notice, report, approval or consent required or permitted hereunder shall be in writing and will be deemed to have been duly given if delivered personally or mailed by first-class, registered or certified U.S. mail, postage prepaid to the respective addresses of the parties as set below (or such other address as a party may designate by ten (10) days notice).  No failure to exercise, and no delay in exercising, on the part of either party, any privilege, any power or any rights hereunder will operate as a waiver thereof, nor will any single or partial exercise of any right or power hereunder preclude further exercise of any other right hereunder.  If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be unenforceable or invalid, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.  This Agreement shall be deemed to have been made in, and shall be construed pursuant to the laws of The Commonwealth of Massachusetts and the United States without regard to conflicts of laws provisions thereof.  The prevailing party in any action to enforce this Agreement shall be entitled to recover costs and expenses including, without limitation, attorneys’ fees.  The terms of this Agreement are confidential to the Company and no press release or other written or oral disclosure of any nature regarding the compensation terms of this Agreement shall hereafter be made by Founder without the Company’s prior written approval; however, approval for such disclosure shall be deemed given to the extent such disclosure is required to comply with governmental rules.  Any waivers or amendments shall be effective only if made in writing and signed by a representative of the respective parties authorized to bind the parties.  This Agreement may be executed in any number of counterparts, each of which, when executed by both parties to this Agreement shall be deemed to be an original, and all of which counterparts together shall constitute one and the same instrument.  Both parties agree that this Agreement is the complete and exclusive statement of the mutual understanding of the parties and supersedes and cancels all previous written and oral agreements and communications relating to the subject matter of this Agreement.
 
 
 

 
 
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.
 
 
 
COMPANY:
 
AVANYX THERAPEUTICS, INC. 
 
 
By: /s/ David Platt                     
         David Platt, President 
   
 
FOUNDER:
 
  /s/ David Platt                             
  David Platt 
 
 
 

 
 
EXHIBIT A
 
to
 
TECHNOLOGY ASSIGNMENT AGREEMENT
 
Patent: Enhancement of Delivery of Radioimaging and Radioprotective  Agents, Filing Date 10/07/98, Issue Date 6/12/2001

Trademarks:           IPOXYN:  Application No. 77754473; Filing date 06/08/09
AVANYX THERAPEUTICS  Application No. 77806120; Filing Date 8/17/09
 
 


EX-10.2 5 exh10_2.htm EXHIBIT 10.2 exh10_2.htm
 


 
Exhibit 10.2
 
AVANYX THERAPEUTICS, INC.
2010 STOCK PLAN

1.           Establishment, Purpose and Term of Plan.
 
1.1           Establishment. The AVANYX Therapeutics, Inc. 2010 Stock Plan (the “Plan”) was originally adopted by the Company effective as of June 16, 2010 (the “Effective Date”).
 
1.2           Purpose. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Company intends that Awards granted pursuant to the Plan be exempt from or comply with Section 409A of the Code (including any amendments or replacements of such Section), and the Plan shall be so construed.
 
1.3           Term of Plan. The Plan shall continue in effect until its termination by the Committee; provided, however, that, to the extent required by applicable law, all Awards shall be granted, if at all, within ten (10) years from the Effective Date.
 
2.           Definitions and Construction.
 
2.1           Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
 
(a)           Affiliatemeans (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly or indirectly through one or more intermediary entities. For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration on Form S-8 under the Securities Act.
 
(b)            Award” means any Option, Restricted Stock Award, Restricted Stock Unit Award, Stock Appreciation Right, Performance Unit Award, Performance Share Award, Cash-Based Award, or Other Stock-Based Award granted under the Plan.
 
(c)            Award Agreement” means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant.
 
(d)            Board” means the Board of Directors of the Company.
 
(e)           Cash-Based Awardmeans an Award, denominated in cash, granted to a Participant as described in Section 11.
 
(f)            Causemeans, unless such term or an equivalent term is otherwise defined with respect to an Award by the Participant’s Award Agreement or by a written contract of employment or service, any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (v) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by the Participant of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company.
 
(g)            “Change in Control” means, the occurrence of any of the following:
 
(i)            any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total combined voting power of the Company’s then-outstanding securities entitled to vote generally in the election of Directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (1) an acquisition by any such person who on the Effective Date is the beneficial owner of more than fifty percent (50%) of such voting power, (2) any acquisition directly from the Company, including, without limitation, a public offering of securities, (3) any acquisition by the Company, (4) any acquisition by a trustee or other fiduciary under an employee benefit plan of a Participating Company or (5) any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or
 
 
 

 
 
(ii)            an Ownership Change Event or series of related Ownership Change Events (collectively, a Transaction) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 2.1(cc)(iii), the entity to which the assets of the Company were transferred (the Transferee), as the case may be;
 
provided, however, that a Change in Control shall be deemed not to include a transaction described in subsections (i) or (ii) of this Section in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of Incumbent Directors. Notwithstanding the foregoing, to the extent that any amount constituting Section 409A Deferred Compensation would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Committee shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
 
(h)            “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
 
(i)            “Committeemeans the Compensation Committee and such other committee or subcommittee of the Board, if any, duly appointed to administer the Plan and having such powers in each instance as shall be specified by the Board. If, at any time, there is no committee of the Board then authorized or properly constituted to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.  For purposes of Awards intended to satisfy Section 162(m) of the Code, a committee must be composed of not less than two (2) non-employee directors, within the meaning of Rule 16b-3 of the Exchange Act, and “outside directors,” as defined in Treasury Regulation § 1.162-27.
 
(j)            Company” means AVANYX Therapeutics, Inc., a Delaware corporation, or any successor corporation thereto.
 
(k)            Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company.
 
(l)            Covered Employee means any key Employee who is or may become a “covered employee,” as defined in Section 162(m) of the Code, and who is designated, either as an individual Employee or class of Employees, by the Committee within the shorter of: (i) ninety (90) days after the beginning of the Performance Period, or (ii) twenty-five percent (25%) of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable Performance Period.
 
(m)           Director” means a member of the Board.
 
(n)            Disability” means the total and permanent disability of a person as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than an Incentive Stock Option, the Committee in its discretion may determined whether a permanent and total disability exists in accordance with uniform and nondiscriminatory standards adopted by the Committee from time to time.
 
(o)            Dividend Equivalent Rightmeans the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.
 
(p)            Employee” means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be. For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the Company’s determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination as to such individual’s status as an Employee.
 
 
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(q)            Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
(r)           Exchange Program means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participants have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Committee, and/or (iii) the exercise price of an outstanding Award is reduced.  The Committee will determine the terms and conditions of any Exchange Program in its sole discretion.
 
(s)            Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
 
(i)            If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on such national or regional securities exchange or market system, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion.
 
(ii)           If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Committee using an average Stock price over a five-day trading period determined by the Committee prior to the commencement of such five-day trading period, and subject to the applicable requirements, if any, of Section 409A of the Code.
 
(t)            Incentive Stock Option means an Option granted to an Employee under Section 6 that is designated as an Incentive Stock Option (as set forth in the Award Agreement) and that is intended to meet the requirements of Section 422 of the Code, or any successor provision.
 
(u)           Incumbent Directormeans a director who either (i) is a member of the Board as of the Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination, but who was not elected or nominated in connection with an actual or threatened proxy contest relating to the election of directors of the Company.
 
(v)           Insider” means an Officer, a Director of the Company or other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
 
(w)           Insider Trading Policymeans the written policy of the Company pertaining to the purchase, sale, transfer or other disposition of the Company’s equity securities by Directors, Officers, Employees or other service providers who may possess material, nonpublic information regarding the Company or its securities.
 
(x)           “Net-Exercise” means a procedure by which the Company will reduce the number of shares of Stock issued upon exercise of an Option by the largest whole number of shares of Stock with an aggregate Fair Market Value on the date of exercise that is equal to or less than the aggregate exercise price and will receive cash from the Participant to the extent of any remaining balance of the aggregate exercise price.
 
(y)            Nonstatutory Stock Option” means an Option granted to a Participant under Section 6 that is not intended to be (as set forth in the Award Agreement) or which does not qualify as an Incentive Stock Option.
 
(z)            Officer” means any person designated by the Board as an officer of the Company.
 
(aa)            Option” means a right granted under Section 6 to purchase Stock pursuant to the terms and conditions of the Plan. All Options may be Incentive Stock Options or Nonstatutory Stock Options.
 
(bb)           Other Stock-Based Award means an equity-based or equity-related Award not otherwise described by the terms of this Plan, granted pursuant to Section 11.
 
 
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(cc)            Ownership Change Eventmeans the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
 
(dd)            Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.
 
(ee)            Participant” means any eligible person who has been granted one or more Awards.
 
(ff)            Participating Companymeans the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.  
 
(gg)            Participating Company Group” means, at any point in time, all entities collectively which are then Participating Companies.
 
(hh)           Performance Award means an Award of Performance Shares or Performance Units.
 
(ii)           Performance-Based Compensation means compensation under an Award that is intended to satisfy the requirements of Section 162(m) of the Code for certain performance-based compensation paid to Covered Employees.  Notwithstanding the foregoing, nothing in this Plan shall be construed to mean that an Award which does not satisfy the requirements for performance-based compensation under Section 162(m) of the Code does not constitute performance-based compensation for other purposes, including Section 409A of the Code.
 
(jj)           Performance-Based Exception means the exception for Performance-Based Compensation from the tax deductibility limitations of Section 162(m) of the Code.
 
(kk)           Performance Measures means measures as described in Section 19 on which the performance goals are based and which are approved by the Company’s stockholders pursuant to this Plan in order to qualify Awards as Performance-Based Compensation.
 
(ll)           Performance Period means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
 
(mm)           Performance Share means an Award granted to a Participant pursuant to Section 10, denominated in fully paid Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria or Performance Measure(s), as applicable, have been achieved.
 
(nn)           Performance Unit means an Award granted to a Participant pursuant to Section 10, denominated in units, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria or Performance Measure(s), as applicable, have been achieved.
 
(oo)           Restricted Stock Awardmeans Stock granted to a Participant pursuant to Section 7.
 
(pp)            Restricted Stock Unit means a right granted to a Participant pursuant to Section 8 to receive a share of Stock on a date determined in accordance with the provisions of such Section and the Participant’s Award Agreement.
 
(qq)            Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
 
(rr)            Section 409Ameans Section 409A of the Code.
 
(ss)            Section 409A Deferred Compensationmeans compensation provided pursuant to the Plan that constitutes deferred compensation subject to and not exempted from the requirements of Section 409A.
 
(tt)            Securities Act” means the Securities Act of 1933, as amended.
 
(uu)            Service” means a Participant’s employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. A Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service to the Participating Company Group or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the commencement of such leave the Participant’s Service shall be deemed to have terminated, unless the Participant’s right to return to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement. A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated for purposes of Awards granted under the Plan, and the effective date of and reason for such termination.
 
(vv)            Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.3.  
 
 
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(ww)           Stock Appreciation Right means an Award granted to a Participant pursuant to Section 9.
 
(xx)            Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
 
(yy)            Vesting Conditionsmean those conditions established in accordance with the Plan prior to the satisfaction of which shares subject to an Award remain subject to forfeiture or a repurchase option in favor of the Company exercisable for the Participant’s monetary purchase price, if any, for such shares upon the Participant’s termination of Service.
 
2.2           Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
 
3.           Administration.
 
3.1           Administration by the Committee. The Plan shall be administered by the Committee. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein.
 
3.2           Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
 
3.3           Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
 
3.4           Powers of the Committee. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:
 
(a)            to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock to be subject to each Award;
 
(b)            to determine the type of Award granted;  
 
(c)            to determine the Fair Market Value of shares of Stock or other property;
 
(d)            to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v)  the time of the expiration of any Award, (vi) the effect of the Participant’s termination of Service on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
 
(e)            to determine whether an Award will be settled in shares of Stock, cash, or in any combination thereof;
 
(f)            to approve one or more forms of Award Agreement;
 
 
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(g)            to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired upon the exercise thereof;
 
(h)           to accelerate, continue, extend or defer the exercisability of any Award or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following a Participant’s termination of Service;
 
(i)            to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards;
 
(j)            to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law;
 
(k)           to institute, subject to Board approval and without further approval from the Company’s stockholders, an Exchange Program and determine the terms and conditions thereof;
 
(l)           to establish and/or amend, without further approval from the Company’s stockholders, subplans and schedules with such terms and conditions necessary or appropriate to satisfy local law, regulations and customs; and
 
(m)           to determine whether any corporate event or transaction that results in the sale, spin-off or transfer of a Subsidiary, business group, operating unit, division, or similar organization constitutes a termination of employment (or services), and, if so, the effective date of such termination, for purposes of Awards granted under the Plan.
 
3.5           Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
 
3.6           Consideration.  The Committee may provide the method for payment for shares of Stock purchased pursuant to an Award under any of the following methods as determined by the Committee, in its sole discretion: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) to the Company for repurchase previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Award price together with an assignment of the proceeds of the Stock repurchase to pay the Award price (provided that any such repurchase of Stock shall be subject to applicable laws); (c) by a cashless (broker-assisted) exercise; (d) by deducting from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award; (e) by Net-Exercise, (f) by promissory note (except for an executive officer or director or equivalent thereof, as prohibited under the Sarbanes-Oxley Act of 2002), (g) by a combination of (a), (b), (c), (d), (e) and/or (f); or (h) any other method approved or accepted by the Committee in its sole discretion.
 
4.           Shares Subject to Plan.
 
4.1           Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be 5,000,000 which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  The maximum number of shares of Stock that may be issued as Incentive Stock Options is 5,000,000.
 
4.2           Share Counting. If an outstanding Award for any reason lapses, expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, then the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan.  Shares withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 14.2 shall again be available for issuance under the Plan.  If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net-Exercise, or if shares of Stock are withheld from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, then such shares shall again be available for issuance under the Plan.  Shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash.
 
 
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4.3           Adjustments for Changes in Capital Structure. Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, in the maximum share limitations, and in the exercise or purchase price per share of any outstanding Awards in order to prevent dilution or enlargement of Participants’ rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise or purchase price per share of, the outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Committee, in its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and the exercise price per share shall be rounded up to the nearest whole cent. In no event may the exercise price of any Award be decreased to an amount less than the par value, if any, of the stock subject to the Award. The Committee in its sole discretion, may also make such adjustments in the terms of any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate. The adjustments determined by the Committee pursuant to this Section shall be final, binding and conclusive.
 
5.           Eligibility and Option Limitations.
 
5.1           Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and Directors.  Incentive Stock Options may be granted only to Employees of the Company or of any parent or subsidiary corporation (as permitted under Sections 422 and 424 of the Code).
 
5.2           Participation in Plan. Awards are granted solely at the discretion of the Committee. Eligible persons may be granted more than one Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
 
6.           Stock Options.
 
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
6.1           Exercise Price. The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that the exercise price per share for an Option shall be not less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Sections 424(a) and 409A of the Code.  With respect to an Employee who owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of the stock of the Company, and Subsidiary Corporation, or any Affiliate, the exercise price of Stock subject to an Incentive Stock Option shall be at least equal to one hundred ten percent (110%) of the Fair Market Value of such Stock on the effective date of grant.
 
6.2           Exercisability and Term of Options. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option. Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.  With respect to an Employee who owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of the stock of the Company, and Subsidiary Corporation, or any Affiliate, no such Incentive Stock Option shall be exercisable later than the day before the fifth (5th) anniversary of the effective date of grant of such Incentive Stock Option.
 
 
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6.3           Payment of Exercise Price.  Payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option may be made by any method determined by the Committee, in its sole discretion, and set forth in the Award Agreement.  Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options notwithstanding that such program or procedures may be available to other Participants.
 
6.4           Effect of Termination of Service.
 
(a)            Option Exercisability. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee, an Option shall terminate immediately upon the Participant’s termination of Service to the extent that it is then unvested and shall be exercisable after the Participant’s termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall terminate:
 
(i)            Disability. If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of six (6) months after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such Option (the Option Expiration Date).
 
(ii)            Death. If the Participant’s Service terminates because of the death of the Participant, then the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of six (6) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(iii)            Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated for Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service or act.
 
(iv)            Other Termination of Service. If the Participant’s Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of ninety (90) days (three (3) months in the case of Incentive Stock Options) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(b)            Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a) is prevented by the provisions of Section 15 below, the Option shall remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the Option Expiration Date.
 
6.5           Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative. An Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 under the Securities Act.  
 
6.6           Incentive Stock Option Limit.  To the extent that the aggregate Fair Market Value of the shares of Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options.  For purposes of this Section, Incentive Stock Options shall be taken into account in the order in which they were granted.  The Fair Market Value of the shares of Stock shall be determined as of the time the Option with respect to such Shares is granted.
 
6.7           Notification of Disqualifying Dispositions.   If any Participant makes any disposition of shares of Stock issued pursuant to the exercise of an Incentive Stock Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) calendar days thereof.
 
 
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6.8           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted an Option covering more than 50,000 shares of Stock during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted Options covering up to an additional 150,000 shares of Stock in connection with his or her initial service as an Employee.
 
7.           Restricted Stock Awards.
 
Restricted Stock Awards shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
7.1           Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more performance goals.
 
7.2           Purchase Price. If required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
 
7.3           Payment of Purchase Price. Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to Section 7.2 shall be made (a) in cash or by check or cash equivalent, (b) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (c) by any combination thereof.
 
7.4           Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. During any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 7.7. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such Restricted Stock Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Insider Trading Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the next trading day on which the sale of such shares would not violate the Insider Trading Policy. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
 
7.5           Voting Rights; Dividends and Distributions. Except as provided in this Section, Section 7.4 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. However, in the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
 
7.6           Effect of Termination of Service. The effect of termination of employment on a Participant’s Restricted Stock Award shall be set forth in the Award Agreement evidencing such Restricted Stock Award.
 
7.7           Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock pursuant to a Restricted Stock Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
 
7.8           Section 83(b) Election.  The Committee may provide in an Award Agreement that a Restricted Stock Award is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code.  If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
 
 
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7.9           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted an aggregate of more than 50,000 shares of Restricted Stock during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted up to an additional 150,000 shares of Restricted Stock in connection with his or her initial service as an Employee.
 
8.           Restricted Stock Unit Awards.
 
Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:  
 
8.1           Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more performance goals.
 
8.2           Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock issued upon settlement of the Restricted Stock Unit Award.
 
8.3           Vesting. Restricted Stock Unit Awards may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Unit Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to the Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Insider Trading Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the first to occur of (a) the next trading day on which the sale of such shares would not violate the Insider Trading Policy or (b) the later of (i) the last day of the calendar year in which the original vesting date occurred or (ii) the last day of the Company’s taxable year in which the original vesting date occurred.
 
8.4           Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock. The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.
 
8.5           Effect of Termination of Service. The effect of termination of employment on a Participant’s Restricted Stock Unit Award shall be set forth in the Award Agreement evidencing such Restricted Stock Unit Award.
 
 
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8.6           Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 8.4) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by the Participant shall be set forth in the Award Agreement. Notwithstanding the foregoing, the Committee, in its discretion, may provide in any Award Agreement for settlement of any Restricted Stock Unit Award by payment to the Participant in cash of an amount equal to the Fair Market Value on the payment date of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.
 
8.7           Nontransferability of Restricted Stock Unit Awards. The right to receive shares pursuant to a Restricted Stock Unit Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
 
8.8           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted an aggregate of more than 50,000 Restricted Stock Units during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted up to an additional 150,000 Restricted Stock Units in connection with his or her initial service as an Employee.
 
9.           Stock Appreciation Rights.
 
Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of Stock Appreciation Rights granted to the Participant and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish.  Award Agreements evidencing Stock Appreciation Rights may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
9.1           Grant Price.  The grant price for each Stock Appreciation Right shall be established in the discretion of the Committee; provided, however, that the grant price per share for a Stock Appreciation Right shall be not less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the effective date of grant of the Stock Appreciation Right.
 
9.2           Exercisability and Term of Stock Appreciation Right.  Stock Appreciation Rights shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Stock Appreciation Right; provided, however, that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Stock Appreciation Right.  Subject to the foregoing, unless otherwise specified by the Committee in the grant of a Stock Appreciation Right, any Stock Appreciation Right granted hereunder shall terminate ten (10) years after the effective date of grant of the Stock Appreciation Right, unless earlier terminated in accordance with its provisions.
 
9.3           Settlement of Stock Appreciation Rights.  Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (i) the excess of the Fair Market Value of a share of Stock on the date of exercise over the grant price; by (ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised.  At the discretion of the Committee, the payment upon Stock Appreciation Right exercise may be in cash, fully paid shares of Stock, or any combination thereof, or in any other manner approved by the Committee in its sole discretion.  The Committee’s determination regarding the form of Stock Appreciation Right payout shall be set forth in the Award Agreement evidencing such Stock Appreciation Right.
 
9.4           Effect of Termination of Service.  The effect of termination of employment on a Participant’s right to exercise a Stock Appreciation Right shall be set forth in the Award Agreement evidencing such Stock Appreciation Right.
 
9.5           Other Restrictions.  The Committee shall impose such other conditions and/or restrictions on any shares of Stock received upon exercise of a Stock Appreciation Right granted pursuant to the Plan as it may deem advisable or desirable, including but not limited to a requirement that the Participant hold the shares of Stock received upon exercise of a Stock Appreciation Right for a specified period of time.
 
 
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9.6           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted Stock Appreciation Rights covering more than 50,000 shares of Stock during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted Stock Appreciation Rights covering up to an additional 150,000 shares of Stock in connection with his or her initial service as an Employee.
 
10.           Performance Awards.
 
Performance Awards shall be evidenced by Award Agreements specifying whether the Award is for Performance Shares or Performance Units, the number of shares of Stock or units covered thereby, and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish.  Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
10.1           Value of Performance Shares/Performance Units.  Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the effective date of grant of the Performance Share Award.  Each Performance Unit shall have an initial value that is established by the Committee at the time of grant.  The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the value and/or number of Performance Shares/Performance Units that will be paid out to the Participant.
 
10.2           Earning of Performance Shares/Performance Units.  Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Shares/Performance Units shall be entitled to receive payout on the value and number of Performance Shares/Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.
 
10.3           Form and Timing of Payment of Performance Shares/Performance Units.  Payment of earned Performance Shares/Performance Units shall be as determined by the Committee and as evidenced in the Award Agreement.  Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Shares/Performance Units in the form of cash or in fully paid shares of Stock (or in a combination thereof) equal to the value of the earned Performance Shares/Performance Units at the close of the applicable Performance Period, or as soon as practicable after the end of the Performance Period.  Any Shares may be granted subject to any restrictions deemed appropriate by the Committee.  The determination of the Committee with respect to the form of payout of such Performance Awards shall be set forth in the Award Agreement pertaining to the grant of the Performance Award.
 
10.4           Effect of Termination of Service.  The effect of termination of employment on a Participant’s right to receive payment for any Performance Shares/Performance Units shall be set forth in the Award Agreement evidencing such Performance Award.
 
10.5           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted Performance Units having an initial value greater than $500,000 and no Participant will receive more than 50,000 Performance Shares during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted up to an additional 150,000 Performance Shares in connection with his or her initial service as an Employee.
 
11.           Cash-Based Awards and Other Stock-Based Awards.
 
Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements, in such form as the Committee shall from time to time establish.  Award Agreements evidencing such Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
11.1           Cash-Based Awards.  The Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms as the Committee may determine.  Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee.
 
11.2           Other Stock-Based Awards.  The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted shares of Stock) in such amounts and subject to such terms and conditions as the Committee shall determine.  Each Other Stock-Based Award shall be expressed in terms of shares of Stock or units based on shares of Stock, as determined by the Committee.  Such Awards may involve the transfer of actual fully paid shares of Stock to Participants, or payment in cash or otherwise of amounts based on the value of shares of Stock and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
 
 
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11.3           Performance Goals.  The Committee may establish performance goals at its discretion.  If the Committee exercises its discretion to establish performance goals, the number and/or value of Cash-Based Awards and Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met, and provided the cash or services received by the Company in exchange for shares of Stock shall have a value not less than the aggregate par value of any shares of Stock issued as part of such Other Stock-Based Award.
 
11.4           Payment of Cash-Based Awards and Other Stock-Based Awards.  Payment, if any, with respect to a Cash-Based Award or Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or fully paid shares of Stock as the Committee determines.
 
11.5           Effect of Termination of Service. The effect of termination of employment on a Participant’s Cash-Based Award or Other Stock-Based Award shall be set forth in the Award Agreement evidencing such Cash-Based Award or Other Stock-Based Award.
 
12.           Standard Forms of Award Agreements.
 
12.1           Award Agreements. Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Committee and as amended from time to time. No Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Any Award Agreement may consist of an appropriate form of Notice of Grant and a form of Agreement incorporated therein by reference, or such other form or forms, including electronic media, as the Committee may approve from time to time.
 
12.2           Authority to Vary Terms. The Committee shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
 
13.           Change in Control.
 
13.1           Effect of Change in Control on Awards. Subject to the requirements and limitations of Section 409A if applicable, the Committee may provide for any one or more of the following:
 
(a)            Accelerated Vesting. The Committee may, in its discretion, provide in any Award Agreement or, in the event of a Change in Control, may take such actions as it deems appropriate to provide for the acceleration of the exercisability, vesting and/or settlement in connection with such Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Participant’s Service prior to, upon, or following such Change in Control, to such extent as the Committee shall determine.
 
(b)            Assumption, Continuation or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the "Acquiror"), may, without the consent of any Participant, either assume or continue the Company’s rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquiror’s stock, as applicable. For purposes of this Section, if so determined by the Committee, in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled; provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise or settlement of the Award, for each share of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Committee may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.  
 
 
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(c)            Cash-Out of Awards. The Committee may, in its discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award or a portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Committee) of Stock subject to such canceled Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced by the exercise or purchase price per share, if any, under such Award. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Committee may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. In the event such determination is made by the Committee, the amount of such payment (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards.
 
13.2           Federal Excise Tax Under Section 4999 of the Code.
 
(a)            Excess Parachute Payment. In the event that any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section 280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
 
(b)            Determination by Independent Accountants. To aid the Participant in making any election called for under Section 13.2(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an “excess parachute payment” to the Participant as described in Section 13.2(a), the Company shall request a determination in writing by independent public accountants selected by the Company (the “Accountants”). As soon as practicable thereafter, the Accountants shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants may reasonably charge in connection with their services contemplated by this Section 13.2(b).  
 
14.           Tax Withholding.
 
14.1           Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.
 
14.2           Withholding in Shares. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.
 
15.           Compliance with Law.
 
15.1           Securities Laws.  The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
 
 
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15.2            Currency Laws.  The grant of Awards and the issuance of shares of Stock or payment of cash pursuant to any Award shall be compliance with all applicable requirements of foreign law with respect to currency exchange and currency transfer.
 
16.           Compliance with Section 409A.
 
16.1           Awards Subject to Section 409A. The provisions of this Section shall apply to any Award or portion thereof that is or becomes subject to Section 409A, notwithstanding any provision to the contrary contained in the Plan or the Award Agreement applicable to such Award. Awards subject to Section 409A include, without limitation:
 
(a)            Any Nonstatutory Stock Option having an exercise price per share less than the Fair Market Value determined as of the date of grant of such Option or that permits the deferral of compensation other than the deferral of recognition of income until the exercise or transfer of the Option or the time the shares acquired pursuant to the exercise of the option first become substantially vested.
 
(b)            Any Restricted Stock Award that either provides by its terms, or under which the Participant makes an election, for settlement of all or any portion of the Award either (i) on one or more dates following the end of the Short-Term Deferral Period (as defined below) or (ii) upon or after the occurrence of any event that will or may occur later than the end of the Short-Term Deferral Period.
 
Subject to U.S. Treasury Regulations promulgated pursuant to Section 409A (“Section 409A Regulations”) or other applicable guidance, the term “Short-Term Deferral Period” means the period ending on the later of (i) the 15th day of the third month following the end of the Company’s fiscal year in which the applicable portion of the Award is no longer subject to a substantial risk of forfeiture or (ii) the 15th day of the third month following the end of the Participant’s taxable year in which the applicable portion of the Award is no longer subject to a substantial risk of forfeiture. For this purpose, the term “substantial risk of forfeiture” shall have the meaning set forth in Section 409A Regulations or other applicable guidance.
 
16.2           Deferral and/or Distribution Elections. Except as otherwise permitted or required by Section 409A or Section 409A Regulations or other applicable guidance, the following rules shall apply to any deferral and/or distribution elections (each, an “Election”) that may be permitted or required by the Committee pursuant to an Award subject to Section 409A:
 
(a)            All Elections must be in writing and specify the amount (or an objective, nondiscretionary formula determining the amount) of the distribution in settlement of an Award being deferred, as well as the time and form of distribution as permitted by this Plan.
 
(b)            All Elections shall be made by the end of the Participant’s taxable year prior to the year in which services commence for which an Award may be granted to such Participant; provided, however, that if the Award qualifies as “performance-based compensation” for purposes of Section 409A (and is based on a performance period of at least 12 consecutive months), then the Election may be made no later than six (6) months prior to the end of the performance period, provided that the Participant’s service is continuous from the later of the beginning of the performance period or the date on which the performance goals are established through the date such election is made and provided further that no election may be made after the compensation has become readily ascertainable (as provided by Section 409A Regulations).
 
(c)            Elections shall continue in effect until a written election to revoke or change such Election is received by the Company, except that a written election to revoke or change such Election must be made prior to the last day for making an Election determined in accordance with paragraph (b) above or as permitted by Section 16.3.  
 
16.3           Subsequent Elections. Except as otherwise permitted or required by Section 409A Regulations or other applicable guidance, any Award subject to Section 409A which permits a subsequent Election to delay the distribution or change the form of distribution in settlement of such Award shall comply with the following requirements:
 
(a)            No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent Election is made;
 
 
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(b)            Each subsequent Election related to a distribution in settlement of an Award not described in Section 16.4(b), 16.4(c) or 16.4(f) must result in a delay of the distribution for a period of not less than five (5) years from the date such distribution would otherwise have been made; and
 
(c)            No subsequent Election related to a distribution pursuant to Section 16.4(d) shall be made less than twelve (12) months prior to the date of the first scheduled payment under such distribution.
 
16.4           Distributions Pursuant to Deferral Elections. Except as otherwise permitted or required by Section 409A Regulations or other applicable guidance, no distribution in settlement of an Award subject to Section 409A may commence earlier than:
 
(a)            The Participant’s separation from service (as defined by Section 409A Regulations);
 
(b)            The date the Participant becomes Disabled (as defined below);
 
(c)            The Participant’s death;
 
(d)            A specified time (or pursuant to a fixed schedule) that is either (i) specified by the Committee upon the grant of an Award and set forth in the Award Agreement evidencing such Award or (ii) specified by the Participant in an Election complying with the requirements of Section 16.2 and/or 16.3, as applicable;
 
(e)            A change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company (as defined by Section 409A Regulations); or
 
(f)            The occurrence of an Unforeseeable Emergency (as defined by Section 409A Regulations).
 
Notwithstanding anything else herein to the contrary, to the extent that a Participant is a “Specified Employee” (as defined by Section 409A Regulations) of the Company, no distribution pursuant to Section 16.4(a) in settlement of an Award subject to Section 409A may be made before the date (the “Delayed Payment Date”) which is six (6) months after such Participant’s date of separation from service, or, if earlier, the date of the Participant’s death. All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date shall be accumulated and paid on the Delayed Payment Date.  
 
16.5           Unforeseeable Emergency. The Committee shall have the authority to provide in any Award subject to Section 409A for distribution in settlement of all or a portion of such Award in the event that a Participant establishes, to the satisfaction of the Committee, the occurrence of an Unforeseeable Emergency. In such event, the amount(s) distributed with respect to such Unforeseeable Emergency cannot exceed the amounts reasonably necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes or penalties reasonably anticipated as a result of such distribution(s), after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or by cessation of deferrals under the Plan. All distributions with respect to an Unforeseeable Emergency shall be made in a lump sum within 90 days of the occurrence of Unforeseeable Emergency and following the Committee’s determination that an Unforeseeable Emergency has occurred.
 
The occurrence of an Unforeseeable Emergency shall be judged and determined by the Committee. The Committee’s decision with respect to whether an Unforeseeable Emergency has occurred and the manner in which, if at all, the distribution in settlement of an Award shall be altered or modified, shall be final, conclusive, and not subject to approval or appeal.
 
16.6           Disabled. The Committee shall have the authority to provide in any Award subject to Section 409A for distribution in settlement of such Award in the event that the Participant becomes Disabled. A Participant shall be considered “Disabled” if either:
 
(a)            the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or
 
(b)            the Participant is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer.
 
All distributions payable by reason of a Participant becoming Disabled shall be paid in a lump sum or in periodic installments as established by the Participant’s Election, commencing within 90 days following the date the Participant becomes Disabled. If the Participant has made no Election with respect to distributions upon becoming Disabled, all such distributions shall be paid in a lump sum within 90 days following the date the Participant becomes Disabled.
 
 
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16.7           Death. If a Participant dies before complete distribution of amounts payable upon settlement of an Award subject to Section 409A, such undistributed amounts shall be distributed to his or her beneficiary under the distribution method for death established by the Participant’s Election, or, if the Participant has made no Election with respect to distributions upon death, in a lump sum, within 90 days following the Participant’s death and following receipt by the Committee of satisfactory notice and confirmation of the Participant’s death.  
 
16.8           No Acceleration of Distributions. Notwithstanding anything to the contrary herein, this Plan does not permit the acceleration of the time or schedule of any distribution under this Plan pursuant to any Award subject to Section 409A, except as provided by Section 409A and Section 409A Regulations.
 
17.           Amendment or Termination of Plan.
 
The Committee may amend, suspend or terminate the Plan at any time. However, without the approval of the Company’s stockholders, there shall be no amendment of the Plan that would require approval of the Company’s stockholders under any applicable law, regulation or rule, including the rules of any stock exchange or market system upon which the Stock may then be listed. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may adversely affect any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, the Committee may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A of the Code and all applicable guidance promulgated thereunder.
 
18.           Miscellaneous Provisions.
 
18.1           Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
 
18.2           Forfeiture Events.
 
(a)            The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of Service for Cause or any act by a Participant, whether before or after termination of Service, that would constitute Cause for termination of Service.
 
(b)            If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any Participant who knowingly or through gross negligence engaged in the misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, shall reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the twelve- (12-) month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement.
 
(c)           All outstanding Awards and shares of Stock issued pursuant to an Award held by a Participant will be forfeited in their entirety (including as to any portion of an Award or shares of Stock subject thereto that are vested or as to which any repurchase or resale rights or forfeiture restrictions in favor of the Company or its designee with respect to such Shares have previously lapsed) if the Participant, without the consent of the Company, while employed or in service, as the case may be, or within twelve (12) months after termination of employment or service, establishes an employment or similar relationship with a competitor of a Participating Company or engages in any similar activity (including passive investment, but excluding ownership of 1% or less of the shares of a competitor) that is in conflict with or adverse to the interests of a Participating Company, as determined by the Committee in its sole discretion; provided, that if a Participant has sold shares of Stock issued upon exercise or settlement of an Award within six (6) months prior to the date on which the Participant would otherwise have been required to forfeit such shares of Stock or the Award under this subsection as a result of the Participant’s competitive or similar acts, then the Company will be entitled to recover any and all profits realized by the Participant in connection with such sale.
 
 
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(d)             All outstanding Awards and shares of Stock issued pursuant to an Award held by a Participant will be forfeited in their entirety (including as to any portion of an Award or shares of Stock subject thereto that are vested or as to which any repurchase or resale rights or forfeiture restrictions in favor of the Company or its designee with respect to such Shares have previously lapsed) if the Participant, without the consent of the Company, while employed or in service, as the case may be, or within twelve (12) months after termination of employment or service, solicits any employee, client, or vendor to engage in employment or similar relationship with a competitor of a Participating Company or to engage in any similar activity (including passive investment) that is in conflict with or adverse to the interests of a Participating Company, as determined by the Committee in its sole discretion; provided, that if a Participant has sold shares of Stock issued upon exercise or settlement of an Award within six (6) months prior to the date on which the Participant would otherwise have been required to forfeit such shares of Stock or the Award under this subsection as a result of the Participant’s acts, then the Company will be entitled to recover any and all profits realized by the Participant in connection with such sale.
 
18.3           Provision of Information. Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common stockholders.
 
18.4           Rights as Employee, Consultant or Director. No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time. To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.
 
18.5           Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.3 or another provision of the Plan.
 
18.6           Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall deliver such shares to or for the benefit of the Participant by means of one or more of the following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of Stock for the benefit of the Participant with any broker with which the Participant has an account relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
 
18.7           Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
 
18.8           Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or cash paid pursuant to such Awards shall be included as “compensation” for purposes of computing the benefits payable to any Participant under any Participating Company’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing such benefits.  
 
18.9           Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
 
18.10           No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s or another Participating Company’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or another Participating Company to take any action which such entity deems to be necessary or appropriate.
 
18.11           Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.
 
 
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18.12           Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of Delaware, without regard to its conflict of law rules.
 
18.13           Nontransferability of Awards.  Unless otherwise determined by the Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Participant, only by the Participant or the Participant’s guardian or legal representative.
 
19.           Compliance with Section 162(m).
 
The Company intends that the Awards granted to Covered Employees shall satisfy the requirements of the Performance-Based Exception, unless otherwise determined by the Committee when the Award is granted.  Accordingly, the terms of this Plan, including the definition of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Section 162(m) of the Code and regulations thereunder.  Notwithstanding the foregoing, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee as likely to be a Covered Employee with respect to a fiscal year.  If any provision of the Plan or any Award Agreement designated as intended to satisfy the Performance-Based Exception does not comply or is inconsistent with the requirements of Section 162(m) of the Code or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer upon the Committee or any other person sole discretion to increase the amount of compensation otherwise payable in connection with such Award upon attainment of the applicable performance objectives.  Payment of any amount that the Company reasonably determines would not be deductible by reason of Section 162(m) of the Code shall be deferred until the earlier of the earliest date on which the Company reasonably determines that the deductibility of the payment will not be so limited, or the year following the termination of employment.
 
19.1           Performance Measures.  The performance goals upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
 
(a)           Financial Goals.
 
(i)           Revenues
 
(ii)           EBITDA
 
(iii)           Net Income
 
(iv)           Earnings per share
 
(v)           Debt level
 
(vi)           Cost reduction targets
 
(vii)           Cash flow from operations
 
(viii)           Equity ratios
 
(ix)           Interest generated on cash
 
(x)           Weighted average cost of capital
 
(xi)           Return on assets
 
(xii)           Return on investment
 
(xiii)           Capital raised from sales of equity
 
(xiv)           Bank loan lines
 
 
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(xv)           Capital raised from sales of debt
 
(xvi)           Expenses
 
(xvii)           Working capital
 
(xviii)           Operating or profit margin
 
(xix)           Return on equity or capital employed
 
(xx)           Booking and billing
 
(b)           Corporate and Other Goals.
 
(i)           Total stockholder return
 
(ii)           Goals related to acquisitions
 
(iii)           Investments
 
(iv)           Satisfactory internal or external audits
 
(v)           Achievement of balance sheet or income statement objectives
 
(vi)           Market share
 
(vii)           Assets
 
(viii)           Asset sale targets
 
(ix)           Number of new customers
 
(x)           Increase in customer size
 
(xi)           Employee retention/attrition rates
 
(xii)           Improvement of financial ratings
 
(xiii)           Charge-offs
 
(xiv)           Fair Market Value of Stock
 
(xv)           Regulatory compliance
 
(xvi)           Major exchange listing
 
(c)           Operating Goals.
 
 (i)           Operating efficiency
 
(ii)           Ability of MIS to meet agreed targets
 
(iii)           Objective customer satisfaction measures
 
(iv)           Limit on mistakes in SCM
 
Any Performance Measure(s) may be used to measure the performance of the Company, any Subsidiary Corporation, or an Affiliate as a whole or any business unit of the Company, any Subsidiary Corporation, or an Affiliate or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate.  The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Section.
 
Notwithstanding the foregoing, for each Award designed to qualify for the Performance-Based Exception, the Committee shall establish and set forth in the Award the applicable performance goals for that Award no later than the latest date that the Committee may establish such goals without jeopardizing the ability of the Award to qualify for the Performance-Based Exception and the Committee shall be satisfied that the attainment of such Performance Measure(s) shall represent value to the Company in an amount not less than the par value of any related Performance Shares.
 
19.2           Evaluation of Performance.  Subject to Section 19.3, the Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs and other asset revaluations, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year, (f) acquisitions or divestitures, (g) foreign exchange gains and losses, and (h) changes in material liability estimates.  To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility.
 
 
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19.3           Adjustment of Performance-Based Compensation.  The degree of payout and/or vesting of Awards designed to qualify for the Performance-Based Exception shall be determined based upon the written certification of the Committee as to the extent to which the performance goals and any other material terms and conditions precedent to such payment and/or vesting have been satisfied.  The Committee shall have the sole discretion to adjust the determinations of the value and degree of attainment of the pre-established performance goals; provided, however, that the performance goals applicable to Awards which are designed to qualify for the Performance-Based Exception, and which are held by Covered Employees, may not be adjusted so as to increase the payment under the Award (the Committee shall retain the sole discretion to adjust such performance goals upward, or to otherwise reduce the amount of the payment and/or vesting of the Award relative to the pre-established performance goals).
 
19.4           Committee Discretion.  In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval.  In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code and base vesting on Performance Measures other than those set forth in Section 19.1.
 
 
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EX-10.3 6 exh10_3.htm EXHIBIT 10.3 exh10_3.htm
 


 
Exhibit 10.3
 
BOSTON THERAPEUTICS, INC.
2011 NON-QUALIFIED STOCK PLAN

1.           Establishment, Purpose and Term of Plan.
 
1.1           Establishment. The Boston Therapeutics, Inc. 2011 Non-Qualified Stock Plan (the “Plan”) was originally adopted by the Company effective as of September 15, 2011 (the “Effective Date”).
 
1.2           Purpose. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Company intends that Awards granted pursuant to the Plan be exempt from or comply with Section 409A of the Code (including any amendments or replacements of such Section), and the Plan shall be so construed.
 
1.3           Term of Plan. The Plan shall continue in effect until its termination by the Committee; provided, however, that, to the extent required by applicable law, all Awards shall be granted, if at all, within ten (10) years from the Effective Date.
 
2.           Definitions and Construction.
 
2.1           Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
 
(a)           Affiliatemeans (i) an entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) an entity, other than a Subsidiary Corporation, that is controlled by the Company directly or indirectly through one or more intermediary entities. For this purpose, the term “control” (including the term “controlled by”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the relevant entity, whether through the ownership of voting securities, by contract or otherwise; or shall have such other meaning assigned such term for the purposes of registration on Form S-8 under the Securities Act.
 
(b)            Award” means any Option, Restricted Stock Award, Restricted Stock Unit Award, Stock Appreciation Right, Performance Unit Award, Performance Share Award, Cash-Based Award, or Other Stock-Based Award granted under the Plan.
 
(c)            Award Agreement” means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions of the Award granted to the Participant.
 
(d)            Board” means the Board of Directors of the Company.
 
(e)           Cash-Based Awardmeans an Award, denominated in cash, granted to a Participant as described in Section 11.
 
(f)            Causemeans, unless such term or an equivalent term is otherwise defined with respect to an Award by the Participant’s Award Agreement or by a written contract of employment or service, any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (v) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by the Participant of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company.
 
(g)            “Change in Control” means, the occurrence of any of the following:
 
(i)            any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total combined voting power of the Company’s then-outstanding securities entitled to vote generally in the election of Directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (1) an acquisition by any such person who on the Effective Date is the beneficial owner of more than fifty percent (50%) of such voting power, (2) any acquisition directly from the Company, including, without limitation, a public offering of securities, (3) any acquisition by the Company, (4) any acquisition by a trustee or other fiduciary under an employee benefit plan of a Participating Company or (5) any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or
 
 
 

 
 
(ii)            an Ownership Change Event or series of related Ownership Change Events (collectively, a Transaction) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 2.1(cc)(iii), the entity to which the assets of the Company were transferred (the Transferee), as the case may be;
 
provided, however, that a Change in Control shall be deemed not to include a transaction described in subsections (i) or (ii) of this Section in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of Incumbent Directors. Notwithstanding the foregoing, to the extent that any amount constituting Section 409A Deferred Compensation would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A.  For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Committee shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
 
(h)            “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
 
(i)            “Committeemeans the Compensation Committee and such other committee or subcommittee of the Board, if any, duly appointed to administer the Plan and having such powers in each instance as shall be specified by the Board. If, at any time, there is no committee of the Board then authorized or properly constituted to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.  For purposes of Awards intended to satisfy Section 162(m) of the Code, a committee must be composed of not less than two (2) non-employee directors, within the meaning of Rule 16b-3 of the Exchange Act, and “outside directors,” as defined in Treasury Regulation § 1.162-27.
 
(j)            Company” means Boston Therapeutics, Inc., a Delaware corporation, or any successor corporation thereto.
 
(k)            Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company.
 
(l)            Covered Employee means any key Employee who is or may become a “covered employee,” as defined in Section 162(m) of the Code, and who is designated, either as an individual Employee or class of Employees, by the Committee within the shorter of: (i) ninety (90) days after the beginning of the Performance Period, or (ii) twenty-five percent (25%) of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable Performance Period.
 
(m)           Director” means a member of the Board.
 
(n)            Disability” means the total and permanent disability of a person as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than an Incentive Stock Option, the Committee in its discretion may determined whether a permanent and total disability exists in accordance with uniform and nondiscriminatory standards adopted by the Committee from time to time.
 
(o)            Dividend Equivalent Rightmeans the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.
 
(p)            Employee” means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be. For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the Company’s determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or
 
 
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(q)            Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
(r)           Exchange Program means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participants have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Committee, and/or (iii) the exercise price of an outstanding Award is reduced.  The Committee will determine the terms and conditions of any Exchange Program in its sole discretion.
 
(s)            Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
 
(i)            If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on such national or regional securities exchange or market system, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion.
 
(ii)           If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Committee using an average Stock price over a five-day trading period determined by the Committee prior to the commencement of such five-day trading period, and subject to the applicable requirements, if any, of Section 409A of the Code.
 
(t)            Incentive Stock Option means an Option granted to an Employee under Section 6 that is designated as an Incentive Stock Option (as set forth in the Award Agreement) and that is intended to meet the requirements of Section 422 of the Code, or any successor provision.
 
(u)           Incumbent Directormeans a director who either (i) is a member of the Board as of the Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination, but who was not elected or nominated in connection with an actual or threatened proxy contest relating to the election of directors of the Company.
 
(v)           Insider” means an Officer, a Director of the Company or other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
 
(w)           Insider Trading Policymeans the written policy of the Company pertaining to the purchase, sale, transfer or other disposition of the Company’s equity securities by Directors, Officers, Employees or other service providers who may possess material, nonpublic information regarding the Company or its securities.
 
(x)           “Net-Exercise” means a procedure by which the Company will reduce the number of shares of Stock issued upon exercise of an Option by the largest whole number of shares of Stock with an aggregate Fair Market Value on the date of exercise that is equal to or less than the aggregate exercise price and will receive cash from the Participant to the extent of any remaining balance of the aggregate exercise price.
 
(y)            Nonstatutory Stock Option” means an Option granted to a Participant under Section 6 that is not intended to be (as set forth in the Award Agreement) or which does not qualify as an Incentive Stock Option.
 
(z)            Officer” means any person designated by the Board as an officer of the Company.
 
(aa)            Option” means a right granted under Section 6 to purchase Stock pursuant to the terms and conditions of the Plan. All Options may be Incentive Stock Options or Nonstatutory Stock Options.
 
(bb)           Other Stock-Based Award means an equity-based or equity-related Award not otherwise described by the terms of this Plan, granted pursuant to Section 11.
 
 
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(cc)            Ownership Change Eventmeans the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
 
(dd)            Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.
 
(ee)            Participant” means any eligible person who has been granted one or more Awards.
 
(ff)            Participating Companymeans the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.  
 
(gg)            Participating Company Group” means, at any point in time, all entities collectively which are then Participating Companies.
 
(hh)           Performance Award means an Award of Performance Shares or Performance Units.
 
(ii)           Performance-Based Compensation means compensation under an Award that is intended to satisfy the requirements of Section 162(m) of the Code for certain performance-based compensation paid to Covered Employees.  Notwithstanding the foregoing, nothing in this Plan shall be construed to mean that an Award which does not satisfy the requirements for performance-based compensation under Section 162(m) of the Code does not constitute performance-based compensation for other purposes, including Section 409A of the Code.
 
(jj)           Performance-Based Exception means the exception for Performance-Based Compensation from the tax deductibility limitations of Section 162(m) of the Code.
 
(kk)           Performance Measures means measures as described in Section 19 on which the performance goals are based and which are approved by the Company’s stockholders pursuant to this Plan in order to qualify Awards as Performance-Based Compensation.
 
(ll)           Performance Period means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
 
(mm)           Performance Share means an Award granted to a Participant pursuant to Section 10, denominated in fully paid Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria or Performance Measure(s), as applicable, have been achieved.
 
(nn)           Performance Unit means an Award granted to a Participant pursuant to Section 10, denominated in units, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria or Performance Measure(s), as applicable, have been achieved.
 
(oo)           Restricted Stock Awardmeans Stock granted to a Participant pursuant to Section 7.
 
(pp)            Restricted Stock Unit means a right granted to a Participant pursuant to Section 8 to receive a share of Stock on a date determined in accordance with the provisions of such Section and the Participant’s Award Agreement.
 
(qq)            Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
 
(rr)            Section 409Ameans Section 409A of the Code.
 
(ss)            Section 409A Deferred Compensationmeans compensation provided pursuant to the Plan that constitutes deferred compensation subject to and not exempted from the requirements of Section 409A.
 
(tt)            Securities Act” means the Securities Act of 1933, as amended.
 
(uu)            Service” means a Participant’s employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. A Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service to the Participating Company Group or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the commencement of such leave the Participant’s Service shall be deemed to have terminated, unless the Participant’s right to return to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement. A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated for purposes of Awards granted under the Plan, and the effective date of and reason for such termination.
 
 
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(vv)            Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.3.  
 
(ww)           Stock Appreciation Right means an Award granted to a Participant pursuant to Section 9.
 
(xx)            Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
 
(yy)            Vesting Conditionsmean those conditions established in accordance with the Plan prior to the satisfaction of which shares subject to an Award remain subject to forfeiture or a repurchase option in favor of the Company exercisable for the Participant’s monetary purchase price, if any, for such shares upon the Participant’s termination of Service.
 
2.2           Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
 
3.           Administration.
 
3.1           Administration by the Committee. The Plan shall be administered by the Committee. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein.
 
3.2           Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
 
3.3           Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
 
3.4           Powers of the Committee. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:
 
(a)            to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock to be subject to each Award;
 
(b)            to determine the type of Award granted;  
 
(c)            to determine the Fair Market Value of shares of Stock or other property;
 
(d)            to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v)  the time of the expiration of any Award, (vi) the effect of the Participant’s termination of Service on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
 
(e)            to determine whether an Award will be settled in shares of Stock, cash, or in any combination thereof;
 
(f)            to approve one or more forms of Award Agreement;
 
 
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(g)            to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired upon the exercise thereof;
 
(h)           to accelerate, continue, extend or defer the exercisability of any Award or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following a Participant’s termination of Service;
 
(i)            to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards;
 
(j)            to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law;
 
(k)           to institute, subject to Board approval and without further approval from the Company’s stockholders, an Exchange Program and determine the terms and conditions thereof;
 
(l)           to establish and/or amend, without further approval from the Company’s stockholders, subplans and schedules with such terms and conditions necessary or appropriate to satisfy local law, regulations and customs; and
 
(m)           to determine whether any corporate event or transaction that results in the sale, spin-off or transfer of a Subsidiary, business group, operating unit, division, or similar organization constitutes a termination of employment (or services), and, if so, the effective date of such termination, for purposes of Awards granted under the Plan.
 
3.5           Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
 
3.6           Consideration.  The Committee may provide the method for payment for shares of Stock purchased pursuant to an Award under any of the following methods as determined by the Committee, in its sole discretion: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) to the Company for repurchase previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Award price together with an assignment of the proceeds of the Stock repurchase to pay the Award price (provided that any such repurchase of Stock shall be subject to applicable laws); (c) by a cashless (broker-assisted) exercise; (d) by deducting from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award; (e) by Net-Exercise, (f) by promissory note (except for an executive officer or director or equivalent thereof, as prohibited under the Sarbanes-Oxley Act of 2002), (g) by a combination of (a), (b), (c), (d), (e) and/or (f); or (h) any other method approved or accepted by the Committee in its sole discretion.
 
4.           Shares Subject to Plan.
 
4.1           Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be [2,100,000] which shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.  The maximum number of shares of Stock that may be issued as Incentive Stock Options is [2,100,000].
 
4.2           Share Counting. If an outstanding Award for any reason lapses, expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, then the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan.  Shares withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 14.2 shall again be available for issuance under the Plan.  If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net-Exercise, or if shares of Stock are withheld from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, then such shares shall again be available for issuance under the Plan.  Shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash.
 
 
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4.3           Adjustments for Changes in Capital Structure. Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, in the maximum share limitations, and in the exercise or purchase price per share of any outstanding Awards in order to prevent dilution or enlargement of Participants’ rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise or purchase price per share of, the outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Committee, in its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and the exercise price per share shall be rounded up to the nearest whole cent. In no event may the exercise price of any Award be decreased to an amount less than the par value, if any, of the stock subject to the Award. The Committee in its sole discretion, may also make such adjustments in the terms of any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate. The adjustments determined by the Committee pursuant to this Section shall be final, binding and conclusive.
 
5.           Eligibility and Option Limitations.
 
5.1           Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and Directors.  Incentive Stock Options may be granted only to Employees of the Company or of any parent or subsidiary corporation (as permitted under Sections 422 and 424 of the Code).
 
5.2           Participation in Plan. Awards are granted solely at the discretion of the Committee. Eligible persons may be granted more than one Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
 
6.           Stock Options.
 
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
6.1           Exercise Price. The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that the exercise price per share for an Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Incentive Stock Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Sections 424(a) and 409A of the Code.  With respect to an Employee who owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of the stock of the Company, and Subsidiary Corporation, or any Affiliate, the exercise price of Stock subject to an Incentive Stock Option shall be at least equal to one hundred ten percent (110%) of the Fair Market Value of such Stock on the effective date of grant.
 
6.2           Exercisability and Term of Options. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option. Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.  With respect to an Employee who owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of the stock of the Company, and Subsidiary Corporation, or any Affiliate, no such Incentive Stock Option shall be exercisable later than the day before the fifth (5th) anniversary of the effective date of grant of such Incentive Stock Option.
 
 
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6.3           Payment of Exercise Price.  Payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option may be made by any method determined by the Committee, in its sole discretion, and set forth in the Award Agreement.  Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.  The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options notwithstanding that such program or procedures may be available to other Participants.
 
6.4           Effect of Termination of Service.
 
(a)            Option Exercisability. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee, an Option shall terminate immediately upon the Participant’s termination of Service to the extent that it is then unvested and shall be exercisable after the Participant’s termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall terminate:
 
(i)            Disability. If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of six (6) months after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such Option (the Option Expiration Date).
 
(ii)            Death. If the Participant’s Service terminates because of the death of the Participant, then the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of six (6) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(iii)            Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated for Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service or act.
 
(iv)            Other Termination of Service. If the Participant’s Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of ninety (90) days (three (3) months in the case of Incentive Stock Options) after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
 
(b)            Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a) is prevented by the provisions of Section 15 below, the Option shall remain exercisable until thirty (30) days after the date such exercise first would no longer be prevented by such provisions, but in any event no later than the Option Expiration Date.
 
6.5           Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative. An Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 under the Securities Act.  
 
6.6           Incentive Stock Option Limit.  To the extent that the aggregate Fair Market Value of the shares of Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options.  For purposes of this Section, Incentive Stock Options shall be taken into account in the order in which they were granted.  The Fair Market Value of the shares of Stock shall be determined as of the time the Option with respect to such Shares is granted.
 
6.7           Notification of Disqualifying Dispositions.   If any Participant makes any disposition of shares of Stock issued pursuant to the exercise of an Incentive Stock Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) calendar days thereof.
 
 
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6.8           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted an Option covering more than 50,000 shares of Stock during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted Options covering up to an additional 150,000 shares of Stock in connection with his or her initial service as an Employee.
 
7.           Restricted Stock Awards.
 
Restricted Stock Awards shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
7.1           Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more performance goals.
 
7.2           Purchase Price. If required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
 
7.3           Payment of Purchase Price. Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to Section 7.2 shall be made (a) in cash or by check or cash equivalent, (b) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (c) by any combination thereof.
 
7.4           Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. During any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 7.7. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such Restricted Stock Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Insider Trading Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the next trading day on which the sale of such shares would not violate the Insider Trading Policy. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
 
7.5           Voting Rights; Dividends and Distributions. Except as provided in this Section, Section 7.4 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. However, in the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
 
7.6           Effect of Termination of Service. The effect of termination of employment on a Participant’s Restricted Stock Award shall be set forth in the Award Agreement evidencing such Restricted Stock Award.
 
7.7           Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock pursuant to a Restricted Stock Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
 
7.8           Section 83(b) Election.  The Committee may provide in an Award Agreement that a Restricted Stock Award is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code.  If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
 
 
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7.9           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted an aggregate of more than 50,000 shares of Restricted Stock during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted up to an additional 150,000 shares of Restricted Stock in connection with his or her initial service as an Employee.
 
8.           Restricted Stock Unit Awards.
 
Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:  
 
8.1           Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more performance goals.
 
8.2           Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock issued upon settlement of the Restricted Stock Unit Award.
 
8.3           Vesting. Restricted Stock Unit Awards may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Unit Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to the Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Insider Trading Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the first to occur of (a) the next trading day on which the sale of such shares would not violate the Insider Trading Policy or (b) the later of (i) the last day of the calendar year in which the original vesting date occurred or (ii) the last day of the Company’s taxable year in which the original vesting date occurred.
 
8.4           Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid by crediting the Participant with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock. The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.
 
8.5           Effect of Termination of Service. The effect of termination of employment on a Participant’s Restricted Stock Unit Award shall be set forth in the Award Agreement evidencing such Restricted Stock Unit Award.
 
 
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8.6           Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 8.4) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by the Participant shall be set forth in the Award Agreement. Notwithstanding the foregoing, the Committee, in its discretion, may provide in any Award Agreement for settlement of any Restricted Stock Unit Award by payment to the Participant in cash of an amount equal to the Fair Market Value on the payment date of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.
 
8.7           Nontransferability of Restricted Stock Unit Awards. The right to receive shares pursuant to a Restricted Stock Unit Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
 
8.8           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted an aggregate of more than 50,000 Restricted Stock Units during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted up to an additional 150,000 Restricted Stock Units in connection with his or her initial service as an Employee.
 
9.           Stock Appreciation Rights.
 
Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of Stock Appreciation Rights granted to the Participant and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish.  Award Agreements evidencing Stock Appreciation Rights may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
9.1           Grant Price.  The grant price for each Stock Appreciation Right shall be established in the discretion of the Committee; provided, however, that the grant price per share for a Stock Appreciation Right shall be not less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the effective date of grant of the Stock Appreciation Right.
 
9.2           Exercisability and Term of Stock Appreciation Right.  Stock Appreciation Rights shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Stock Appreciation Right; provided, however, that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Stock Appreciation Right.  Subject to the foregoing, unless otherwise specified by the Committee in the grant of a Stock Appreciation Right, any Stock Appreciation Right granted hereunder shall terminate ten (10) years after the effective date of grant of the Stock Appreciation Right, unless earlier terminated in accordance with its provisions.
 
9.3           Settlement of Stock Appreciation Rights.  Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (i) the excess of the Fair Market Value of a share of Stock on the date of exercise over the grant price; by (ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised.  At the discretion of the Committee, the payment upon Stock Appreciation Right exercise may be in cash, fully paid shares of Stock, or any combination thereof, or in any other manner approved by the Committee in its sole discretion.  The Committee’s determination regarding the form of Stock Appreciation Right payout shall be set forth in the Award Agreement evidencing such Stock Appreciation Right.
 
9.4           Effect of Termination of Service.  The effect of termination of employment on a Participant’s right to exercise a Stock Appreciation Right shall be set forth in the Award Agreement evidencing such Stock Appreciation Right.
 
9.5           Other Restrictions.  The Committee shall impose such other conditions and/or restrictions on any shares of Stock received upon exercise of a Stock Appreciation Right granted pursuant to the Plan as it may deem advisable or desirable, including but not limited to a requirement that the Participant hold the shares of Stock received upon exercise of a Stock Appreciation Right for a specified period of time.
 
 
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9.6           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted Stock Appreciation Rights covering more than 50,000 shares of Stock during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted Stock Appreciation Rights covering up to an additional 150,000 shares of Stock in connection with his or her initial service as an Employee.
 
10.           Performance Awards.
 
Performance Awards shall be evidenced by Award Agreements specifying whether the Award is for Performance Shares or Performance Units, the number of shares of Stock or units covered thereby, and the terms, conditions and restrictions for such Award, in such form as the Committee shall from time to time establish.  Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
10.1           Value of Performance Shares/Performance Units.  Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the effective date of grant of the Performance Share Award.  Each Performance Unit shall have an initial value that is established by the Committee at the time of grant.  The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the value and/or number of Performance Shares/Performance Units that will be paid out to the Participant.
 
10.2           Earning of Performance Shares/Performance Units.  Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Shares/Performance Units shall be entitled to receive payout on the value and number of Performance Shares/Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.
 
10.3           Form and Timing of Payment of Performance Shares/Performance Units.  Payment of earned Performance Shares/Performance Units shall be as determined by the Committee and as evidenced in the Award Agreement.  Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Shares/Performance Units in the form of cash or in fully paid shares of Stock (or in a combination thereof) equal to the value of the earned Performance Shares/Performance Units at the close of the applicable Performance Period, or as soon as practicable after the end of the Performance Period.  Any Shares may be granted subject to any restrictions deemed appropriate by the Committee.  The determination of the Committee with respect to the form of payout of such Performance Awards shall be set forth in the Award Agreement pertaining to the grant of the Performance Award.
 
10.4           Effect of Termination of Service.  The effect of termination of employment on a Participant’s right to receive payment for any Performance Shares/Performance Units shall be set forth in the Award Agreement evidencing such Performance Award.
 
10.5           162(m) Limit.  For purposes of the Performance-Based Exception, no Participant will be granted Performance Units having an initial value greater than $500,000 and no Participant will receive more than 50,000 Performance Shares during any fiscal year.  Notwithstanding the limitation in previous sentence, an Employee may be granted up to an additional 150,000 Performance Shares in connection with his or her initial service as an Employee.
 
11.           Cash-Based Awards and Other Stock-Based Awards.
 
Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements, in such form as the Committee shall from time to time establish.  Award Agreements evidencing such Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
 
11.1           Cash-Based Awards.  The Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms as the Committee may determine.  Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee.
 
11.2           Other Stock-Based Awards.  The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted shares of Stock) in such amounts and subject to such terms and conditions as the Committee shall determine.  Each Other Stock-Based Award shall be expressed in terms of shares of Stock or units based on shares of Stock, as determined by the Committee.  Such Awards may involve the transfer of actual fully paid shares of Stock to Participants, or payment in cash or otherwise of amounts based on the value of shares of Stock and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
 
 
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11.3           Performance Goals.  The Committee may establish performance goals at its discretion.  If the Committee exercises its discretion to establish performance goals, the number and/or value of Cash-Based Awards and Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met, and provided the cash or services received by the Company in exchange for shares of Stock shall have a value not less than the aggregate par value of any shares of Stock issued as part of such Other Stock-Based Award.
 
11.4           Payment of Cash-Based Awards and Other Stock-Based Awards.  Payment, if any, with respect to a Cash-Based Award or Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or fully paid shares of Stock as the Committee determines.
 
11.5           Effect of Termination of Service. The effect of termination of employment on a Participant’s Cash-Based Award or Other Stock-Based Award shall be set forth in the Award Agreement evidencing such Cash-Based Award or Other Stock-Based Award.
 
12.           Standard Forms of Award Agreements.
 
12.1           Award Agreements. Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Committee and as amended from time to time. No Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement. Any Award Agreement may consist of an appropriate form of Notice of Grant and a form of Agreement incorporated therein by reference, or such other form or forms, including electronic media, as the Committee may approve from time to time.
 
12.2           Authority to Vary Terms. The Committee shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
 
13.           Change in Control.
 
13.1           Effect of Change in Control on Awards. Subject to the requirements and limitations of Section 409A if applicable, the Committee may provide for any one or more of the following:
 
(a)            Accelerated Vesting. The Committee may, in its discretion, provide in any Award Agreement or, in the event of a Change in Control, may take such actions as it deems appropriate to provide for the acceleration of the exercisability, vesting and/or settlement in connection with such Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Participant’s Service prior to, upon, or following such Change in Control, to such extent as the Committee shall determine.
 
(b)            Assumption, Continuation or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the "Acquiror"), may, without the consent of any Participant, either assume or continue the Company’s rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquiror’s stock, as applicable. For purposes of this Section, if so determined by the Committee, in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled; provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise or settlement of the Award, for each share of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Committee may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.  
 
 
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(c)            Cash-Out of Awards. The Committee may, in its discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award or a portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Committee) of Stock subject to such canceled Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced by the exercise or purchase price per share, if any, under such Award. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Committee may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Committee’s good faith estimate of the present value of the probable future payment of such consideration. In the event such determination is made by the Committee, the amount of such payment (reduced by applicable withholding taxes, if any) shall be paid to Participants in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards.
 
13.2           Federal Excise Tax Under Section 4999 of the Code.
 
(a)            Excess Parachute Payment. In the event that any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section 280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
 
(b)            Determination by Independent Accountants. To aid the Participant in making any election called for under Section 13.2(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an “excess parachute payment” to the Participant as described in Section 13.2(a), the Company shall request a determination in writing by independent public accountants selected by the Company (the “Accountants”). As soon as practicable thereafter, the Accountants shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants may reasonably charge in connection with their services contemplated by this Section 13.2(b).  
 
14.           Tax Withholding.
 
14.1           Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.
 
14.2           Withholding in Shares. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of the Participating Company Group. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates.
 
15.           Compliance with Law.
 
15.1           Securities Laws.  The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
 
 
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15.2            Currency Laws.  The grant of Awards and the issuance of shares of Stock or payment of cash pursuant to any Award shall be compliance with all applicable requirements of foreign law with respect to currency exchange and currency transfer.
 
16.           Compliance with Section 409A.
 
16.1           Awards Subject to Section 409A. The provisions of this Section shall apply to any Award or portion thereof that is or becomes subject to Section 409A, notwithstanding any provision to the contrary contained in the Plan or the Award Agreement applicable to such Award. Awards subject to Section 409A include, without limitation:
 
(a)            Any Nonstatutory Stock Option having an exercise price per share less than the Fair Market Value determined as of the date of grant of such Option or that permits the deferral of compensation other than the deferral of recognition of income until the exercise or transfer of the Option or the time the shares acquired pursuant to the exercise of the option first become substantially vested.
 
(b)            Any Restricted Stock Award that either provides by its terms, or under which the Participant makes an election, for settlement of all or any portion of the Award either (i) on one or more dates following the end of the Short-Term Deferral Period (as defined below) or (ii) upon or after the occurrence of any event that will or may occur later than the end of the Short-Term Deferral Period.
 
Subject to U.S. Treasury Regulations promulgated pursuant to Section 409A (“Section 409A Regulations”) or other applicable guidance, the term “Short-Term Deferral Period” means the period ending on the later of (i) the 15th day of the third month following the end of the Company’s fiscal year in which the applicable portion of the Award is no longer subject to a substantial risk of forfeiture or (ii) the 15th day of the third month following the end of the Participant’s taxable year in which the applicable portion of the Award is no longer subject to a substantial risk of forfeiture. For this purpose, the term “substantial risk of forfeiture” shall have the meaning set forth in Section 409A Regulations or other applicable guidance.
 
16.2           Deferral and/or Distribution Elections. Except as otherwise permitted or required by Section 409A or Section 409A Regulations or other applicable guidance, the following rules shall apply to any deferral and/or distribution elections (each, an “Election”) that may be permitted or required by the Committee pursuant to an Award subject to Section 409A:
 
(a)            All Elections must be in writing and specify the amount (or an objective, nondiscretionary formula determining the amount) of the distribution in settlement of an Award being deferred, as well as the time and form of distribution as permitted by this Plan.
 
(b)            All Elections shall be made by the end of the Participant’s taxable year prior to the year in which services commence for which an Award may be granted to such Participant; provided, however, that if the Award qualifies as “performance-based compensation” for purposes of Section 409A (and is based on a performance period of at least 12 consecutive months), then the Election may be made no later than six (6) months prior to the end of the performance period, provided that the Participant’s service is continuous from the later of the beginning of the performance period or the date on which the performance goals are established through the date such election is made and provided further that no election may be made after the compensation has become readily ascertainable (as provided by Section 409A Regulations).
 
(c)            Elections shall continue in effect until a written election to revoke or change such Election is received by the Company, except that a written election to revoke or change such Election must be made prior to the last day for making an Election determined in accordance with paragraph (b) above or as permitted by Section 16.3.  
 
16.3           Subsequent Elections. Except as otherwise permitted or required by Section 409A Regulations or other applicable guidance, any Award subject to Section 409A which permits a subsequent Election to delay the distribution or change the form of distribution in settlement of such Award shall comply with the following requirements:
 
(a)            No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent Election is made;
 
 
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(b)            Each subsequent Election related to a distribution in settlement of an Award not described in Section 16.4(b), 16.4(c) or 16.4(f) must result in a delay of the distribution for a period of not less than five (5) years from the date such distribution would otherwise have been made; and
 
(c)            No subsequent Election related to a distribution pursuant to Section 16.4(d) shall be made less than twelve (12) months prior to the date of the first scheduled payment under such distribution.
 
16.4           Distributions Pursuant to Deferral Elections. Except as otherwise permitted or required by Section 409A Regulations or other applicable guidance, no distribution in settlement of an Award subject to Section 409A may commence earlier than:
 
(a)            The Participant’s separation from service (as defined by Section 409A Regulations);
 
(b)            The date the Participant becomes Disabled (as defined below);
 
(c)            The Participant’s death;
 
(d)            A specified time (or pursuant to a fixed schedule) that is either (i) specified by the Committee upon the grant of an Award and set forth in the Award Agreement evidencing such Award or (ii) specified by the Participant in an Election complying with the requirements of Section 16.2 and/or 16.3, as applicable;
 
(e)            A change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company (as defined by Section 409A Regulations); or
 
(f)            The occurrence of an Unforeseeable Emergency (as defined by Section 409A Regulations).
 
Notwithstanding anything else herein to the contrary, to the extent that a Participant is a “Specified Employee” (as defined by Section 409A Regulations) of the Company, no distribution pursuant to Section 16.4(a) in settlement of an Award subject to Section 409A may be made before the date (the “Delayed Payment Date”) which is six (6) months after such Participant’s date of separation from service, or, if earlier, the date of the Participant’s death. All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date shall be accumulated and paid on the Delayed Payment Date.  
 
16.5           Unforeseeable Emergency. The Committee shall have the authority to provide in any Award subject to Section 409A for distribution in settlement of all or a portion of such Award in the event that a Participant establishes, to the satisfaction of the Committee, the occurrence of an Unforeseeable Emergency. In such event, the amount(s) distributed with respect to such Unforeseeable Emergency cannot exceed the amounts reasonably necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes or penalties reasonably anticipated as a result of such distribution(s), after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or by cessation of deferrals under the Plan. All distributions with respect to an Unforeseeable Emergency shall be made in a lump sum within 90 days of the occurrence of Unforeseeable Emergency and following the Committee’s determination that an Unforeseeable Emergency has occurred.
 
The occurrence of an Unforeseeable Emergency shall be judged and determined by the Committee. The Committee’s decision with respect to whether an Unforeseeable Emergency has occurred and the manner in which, if at all, the distribution in settlement of an Award shall be altered or modified, shall be final, conclusive, and not subject to approval or appeal.
 
16.6           Disabled. The Committee shall have the authority to provide in any Award subject to Section 409A for distribution in settlement of such Award in the event that the Participant becomes Disabled. A Participant shall be considered “Disabled” if either:
 
(a)            the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or
 
(b)            the Participant is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer.
 
All distributions payable by reason of a Participant becoming Disabled shall be paid in a lump sum or in periodic installments as established by the Participant’s Election, commencing within 90 days following the date the Participant becomes Disabled. If the Participant has made no Election with respect to distributions upon becoming Disabled, all such distributions shall be paid in a lump sum within 90 days following the date the Participant becomes Disabled.
 
 
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16.7           Death. If a Participant dies before complete distribution of amounts payable upon settlement of an Award subject to Section 409A, such undistributed amounts shall be distributed to his or her beneficiary under the distribution method for death established by the Participant’s Election, or, if the Participant has made no Election with respect to distributions upon death, in a lump sum, within 90 days following the Participant’s death and following receipt by the Committee of satisfactory notice and confirmation of the Participant’s death.  
 
16.8           No Acceleration of Distributions. Notwithstanding anything to the contrary herein, this Plan does not permit the acceleration of the time or schedule of any distribution under this Plan pursuant to any Award subject to Section 409A, except as provided by Section 409A and Section 409A Regulations.
 
17.           Amendment or Termination of Plan.
 
The Committee may amend, suspend or terminate the Plan at any time. However, without the approval of the Company’s stockholders, there shall be no amendment of the Plan that would require approval of the Company’s stockholders under any applicable law, regulation or rule, including the rules of any stock exchange or market system upon which the Stock may then be listed. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may adversely affect any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, the Committee may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A of the Code and all applicable guidance promulgated thereunder.
 
18.           Miscellaneous Provisions.
 
18.1           Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
 
18.2           Forfeiture Events.
 
(a)            The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of Service for Cause or any act by a Participant, whether before or after termination of Service, that would constitute Cause for termination of Service.
 
(b)            If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any Participant who knowingly or through gross negligence engaged in the misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, shall reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the twelve- (12-) month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement.
 
(c)           All outstanding Awards and shares of Stock issued pursuant to an Award held by a Participant will be forfeited in their entirety (including as to any portion of an Award or shares of Stock subject thereto that are vested or as to which any repurchase or resale rights or forfeiture restrictions in favor of the Company or its designee with respect to such Shares have previously lapsed) if the Participant, without the consent of the Company, while employed or in service, as the case may be, or within twelve (12) months after termination of employment or service, establishes an employment or similar relationship with a competitor of a Participating Company or engages in any similar activity (including passive investment, but excluding ownership of 1% or less of the shares of a competitor) that is in conflict with or adverse to the interests of a Participating Company, as determined by the Committee in its sole discretion; provided, that if a Participant has sold shares of Stock issued upon exercise or settlement of an Award within six (6) months prior to the date on which the Participant would otherwise have been required to forfeit such shares of Stock or the Award under this subsection as a result of the Participant’s competitive or similar acts, then the Company will be entitled to recover any and all profits realized by the Participant in connection with such sale.
 
 
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(d)             All outstanding Awards and shares of Stock issued pursuant to an Award held by a Participant will be forfeited in their entirety (including as to any portion of an Award or shares of Stock subject thereto that are vested or as to which any repurchase or resale rights or forfeiture restrictions in favor of the Company or its designee with respect to such Shares have previously lapsed) if the Participant, without the consent of the Company, while employed or in service, as the case may be, or within twelve (12) months after termination of employment or service, solicits any employee, client, or vendor to engage in employment or similar relationship with a competitor of a Participating Company or to engage in any similar activity (including passive investment) that is in conflict with or adverse to the interests of a Participating Company, as determined by the Committee in its sole discretion; provided, that if a Participant has sold shares of Stock issued upon exercise or settlement of an Award within six (6) months prior to the date on which the Participant would otherwise have been required to forfeit such shares of Stock or the Award under this subsection as a result of the Participant’s acts, then the Company will be entitled to recover any and all profits realized by the Participant in connection with such sale.
 
18.3           Provision of Information. Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common stockholders.
 
18.4           Rights as Employee, Consultant or Director. No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time. To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.
 
18.5           Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.3 or another provision of the Plan.
 
18.6           Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall deliver such shares to or for the benefit of the Participant by means of one or more of the following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of Stock for the benefit of the Participant with any broker with which the Participant has an account relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
 
18.7           Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
 
18.8           Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or cash paid pursuant to such Awards shall be included as “compensation” for purposes of computing the benefits payable to any Participant under any Participating Company’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing such benefits.  
 
18.9           Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
 
18.10           No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s or another Participating Company’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or another Participating Company to take any action which such entity deems to be necessary or appropriate.
 
18.11           Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.
 
 
18

 
 
18.12           Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of Delaware, without regard to its conflict of law rules.
 
18.13           Nontransferability of Awards.  Unless otherwise determined by the Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Participant, only by the Participant or the Participant’s guardian or legal representative.
 
19.           Compliance with Section 162(m).
 
The Company intends that the Awards granted to Covered Employees shall satisfy the requirements of the Performance-Based Exception, unless otherwise determined by the Committee when the Award is granted.  Accordingly, the terms of this Plan, including the definition of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Section 162(m) of the Code and regulations thereunder.  Notwithstanding the foregoing, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee as likely to be a Covered Employee with respect to a fiscal year.  If any provision of the Plan or any Award Agreement designated as intended to satisfy the Performance-Based Exception does not comply or is inconsistent with the requirements of Section 162(m) of the Code or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer upon the Committee or any other person sole discretion to increase the amount of compensation otherwise payable in connection with such Award upon attainment of the applicable performance objectives.  Payment of any amount that the Company reasonably determines would not be deductible by reason of Section 162(m) of the Code shall be deferred until the earlier of the earliest date on which the Company reasonably determines that the deductibility of the payment will not be so limited, or the year following the termination of employment.
 
19.1           Performance Measures.  The performance goals upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
 
(a)           Financial Goals.
 
(i)             Revenues
 
(ii)            EBITDA
 
(iii)           Net Income
 
(iv)           Earnings per share
 
(v)            Debt level
 
(vi)           Cost reduction targets
 
(vii)          Cash flow from operations
 
(viii)          Equity ratios
 
(ix)            Interest generated on cash
 
(x)             Weighted average cost of capital
 
(xi)            Return on assets
 
(xii)           Return on investment
 
(xiii)          Capital raised from sales of equity
 
(xiv)          Bank loan lines
 
   
 
 
19

 
 
(xv)          Capital raised from sales of debt
 
(xvi)         Expenses
 
(xvii)        Working capital
 
(xviii)       Operating or profit margin
 
(xix)          Return on equity or capital employed
 
(xx)           Booking and billing
 
(b)           Corporate and Other Goals.
 
(i)             Total stockholder return
 
(ii)            Goals related to acquisitions
 
(iii)           Investments
 
(iv)           Satisfactory internal or external audits
 
(v)            Achievement of balance sheet or income statement objectives
 
(vi)           Market share
 
(vii)          Assets
 
(viii)         Asset sale targets
 
(ix)            Number of new customers
 
(x)             Increase in customer size
 
(xi)             Employee retention/attrition rates
 
(xii)            Improvement of financial ratings
 
(xiii)           Charge-offs
 
(xiv)           Fair Market Value of Stock
 
(xv)            Regulatory compliance
 
(xvi)           Major exchange listing
 
(c)           Operating Goals.
 
 (i)            Operating efficiency
 
(ii)            Ability of MIS to meet agreed targets
 
(iii)           Objective customer satisfaction measures
 
(iv)           Limit on mistakes in SCM
 
Any Performance Measure(s) may be used to measure the performance of the Company, any Subsidiary Corporation, or an Affiliate as a whole or any business unit of the Company, any Subsidiary Corporation, or an Affiliate or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate.  The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Section.
 
Notwithstanding the foregoing, for each Award designed to qualify for the Performance-Based Exception, the Committee shall establish and set forth in the Award the applicable performance goals for that Award no later than the latest date that the Committee may establish such goals without jeopardizing the ability of the Award to qualify for the Performance-Based Exception and the Committee shall be satisfied that the attainment of such Performance Measure(s) shall represent value to the Company in an amount not less than the par value of any related Performance Shares.
 
19.2           Evaluation of Performance.  Subject to Section 19.3, the Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs and other asset revaluations, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year, (f) acquisitions or divestitures, (g) foreign exchange gains and losses, and (h) changes in material liability estimates.  To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility.
 
 
20

 
 
19.3           Adjustment of Performance-Based Compensation.  The degree of payout and/or vesting of Awards designed to qualify for the Performance-Based Exception shall be determined based upon the written certification of the Committee as to the extent to which the performance goals and any other material terms and conditions precedent to such payment and/or vesting have been satisfied.  The Committee shall have the sole discretion to adjust the determinations of the value and degree of attainment of the pre-established performance goals; provided, however, that the performance goals applicable to Awards which are designed to qualify for the Performance-Based Exception, and which are held by Covered Employees, may not be adjusted so as to increase the payment under the Award (the Committee shall retain the sole discretion to adjust such performance goals upward, or to otherwise reduce the amount of the payment and/or vesting of the Award relative to the pre-established performance goals).
 
19.4           Committee Discretion.  In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval.  In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code and base vesting on Performance Measures other than those set forth in Section 19.1.
 
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EX-10.4 7 exh10_4.htm EXHIBIT 10.4 exh10_4.htm
 


 
Exhibit 10.4
 
PROMISSORY NOTE
 
$78,820.28 Made as of February 9, 2010
 
For value received, Avanyx Therapeutics, Inc., (the “Company”) a Delaware corporation having a principal place of business located at 12 Appleton Circle, Newton, MA 02459, hereby promises to pay David Platt, an individual residing at 12 Appleton Circle, Newton, MA 02459 (the “Holder”), the original principal sum of Seventy Eight Thousand Eight Hundred Twenty Dollars and Twenty Eight Cents ($78,820.28) (the “Principal Amount”), together with interest accruing daily and compounding annually on the unpaid principal balance commencing on the date hereof or on the date of any earlier advance, as the case may be, at a rate equal to six and one half percent (6.5%) per annum until the Principal Amount and all interest accrued thereon and all other amounts owed under this Promissory Note (this “Note”) are paid.  The unpaid Principal Amount, together with any then unpaid accrued interest and all other amounts owed hereunder, shall be due and payable upon the earliest to occur of March 31, 2011 or an Event of Default (as defined in Section 1 hereof).  Any amounts due and payable hereunder shall be sent by wire transfer in accordance with any instructions included and delivered to the Company or by check sent by mail to the address of the Holder as designated by the Holder to the Company in lawful money of the United States of America.
 
This note reflects loans from Holder to the Company in the amounts of $20,000 on August 24, 2009, $28,820.28 on October 1, 2009 and $30,000 on February 9, 2010.
 
1. Events of Default.  The outstanding balance of this Note shall be immediately due, without notice or demand by the Holder, in case of any of the following events (each, an “Event of Default”): (a) the filing by or against the Company of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law or similar law of any jurisdiction) which petition shall have remained undismissed for a period of more than 90 days;(b) the suspension or discontinuance of the business or operations of the Company; or (c) the making by the Company of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, all or substantially all of the property of the Company.
 
2. Prepayment.  This Note may be repaid without penalty at any time.
 
3. Waivers.  The Company and all endorsers of this Note hereby waive notice, presentment, protest and notice of dishonor.
 
4. Attorneys’ Fees.  In the event any party is required to engage the services of any attorneys for the purpose of enforcing this Note, or any provision thereof, the prevailing party shall be entitled to recover its reasonable expenses and costs in enforcing this Note, including reasonable attorneys’ fees.
 
5. Transfer.  This Note and any rights hereunder may not be assigned, conveyed or transferred, in whole or in part, by the Holder without the prior written approval of the Company, said approval not to be unreasonably withheld.  The rights and obligations of the Company and the Holder under this Note shall be binding upon and benefit their respective permitted successors, assigns, heirs, administrators and transferees.
 
 
 

 
 
6. Governing Law.  This Note shall be governed by and construed under the internal laws of The Commonwealth of Massachusetts as applied to agreements among Massachusetts residents entered into and to be performed entirely within The Commonwealth of Massachusetts, without reference to principles of conflict of laws or choice of laws.
 
7. Headings.  The headings and captions used in this Note are used only for convenience and are not to be considered in construing or interpreting this Note. All references in this Note to sections and exhibits shall, unless otherwise provided, refer to sections hereof and exhibits attached hereto, all of which exhibits are incorporated herein by this reference.
 
8. Notices. Unless otherwise provided, any notice required or permitted under this Note shall be given in writing and shall be deemed effectively given (i) at the time of personal delivery, if delivery is in person; (ii) one (1) business day after deposit with an overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iii) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries when addressed to the party to be notified at the address indicated for the Holder party written above or, in the case of the Company, to the address first written above, or at such other address as the Company may designate by giving ten (10) days’ advance written notice to the Holder.
 
9. Amendments and Waivers. This Note and the other documents delivered pursuant hereto or thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.  Any term of this Note may be amended and the observance of any term may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder.
 
10. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.
 
11. Counterparts.  This Note may be executed in one or more counterparts, which collectively shall constitute one and the same instrument.
 
 
 

 
 
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name as of the date first above written.
 
AVANYX THERAPEUTICS, INC.
 
By:/s/David Platt                                                                                              
 
Name:  David Platt
Title: President
 
 


EX-10.5 8 exh10_5.htm EXHIBIT 10.5 exh10_5.htm
 


Exhibit 10.5
 
AGREEMENT AND PLAN OF MERGER
 
THIS AGREEMENT AND PLAN OF MERGER (the “Agreement”) is made as of November 10, 2010, by and among Avanyx Therapeutics, Inc., a Delaware corporation (“Purchaser” or “Surviving Corporation”), Boston Therapeutics, a New Hampshire corporation (the “Company”), and Ken Tassey (the “Management Shareholder”).
 
RECITALS
 
A.           The Company is in the business of developing, manufacturing and selling, among other things, dietary supplements including its initial product, SugarDown™, a complex carbohydrate based dietary supplement based upon the Company’s proprietary processes and technology (the “Business”).
 
B.           Purchaser and the Company desire to merge (the “Merger”) the Company with and into the Purchaser, with the Purchaser being the surviving corporation (the “Surviving Corporation”) of the Merger.
 
C.           Pursuant to the Merger, each outstanding share of capital stock of the Company, without par value per share, shall be converted solely into the right to receive shares of the common stock of the Purchaser upon the terms and subject to the conditions set forth herein.
 
D.           For Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Code (as such term is defined in Section 1.5 below); and the parties intend by executing this Agreement to adopt a plan of reorganization under said Section 368(a) of the Code.
 
 NOW, THEREFORE, the parties hereto hereby agree as follows:
 
AGREEMENT
 
 
ARTICLE 1
MERGER
 
1.1 The Merger.  Subject to the terms and conditions of this Agreement and in accordance with the Delaware General Corporation Law (the “DGCL”) and the New Hampshire Business Corporation Act (the “NH Act”), at the Effective Time (as hereinafter defined), the Company will be merged with and into the Purchaser with the Purchaser being the Surviving Corporation of the Merger, and the separate corporate existence of the Company shall cease.
 
1.2 The Closing.  Subject to the terms and conditions of this Agreement, the consummation of the Merger and the other transactions contemplated hereby (the “Closing”) shall take place after satisfaction or waiver of all conditions to the Merger set forth in this Agreement, but, in any event, no later than five (5) business days after such satisfaction or waiver (unless otherwise agreed by in writing by the parties), at the offices of Seyfarth Shaw, LLP, or such other place and time as the parties may otherwise agree, and the date of the Closing is referred to herein as the “Closing Date.”
 
 
 

 
 
1.3 Filing of Merger Documents; Effective Time.  At the Closing, the parties shall cause the Merger to be consummated by filing a duly executed Certificate of Merger and duly executed Articles of Merger (collectively, the “Merger Documents”) with respect to the Merger with the Secretary of State of the State of Delaware and the Secretary of State of the State of New Hampshire, in such form as Purchaser reasonably determines is required by and in accordance with the relevant provisions of the DGCL and the NH Act.  The time upon which such filing becomes effective in accordance with the DGCL and the NH Act is referred to herein as the “Effective Time.”
 
1.4 Effect of Merger.  At the Effective Time, the effect of the Merger shall be as provided in the DGCL and the NH.  Without limiting the generality of the foregoing, at the Effective Time:
 
(a) All property, rights, privileges, policies and franchises of the Company shall vest in the Purchaser and all debts, liabilities and duties of the Company shall become the debts, liabilities and duties of the Surviving Corporation.
 
(b) The Articles of Organization and the Bylaws of the Purchaser, as in effect immediately prior to the Closing Date, shall be amended to reflect the change of Purchaser’s name from “Avanyx Therapeutics, Inc.” to “Boston Therapeutics, Inc.” and otherwise shall be unchanged and shall remain the Articles of Organization and Bylaws of the Surviving Corporation, unless and until amended in accordance with their terms and as provided by law.
 
(c) The directors of the Corporation, with such additions as the Purchaser and Company have agreed, shall continue to be or shall become the directors of the Corporation,  each to hold a directorship in accordance with the Articles of Organization and Bylaws of the Corporation until his successor is duly elected and qualified, and the officers of the Corporation shall continue to be officers of the Corporation.
 
1.5 Tax and Accounting Treatment.  The parties hereto acknowledge and agree that the Merger contemplated hereby shall be treated for accounting purposes as a purchase transaction.  For Federal income tax purposes, the Merger is intended to constitute a  reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and this Agreement shall constitute a “plan of reorganization” within the meaning of Section 368(a) of the Code.
 
 
 

 
 
ARTICLE 2
CONVERSION OF STOCK
 
2.1 Consideration; Conversion of Stock.
 
2.1.1 The aggregate consideration payable by Purchaser in connection with the merger (the “Consideration”) shall consist of 4,000,000 unregistered shares of Purchaser’s common stock, par value $0.001 per share (“Purchaser Common Stock”).
 
2.1.2 At the Effective Time, by virtue of the Merger, and without further action by any person or entity, all of the shares of Company Stock (as hereinafter defined) issued and outstanding immediately prior to the Effective Time shall automatically be converted into and become the right to receive Purchaser Common Stock. All shares of Company Stock held by the Company as treasury stock shall be canceled and no payment shall be made with respect thereto.
 
2.1.3  The Purchaser Common Stock shall be payable at the Closing by the delivery by Purchaser to the Company Shareholders of certificates representing the 4,000,000 shares of Purchaser common stock, such shares of Purchaser Common Stock to be allocated among the Company Shareholders as follows:
 
Ken Tassey   3,200,000 shares
 
David Platt:      400,000
 
Eliezer Zomer   400,000
 
2.2 Payment of Consideration.  On the Closing Date:
 
2.2.1 The Company shall cause each Company Shareholder to deliver to Purchaser original certificates representing the number of shares of Company Stock held by such Shareholder, which certificates shall be duly endorsed to Purchaser or in blank, pursuant to stock powers in form acceptable to Purchaser.
 
2.2.2 Subject to the performance by the Company of its obligations pursuant to Section 2.2.1, Purchaser shall deliver the Purchaser Common Stock allocated to the Company Shareholders in accordance with Section 2.1.3 and above.
 
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE MANAGEMENT SHAREHOLDER
 
The Company and the Management Shareholder, jointly and severally, represent and warrant to Purchaser that the following facts and circumstances are true and correct, as of the date of this Agreement, subject to the limitations and exceptions set forth, by reference to the applicable section of this Article 3, on Schedule 3 attached hereto (the “Company Disclosure Schedule”).  Whenever the term “to the Company’s knowledge” or similar expression appears in any representation or warranty in this Article 3, it means to the actual knowledge of the Company’s directors, officers and employees and the Management Shareholder, after reasonable inquiry and investigation.  Whenever the term “the Company has received no notice” or like expression appears in any representation or warranty in this Article 3, it means that none of the Company’s directors, officers or employees, or the Management Shareholder have received actual oral or written notice of the matter to which such term is applied, after having made reasonable inquiry as to whether notice has been received.
 
 
 

 
 
3.1 Organization.  The Company: (i) is a corporation duly organized, validly existing and in corporate good standing under the laws of the State of New Hampshire; (ii) has all necessary corporate power to own and lease its properties, to carry on its business as now being conducted and to enter into and perform this Agreement and all of the other documents and agreements contemplated hereby; and (iii) is qualified to do business in all jurisdictions in which the failure to so qualify would have a material adverse effect on the business, operations or financial condition of the Company.  The Company Disclosure Schedule, the Company has no Subsidiaries (as hereinafter defined) and holds no right, title or interest in or to any other corporation, company, partnership, trust, limited liability company or other entity.
 
3.2 Authority and Consents.  The execution and performance of this Agreement and the other documents to be executed by the Company pursuant to the terms hereof will not result in a violation of the Company’s Articles of Incorporation or Bylaws.  The Company has full power and authority (corporate and otherwise) to enter into this Agreement and the other documents to be executed by the Company pursuant to the terms hereof and to carry out the transactions contemplated by this Agreement and such other documents.  This Agreement and the other documents to be executed by the Company pursuant to the terms hereof delivery to Purchaser have been duly authorized by the Board of Directors of the Company, and no further corporate action prior to the Closing shall be necessary on the part of the Company (other than obtaining the consent of the Company Shareholders) to effect the Merger or to make this Agreement and the other documents to be executed by the Company pursuant to the terms hereof and the transactions contemplated by this Agreement and such other documents valid and binding upon the Company. No shareholder of the Company has or will have any dissenters’, appraisal or similar rights in connection with the transactions contemplated hereby or the change in control of the Company at the Effective Time.  Upon the filing of the Merger Documents with the Secretaries of State for the State of Delaware and the State of New Hampshire, the Merger shall be immediately and automatically effective without further action by any person or entity.  This Agreement and the other documents to be executed by the Company pursuant to the terms hereof do and will constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their respective terms, subject as to enforcement only: (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors’ rights generally; and (ii) to general principles of equity.
 
The Company has delivered to Purchaser true, complete and correct copies of (i) its Articles of Incorporation, as amended to date, (ii) its Bylaws, as amended to date, and (iii) its stock ledger, in each case, certified by an officer of the Company.  The Articles of Incorporation and Bylaws of the Company are in full force and effect and the Company is in full compliance with the provisions thereof.
 
 
 

 
 
3.3 Capitalization and Title to Shares.
 
3.3.1           The Company is authorized to issue 5,000,000 shares of Company Common Stock, without par value, of which 5,000,000 shares are issued and outstanding.  Such shares are owned of record as follows: Ken Tassey, 4,000,000 shares; David Platt, 500,000 shares; and Eliezer Zomer, 500,000 shares. No other class of capital stock of the Company is authorized or outstanding.  The Company Shareholders are the sole shareholders of the Company.  All of the issued and outstanding shares of the Company’s capital stock are duly authorized and are validly issued, fully paid, nonassessable and free of pre-emptive rights.  None of the issued and outstanding shares of the Company have been issued in violation of any federal or state law or any preemptive rights or rights to subscribe for or purchase securities.
 
3.3.2           Except as set forth on Schedule 3.3 hereto, the Company has no outstanding rights, subscriptions, warrants, convertible debt instruments, calls, preemptive rights, options or other agreements of any kind to purchase or otherwise receive from the Company any shares of the capital stock or any other security of the Company, and or any outstanding securities of any kind convertible into or exchangeable for such securities; and more specifically, there are no issued and outstanding options for the purchase of Company capital stock.  There are no shareholder agreements, voting trusts, proxies or other agreements or understandings with respect to the outstanding shares of capital stock of the Company to which the Company or any Company Shareholder is a party.
 
3.4 Title to Assets.  The Company has good and marketable title to all of its tangible assets and properties (collectively, the “Assets”), all of which are listed on Section 3.4 of the Company Disclosure Schedule, and all such Assets and properties are free and clear of all liens, charges, security interests, encumbrances, security interests and rights and interests in others (collectively, “Liens”), other than Permitted Liens (as hereinafter defined).  The Company does not own any real property and does not have any options or contractual obligations to purchase or acquire any interest in real property.  The Company has a valid, binding and enforceable leasehold estate and interest, free and clear of all Liens (other than the interest of the landlord therein) in and to the property located at 33 South Commercial Street, Manchester, NH  (the “Property”) pursuant to an agreement dated _____________ between Amosekag Business Incubator, as landlord, and the Company as tenant.
 
3.5 Properties.  The Business has, at all times, been owned and operated by the Company.  The tangible Assets are in good working order and in a state of reasonable maintenance and repair.  To the Company’s knowledge, the Business as conducted on the Closing does not violate any covenant or restriction affecting the Property.  There are no pending or, to the Company’s knowledge, threatened, developments affecting or threatening the Company or the Business which materially interfere or could reasonably be expected in the future to materially interfere with a continuation of the existing use of the Property.  The Assets and Company Intellectual Property (as hereinafter defined) include all rights, properties and other assets necessary to permit the conduct of the business of the Company in the same manner and to the same extent as it is conducted on, and has been conducted prior to, the date of this Agreement, and as currently proposed to be conducted.
 
3.6 No Required Consents and Approvals.  Except for the filing of the Merger Documents and the shareholder approval contemplated by Section 5.2, no consent, approval or authorization of, or declaration, filing, notice or registration with, any governmental agency, regulatory authority or other Person is required in connection with the execution, delivery and performance of this Agreement or any of the other documents contemplated hereby by the Company or the consummation of the transactions contemplated herein and therein.
 
 
 

 
 
3.7 Accounts Receivable.  The Company does not have any accounts receivable.
 
3.8 Inventory.  The inventory of the Company is and at the Effective Time will be in good and merchantable condition and saleable or useable in the manufacture of saleable finished goods in the ordinary course of business.
 
3.9 Contracts and Other Agreements.  Section 3.9 of the Company Disclosure Schedule sets forth a list of all contracts and other agreements to which the Company is a party or by or to which the Company or the Company’s assets or properties are bound or subject.  True and complete copies of all the contracts and other agreements (and all amendments, waivers or other modifications thereto) set forth on Section 3.9 of the Company Disclosure Schedule have been furnished to Purchaser.  Each of such contracts is valid, subsisting, in full force and effect, binding upon the Company, and, to the knowledge of the Company, binding upon the other parties thereto in accordance with their terms, and the Company is not in default under any of them, nor, to the knowledge of the Company, is any other party to any such contract or other agreement in default thereunder, nor does any condition exist that with notice or lapse of time or both, would constitute a default thereunder, except, in each case, such defaults as would not, individually or in the aggregate, have a material adverse effect on the Business or the Company.
 
3.10 Compliance with Laws.
 
3.10.1 The Company has all licenses, permits, authorizations, franchises, orders or approvals of any federal, state, local or foreign governmental or regulatory body required for the conduct of the business of the Company as the same is currently conducted and currently anticipated to be conducted (collectively, “Permits”); such Permits are in full force and effect; and no proceeding is pending or, to the knowledge of the Company, threatened to revoke or limit any Permit.  True and complete copies of all Permits have been delivered to Purchaser.
 
3.10.2 The Company is not in violation of any applicable law, rule, ordinance or regulation or any order, judgment, injunction, decree or other requirement of any court, arbitrator or governmental or regulatory body, the violation of which would have a material adverse effect on the business of the Company.  The Company has not received notice of, and there has not been any citation, fine or penalty imposed against the Company for, any such violation or alleged violation.
 
 
 

 
 
3.11 Bank Accounts and Powers of Attorney.  Section 3.11 of the Company Disclosure Schedule identifies all bank and brokerage accounts of the Company, whether or not such accounts are held in the name of the Company, lists the respective signatories therefor and lists the names of all persons holding a power of attorney from the Company and a summary of the terms thereof.
 
3.12 Agreement Will Not Cause Breach or Violation.  Neither the execution nor delivery of this Agreement or the other documents contemplated hereby by the Company, nor performance by the Company of the terms and provisions of this Agreement or such other documents, nor the change in control of the Company effected at the Closing will (a) conflict with or result in a breach or violation of any of the terms, conditions or provisions of: the Company’s Articles of Organization or Bylaws; any Permit, any statute, law, regulation, ordinance or rule or any governmental authority having jurisdiction over the Company or its assets; or any judgment, order, injunction, decree or ruling of any court, tribunal, administrative body or arbitration having jurisdiction over the Company or its assets; or any agreement, contract, or commitment to which the Company is a party or by which it or its assets are bound, or (b) give any Person the right to terminate or modify any agreement or contract to which the Company is a party or by which it or its assets are bound, or accelerate any obligation or indebtedness of the Company thereunder.
 
3.13 Financial Statements.  The Company has delivered to Purchaser the unaudited balance sheets of the Company as at December 31, 2009 and September 30, 2010, together with unaudited statements of income, and cash flows for the year ended December 31, 2009 and September 30, 2010 (all such balance sheets and financial statements, collectively, the “Financial Statements”).  The Financial Statements were prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied in accordance with past practices, and are true, complete and accurate in all material respects and present fairly the financial position and results of operations of the Company as at such dates and for the periods the ended.
 
3.14 No Undisclosed Liabilities.  The Company has no liabilities or obligations of any nature except (a) liabilities which are fully reflected or reserved against on the Balance Sheet dated September 30, 2010 (the “Current Balance Sheet”), (b) liabilities incurred in the ordinary course of operation of the Business since the date of the Current Balance Sheet, and (c) liabilities or obligations accruing prior to the date of the Current Balance Sheet which, pursuant to GAAP consistently applied in accordance with past practices of the Business, are not required to be set forth in the Current Balance Sheet.
 
3.15 Customers.  Except as set  forth on Schedule 3.15, the Company has made no sales and has no customers.
 
3.16 Transactions with Management.  Except as set forth on Schedule 3.16, no officer, director, employee or Company Shareholder of the Company has (whether directly or indirectly through another entity in which such person has an interest, other than as the holder of less than 1% of a class of securities of a publicly traded company) any interest in (a) any property or assets of the Company (except as a shareholder) or (b) to the Company’s knowledge, any current competitor, customer or supplier of the Company or (c) to the Company’s knowledge, any person which is currently a party to any contract with the Company involving any amount in excess of $10,000.
 
 
 

 
 
3.17   Absence of Certain Changes.  Since the date of the Current Balance Sheet, there have been no material adverse changes in the condition, financial or otherwise, of any of the Assets or any of the liabilities, business, prospects or operations of the Company or the Business.
 
3.18 Intellectual Property.
 
3.18.1  Section 3.18.1 of the Company Disclosure Schedule lists all United States  and foreign (i) patent and patent applications, (ii) registered trademarks and trademark applications, (iii) registered copyrights and applications for copyright registration, (iv) mask work registrations and applications to register mask works, and (v) any other Intellectual Property that is the subject of an application to, or certificate or registration issued by, any state, government or other legal body or authority, in each case owned by the Company.  The registrations of the Company Intellectual Property listed on Section 3.18.1 of the Company Disclosure Schedule are valid and subsisting, all necessary registration and renewal fees in connection with such registrations have been filed with the relevant patent, copyright and trademark authorities, United States or foreign, for the purposes of maintaining such registrations.  The Company has complied with all applicable disclosure requirements and, to the Company’s knowledge, neither the Company nor any named inventor or assignee has committed any fraudulent act in the application for or maintenance of any patent, trademark or copyright of the Company.  For the purposes hereof, the term “Company Intellectual Property” shall mean all Intellectual Property owned, licensed or used or held for use by the Company or with respect to which the Company otherwise has rights or interests.  Without limitation of the foregoing, the Company Intellectual Property shall be deemed to further include any drawings, documentation, schematics, manuals or other materials, whether in written or magnetic form that describe, disclose or otherwise set forth any of the Company Intellectual Property.
 
3.18.2 The Company owns and has good and valid title to the Company Intellectual Property listed on Section 3.18.1 of the Company Disclosure Schedule, free and clear of any Liens.  The Company owns, or has the binding and enforceable right to use or operate under, to the full extent used in the Business as currently conducted and proposed to be conducted, all the Company Intellectual Property not listed on Section 3.18.1 of the Company Disclosure Schedule, free and clear of any Liens (other than solely as provided in any licenses relating to such the Company Intellectual Property).  No Company Intellectual Property or product and/or technology of the Company is subject to any outstanding decree, order, judgment, stipulation, license or agreement restricting in any material manner the use or licensing thereof by the Company.
 
3.18.3 To the knowledge of the Company and the Management Shareholder, the operation of the Business as it currently is conducted, including its design, development, manufacture, use and sale of its products and/or technology, including products and/or technology currently under development, and provision of services, does not infringe or misappropriate the Intellectual Property of any other Person.  To the knowledge of the Company and the Management Shareholder, no officer, director, employee or consultant of the Company is infringing or misappropriating the Intellectual Property of any other Person in the course of performing his or her duties for the Company.  Without limiting the first sentence of this Section 3.16.3, the Company has not received notice from any Person that the operation of the Business, including its design, development, manufacture and sale of its products and/or technology (including with respect to products and/or technology currently under development) and provision of services, infringes or misappropriates the Intellectual Property of any Person.
 
3.18.4 To the knowledge of the Company and the Management Shareholder, no Person is infringing or misappropriating any of the Company Intellectual Property.
 
3.18.5 Neither the consummation of the Merger nor the change in control of the Company effected thereby will limit, impair or otherwise affect, in any manner, any of the Company’s right, title or interest in or to any of the Company Intellectual Property.
 
3.18.6 The Company Intellectual Property includes all Intellectual Property necessary to conduct the Business as currently conducted and proposed to be conducted.
 
3.18.7 To the knowledge of the Company and the Management Shareholder, no employee of the Company is subject to any secrecy or noncompetition agreement or any agreement or restriction of any kind that would impede in any material way the ability of such employee to carry out fully all activities of such employee in furtherance of the business of the Company as currently operated, and anticipated to be operated, after the Closing Date.  To the Company’s knowledge, no third party has claimed that any person employed by or affiliated with the Company has violated or may be violating any of the terms or conditions of his past employment, noncompetition or nondisclosure agreement with such third party, or disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or interfered or may be interfering in the employment relationship between such third party and any of its present or former employees.  Each employee, officer and consultant of the Company has executed a proprietary information and inventions agreement in the form provided to Purchaser.  The Company has no knowledge that any of its employees are in violation of any such agreement.
 
3.19 Product Warranties and Returns.  The Company has not and will not make any claims or warranties or guarantees relating to its products that will be in effect as of the Closing Date.
 
3.20 Litigation.  None of the Company, or any officer or director of the Company, is a party to any pending or, to the knowledge of the Company or the Management Shareholder, threatened action, suit, arbitration, mediation, proceeding or investigation, at law or in equity or otherwise in, for or by any court or other governmental body or any arbitration, mediation or similar forum, which has had or reasonably could be expected to have a material adverse effect on the condition, financial or otherwise, of the any of the Company’s assets or the Business or which could prevent the transactions contemplated by this Agreement (collectively, “Litigation”); nor, to the knowledge of the Company or the Management Shareholder, does any basis exist for any such Litigation.  The Company is not subject to any decree, judgment, order, or, to the Company’s knowledge, any law or regulation of any court or other governmental body which has had or could reasonably be expected to have a material adverse effect on the condition, financial or otherwise, of any of the Company’s assets or the Business or which could prevent the transactions contemplated by this Agreement.
 
 
 

 
 
3.21 Personnel.
 
3.21.1  The Company is not a party to any contract or agreement with directors, officers, employees or consultants.  The Company has no union contracts or collective bargaining agreements with, or any other obligations to, employee organizations or groups, nor is the Company currently engaged in any labor negotiations, nor, to the knowledge of the Company, is the Company subject of any union organization.
 
3.21.2 The Company does not have any “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), or any other employee benefit, bonus or other incentive compensation, stock option, stock purchase, stock appreciation, severance pay, lay-off or reduction in force, change in control, sick pay, vacation pay, salary continuation, retainer, leave of absence, educational assistance, service award, employee discount, fringe benefit plans, arrangements, policies or practices, whether legally binding or not, to which the Company contributes to or has any obligation to or liability for.
 
3.21.3 The Company has never sponsored, maintained or contributed to, or been obligated to contribute to, a Defined Benefit Plan (within the meaning of ERISA) or  contributed to, or been obligated to contribute to, a Multiemployer Plan (within the meaning of ERISA).
 
3.22 Taxes.  All returns with respect to any Taxes (“Tax Returns”) required to be filed prior to the date hereof with respect to the Company and the Business have been timely filed or appropriate extensions have been obtained, each such Tax Return has been prepared in compliance in all material respects with all applicable laws and regulations, and all such Tax Returns are true and accurate in all material respects.  The Company is not delinquent in the payment of any income, sales, use or other taxes, assessments, levies, fees or charges imposed by any governmental authority (“Taxes”).  All Taxes due and payable by or with respect to the Company or the Business for the periods prior to the Closing Date have been or will be paid by the Company prior to the Closing.  With respect to each taxable period of the Company, (i) no deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority against the Company; (ii) the Company has no pending consent to extend the time in which any Taxes may be assessed or collected by any taxing authority; (iii) the Company has not requested or been granted an extension of the time for filing any Tax Return to a date later than the Closing; (iv) there is no action, suit, taxing authority proceeding, or audit or claim for refund now in progress, pending or, to the knowledge of the Company threatened against or with respect to Taxes; (v) there are no Liens for Taxes (other than for current taxes not yet due and payable) upon any of the Company’s assets; and (vi) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to the Company since the date of its organization in June 2009 have been furnished or made available to Purchaser.  The Company has not agreed to, nor is it required to, make any adjustments under Section 481(a) of the Code by reason of a change in accounting method or otherwise.
 
 
 

 
 
3.23 Insurance.  The Company has obtained and maintains in full force and effect all insurance policies and bonds with respect to the Company and the Business adequate for the Business as presently conducted and in accordance with good business practices.
 
3.24 Environmental Liability.  At all times the Company has complied with all applicable environmental and hazardous waste laws, orders, regulations, rules and ordinances adopted, imposed or promulgated by any governmental or regulatory entity having jurisdiction over any property owned, leased or occupied by the Company.  Neither the Company nor any portion of any property owned, leased or occupied by the Company is in violation of any federal, state or local law, ordinance or regulation relating to industrial hygiene, worker safety, environmental protection, hazardous materials or waste or toxic materials.  Prior to the date hereof, there has been no spill, release or discharge of any Hazardous Materials (as defined below) on, under or about any property owned, leased or occupied by the Company.  No current use of any property owned, leased or occupied by the Company constitutes a public or private nuisance.  All environmental licenses, permits, clearances, covenants and authorizations required for the Business have been obtained by the Company and are in full force and effect.  Any handling, generation, transportation, storage, disposition, treatment or use of Hazardous Material by the Company has been in compliance with all applicable statutes, laws, regulations and orders.  As used herein, the term “Hazardous Materials” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local government authority, the State of New Hampshire, any other state or the United States Government.  To the knowledge of the Company and the Management Shareholder, all property at any time owned, leased or occupied by the Company, including, without limitation, the soil and groundwater on or under such property, is free of Hazardous Materials.  No notification of release of Hazardous Materials pursuant to applicable law has been received by the Company as to any of such property.  No wastes generated by the Company have ever been sent directly or, to the Company’s knowledge, indirectly, to any site listed or formally proposed for listing federal or state list of hazardous substances sites requiring investigation or clean-up.  The Company has not received from any governmental authority or third party any requests for information, notices of claim, demand letters, or other notification that they or it are or is or may be potentially responsible with respect to any investigation or clean-up of Hazardous Materials.  The Company has no knowledge of any fact or circumstance that could involve the Company or Purchaser in any environmental litigation or proceeding or impose any environmental liability upon the Company or Purchaser.
 
3.25 Products.
 
3.25.1  With respect to the Company’s initial product, SugarDown™ at all times  the Company has been (a) in compliance in all material respects with all applicable federal, state, and local laws and regulations and (b) conforms in all material respects to any promises or affirmations of fact made on the container or label for such product or in connection with its contemplated sale.
 
 
 

 
 
3.25.2 There is no design defect materially adverse to the functionality of the Company’s products and, to the knowledge of the Company, such products contain adequate warnings, presented in a reasonably prominent manner, in accordance with applicable laws, rules and regulations and current industry practice with respect to their contents and use.
 
3.26 Representations Complete.  The representations and warranties of the Company and the Company Shareholders contained in this Article 3 do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make such representations and warranties, in light of the circumstances under which they were made, not misleading.  There is no fact known to the Company or the Company Shareholders that has not been disclosed to Purchaser in this Agreement that is reasonably likely to have a material adverse effect on the Company’s business, operations or financial condition.
 
ARTICLE 4
 
REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
Purchaser hereby represents and warrants to the Company and the Company Shareholders that the following facts and circumstances are true and correct:
 
4.1                  Authorization; Etc.  The Purchaser:  (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) has all necessary corporate power to own and lease its properties, to carry on its business as now being conducted and to enter into and perform this Agreement and all of the other documents and agreements contemplated hereby; and (iii) is qualified to do business in all jurisdictions in which the failure to so qualify would have a material adverse effect on the business, operations or financial condition of Purchaser.  Purchaser has full corporate power and authority to enter into this Agreement and the other documents contemplated hereby and to carry out the transactions contemplated hereby and thereby.  Purchaser has taken all required action by law to authorize the execution and delivery of this Agreement and the other documents contemplated hereby and the transactions contemplated hereby and thereby, and this Agreement and the other documents contemplated hereby is a valid and binding obligation of Purchaser, as applicable, enforceable against it in accordance with its terms, subject as to enforcement only: (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors’ rights generally; and (ii) to general principles of equity.
 
4.2 No Violation.  Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provisions of the Certificate of Incorporation or Bylaws of Purchaser or violate, or be in conflict with, or constitute a default under or cause the acceleration of the maturity of any debt or obligation pursuant to, any agreement or commitment to which Purchaser or Merger Subsidiary is a party or by which Purchaser or Merger Subsidiary is bound, or violate any statute or law or any judgment, decree, order, regulation, or rule of any court or governmental authority.
 
 
 

 
 
4.3 Capitalization.  As of the date of this Agreement, the authorized capital stock of Purchaser consisted of 100,000,000 shares of Purchaser Common Stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per share.  As of March 31, 2010 (a) 10,031,236 shares of Purchaser Common Stock were validly issued and outstanding, (b) no shares of Preferred Stock were issued or outstanding, (c) no shares of Purchaser Common Stock were subject to issuance pursuant to outstanding options to purchase shares of Purchaser Common Stock and (d)  5,000,000 shares of Purchaser Common Stock were reserved for future issuance pursuant to Purchaser’s 2010 Stock Compensation Plan.  (Stock options granted by Purchaser pursuant to Purchaser’s stock option plan are referred to in this Agreement as “Purchaser Options.”).  Except for the Purchaser Options and Purchaser’s 2010 Employee Stock Option Plan (and rights related thereto), as of the date of this Agreement, there is no:  (1) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of capital stock or other securities of Purchaser; or (2) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of capital stock or other securities of Purchaser.  All outstanding shares of Purchaser Common Stock and all outstanding Purchaser Options have been, and all shares of Purchaser Common Stock to be issued in connection with the transactions contemplated hereby will be, issued and granted in compliance with all applicable securities laws and other applicable legal requirements.
 
4.4 Financial Statements.  Purchaser has delivered to the Company the audited balance sheet of the Purchaser as at December 31, 2009, together with audited statements of income, and cash flows for the period ended December 31, 2009, and unaudited statements of income, and cash flows for the nine months ended September 30, 2010 (all such balance sheets and financial statements, collectively, the “Financial Statements”).  The Financial Statements were prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied and are true, complete and accurate in all material respects and present fairly the financial position and results of operations of the Purchaser as at such dates and for the periods then ended.
 
4.5 Valid Issuance.  The Purchaser Common Stock to be issued by Purchaser pursuant to this Agreement will, when issued in accordance with the provisions of this Agreement, be duly authorized, validly issued, fully paid and nonassessable.
 
4.6 Consents and Approvals of Government Authorities.  Except for the filing of the Merger Documents, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution, delivery and performance of this Agreement or the other documents contemplated hereby by Purchaser and the consummation of the transactions contemplated hereby or thereby.
 
4.7 Representations Complete.  The representations and warranties of Purchaser contained in this Article 4 do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make such representations and warranties, in light of the circumstances under which they were made, not misleading.
 
 
 

 
 
 
ARTICLE 5
 COVENANTS
 
5.1                  Company Performance.  The Management Shareholder shall use his best efforts to cause the Company to perform all of its obligations under this Agreement.
 
5.2                  Operational Covenants.

5.2.1 Access.  Until the Closing, the Company shall give Purchaser, its attorneys, accountants and other authorized representatives complete access to its offices, properties, customers, suppliers, employees, products, technology, business and financial records, contracts, business plans, budgets and projections, agreements, commitments and other documents and information concerning the Company and persons employed by or doing business with the Company.

5.2.2  Insurance.  Until the Closing, the Company shall maintain with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is customary for companies similarly situated.

5.2.3 Compliance with Laws.  Until the Closing, the Company shall conduct its business in compliance with all applicable laws, rules, regulations and orders.

5.2.4 Keeping of Books and Records.  Until the Closing, the Company shall keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions and in which all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

5.2.5 Actions Prior to Closing.  The Company shall conduct its business pending the Closing only in the ordinary and usual course of business consistent with past practice.  Without limiting the generality of the foregoing, the Company shall conduct its business in a manner such that on the Closing Date the Company will have no obligations or liabilities (fixed or contingent) except (a) those consistent with the representation and warranty made in Section 3.13 of this Agreement and (b) those incurred in the ordinary course of business consistent with past practice after the date of the Balance Sheet and prior to the Closing Date and reflected accurately in its books and records.

5.2.6 Notice of Changes.  Until the Closing, the Company shall notify Purchaser of any material change in the business of the Company as soon as it becomes apparent to the Company that any such change has or may occur.

5.2.7 Preservation of Business.  Until the Closing, the Company will use its best efforts to preserve its business organization intact, and to preserve its goodwill.  Without limiting the generality of the foregoing, the Company will timely perform all obligations required of the Company under the contracts and permits listed on the Schedules to this Agreement.
 
 
 

 

5.2.8 Litigation.  Until the Closing, the Company will promptly notify Purchaser of any lawsuits, claims, proceedings or investigations which are threatened or commenced against or by the Company, or against any employee, consultant or director of the Company.

5.2.9 Continued Effectiveness of Representations and Warranties
 
.  From the date hereof up to and including the Closing Date, (i) the Company will conduct its business in a manner such that the representations and warranties contained herein shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and (ii) the Company will advise Purchaser promptly in writing of any condition or circumstance occurring from the date hereof up to and including the Closing Date which could cause any representation or warranty of the Company to become untrue.  No such notice shall modify, limit or impair, in any manner, (a) any representation or warranty of the Company or the Management Shareholder made hereunder or in connection herewith, or (b) any rights or remedies of Purchaser with respect to any breach thereof.

5.3.           No NegotiationsUntil the termination of this Agreement in accordance with its terms, neither the Company, nor any of its shareholders, officers, directors, employees, affiliates, advisors, agents or investment bankers shall, directly or indirectly, initiate discussions with, engage in negotiations with, enter into any agreement with, or provide any information to, any corporation, partnership, person or other entity or group involving the possible sale, directly or indirectly, transfer or joint venture of the Company, its business or assets, or the capital stock of the Company to any person or entity other than Purchaser.  The Company shall immediately notify Purchaser of any solicitation or inquiry made by any third party with respect to any such sale.
 
ARTICLE 6
CONDITIONS TO CLOSING
 
6.1 Conditions to Purchaser’s Obligation to Close.  Purchaser’s obligations to consummate the transactions contemplated by this Agreement shall be subject to the full satisfaction of following conditions, each of which conditions may be waived in writing by Purchaser:
 
6.1.1 Instruments.  The Company and the Management Shareholder shall have executed and delivered to Purchaser the Merger Documents, and any and all other documents reasonably required by Purchaser to effect the transactions contemplated hereby.
 
6.1.2 Representations and Warranties True.  The representations and warranties of the Company and the Management Shareholder contained in this Agreement shall be true in all material respects at the Closing as though made at such time, provided that any such representations and warranties that are qualified by the term “material” or otherwise qualified as to materiality shall be true at the Closing in accordance with the terms thereof.
 
6.1.3 Performance of Covenants.  The Company and the Management Shareholder shall have performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing Date.
 
 
 

 
 
6.1.4 Shareholder Approval. The Merger shall have been approved by the shareholders of the Company as required by the NH Act.
 
6.1.5 Certificate. The Company shall have delivered to Purchaser a certificate executed by its chief executive officer certifying as to the Company’s satisfaction of the conditions set forth in Sections 6.1.2, 6.1.3 and 6.1.4 above and 6.1.6 below.
 
6.1.6 Consents.  All consents or approvals required for the consummation of the transactions contemplated hereby, including any required consents of the parties to any contract to which the Company is a party, shall have been obtained.
 
6.1.7 No Material Adverse Change.  There shall not have occurred any material adverse change between the date hereof and the Closing Date in the business, operations or financial condition of the Company.
 
6.1.8 No Actions, Suits or Proceedings. As of the Closing Date, no action, suit, investigation or proceeding brought by any person, corporation, governmental agency or other entity shall be pending or, to the knowledge of the parties to this Agreement, threatened, before any court or governmental body (i) to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order with respect to this Agreement or the consummation of the transactions contemplated hereby, or (ii) which has had or may have a materially adverse effect on the business, operations, finances or prospects of the Company.  No order, decree or judgment of any court or governmental body shall have been issued restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement.  No insolvency proceeding of any character including, without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting the Company or shareholder of the Company shall be pending, and neither the Company nor any shareholder of the Company shall have taken any action in contemplation of, or which would constitute the basis for, the institution of any such proceedings.
 
6.1.9 Good Standing Certificates. The Company shall have delivered to Purchaser certificates of good standing from the Secretaries of the State of New Hampshire and all other States in which the Company is qualified to do business dated no earlier than five (5) business days prior to the Closing Date.
 
6.2 Conditions to the Company’s Obligations at the Closing.  The Company’s obligations to consummate the transactions contemplated by this Agreement shall be subject to the following conditions, each of which conditions may be waived in writing by the Company:
 
6.2.1 Representations and Warranties True.  The representations and warranties of Purchaser contained in this Agreement shall be true in all material respects at the Closing as though made at such time, provided that any such representations and warranties that are qualified by the term “material” or otherwise qualified as to materiality shall be true at the Closing in accordance with the terms thereof.
 
 
 

 
 
6.2.2 Performance of Covenants. Purchaser shall have performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by them at or prior to the Closing Date.
 
6.2.3 Certificate.  Purchaser shall have delivered to the Company a certificate executed by an officer of Purchaser certifying as to Purchaser’s satisfaction of the conditions set forth in Sections 6.2.1 and 6.2.2.
 
6.2.4 Shareholder Approval. The Merger shall have been approved by the Shareholders as required by Section 79 of the Massachusetts Act.
 
6.2.5    Tax Free Reorganization.  The Company shall be reasonably satisfied that the Merger constitutes a tax-free reorganization under Section 368(A) of the Code.
 
 
ARTICLE 7
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
 
7.1 Survival.  The representations and warranties of the Company and the Management Shareholder contained in this Agreement or in any document, certificate or schedule or instrument contemplated hereby or delivered pursuant hereto, shall survive the Closing Date to until October 31, 2011 (the “Expiration Date”).  The representations and warranties of Purchaser  contained in this Agreement or in any document, certificate or instrument contemplated hereby or delivered pursuant hereto, shall survive the Closing Date until the Expiration Date.
 
7.2 The Company’s and Management Shareholder’s Indemnity.  The Company and the Management Shareholder shall, jointly and severally, indemnify, defend, protect and hold harmless Purchaser (and Purchaser’s Subsidiaries and Affiliates and their respective officers, directors, shareholders, employees and agents) from and against any and all losses, costs, expenses, liabilities, obligations, claims, demands, causes of action, suits, settlements and judgments of every nature, including the costs and expenses associated therewith and reasonable attorneys’, consultants’ and witness fees incurred in connection therewith (“Purchaser’s Damages”), which arise out of: (i) the breach of any representation or warranty made by the Company or the Management Shareholder under this Agreement or any document or certificate delivered by the Company or the Management Shareholder pursuant to this Agreement; or (ii) the non-performance, partial or total, of any covenant made by the Company or the Management Shareholder pursuant to this Agreement or any document or certificate delivered by the Company or the Shareholders pursuant to this Agreement.
 
7.3 Purchaser’s Indemnity. Purchaser shall indemnify, defend, protect and hold harmless the Company and its officers, directors, shareholders, employees and agents from and against any and all losses, costs, expenses, liabilities, obligations, claims, demands, causes of action, suits, settlements and judgments of every nature, including the costs and expenses associated therewith and reasonable attorneys’, consultants’ and witness fees incurred in connection therewith (“the Company’s Damages”; and when used together with or in the alternative to Purchaser’s Damages, “Damages”), which arise out of:  (i) the breach by Purchaser of any representation or warranty made by Purchaser pursuant to this Agreement or any document or certificate delivered by Purchaser pursuant to this Agreement; or (ii) the non-performance, partial or total, of any covenant made by Purchaser pursuant to this Agreement required to be performed prior to the Closing or any document or certificate delivered by Purchaser or  pursuant to this Agreement.
 
 
 

 
 
7.4 Indemnity Procedures.
 
7.4.1 In the event that at any time or from time to time after the Closing Date a person or entity entitled to indemnification pursuant to Section 7.2 or 7.3 (any such person or entity, an “Indemnitee”) shall sustain Damages against which such Indemnitee is indemnified under this Agreement, such Indemnitee shall notify the party required to provide such indemnification (such party, the “Indemnitor”) in writing of any such loss so sustained, and Indemnitor shall within thirty (30) days after transmittal of such notice pay to such Indemnitee the amount of such loss so sustained, subject to their right to contest any third-party claim which has not yet resulted in a loss, as hereinafter provided in Section 7.4.2
 
7.4.2 Promptly after receipt by an Indemnitee of written notice of a claim or the commencement of any proceeding against it, such Indemnitee shall, if a claim in respect thereof is to be made against an Indemnitor under Section 7.2 or 7.3, give written notice to the Indemnitor of the commencement thereof, but the failure so to notify the Indemnitor shall not relieve it of any liability that it may have to any Indemnitee, except to the extent the Indemnitor demonstrates that the defense of such action is or has been prejudiced thereby.  In case any such proceeding shall be brought against an Indemnitee and it shall give notice to the Indemnitor of the commencement thereof, the Indemnitor shall be entitled to participate therein and, to the extent that it shall wish (unless the Indemnitor is also a party to such proceeding and the Indemnitee determines in good faith that joint representation would be inappropriate) to assume the defense thereof with counsel which is reasonably satisfactory to such Indemnitee and, after notice from the Indemnitor to such Indemnitee of its election so to assume the defense thereof, the Indemnitor shall not be liable to such Indemnitee under such Section for any fees of such counsel or any other expenses with respect to the defense of such proceeding, in each case, subsequently incurred by such Indemnitee in connection with the defense thereof.  If an Indemnitor assumes the defense of such proceeding, (a) no compromise or settlement thereof may be effected by the Indemnitor without the Indemnitee’s reasonable consent unless (i) there is no finding or admission of any violation of law or any violation of the rights of any person or entity and no effect on any other claims that may be made against the Indemnitee, and (ii) the sole relief provided is monetary damages that are paid in full by the Indemnitor; and (b) the Indemnitor shall have no liability with respect to any compromise or settlement thereof effected without its consent (which shall not be unreasonably withheld).  If notice is given to an Indemnitor of the commencement of any proceeding and it does not, within fifteen (15) business days after the Indemnitee’s notice is given, give notice to the Indemnitee of its election to assume the defense thereof, the Indemnitor shall be bound by any determination made in such action or any compromise or settlement thereof effected by the Indemenitee; provided, however, that any such determination, compromise or settlement is made or taken in good faith, based upon the relevant facts and circumstances.  Notwithstanding the foregoing, if an Indemnitee determines in good faith that there is a reasonable probability that a proceeding may adversely affect it or its Affiliates, other than as a result of monetary damages, such Indemnitee may, by notice to the Indemnitor, assume the exclusive right to defend, compromise or settle such proceeding, but the Indemnitor shall not be bound by any determination of a proceeding so defended or any compromise or settlement thereof effected without its consent (which shall not be unreasonably withheld).
 
 
 

 
 
7.4.3 If any Indemnitor contests or challenges any claim or action asserted against an Indemnitee referred to in this Article, it shall do so at its own cost and expense, holding Indemnitee harmless from all costs, fees, expenses, debts, liabilities and charges in connection with such contest; shall diligently defend against any such claim; and shall hold Indemnitee’s business and assets free and harmless from any attachment, execution, judgment, lien or other legal process.
 
7.5 Exclusive Remedy.  Conditioned upon the occurrence of, and from and after, the Effective Time, the indemnification obligations under this Agreement shall be the exclusive and sole remedy available to the parties and in lieu of any other remedies or rights available to the parties, at law or in equity, with respect to any claims, disputes, conflicts, damages or otherwise arising out of or related to this Agreement and the transactions contemplated hereby.   Notwithstanding the foregoing, nothing in the preceding sentence shall limit any parties’ liability for any intentional misrepresentation or fraud.
 
7.6 Limitations on Indemnification.
 
7.6.1 No indemnification shall be payable pursuant to Section 7.2 or Section 7.3 after the Expiration Date, except with respect to (i) claims made prior to the Expiration Date, but not resolved by the Expiration Date, (ii) claims not subject to the Expiration Date.
 
7.6.2 Purchaser and its affiliates shall not be entitled to recover Purchaser Damages hereunder unless and until the aggregate Purchaser Damages exceed $100,000 (the “Basket Amount”), whereupon Purchaser shall be entitled to recovery of all Purchaser Damages suffered or incurred by Purchaser and its affiliates exceeding the Basket Amount; provided, however, that no limitation shall apply with respect to an intentional breach of the representations and warranties of Company and Company Shareholders in this Agreement.
 
7.6.3 The Company Shareholders shall not be entitled to recover Purchaser Damages hereunder unless and until the aggregate Company Damages exceed the Basket Amount, whereupon the Company Shareholders shall be entitled to recovery of all Company Damages suffered or incurred by Company Shareholders exceeding the Basket Amount; provided, however, that no limitation shall apply with respect to an intentional breach of the representations and warranties of Purchaser in this Agreement.
 
 
 

 
 
 
ARTICLE 8
TERMINATION
 
8.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing:
 
8.1.1 By mutual written consent duly authorized by the Boards of Directors of Purchaser and the Company.
 
8.1.2 By Purchaser or the Company if
 
(a) there shall be a final nonappealable order of a federal or state court in effect that would prevent consummation of the Merger;
 
(b) the Closing has not occurred on or prior to March 15, 2010 for any reason other than the breach of any provision of this Agreement by the party terminating this Agreement; or
 
(c) the other party breaches any of its representations, warranties or covenants attached hereto and such breach is not promptly cured.
 
8.1.3 By Purchaser if any of the conditions set forth in Section 7.1 hereof has not been satisfied on or before November 15, 2010 and shall not have been waived by Purchaser, for any reason other than a breach by Purchaser of any of its representations, warranties or agreements hereunder.
 
8.1.4 By the Company if any of the conditions set forth in Section 7.2 hereof has not been satisfied on or before November 15, 2010 and shall not have been waived by the Company, for any reason other than a breach by the Company or the Management Shareholder of any of their representations, warranties or agreements hereunder;
 
If any party shall elect to terminate this Agreement pursuant to this Section 8.1 (other than paragraph (a) hereof), written notice of such event shall forthwith be given by the terminating party to the other parties to this Agreement, whereupon this Agreement shall terminate.
 
           8.2           Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 8.1, this Agreement, except for the provisions of Articles 7, 8, and 9 shall forthwith become void and be of no effect, without any liability on the part of any party or its directors, officers or stockholders.  Nothing in this Section 8.2 shall relieve any party to this Agreement of liability for breach of this Agreement.
 
 
ARTICLE 9
MISCELLANEOUS
 
9.1 Announcements.  All parties will consult with each other and will mutually agree upon any press release or other public statements with respect to the transactions contemplated by this Agreement, and shall not issue any press release or make any public statement prior to such consultation and agreement.
 
 
 

 
 
9.2 Confidentiality. Each of the Parties agrees that it shall exercise, and shall cause their respective representatives and their respective affiliates to exercise, the same degree of care to prevent disclosure of Information (as hereinafter defined) received by or disclosed to such Party pursuant to this Agreement as it takes to preserve and safeguard its own confidential information, data, technology or know-how but, in any event, no less than a reasonable degree of care
 
9.3 .  As used herein, “Information” means all documents and information concerning any other Party and the affiliates thereof furnished to a Party, its affiliates or representatives (in any case, a “Recipient” by such other Party or its Representatives (in any case, the “Disclosing Party”) in connection with the transactions contemplated by this Agreement. Each Recipient shall not use any of such Information except as permitted by this Agreement or release or disclose such Information to any other Person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors in connection with this Agreement. If this Agreement shall be terminated pursuant to Article IX any documentary Information (including all copies thereof) shall be returned to the Disclosing Party promptly at its request
 
9.4 .  In any event, Information shall be safeguarded by the Recipient for not less than five (5) years from the date hereof. The restrictions of this Article X shall not apply to any Information received by a Recipient (a) which such Recipient already possessed at the time of receipt as shown by written records; (b) which was at the time of receipt or subsequently becomes, publicly available though no fault of such Recipient or any of its affiliates or representatives; (c) which such Recipient rightfully received from a third party which the Recipient neither knows nor has reason to know is prohibited from disclosing such information by a contractual, legal or fiduciary obligation; (d) is furnished by the Disclosing Party to a third party without a similar restriction of the third party’s rights; or (e) is as required to be disclosed pursuant to Law; provided that, if practicable, the Recipient shall notify the Disclosing Party prior to disclosing any Information pursuant to this clause (e) and shall cooperate with the Disclosing Party in making reasonable efforts to resist such disclosure, if the Disclosing Party so requests
 
In the event of a breach of any of the obligations stated above in this Article X, the Disclosing Party may proceed against the breaching Recipient in Law or in equity for such damages or other relief as a court may deem appropriate. Nothing herein contained shall be construed as prohibiting the Disclosing Party from pursuing, in addition, any other remedy for such breach or threatened breach.
 
9.3           Finders and Brokers.  Except as provided in the next sentence, each party hereby represents and warrants to the others that neither it nor its representatives have taken, nor will they take, any action that would cause the other parties hereto to have any obligation or liability to any person for or made any arrangements for the payment of any finders’ fees, brokerage fees, agents’ commissions, or like payments in connection with the transactions contemplated hereby.  Each party shall indemnify and hold harmless the others from any claim that is asserted by any person for a finder’s fee or like payment with respect to this Agreement arising from any act, representation or promise of the indemnifying party or its representative.
 
 
 

 
 
9.4           Amendment. Subject to applicable law, this Agreement may only be amended or supplemented by written agreement of the Company, Purchaser and the Management  Shareholder.
 
9.5 Waiver of Compliance.  Any failure of the Company or the Management Shareholder, on the one hand, or  Purchaser, on the other, to comply with any provision of this Agreement may be expressly waived in writing by Purchaser or the Company and the Management Shareholder, respectively, but such waiver or failure to insist upon strict compliance with such provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.  No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity.  The waiver by any party of the time for performance of any act or condition hereunder does not constitute a waiver of the act or condition itself.
 
9.6 Expenses.  Each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, and the Company shall pay all such fees and expenses incurred by the Company, whether or not the transactions contemplated hereby are consummated.
 
9.7 Survival of Representations and Warranties.  The respective representations and warranties of each party contained herein shall not be deemed waived or otherwise affected by any investigation made by or on behalf of the other party and such representations and warranties shall survive the Closing and the consummation of the Merger contemplated hereby as provided herein.  All statements contained in this Agreement or in any schedule, exhibit, certificate, list, or other document delivered pursuant hereto shall be deemed representations or warranties, as the case may be (as such terms are used in this Agreement), of the party making such statements.
 
9.8 Notices.  All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given (i) upon delivery, if delivered in person, (ii) five (5) business days after mailing if sent registered mail, return receipt requested, or (iii) the next business day after sending, if sent by commercial overnight courier (unless returned undelivered or the courier reports a later delivery) and addressed as follows:
 
To the Company and the Management Shareholder at:
 
Boston Therapeutics, Inc.
33 South Commercial Street
Manchester, NH
Attention:  Ken Tassey
 
 
 

 
 
To Purchaser:
 
Avanyx Therapeutics, Inc.
12 Appleton Circle
Newton, MA 02459
Attn: David Platt
 
Notice of change of address shall be effective only when done in accordance with this Section.  All notices complying with this Section shall be deemed to have been received on the date of delivery or on the third business day after mailing.
 
9.9 Assignment; Successors and Assigns.  Except as otherwise provided herein, each party agrees that it will not assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any right or obligation under this Agreement.  Any purported assignment, transfer, or delegation in violation of this Section shall be null and void.  Subject to the foregoing limits on assignment and delegation, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns.  Except for those enumerated above, this Agreement does not create, and shall not be construed as creating, any rights or claims enforceable by any person or entity not a party to this Agreement.
 
9.10 Governing Law.  The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the law of the Commonwealth of Massachusetts.
 
9.11 Jurisdiction.  The parties to this Agreement agree that any suit, action or proceeding arising out of, or with respect to, this Agreement (or any of the agreements or documents executed in connection herewith) or any judgment entered by any court in respect thereof shall be brought in the courts of the County of Suffolk, Boston, Commonwealth of Massachusetts, or in the U.S. District Court for Massachusetts and the parties hereto hereby irrevocably accept the exclusive personal jurisdiction of those courts for the purpose of any suit, action or proceeding.  In addition, the parties hereto each hereby irrevocably waives, to the fullest extent permitted by law, any objection which he or it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement (or any of the agreements or documents executed in connection herewith) or any judgment entered in respect thereof brought in any court located in the County of Suffolk, Boston, Commonwealth of Massachusetts, or in the U.S. District Court for Massachusetts and hereby further irrevocably waives any claim that any suit, action or proceedings brought in any such court has been brought in an inconvenient forum.
 
9.12 Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
 
 

 
 
9.13 Headings.  The headings of the Sections and Articles of this Agreement are for reference purposes only and shall not constitute a part hereof or affect the meaning or interpretation of this Agreement.
 
9.14 Entire Agreement.  The parties intend that the terms of this Agreement, including the Disclosure Schedule and other documents referred to herein, shall be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement.  The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding involving this Agreement.
 
9.15 The Company Disclosure Schedule.  The Company Disclosure Schedule shall be divided into sections corresponding to the sections of this Agreement.  Disclosure in any section of the Company Disclosure Schedule shall only constitute disclosure for purposes of the corresponding section of the Agreement and not for any other purpose, unless it is reasonably apparent on the face of the disclosure that it is applicable to another section of the Agreement.
 
9.16 Severability.  If any provision of this Agreement, or the application thereof to any Person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other Persons, places, and circumstances shall remain in full force and effect.
 
9.17 Rules of Construction.  The parties acknowledge that each party has read and negotiated the language used in this Agreement.  The parties agree that, because all parties participated in negotiating and drafting this Agreement, no rule of construction shall apply to this Agreement which construes ambiguous language in favor of or against any party by reason of that party’s role in drafting this Agreement.
 
9.18 Additional Documents.  Each of the parties agree, without further consideration, to execute and deliver such other documents and take such further action as may be reasonably required to effectuate the provisions of this Agreement.
 
9.19 Exhibits.  All Exhibits attached hereto shall be deemed to be a part of this Agreement and are fully incorporated in this Agreement by this reference.
 
 
 

 
 
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement and Plan of Reorganization as of the date first written above.
 
THE COMPANY:                                                                          PURCHASER:
Boston Therapeutics, Inc.                                                           Avanyx Therapeutics, Inc.


By: /s/ Kenneth A. Tassey, Jr.                                                    By: /s/ David Platt                                                                                                        
      Title: President                                                                               Title: President, Chief Executive Officer


MANAGEMENT SHAREHOLDER:
 
 /s/ Kenneth A. Tassey, Jr.                                                          
Kenneth A. Tassey, Jr.
 
 


EX-10.6 9 exh10_6.htm EXHIBIT 10.6 exh10_6.htm
 


 
Exhibit 10.6
 
CERTIFICATE OF MERGER
OF
BOSTON THERAPEUTICS, INC.
AND
AVANYX THERAPEUTICS, INC.


It is hereby certified that:

1.           The constituent business corporations participating in the merger herein certified are:

(i)           Boston Therapeutics, Inc., which is incorporated under the laws of the State of New Hampshire; and

(ii)           Avanyx Therapeutics, Inc., which is incorporated under the laws of the State of Delaware.

2.           An Agreement of Merger has been approved, adopted, certified, executed, and acknowledged by each of the aforesaid constituent corporations in accordance with the provisions of subsection (c) of Section 252 of the General Corporation Law of the State of Delaware, to wit, by Boston Therapeutics, Inc. in accordance with the laws of the State of its incorporation and by Avanyx Therapeutics, Inc. in the same manner as is provided in Section 251 of the General Corporation Law of the State of Delaware.

3.           The name of the surviving corporation in the merger herein certified is Avanyx Therapeutics, Inc., which will continue its existence as said surviving corporation under the name Boston Therapeutics, Inc. upon the effective date of said merger pursuant to the provisions of the General Corporation Law of the State of Delaware.

4.           The Certificate of Incorporation of Avanyx Therapeutics, Inc. is to be amended and changed by reason of the merger herein certified by striking out Article First relating to the name of said surviving corporation, and by substituting in lieu thereof the following article:

“FIRST.  The name of the Corporation is Boston Therapeutics, Inc.”

and said Certificate of Incorporation as so amended and changed shall continue to be the Certificate of Incorporation of said surviving corporation until further amended and changed in accordance with the provisions of the General Corporation Law of the State of Delaware.

 
 

 

5.           The executed Agreement of Merger between the aforesaid constituent corporations is on file at an office of the aforesaid surviving corporation, the address of which is as follows:

12 Appleton Circle, Newton, MA  02459.

6.           A copy of the aforesaid Agreement of Merger will be furnished by the aforesaid surviving corporation, on request, and without cost, to any stockholder of each of the aforesaid constituent corporations.

7.           The authorized capital stock of Boston Therapeutics, Inc. consists of 5,000,000 shares without par value.

8.           The Agreement of Merger between the aforesaid constituent corporations provides that the merger herein certified shall be effective upon filing.

[Signature Page Follows]
 
 
 

 

IN WITNESS WHEREOF, each of the undersigned have signed this Certificate of Merger as of this 9th day of November, 2010.


 
BOSTON THERAPEUTICS, INC.
 
 
By:      /s/ Kenneth A. Tassey, Jr.            
Name:  Kenneth A. Tassey, Jr.
Title:  President
 
 
AVANYX THERAPEUTICS, INC.
 
 
By:      /s/ David Platt, Ph.D.                     
Name:  David Platt, Ph.D.
Title:  President
 




EX-10.7 10 exh10_7.htm EXHIBIT 10.7 exh10_7.htm
 


Exhibit 10.7
 
  Innovators in Complex Carbohydrate ChemistryTM
 
Exact name of Investor as it should appear on Stock Certificate: ____________________

BOSTON THERAPEUTICS, INC.
SUBSCRIPTION AGREEMENT

SUBSCRIPTION AGREEMENT by and between the investor named above (the “Investor”) and Boston Therapeutics, Inc., (the “Company”) a Delaware corporation with offices at 33 South Commercial St., Manchester, NH 03101.  This Subscription Agreement shall be deemed to include the attached Terms and Conditions which hereby are incorporated by reference.

A.
Aggregate Investment:
$_________ (shares X  $0.25 per share).

 
Securities:
__________ shares of the Common Stock, without par value, of the Company (the “Shares”).

                          
 B.   Address, etc.:         
       
       
        Telephone:         
        Fax:            
        Email Address:        

 
C.
Accredited Investor Status (initial as many as apply):
 
 
      The Investor is a natural person whose individual net worth, orjoint net worth with the Investor's spouse, exceeds $1,000,000;
       
      The Investor is a natural person who had an individual income inexcess of $200,000 in each of 2009 and 2010 or joint income withthat person's spouse in excess of $300,000 in each of those yearsand has a reasonable expectation of reaching the same incomelevel in 2011.
       
      The Investor is a trust of which each beneficiary has an individualor joint (together with such beneficiary's spouse) net worth inexcess of $1,000,000, or (b) expects to have an annual income in2011, and represents that such beneficiary had an annual income ineach of 2009 and 2010 in excess of $200,000 (or joint annual income in excess of $300,000).
       
      The Investor is an organization described in Section 501(c)(3) ofthe Internal Revenue Code, a corporation, a Massachusetts orsimilar business trust, a partnership or a limited liabilitycompany which has total assets in excess of $5,000,000 and whichwas not formed for the specific purpose of acquiring the securities offered hereby.
 
 
Boston Therapeutics, Inc.    33 South Commercial Street    Manchester, NH    03101
Tel: (978) 886-0421    Fax: (603) 685-4784    www.bostonti.com
 
 

 
 
For purposes of calculating net worth for the above representations, the value of a person’s primary residence, and the amount of indebtedness secured by such primary residence, up to the amount of such value shall be excluded from the calculation.  Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.1
 
 
D.
Status as a Non-U.S. Person (initial if applicable):
 
      The Investor is not a natural person resident of the United States, partnership or corporation organized in the United States, or trust of which the trustee is a natural person resident of the United States
       (each of the foregoing, a “U.S. Person”), and certifies further that it is not acquiring the Shares for the account or benefit of any U.S. Person or is a U.S. Person who purchased securities in a transaction that did not require registration under the Act.
 

 
The Investor acknowledges that he or it has received and reviewed this Agreement in its entirety, including without limitation the representations and warranties set out in Section 3 below.  The Investor and the Company each executes this Agreement as an instrument under seal.

Investor  (if individual)

_________________________________________
Print Name:________________________________                                                                                                

Investor ( if entity)
Print Name:________________________________                   
 
By:______________________________________                                                                         
 
Title:_____________________________________                                                                         
 
 
 

 
The Company hereby accepts this subscription subject to the terms and conditions set forth in this Agreement as of this ______ day of ____________, 2011.
 
 

BOSTON THERAPEUTICS, INC.
 
 
By:                                                                

Name:______________________________

Title:_______________________________





 
1 By way of example, if a person had net assets of $1,000,000 (excluding their primary residence) and a primary residence worth $2,000,000 with a $1,000,000 mortgage, their net worth for the purposes of the above accredited investor representations would be $1,000,000 even if by other measures of net worth, the $1,000,000 net worth in the residence ($2,000,000-the $1,000,000 mortgage) would be added to the $1,000,000 in other net assets.  If the mortgage were $3,000,000 rather than $1,000,000, the person would be deemed to have a net worth of $0. The $1,000,000 net worth from other assets would be reduced by the $1,000,000 excess liability in the house ($2,000,000 residence value - $3,000,000 mortgage).
 
 
 
 

 
 
The Company hereby accepts this subscription subject to the terms and conditions set forth in this Agreement as of this ______ day of ____________, 2011.
 
 
 
 
 
   BOSTON THERAPEUTICS, INC.
   
   By: _______________________________ 
   
   Name:______________________________
   
   Title:_______________________________
 
 
 
 
 

 
 
 
1.           Subscription.  Subject to the terms and conditions of this Agreement, the Investor irrevocably subscribes for and agrees to purchase the number of shares of Common Stock, without par value, described in Section A above (the “Shares”) for the purchase price set forth in such Section.  The Investor shall pay the Purchase Price for the Shares in cash to the Company by check or wire transfer.

2.           Acceptance of Subscription.

This Subscription is made subject to the following terms and conditions:

2.1.           This subscription shall be deemed accepted by the Company upon execution by the Company of this Subscription Agreement.

2.2.           Upon the sale by the Company to the Investor of Shares, the Investor will receive a copy of this Subscription Agreement executed by an officer on behalf of the Company.

3.           Closing.  The subscription shall close upon acceptance at the sole discretion of the Company upon the receipt by the Company of Subscription Agreements (including this Agreement) to purchase an aggregate of at least ____________ Shares (the "Initial Closing").  The Company may sell additional Shares, at one or more additional closings (collectively, the "Additional Closings" and collectively with the Initial Closings, the “Closings” and each a “Closing”).

4.           Representations and Warranties of the Investor.  The Investor understands and acknowledges that (a) the Shares are being offered and sold under one or more of the exemptions from registration provided for in Section 4(2) or Section 3(b) of the Securities Act of 1933, as from time to time amended (the “Securities Act”), including Regulation D promulgated thereunder and, if the Investor is a Non-U.S. Person, Regulation S promulgated thereunder, and any applicable state securities laws, (b) he or it is purchasing the Shares without being offered or furnished any offering literature or prospectus other than a certain power point presentation dated March 14, 2011 (the “Written Disclosure”), and (c) this transaction has not been reviewed or approved by the United States Securities and Exchange Commission or by any regulatory authority charged with the administration of the securities laws of any state or foreign country.  The Investor also represents and warrants as follows:

4.1.  Citizenship, Age and Residence.  He or she is at least 21 years of age, if a natural person, and is a bona fide resident and domiciliary (not a temporary or transient resident) of the state and at the address described in Section B and has no present intention of becoming a resident of any other State or other jurisdiction.

4.2.  Suitability.  The Investor understands and has fully considered for purposes of this investment the risks of this investment and understands that (i) this investment is suitable only for an investor who is able to bear the economic consequences of losing his or her entire investment, (ii) the purchase of the Shares is a speculative investment which involves a high degree of risk of loss by the Investor of his or her entire investment, and (iii) there are substantial restrictions on the transferability of, and there will (for the foreseeable future) be no public market for, the Shares, and accordingly, it may not be possible for an indeterminate period of time to liquidate his or her investment in the Shares (if ever).  Furthermore, the Investor represents that he or she has sufficient liquid assets so that the lack of liquidity associated with this investment will not cause any undue financial difficulties or affect the ability of the Investor to provide for his or her current needs and possible financial contingencies.
 
 
 
 

 

 
4.3.  Investment Information.  The Investor acknowledges that the Written Disclosure contains the views of the management of the Company, and that the analysis or presentation of the Company's obligations and prospects, to the extent reflected therein, represents a subjective assessment about which reasonable persons could disagree.

4.4.  Access to Information.  The Investor, in making his, her or its decision to purchase the Shares, has relied solely upon the Investor's independent investigations and has, if requested, been given (i) access to all material books and records of the Company; (ii) access to all material contracts and documents relating to the transaction described herein; and (iii) an opportunity to ask questions of, and to receive answers from, the appropriate executive officers and other persons acting on behalf of the Company concerning the Company and its prospects and the terms and conditions of this Offering, and to obtain any additional information, to the extent such persons possess such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information set forth in the Written Disclosure.  The Investor acknowledges that no request to the Company by the Investor for information of any kind about the Company has been refused or denied by the Company or remains unfulfilled as of the date of this Agreement.

4.5.  Investment Intent.  The Shares are being acquired by the Investor solely for the Investor's own personal account, for investment purposes only, and not with a view to, or in connection with, any resale or distribution of the Shares; the Investor has no contract, undertaking, understanding, agreement or arrangement, formal or informal, with any person to sell, transfer or pledge to any person any of the Share or any interest or rights in any of the Shares; the Investor has no present plans to enter into any such obligation; and the Investor understands the legal consequences of the representations and warranties made by him or her in this Agreement to mean that he or she must bear the economic risk of the investment for an indefinite period of time because the Shares have not been registered under the Securities Act and applicable state securities laws and, therefore, cannot be sold unless they are subsequently registered under the Securities Act and applicable state securities laws (which the Company is not obligated, and has no current intention, to do) or unless an exemption from such registration becomes available.

4.6.  No Distribution of Offering Materials.  The Investor has not distributed the Written Disclosure to any other person or party other than Investor’s advisors; and he has not used the Written Disclosure for any purposes other than to evaluate the merits of an investment in the Company.
 
 
 
 
 

 

 
4.7.  Control of Funds.  The Investor represents that the funds provided for this investment are the separate property of the Investor or are otherwise funds as to which the Investor has the sole right of management.

4.8.  Review of Written Disclosure.  The Investor has carefully read the Written Disclosure.  In evaluating the suitability of an investment in the Company, the Investor has not relied upon any representations or other information (whether oral or written) other than as set forth in the Written Disclosure or as contained in any documents or answers to questions furnished by the Company.

4.9.  Sophistication of Investor.  The Investor either (i) has a preexisting personal or business relationship with the Company or its controlling persons, such as would enable a reasonably prudent purchaser to be aware of the character and general business and financial circumstances of the Company or its controlling persons, or (ii) by reason of his or her business or financial experience, individually or in conjunction with his or her unaffiliated professional advisors, the Investor is capable of evaluating the merits and risks of an investment in the Shares, making an informed investment decision and protecting his or her own interests.

4.10.  Accuracy of Information.  All of the information set forth on the cover page of this Agreement, including without limitation the Accredited Investor Status indicated as applicable to the Investor, is true and correct in all respects.

4.11.  Contacts with the Company.  The Investor’s initial contacts with the Company were not as a result of the Company’s filing of a registration statement on Form S-1 registering its shares of common stock for sale nor was the Investor contacted by the Company in connection with the offering of securities pursuant to such registration statement.  The Investor either has a pre-existing business relationship with the Company or has engaged in discussions with the Company regarding establishing a business relationship.

4.12.  No Brokers.  The Investor has not engaged any broker, dealer, finder, commission agent or other similar person in connection with the offer, offer for sale, or sale of the Shares and is not under any obligation to pay any broker's fee or commission in connection with his investment.

4.13.  Securities Act Compliance.  The Investor understands that the easiest way to sell his or her Shares in the future would be to sell in an initial underwritten public offering of the Company’s securities or to a purchaser of the entire Company or its business.  In the absence of a public offering or such a sale, however, the Investor may sell his or her Shares in compliance with various private sale exemptions under applicable securities laws.  Accordingly, the Investor understands that:

a.  The Shares have not been registered under the Securities Act, by reason of a specific exemption under the provisions of the Securities Act which depends in part upon the investment intent and the representations and warranties of the Investor made in this Agreement.

 
 

 
b.  In issuing the Shares to the Investor, the Company is relying upon these representations and warranties.

c.           Any routine sales of the Shares in reliance upon Rule 144 under the Securities Act (if the provisions of such Rule should then be available as to the Shares) can be made only after the holding period specified in the Rule, in limited amounts, and in accordance with all the terms and conditions of that Rule.

d.           In the case of securities to which Rule 144 is not applicable, compliance with Regulation A under the Securities Act or some other exemption will be required.

e.           Rule 144 is not now available with respect to the Shares.

f.           The Company is under no obligation to register the Shares or to comply with Regulation A or any other exemption under the Securities Act or to supply any information necessary to permit routine sales under Rule 144.

g.           The Company may, if it so desires permit the transfer of the Shares and of all securities issued in exchange therefore only when such Shares or securities are the subject of an effective registration statement under the Securities Act or when the Company has received an opinion of counsel that such registration is not required under the Securities Act.  The Investor agrees to furnish such documentation and undertakings as the Company and its counsel may reasonably require in connection with any such opinion, whether under Rule 144 or some specific exemption under the Act.

h.           The Company may place certain legends on the certificate(s) for the Shares as required by applicable laws, including a legend in form substantially as follows and, with respect to Shares issued to Investors who are not U.S. Persons a legend referencing transfer restrictions applicable to Shares issued pursuant to Regulation S:

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), or applicable state securities laws and none of such securities, nor any interest therein, may be sold, transferred, assigned, made the subject of any security interest, or otherwise disposed of, without an effective registration statement for such securities under the Act and applicable state securities laws, or an opinion of counsel in form and substance satisfactory to the Company that registration is not required under the Act or such state securities laws.

i.           If the Investor is not a U.S. Person, the Investor shall only resell the Shares in accordance with the provisions of Regulation S promulgated under the Act, pursuant to registration under the Act, or pursuant to an available exemption from registration .

 
 

 
5.   Representations and Warranties of the Company.

The Company hereby severally and jointly, represent and warrant to the Investor:

5.1.   Organization, Qualifications and Corporate Power.

a.           The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is duly licensed or qualified to transact busi­ness as a foreign corporation and is in good standing in each other jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification.  The Company has the full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own or lease and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement, and other transaction documents contemplated hereby and thereby, and to issue, sell and deliver the Shares.

b.           The Company does not (i) own of record or beneficially, directly or indirectly, (A) any shares of capital stock or securities convertible into capital stock or other equity interest of any other corporation or (B) any participating or other equity interest in any partnership, joint venture or other non-corporate business enterprise or (ii) control, directly or indirectly, any other entity.

5.2.           Authorization of Agreements, Etc.

a.           The execution and delivery by the Company of this Agreement and related transaction documents, the performance by the Company of its obligations hereunder and thereunder, and the issuance, sale and delivery of the Shares have been duly authorized by all requisite corporate action and will not violate any provision of law, ordinance, rule or regulation applicable to the Company or its property or business, or any order, judgment or decree of any court or other agency, administrative body or other governmental body, the Articles of Incorporation of the Company, as amended (the “Charter”) or the By-laws of the Company, as amended, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or impo­sition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company.

b.           The Shares have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and non-assessable shares of the Common Stock, without par value, of the Company, with no personal liability attaching to the ownership thereof, and will be free and clear of all liens, charges, restrictions, claims and encumbrances of any kind.

 
 

 
5.3.           Validity.  This Subscription Agreement and the related transaction documents have been duly exe­cuted and delivered by the Company and constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

5.4.           Authorized Capital Stock.  The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, without par value.  Other than: (a) 14,041,236 shares of common stock currently outstanding and held beneficially and of record by the founders of the Company (b) stock options issued to a consultant to purchase an aggregate of 78,400 shares of common stock at an exercise price of $1.85 per share, and (c) an agreement to issue stock options to a consultant to purchase an aggregate of 434,265 shares of common stock at an exercise price of $0.25, (i) no person owns of record or is known to the Company to own beneficially any share of Common Stock, (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire equity securities of the Company is authorized or outstanding, (iii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset.  The Company has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission.

5.5.            Litigation; Compliance with Law.

a.  There is no (i) action, suit, claim, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against or affecting the Company or any of its properties or assets, at law or in equity, or before or by any Federal, state, municipal or other governmental department, com­mission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending or, to the best of the Com­pany's knowledge, threatened against or affecting the Company (including without limitation any inquiry as to the qualification of the Company to hold or receive any license or permit), and there is no basis for any of the foregoing.  The Company has not received any opinion or memorandum or legal advice from legal counsel to the effect that it is exposed, from a legal standpoint, to any liability or disadvantage which may be material to its business, prospects, financial condition, operations, property or affairs.  The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.  There is no action or suit by the Company pending or threatened against others.  The Company has complied with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, the Company has all necessary permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted, and the Company has been operating its business pursuant to and in compliance with the terms of all such permits, licenses and other authorizations.  There is no existing law, rule, regulation or order, and the Company after due inquiry is not aware of any proposed law, rule, regulation or order, whether Federal, state, county or local, which would prohibit or restrict the Company from, or otherwise materially adversely affect the Company in, conducting its business in any jurisdiction in which it is now conducting business or in which it proposes to conduct business.

 
 

 
5.6.           Proprietary Information of Third Parties.  No third party has claimed or has reason to claim that the Company or any person employed by or affiliated with the Company has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or nondisclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party, or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees.  No third party has requested information from the Company which suggests that such a claim might be contemplated.  To the best of the Company's knowledge, no person employed by or affiliated with the Company has employed or proposes to employ any trade secret or any information or documentation proprietary to any former employer, and no person employed by or affiliated with the Company has violated any confidential relationship which such person may have had with any third party in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such employment or violation.

5.7.           Copyrights, Trademarks, Etc. The Company owns or possesses adequate licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets, customer lists and know how (collectively, “Intellectual Property”) necessary or desirable to the conduct of its business as conducted and as proposed to be conducted, and no claim is pending or, to the best of the Company's knowledge, threatened to the effect that the operations of the Company infringe upon or conflict with the asserted rights of any other person under any Intellectual Property, and there is no basis for any such claim (whether or not pending or threatened).  No claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company, and there is no basis for any such claim (whether or not pending or threatened).

5.8.           Title to Properties.  The Company has good, clear and marketable title to its properties and assets, and all such properties and assets (including the Intellectual Property) are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances (including without limitation, easements and licenses), except for liens for or current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company and its subsidiaries, including without limitation, the ability of the Company to secure financing using such properties and assets as collateral.

 
 

 
5.9.           Other Agreements.  The Company is not a party to or otherwise bound by any written or oral contract or instrument or other restriction with any of the shareholders of the Company which affects the capitalization or ownership of the Company.

5.10.           Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.  The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in any person).

5.11.           Governmental Approvals. Subject to the accuracy of the representations and warranties of the Investor set forth in Section 4, no registration or filing with, or consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement, or the related transaction documents or the issuance, sale and delivery of the Shares.

5.12.           Offering of the Shares.  Neither the Company nor any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Shares or any security of the Company similar to the Shares has offered the Shares or any such similar security for sale to, or solicited any offer to buy the Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Shares under the Securities Act or the rules and regulations of the Commission thereunder), in either case so as to subject the offering, issuance or sale of the Shares to the registration provisions of the Securities Act.

6.   Miscellaneous.

6.1.  Notices.  All notices or other communications given or made hereunder shall be in writing and shall be delivered or mailed by registered or first class mail, postage prepaid or express overnight courier service, to the address set forth on the cover page hereof.

6.2. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts, excluding its conflicts of laws rules.

 
 

 
6.3.  Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may be amended or superseded only by a writing executed by the parties.

7.  Continuing Effect of Representations, Warranties and Acknowledgments.  The Investor and the Company agree that the representations and warranties of Section 4 and Section 5, respectively, are true and accurate as of the date of this Subscription Agreement and shall be true and accurate as of the date of delivery to and acceptance by the Company of this Subscription Agreement, and shall survive such delivery and acceptance.  If in any respect such representations, warranties and acknowledgements shall not be true and accurate prior to such delivery and acceptance, the Investor or the Company, as the case may be, shall give immediate written notice of such fact to the Company or the Investor, specifying which representations and warranties and acknowledgements are not true and accurate and the reasons therefore.

8.  Indemnification.  The Investor understands the meaning and legal consequences of Investor’s representations and warranties contained in Section 4, and agrees to indemnify and hold harmless the Company, its officers or any of its directors, affiliates, controlling shareholders, counsel, agents, or employees from and against any and all loss, damage or liability (including costs and reasonable attorneys’ fees due to or arising out of a breach of any representation, warranty or acknowledgment of the Investor contained in this Agreement; and the Company understands the meaning and legal consequences of its representations and warranties contained in Section 5 of this Agreement and in the other documents and agreements executed by the Company as contemplated by the transactions described in this Agreement, and agrees to indemnify and hold harmless the Investor, its officers or any of its directors, affiliates, controlling shareholders, counsel, agents or employees from and against any and all loss, damage or liability (including costs and reasonable attorneys’ fees) due to or arising out of a breach of any representation, warranty or acknowledgment of the Company contained herein or therein.

[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
 
 
 
 
 
 
 
 
 
 
 
 

 
Investor  (if individual)
 
___________________________________________________                 
 
Print Name:___________________________________________                                                                                                

Investor (if entity)

Print Name:___________________________________________                                                                          

By:             ___________________________________________                                                                                           

Title:  _______________________________________________                                                                          





PAYMENT INSTRUCTIONS:

Please submit this signed agreement with payment. Investor may send funds in the form of check, money order or bank wire.  Wiring instructions are as follows:

 
PAYMENT BY BANK WIRE TO:
 
Please make reference to “BTI Escrow”
 
 Bank Name:      Bank of America
   
 Account Name:   Seyfarth Shaw LLP Operating Account
   
 Account Number:   5201743357
   
 ABA Wire Payment Number:    026-009-593
   
 ABA ACH Payment Number:    081-904-808
   
 Swift Code:      BOFAUS3N
 


 
 

 



PAYMENT BY CHECK OR MONEY ORDER:

Investor should write check or money order payable to:

 “Seyfarth Shaw LLP, BTI Escrow Agent”

Please send this signed agreement and check or money order via UPS or Fedex, weekday delivery.   The Company is providing a Fedex account # 287762011 or may provide a return envelope for your convenience.  Please submit to the following address:
Boston Therapeutics, Inc.
33 South Commercial St.
Manchester, NH 03101
Attn:     Kenneth A. Tassey, Jr., President
 



 
Investor may contact the Company directly at 978-886-0421.
 
The contact person is Ken Tassey.  Alternatively the investor may call or contact the
 
 Escrow Agent at:

The Escrow Agent:
Seyfarth Shaw LLP
 
Two Seaport Lane
 
Boston, MA  02210
 
Attention: David E. Dryer, Esq.
617-946-4856


1.           Establishment of Escrow Account.  The Escrow Agent shall deposit any Proceeds forwarded to it by any single Subscriber into the Escrow Agent's non-interest-bearing escrow account (the "Escrow Account").

2.           Minimum Sales.  The sale by the Company of any Shares is conditioned upon the receipt and acceptance by the Company of a number of subscriptions totaling at least the Minimum Subscription (as defined below), provided that the Company shall not accept any subscription from a Subscriber who has not executed and delivered Definitive Documents therefore.  The minimum accumulated subscription (Minimum Subscription) shall be Five Hundred Thousand Dollars ($500,000).

3.           Deposits into the Escrow Account.  The Company shall promptly deliver all monies received from Subscribers for the payment of the Shares and Warrants to the Escrow Agent for deposit in the Escrow Account together with a written account of each sale, which account shall set forth the Subscriber's name and address, the number of Shares and Warrants purchased, the amount paid therefore, whether the initial consideration received was in the form of a check, draft or money order, and the Subscriber's social security number or other taxpayer identification number.

 
 
 


EX-10.8 11 exh10_8.htm EXHIBIT 10.8 exh10_8.htm


Exhibit 10.8
 
 
Certain portions of this exhibit, as indicated by [***] , have been omitted, pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. The omitted materials have been separately filed with the Securities and Exchange Commission.
 
 
 
LICENSE AND MANUFACTURING AGREEMENT

 
 
BETWEEN
 
 
BOSTON THERAPEUTICS, INC.
 
 
AND
 
 
ADVANCE PHARMACEUTICAL COMPANY LIMITED
 
 

 
 

 
 

 

 
 
 
 
Page - 1 -

 
 
 
TABLE OF CONTENTS
 
 
BACKGROUND
 
   
1.
DEFINITION
4
2.
LICENSE GRANT
7
3.
ROYALTY AND PAYMENT
8
4.
JOINT EXPENSES FOR MAA AND REFERENCE MATERIAL
10
5.
REGULATORY APPROVALS AND CO-OPERATION
11
6.
REPRESENTATIONS, WARRANTIES AND COVENANTS
12
7.
INDEMNITIES
14
8.
FORECAST OF PRODUCT SUPPLY AND SALES
14
9.
BRANDING
15
10.
PROSECUTION AND MAINTENANCE
16
11.
NEW INTELLECTUAL PROPERTY
17
12.
ENFORCEMENT
17
13.
MANUFACTURING FACILITY
17
14.
EVENT OF DEFAULT
18
15.
CONFIDENTIALITY
18
16.
TERM
20
17.
TERMINATION
20
18.
DISPUTE RESOLUTION
20
19.
GOVERNING LAW
21
20.
MISCELLANEOUS
21
EXHIBITS
   
Exhibit   1
Option Agreement
25
Exhibit   2
Trademark Certificate of SUGARDOWN
26
Exhibit   3
List of Prices
27
Exhibit   4
Banking Information
29
Exhibit   5
Reimbursement costs
30
Exhibit   6
List of Patents
31
Exhibit   7
List of Products
32
Exhibit   8
Certificated of analysis of SugarDown Chewable Tablet
33
Exhibit   9
Declarations of Good Manufacturing Practice
34
 
Page - 2 -

 

LICENSE AND MANUFACTURING AGREEMENT
 

 
This LICENSE AND MANUFACTURING AGREEMENT (this “Agreement”) is effective as of  June 24, 2011 (the “Effective Date”) by and between:-
 
(1)
BOSTON THERAPEUTICS, Inc. a company incorporated under the laws of Delaware, USA having a principal place of business at 33 South Commercial St. Manchester, NH 03101, United States of America (“BTI”); and
 
(2)
ADVANCE PHARMACEUTICAL COMPANY LIMITED, a company incorporated under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China at Tai Po, New Territories (“the Licensee”),
 
(BTI and the Licensee are each referred to herein by name or, individually, as a “Party” or, collectively, as the “Parties”.)
 
WHEREAS:
 
A.
BTI is a biopharmaceutical company having certain proprietary rights, technologies and data related to dietary supplements and potential drug agents developed from complex carbohydrate chemistry.
 
B.
The Licensee is a Hong Kong Asia-based pharmaceutical company with a vertically integrated platform engaged in development, manufacturing, design, marketing, sales, logistics and distribution of pharmaceutical and other health care products.
 
C.
By an option agreement dated July 7, 2010 (“Option Agreement”) as set out in Exhibit 1, Zapp Biotechnology Company Ltd. (the “Optionee”) was granted an option by BTI (the “Option”) to enter into a license and manufacturing agreement according to the terms stipulated in the Option Agreement. Optionee has designated the Licensee as its nominee to enter into this Agreement.
 
D.
BTI and the Licensee wish to further develop, manufacture and commercialize the Products (defined hereinafter). Accordingly, BTI desires to grant to the Licensee, and the Licensee desires to obtain from BTI, certain rights, licenses and sub-license rights pertaining to the Territory (defined hereinafter) and the possible first right of offer, all subject to the terms and conditions set forth here-in-below.
 
E.
Subject to the terms and conditions set forth below, BTI desires to manufacture and sell the Products (defined hereinafter) to the Licensee, and the Licensee agrees to have the Licensee engage in the following:
 
(i)  
market and sell such Products (defined hereinafter) in the Territory; and
 
(ii)  
manufacture, market and sell such Products upon the setting up of the Licensee’s manufacturing facilities.
 

 
Page - 3 -

 
 
NOW IT IS HEREBY AGREED as follows:
 
1.  
DEFINITION(S)
 
1.1
In this Agreement including the Recitals, except where the context otherwise requires, the words and expressions specified below shall have the meanings attributed to them below:-
 
“Additional Territory”
means all countries and territories in the world except the Territory and the USA;
 
“Additional Territory Licensed Product(s)”
means any product for human or veterinary use, the research, development, manufacture, use, sale, offer for sale, import or export (collectively, “Exploitation”)of which, is based bupon or incorporates BTI Technology or, but  for the license granted in this Agreement, the Exploitation or which would infringe any BTI Patents in any country in the Additional Territory;
 
 
“Affiliate”
means with respect to either Party, any person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Party, for so long as such control exists.
For purposes of this Section only, “control” means
(i) direct or indirect ownership of fifty percent (50%) or more (or, if less than fifty percent (50%), the maximum ownership interest permitted by applicable law) of the stock or shares having the right to vote for the election of directors of such corporate entity, or
(ii) the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of such entity, whether through the ownership of voting securities, by contract or otherwise;
 
 
“BTI Know-How”
Any proprietary information, trade secrets, documented techniques, materials and data owned or controlled by BTI during the Term or which are acquired by or developed for BTI by a Third Party during the Term, including but not limited to discoveries, formulae, materials, reagents, proprietary methods, processes, test data (including pharmacological, toxicological, clinical and manufacturing information and test data), and analytic and quality control data, which is necessary or useful to research, develop, make, have made, use, sell, offer for sale, import or export the Products, provided however, that BTI Know-How that is the subject of the licenses and other rights granted to Licensee hereunder shall extend only to those applications of any of the foregoing items that are associated with specifically defined carbohydrate chemistry formulation; BTI Know-How does not include BTI Patent Rights.;
 
 
 
 
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“BTI Patents”
means the patents which includes:
(i) All patents and patent applications of any kind anywhere in the world as more particularly listed in the Exhibit 6 owned or controlled by BTI during the Term or which are acquired by or developed for BTI by a Third Party during the Term (together with all divisions, continuations, patents of addition, substitutions, registrations, re-issues, re-examinations or extensions of the foregoing) and which are necessary or useful to research, develop, make, have made, use, sell, offer for sale, import or export the Products, provided, however, that BTI Patents that are the subject of the licenses and other rights granted Licensee hereunder shall extend only to those applications of any of the foregoing items that are associated with SUGARDOWN or its drug candidate equivalent;
(ii) All patent applications that may hereafter be filed by or on behalf of BTI which either are based on or claim priority from any of the foregoing patents and applications; and
(iii) All patents which may be granted pursuant to any of the foregoing patent applications;
 
“BTI Technology”
means BTI Patents and BTI Know-How relating to SUGARDOWN or its drug candidate equivalent only;
 
“Business Day(s)”
means a day (other than a Saturday or a Sunday) on which licensed banks are generally open for business in Hong Kong;
 
“Effective Date”
means the date of this Agreement as set forth above;
 
“EMA”
means the European Medicines Authority;
 
“EMA Costs”
 
means external contracted costs resulting in a specific fee charged and a deliverable documented output for EMA meetings, animal tests, and human tests, resulting in a competent authority submission only;
 
“FDA”
means the United States Food and Drug Administration, or any successor agency thereto;
 
 
 
 
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“FDA Costs”
 
means external contracted costs resulting in a specific fee charged and a deliverable documented output for FDA meetings, animal tests, and human tests, resulting in a competent Regulatory Authority submission only;
 
“Force Majeure”
means the force majeure as referred to and defined in Clause 20.7 of this Agreement;
 
“Hong Kong”
means the Hong Kong Special Administrative Region of the People’s Republic of China;
 
“MAA”
means the Marketing Authorization Approval of a new drug application for permission to initiate marketing, sale, testing and food supplement registration), licenses, registrations or authorizations necessary for the marketing and sale of such Product, filed with:
 
(i) the FDA in accordance to the FDA Code of Federal Regulation Title 21 Part 314 Section 50 et. Seq (21 C.F.R. 314.50 et. Seq);
 
(ii) the EMA; or
 
(iii) any other Competent Regulatory Authority.
 
“Product(s)”
means initially Territory Licensed Product(s) and from time to time, as the same may be added to this Agreement, Additional Territory Licensed Product(s), details of which are set out in Exhibit 7;
 
“Prosecution and Maintenance”
 
means with respect to a patent or patent application, the preparing, filing, prosecuting and maintenance of such patent or application, as well as re-examinations, reissues, requests for patent term extensions and related matters with respect to such patent or application, together with the conduct of interferences, the defense of oppositions and other similar proceedings with respect to the particular patent or patent application; and ‘Prosecute and Maintain’ shall have the correlative meaning;
 
“Qualified Person”
means a person qualified and accepted by competent authority to batch release and to assure quality and acceptance by a competent authority;
 
“Reference Material(s)”
 
means the official materials submitted to the regulatory authority in support of the regulatory label and approval of Products;
 
 
 
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“Regulatory Authority”
means federal, national, multinational, state, provincial or local regulatory agency, department, bureau or other governmental entity with authority over the discovery, advancement, manufacture, commercialization or other use or exploitation (including the granting of MAA) of the Products in any jurisdiction, including the FDA, the European Medicines Agency (EMA), the State Food and Drug Administration (SFDA) in the People’s Republic of China and the Ministry of Health Labor and Welfare (MHLW) in Japan;
 
“SUGARDOWN”
means the trademark, namely “SUGARDOWN”, registered in (*) and owned by (*) and such trademark is adopted in the manufacture, sale, marketing, promotion, distribution and advertising of the Products, details of which are set out in Exhibit 2
 
“Term”
means the term as defined and set out in Clause 16 of this Agreement;
 
“Territory”
means the following territories:-
 
(i) People’s Republic of China;
 
(ii) Hong Kong Special Administrative Region; and
(iii)  Macau Special Administrative Region;
 
“Territory Licensed Product(s)”
means any product, the research, development, manufacture, use, sale, offer for sale, import or export (collectively, “Exploitation”)of which is based upon or incorporates BTI Technology or,, but for the license granted in the Agreement, would infringe any BTI Patents in any country in the Territory;
 
“Third Party”
means any person or entity other than BTI, the Licensee or their respective Affiliates;
 
“USA”
means the United States of America; and
 
“US Dollars” and the sign “US$”
means United States dollars, the lawful currency of the United States of America.
 
 
2.  
LICENCE GRANT
 
2.1  
BTI hereby grants to the Licensee a sole and exclusive license to use the BTI Technology in The Territory, with the right to grant, sublicenses, subject to the conditions described in this Agreement, under the BTI Technology, to enable the Licensee to:-
 
 
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(a)  
bottle, label, use, commercialize, market, distribute, sell, have sold, offer for sale and import and export; and
 
(b)  
research, develop, make, have made, manufacture
 
the Products in the Territory, practice any method, process or procedure or otherwise exploit the BTI Technology, and to have any of the foregoing performed on its behalf by a Third Party, subject to Clauses 2.2 and 2.3 hereinbelow.
 
2.2  
Both Parties agree that
 
(i)  
Clause 2.1(a) shall be active and in force from the Effective Date; and
 
(ii)  
Clause 2.1(b) shall be contingent upon establishment of oversight quality control batch release and quality assurance requirements set forth by BTI and agreed upon by both Parties.
 
2.3  
Insofar as the license granted in Clause 2.1 is concerned, sale and distribution in the Additional Territory shall be restricted to Products for human and veterinary use.
 
2.4  
The Licensee and BTI have agreed that BTI shall both (a) initiate a clinical trial at a cost not to exceed [***] (such amount, up to [***] , “the “Clinical Study Fund”), and (b) as BTI’s investment in the promotion of a market for BTI’s products, provide Product to Licensee having an aggregate value (at the pricing described in Exhibit 3) equal to the amount of the Clinical Study Fund as further described below.  Specifically, Licensee and BTI have agreed that:
 
(i)  
the results, documents and other information related to the clinical trials of the Products conducted under the auspices of and financed by the Clinical Study Fund can be used by either Party; and
 
 
(ii)  
upon the Licensee’s request, BTI shall supply and deliver to Licensee, Products having an aggregate value equal to the amount actually set aside in the Clinical Study Fund and committed to clinical trials as described in clause 2.4(i) at the time of the request for Product, at the agreed prices set out in Exhibit 3 to this Agreement. In other words, if [***]  has been committed and paid into the Clinical Study Fund for clinical trials then Licensee may request [***]  in Product at the agreed price. The Licensee is not required to pay for the aforesaid amount of Products, except by means described herein.
 
2.5
Both Parties agree and acknowledge that the prices set out in Exhibit 3 (List of Prices) have been agreed upon as the final prices of the Products.  Should there be any proposed change in prices, both Parties must sign a written agreement for such change.
 
3.         ROYALTY AND PAYMENT
 
3.1  
Subject to Clause 3.2, the Licensee shall pay to BTI a royalty of US Dollars [***]  of revenue on a quarterly basis, based on the sales and distribution of the Territory Licensed Products (excluding those manufactured and supplied to BTI) in the Territory as invoiced to the Licensee for the duration of the Term, in accordance to Clause 3 below (“Royalty Payment”).  For the avoidance of doubt, the aforesaid Territory Licensed Products must be manufactured based on the existing BTI Patents.
 
 
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3.2  
In the event that the Licensee invents, develops, obtains and registers new patents (“New Patents”) based on the BTI Patents in the name of BTI, the Licensee shall pay to BTI a royalty of US Dollars [***]  of revenue on a quarterly basis based on the sales and distributions of the aforesaid products in the Territory as invoiced to the Licensee for the duration of the Term provided that the aforesaid products manufactured according to the New Patents, not the existing BTI Patents.
 
3.3  
The Licensee shall pay the Royalty Payment of a year to BTI within 30 days upon the expiry of a quarter in a year.  In other words, the Licensee shall pay the Royalty Payment to BTI in the following manner:
 
(i)  
on or before the 30th day of April for the first quarter (i.e. from January to March in a year);
 
(ii)  
on or before the 30th day of July for the second quarter (i.e. from April to June in a year);
 
(iii)  
on or before the 30th day of October for the third quarter (i.e. from July to September in a year); and
 
(iv)  
on or before the 30th day of January for the forth quarter (i.e. from October to December in a year).
 
3.4  
Both Parties agree that the Royalty Payment shall be paid to BTI’s bank account as set out in Exhibit 4.
 
3.3
Both Parties agree that, to determine the sales and distribution of the Products, any Product shall be regarded as distributed or sold by the Licensee or its sub-licensee after one hundred and twenty (120) days of receipt of invoice by the Licensee or its sub-licensee, or if not invoiced, when shipped or delivered by the Licensee or its sub-licensee.
 
3.4
The Licensee and its sub-licensees shall keep complete and accurate accounts of all Products distributed and sold and shall permit BTI at BTI’s own expense [if audit discloses underpayment of royalty, then Licensee pays for audit] and through an independent certified accountant of international standing to be agreed by both Parties, to audit such accounts in accordance to the following:
 
 
(i)    
at least sixty (60) days’ prior written notice prior to the audit;
 
 
(ii)   
no more than once each calendar year solely for the purpose of determining the accuracy of the Royalty Report (defined hereinafter) and Royalty Payment; and
 
(iii)  
the obligation of the Licensee and its sub-licensees concerning audit of their accounts shall be terminated three (3) years after the date of issue of an audit report.
 
 
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(iv)  
Licensee will assemble relevant records, including those of sub-licensees as a mechanism for determining aggregate price of Products sold and adjustments that may impact royalties payable to BTI.
 
3.5  
Royalty Payment shall be net of any deductions or withholdings which are required to be deducted under any relevant legislation in any country.
 
3.6
If the Licensee or its sub-licensee is obliged to pay royalties to an independent Third Party for the right to make, manufacture, use, commercialize, market, distribute or sell the Products, the Licensee shall be entitled to deduct from the Royalty Payment due to BTI the said royalty payment actually made to such Third Party.
 
3.7
The Licensee shall provide BTI with a royalty report stating the gross sales of the Territory Licensed Products and provide a calculation of the Royalty Payment amount due (“Royalty Report”) within ninety (90) days after the 31st day of March, the 30th day of June and 30th  day of September in each year during the Term .
 
4.JOINT EXPENSES FOR MAA & REFERENCE MATERIALS
 
Pre-MAA
 
4.1  
The Parties acknowledge and agree that where a Party incurs expenses arising from MAA filing for the Products), the other Party referencing such MAA shall contribute the MAA filing costs (“Joint Expenses”). A Party has absolute discretion to choose whether to reference such MAA and which part of a MAA should it references to.  In other words, a Party is entitled to reference part of the documents and/or information in a MMA process at its sole discretion.
 
4.2  
The portion of Joint Expenses to be contributed by each Party shall be agreed upon in writing prior to incurring the Joint Expenses on a fair, reasonable and arm’s length basis. If no such written agreement is entered into between the Parties, the Party incurring the cost for the MAA shall be solely liable for it.
 
 
Post- MAA
 
4.3
Both Parties agree that BTI shall be solely responsible for all MAA costs outside the Territory and the Licensee shall be solely responsible for all MAA costs incurred in the Territory unless otherwise agreed by both Parties.
 
4.4
Notwithstanding the basic payment obligations in Clause 4.3, both Parties agree that reimbursement of the costs incurred by a Party in filing and obtaining a MAA shall be in accordance to Exhibit 5 and Clause 4.5 below.  For the avoidance of doubt, if a Party just references part of the documents and/or information (“D&I”) in a MAA, the costs to be shared by both Parties according to Exhibit 5 should be the costs arising from or in connection with that particular D&I.
 
4.5
Where reimbursement and repayment is payable pursuant to Clause 4.4, the Party owing such reimbursement or repayment shall via telegraphic transfer to the account details set forth in Exhibit 4 within one hundred and twenty (120) days after the use of and/or reference to a MAA or part of a MAA.
 
 
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Reference Materials
 
4.6
In the event that a Party requests (“the Requesting Party”)  Reference Materials created by the other Party (“the Providing Party”) whether for a MAA or not, the Requesting Party shall pay the Providing Party up to 50% of the actual costs of the Providing Party in accordance with its record for establishing such Reference Materials, subject to the condition that Reference Materials which a Requesting Party wishes to obtain must be Reference Materials which obtained MAA not more than 1.5 years before such request.
 
4.7
Where reimbursement and repayment is payable pursuant to Clause 4.6, the Party owing such reimbursement or repayment shall via telegraphic transfer to the account details set forth in Exhibit 4 within one hundred and twenty (120) days after the use of Reference Materials.
 
4.8
For all other costs and expenses in relation to matters not referred to in Clause 4, the Parties shall negotiate in good faith and at arms’ length the payment arrangement for costs incurred in the 2 years prior to MAA.
 
4.9
The paying party shall forthwith notify the receiving party of the payment and upon successful transfer of the payable amount, the receiving party shall issue an acknowledgement of receipt to the paying party within 14 Business Days thereafter.
 
 
5.APPROVALS AND CO-OPERATION
 
5.1
In furtherance of the Agreement, the Licensee shall have the right to obtain, or procure the obtaining of all MAA. BTI shall provide all reasonable assistance and disclosure of MAA and/or Reference Materials as necessary or as requested by the Licensee (or its sub-licensee) to aid their manufacturing of the Products and their efforts to obtain MAA, and charge only a minimum expense for administrative purposes.
 
5.2
Subject to Clause 4 above and other payments as herein provided, each Party agrees to use commercially reasonable efforts to make its personnel reasonably available, upon reasonable written request by the other Party in relation to license rights, at their respective places of employment to consult with the other Party on matters and issues related to MAA obtained during the Term.
 
5.3
Each Party (the “Enabling Party”) agrees to cooperate with the other (the “Filing Party”), at its written request, to comply with specific requests of any applicable Regulatory Authority (such as requests to inspect clinical trial sites), with respect to data supplied or to be supplied by the Enabling Party to the Filing Party for filing with such Regulatory Authority.  In this regard, the Enabling Party agrees to provide reference rights to the Filing Party, or to provide to applicable Regulatory Authorities copies of relevant manufacturing data specifically requested by the Filing Party, which is reasonably necessary for the Filing Party to obtain, proceed towards and/or maintain regulatory approval for the Products in accordance with this Agreement
 
 
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5.4         Assistance beyond initial transfer of BTI Technology
 
 
5.4.1
In connection with the performance of this Agreement, each Party will use its best reasonable efforts to provide assistance to the other Party as such other Party may reasonably request if it involves new technology and requires travel to other country or territory.  The requesting Party shall reimburse the reasonable costs and expenses incurred by the assisting Party in providing such assistance.
 
 
5.4.2
The Licensee shall at its discretion register this Agreement with all relevant patent offices or governmental authorities and BTI shall provide all reasonable assistance as may be requested by the Licensee; provided, however, that nothing herein shall be deemed an agreement to transfer or assign ownership to Licensee of any BTI Technology
 
 
5.4.3
If Licensee files for patent protection of any BTI claims, the filing will be made in the name and on behalf of BTI, who shall be identified as the owner of the technology subject to such filing.
 
6.
REPRESENTATIONS, WARRANTIES AND COVENANTS
 
General Representations and Warranties
 
6.1  
Each Party represents and warrants to the other that, as of the Effective Date:
 
6.1.1  
it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and it has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;
 
6.1.2  
it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the authorized representative executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action; and
 
6.1.3  
this Agreement is legally binding upon it and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material applicable law.
 
BTI’s Representations and Warranties
 
6.2
BTI represents and warrants to the Licensee that as of the Effective Date:
 
 
6.2.1
BTI owns and/or has an absolute and unfettered right to all BTI Technology which include patents and know-how that are developed or acquired by or for BTI during the Term as well as what BTI owns or controls as of the Effective Date, a list of which is set out in Exhibit 6, but which may change from time to time as new patents and know-how are obtained;
 
 
6.2.2
BTI Technology is solely and beneficially owned by BTI, and BTI has not placed, or suffered to be placed, any liens, charges or encumbrances on or against the patents or patent applications on the BTI Patents or the BTI Know-how, and that BTI has full right and authority to grant to the Licensee the licenses granted herein with respect to such patents, patent applications and know-how in the Territory.
 
 
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6.2.3
the BTI Patents are valid and existing, and no issued or granted patents within the BTI Patents are invalid or unenforceable to the best of their knowledge;
 
 
6.2.4
BTI has not granted, and will not during the Term grant any right to any Third Party which would conflict with the rights granted to the Licensee hereunder, nor has entered and will not enter any agreement with or assignment to any Third Party nor permit any encumbrance which would be inconsistent or otherwise conflict with the terms of this Agreement;
 
 
6.2.5
BTI has no knowledge that any Third Party has any right, title or interest in or to any of the BTI Technology;
 
 
6.2.6
the BTI Technology to the best of its knowledge is not subject to any litigation, judgments or settlements against or owed by BTI;
 
 
6.2.7
the BTI Technology is not subject to any funding agreement with any government or government agency;
 
 
6.2.8
BTI has disclosed to the Licensee all material information of which BTI is aware as to whether the research, development, manufacture, use, sale, offer for sale or importation of the Products infringes or would infringe issued or granted patents or other intellectual property rights owned by a Third Party, and that the Licensee’s practice, use and exploitation of the BTI Technology in accordance with this Agreement will not infringe or misappropriate any patent rights or other intellectual property rights of any Third Party;
 
6.2.9           BTI has not received any notice of:-
 
(i)  
any threatened claims or litigation or investigations seeking to invalidate or otherwise challenge the BTI Technology or BTI’s rights therein; or
 
(ii)  
alleged infringement of any Third Party patent rights or intellectual property rights in connection with the use and exploitation of the Products;
 
 
6.2.10
none of the BTI Patents are subject to any pending re-examination, opposition, interference or litigation proceedings.  BTI shall provide to the Licensee regular updates of all BTI Patents pertaining to any stage being reached in any of the foregoing events; and for all pending patents granted for BTI technology;
 
 
6.2.11
To the best of BTI’s knowledge, there is no unauthorized use, infringement or misappropriation of any of the BTI Technology by any Third Party in the Territory, including by any current or former employee or consultant of BTI and its Affiliates. BTI shall promptly inform the Licensee of any misappropriation or infringement of the BTI Technology of which BTI becomes aware; and
 
 
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6.2.12
BTI is not aware of any action, suit or inquiry or investigation instituted by any Third Party which questions or threatens the validity of this Agreement.
 
 
6.2.13
BTI declares that all representations, warranties and any other documents (including the Certificated of analysis of SugarDown chewable tablet (Exhibit 8) and the Declarations of Good Manufacturing Practice (Exhibit 9)) are true and accurate.
 
7.  
INDEMNITIES
 
 
7.1     INDEMNIFICATION BY LICENSEE. Licensee shall, up to the maximum amount of its product liability insurance, indemnify, hold harmless and defend BTI, its Affiliates and their respective directors, officers, employees and agents (“BTI Indemnitees”) from and against any and all suits, investigations, claims, costs, demands, liabilities, losses, damages, and expenses, including reasonable attorneys’ fees (collectively, “Losses”) arising from or occurring as a result of a third party’s claim, action, suit, judgment or settlement against a BTI Indemnitee that is due to or based upon: (a) any breach of any representation or warranty of Licensee hereunder; (b) the failure of Licensee to perform any of its duties or obligations set forth in this Agreement; (c) Licensee’s misuse or  adulteration of Product, or combination of Product with other products without BTI’s express acknowledgement and approval, or sale and disposition of Product for applications or uses other than those for which the Product is intended, and (d) any act of gross negligence or intentional misconduct by Licensee or any of its sublicensees in connection with any action or transaction under this Agreement, including the further processing, formulation, storage, labeling, promotion, use or sale of Product while in the possession or control of Licensee or its sublicensees.
 
(i)  
7.2    INDEMNIFICATION BY BTI.  BTI shall, up to the maximum amount of its product liability insurance, indemnify, hold harmless and defend Licensee, its Affiliates and their respective directors, officers, employees and agents (“Advance Indemnitees”) from and against any and all Losses arising from or occurring as a result of a third party’s claim, action, suit, judgment or settlement against an Advance Indemnitee that is due to or based upon: (a) any breach of any representation or warranty of BTI hereunder; (b) the failure of BTI to perform any of its duties or obligations set forth in this Agreement; (c) any act of gross negligence or intentional misconduct by BTI in connection with any action or transaction under this Agreement, including manufacture, testing, handling, packaging, labeling, storage or supply of Product while it is in the possession or control of BTI or its Affiliates. BTI shall have no liability under this Section 7.2 for any infringement based on the use of any Product if the Product is used in a manner or for a purpose for which it was not reasonably intended.  BTI's obligations under this Section 6.2 shall survive termination or expiration of this Agreement.
 
 
8.  
FORECAST OF PRODUCT SUPPLY AND SALES
 
 
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Supply
 
8.1
The Licensee shall have a first priority offer to supply BTI’s requirements for the Products for commercial use in the Additional Territory.  BTI shall, however, retain the right to manufacture or otherwise obtain the Products, in the Additional Territory.
 
8.2
Subject to Clause 8.1, in the event that the Licensee (once manufacturing has commenced) fails to accept any order of BTI for sale of the Products in the Additional Territory or accepts but fails to fulfill such an order, in each case due to an event of Force Majeure that lasts for a continuous period of one hundred and twenty (120) days, BTI shall be permitted to arrange with other manufacturers or suppliers for the fulfillment of such orders (to the extent of any shortfall from the supply of the Products by the Licensee) on any terms that are reasonable.
 
8.3  
Within a reasonable time after Licensee resumes full supply of the Products after an event of Force Majeure BTI shall cease sourcing of Products from manufacturers or suppliers other than Licensee, and shall resume its relationship with Licensee on terms consistent with the terms that preceded the event of Force Majeure
 
Right of First Refusal
 
8.4
Subject to Clause 8.1, in the event that the Licensee is unable to manufacture sufficient Products to meet the orders placed by BTI or its Affiliates (the “BTI Group”) for sale and distribution in the Additional Territory, whether such inability is due to changes in market conditions, regulatory conditions or other factors but excluding an event of Force Majeure, BTI may set up manufacturing facilities in the Additional Territory subject to the Licensee having the right of first refusal to invest in any such manufacturing facilities, either on its own, or together with BTI and other Third Party in such proportion as the Licensee may deem appropriate.  BTI shall determine the terms and conditions, and provide written explanation of the details of such investment and the economic and political reasons justifying the explanation to the Licensee.  The Licensee shall have thirty (30) Business Days from the date of receipt of the written explanation to evaluate the investment and exercise its right of first refusal.
 
Forecasts
 
8.5
Subject to Clause 8.1, no later than three (3) months prior to its second year of commercial sale of the Products, BTI shall provide the Licensee with a twelve-month (12-month) rolling forecast of BTI’s or its designee’s commercial requirements of the Products in the Additional Territory, broken down by month and updated monthly on a rolling twelve-month (12-month) basis, with an allowed monthly variation of twenty percent (20%).
 
8.6
Subject to Section 8.1 and before the Licensee can manufacture the Product on its own, no later than three (3) months prior to its second year of commercial sale of the Products, the Licensee shall provide BTI with a twelve-month (12-month) forecast of the Licensee’s purchase order forecast of the Products in the Territory, broken down by month and updated monthly on a rolling twelve-month (12-month) basis, with an allowed monthly variation of twenty percent (20%) until the Licensee manufactures the Product.
 
 
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Purchase Orders
 
8.7
Subject to Clause 8.1, BTI shall submit purchase orders for the Products that are consistent with quantities forecast in the first three (3) months of each rolling forecast.  All purchase orders submitted shall be agreed upon between BTI and the Licensee and constitute firm orders binding on the Parties.  Payment terms of each Product shall be determined and revised by the Licensee from time to time by mutual agreement. Pricing of sales may be adjusted due to raw material increases supplied by BTI.
 
 
8.8  Subject to Section 8.1, the Licensee shall submit purchase orders for the Products that are consistent with quantities forecast in the first three (3) months of each rolling forecast until the Licensee can manufactures the Product on its own.
 
9.  
BRANDING
 
9.1  
Each Party will be responsible for filing, registering and maintaining its own worldwide brand names and trademarks for the Products, at its own expense.  All Products provided by the Licensee to BTI hereunder shall display the name of the Licensee as manufacturer of such Products.  Each of BTI and the Licensee may use its own brand name, or that of the other Party, to identify the Products.
 
9.2  
If one Party uses the brand name or trademark of the other Party in connection with the Products, the manner of use of the other Party’s brand name and/or trademark (as the case may be) shall first be submitted to the other Party for approval of design, color, and other details, and shall in any event comply with the other Party’s usage and quality control and quality assurance guidelines as reasonably established from time to time and as registered with the competent authority.  All approvals required under this section shall not be unreasonably withheld or delayed.
 
10.  
PROSECUTION AND MAINTENANCE
 
10.1  
BTI shall be responsible for the Prosecution and Maintenance, and all costs and expenses associated therewith, of the BTI Technology worldwide, unless otherwise stated in a mutual agreement in writing. However, in the Territory, the Licensee shall be responsible for all costs.
 
10.2  
BTI shall consult in good faith with the Licensee regarding matters stated in Clause 10.1, including the withdrawal, abandonment or cessation of Prosecution and Maintenance of any BTI Technology covering the Products.  If BTI determines to withdraw, abandon or otherwise cease to Prosecute or Maintain any of the BTI Technology covering the Products, then BTI shall provide the Licensee with one hundred and twenty (120) days’ written notice prior to the date on which such withdrawal, abandonment or cessation of Prosecution and Maintenance would become effective.  In such event, the Licensee shall have the first right, but not the obligation, to take over at the Licensee’s expense the Prosecution and Maintenance of such BTI Technology, and in such event, such BTI Technology shall be assigned to the Licensee at the nominal price of USD1.00 (and such BTI Technology shall thereafter be expressly excluded from the BTI Technology stipulated herein).
 
10.3  
BTI shall provide the Licensee with regular updates and records of all matters stated in Clauses 10.1 and 10.2.
 
 
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10.4  
The Licensee shall have the right to be granted with a license by BTI in relation to any continuation, divisional, re-issues of any of the BTI Patents.
 
11.  
NEW INTELLECTUAL PROPERTY
 
11.1
The Licensee will own all new intellectual property related to the Products that is conceived or reduced to practice by the Licensee during the Term. New IP that is related to improvements modifications, enhancements, etc. to the BTI patents (for example the New Patents as referred in Clause 3.2), upon BTI’s request, the Licensee will grant a royalty-free exclusive license of such new intellectual property to BTI on terms to be agreed between the Parties similar to the terms and conditions in this Agreement
 
11.2
The Licensee shall be required to disclose where improvements to the intellectual property are developed by the Licensee.
 
  11.2.1
  If the new developments are not under or within the BTI claims, the Licensee shall be required to offer the license to the same to BTI on reasonable commercial terms.
 
 
12.  
ENFORCEMENT
 
12.1  
The Licensee shall have the right to determine the appropriate course of action to enforce any patent rights relating to the BTI Technology in the Territory, or otherwise to abate the infringement thereof. The Licensee, upon discovery of an executed or potential patent infringement, shall notify BTI within fourteen (14) days of discovery.  In the event BTI does not take such action as determined by the Licensee in respect of any infringement of the BTI Technology within thirty (30) days of request by the Licensee to do so, the Licensee may take such action in its own name or in the name of BTI and BTI shall provide all assistance and information as the Licensee may request to enable the Licensee to take appropriate action in respect of any infringement of the BTI Technology.  BTI and the Licensee shall each bear one-half (1/2) of the cost and expense of any such action.
 
12.2  
All damage receivables as a result of such actions shall be utilized first to reimburse each Party for the cost and expense of any such action and shall thereafter be equitably allocated between BTI and the Licensee based on the Parties’ relative damages attributable to the underlying claim.
 
13.  
MANUFACTURING FACILITIES
 
13.1  
The Licensee shall purchase or establish and maintain one or more manufacturing facilities for the manufacture of the Products at its own expense.
 
13.2  
Both Parties agree and acknowledge that the manufacturing facilities may be used to manufacture products other than the Products and to manufacture the Products for Third Parties. This right must be exercised within five (5) years or it becomes non-exclusive as to the manufacture. Such manufacturing facility will be in compliance with internationally accepted standards for GMP, FDA, quality control and quality assurance.
 
 
 
Page - 17 -

 
 
13.3  
With regard to a decision on making the investment to establish and maintain one or more manufacturing facilities for the manufacture of the Products, both Parties agree that, prior to the Licensee deciding to proceed with the establishment of the manufacturing facilities,
 
(i)  
BTI has to provide the Licensee a forecast of its purchase orders of the Products; and
 
(ii)  
They should agree on the price of the Products manufactured and supplied by the Licensee to BTI.
 
13.4  
The Licensee shall be responsible for the maintenance and repair of all equipment used in the manufacture of the Products in accordance with applicable laws and consistent with good industry practice.
 
14.  
EVENT OF DEFAULT
 
14.1  
Even if gross default of performance by the Licensee occurs and no execution to cure has been taken in sales or in manufacturing after the receipt of notification of default by BTI, the Licensee shall have the absolute and unfettered right to retain and to continue the use of the BTI Know-How, the BTI Patents, the BTI Technology (collectively “Intellectual Property”) for the research and the manufacturing in the territory of:
 
   14.1.1 any Products which the Licensee obtains/ procures or intends to obtain MAA for (in accordance to Clause 11); and
     
   14.1.2  Any other new products until termination date.
 
14.2  
Further to Clause 14.1 above, the Licensee shall have the right to manufacture only if curable defaults have been cured, to sell and to distribute these new drugs within the Territory, using a brand name other than BTI should BTI so request, and/or at the discretion of the Licensee.
 
14.3  
Subject to Clause 11, BTI shall have the right to continue to use the intellectual property which the Licensee has contributed to the development of and shall have the right to continue to manufacture, distribute and sell the Products which use the intellectual property in any jurisdiction except in the Territory.
 
15.  
CONFIDENTIALITY
 
15.1  
Except to the extent expressly authorized by this Agreement or otherwise agreed by the Parties in writing, the Parties agree that the receiving Party shall keep confidential and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement any confidential or proprietary information or materials furnished to it by the other Party pursuant to this Agreement (collectively, “Confidential Information”) or the terms and conditions of this Agreement.  Notwithstanding the foregoing, Confidential Information shall not be deemed to include information or materials to the extent that it can be established by written documentation by the receiving Party that such information or material:

 
Page - 18 -

 
 
     (i)  
was already known to or possessed by the receiving Party, other than under an obligation of confidentiality (except to the extent such obligation has expired or an exception is applicable under the relevant agreement pursuant to which such obligation established), at the time of disclosure;
 
 
 
(ii)
was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;
 
 
(ii)
became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;
 
 
(iv)
was independently developed by the receiving Party as demonstrated by documented evidence prepared contemporaneously with such independent development; or
 
 
(v)
was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others.
 
15.2
Each Party may use and disclose Confidential Information of the other Party or the terms and conditions of this Agreement as follows:
 
 
(i)
under appropriate confidentiality provisions substantially equivalent to those in this Agreement, in connection with the performance of its obligations or exercise of rights granted to such Party in this Agreement;
 
 
(ii)
to the extent such disclosure is reasonably necessary in filing for, prosecuting or maintenance of patents, copyrights and trademarks (including applications therefore) in accordance with this Agreement, complying with the terms of agreements with Third Parties, prosecuting or defending litigation, complying with applicable governmental regulations, filing for, conducting preclinical or clinical trials, obtaining and maintaining regulatory approvals (including MAA), or otherwise required by applicable law or the rules of a recognized stock exchange, provided, however, that if a Party is required by law or stock exchange to make any such disclosure of the other Party’s Confidential Information it will, except where impracticable for necessary disclosures (for example, in the event of medical emergency), give reasonable advance notice to the other Party of such disclosure requirement and, except to the extent inappropriate in the case of patent applications, will use its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed with key financial terms blanked;
 
 
(iii)
in communication with existing investors, contracted consultants, advisors (including financial advisors, lawyers and accountants) and others on a need-to-know basis, in each case under appropriate confidentiality provisions substantially equivalent to those of this Agreement; or
 
 
(iv)
to the extent mutually agreed to by the Parties.
 
 
Page - 19 -

 
16.
TERM
 
16.1  
The term of this Agreement (the “Term”) shall commence on the Effective Date and continue in force on a product-by-product basis with respect to each country anywhere in the world until the later of:-
 
        (i)  
the last of the applicable BTI Patents with valid claims to expire covering a Product in such country expires; or
 
 
 (ii)
seven (7) years after the first material commercial sale of a Product in a particular country, whichever Term is greater
 
 
Paid-Up, Non-Exclusive License on Expiration
 
16.2  
Upon the expiration of this Agreement on a Product-by-Product and a country-by-country basis, the Licensee shall have a non-exclusive, fully paid-up, royalty-free license in such country to research, develop, make, have made, manufacture, use, sell, offer for sale, import and export that particular Product (and to have any of the foregoing activities regarding such Product performed by any Third Party on behalf of the Licensee).
 
17.         TERMINATION
 
17.1         This Agreement can be terminated by a Party (“Non-Defaulting Party”) if and only if: -
 
  (i) the other Party (“Defaulting Party”) fails and/or refuses to pay to the Non-Defaulting Party pursuant to this Agreement and the payment is not settled after serving a twelve (12) months prior written notice to the Defaulting Party; or
     
  (ii) after the manufacturing facilities are established by the Licensee and the Licensee begins to manufacture the Products, the Licensee fails to use its best endeavours to maintain the quality of the Products which is evidenced by a scientific report issued by an international reputable scientific laboratory or university and the Licensee does not cure this and continues to fail in this aspect one hundred and twenty (120) days after receipt of written notice by BTI of such failure.  For the avoidance of doubt, the written notice issued by BTI should enclose the aforesaid evidence and set out the curing measures to be complied with by the Licensee in details; or
     
  (iii) a winding up order is granted by a Court against the Defaulting Party.
     
 
 
18.
DISPUTE RESOLUTION
 
Disputes
 
18.1  
If the Parties are unable to resolve any dispute or other matter arising out of or in connection with this Agreement, either Party may, by written notice to the other Party, have such dispute referred to the Chief Executive Officers of Parties for attempted resolution by good faith negotiations within sixty (60) Business Days after such notice is received.  In such event, each Party shall cause its Chief Executive Officers to meet (face-to-face or by teleconference) and be available to attempt to resolve such issue. If the Parties should resolve such dispute or claim, a memorandum setting forth their agreement will be prepared and signed by both Parties if requested by either Party.  The Parties shall cooperate in an effort to limit the issues for consideration in such manner as narrowly as reasonably practicable in order to resolve the dispute.
 
 
Page - 20 -

 
Arbitration
 
18.2           
In the event that the Parties are unable to resolve any such matter pursuant to Clause 17.1 and 17.2, then either Party may initiate arbitration pursuant to this Clause 18.2.  Any arbitration under this Clause 18.2 shall be conducted by and in accordance with the applicable rules of the International Chamber of Commerce (“ICC”) by a single independent arbitrator with significant experience in arbitrating matters related to biopharmaceutical industry and mutually agreed by the Parties; provided that if the Parties are unable to agree on a single arbitrator within thirty (30) days of notice of the dispute, the arbitrator shall be selected by the senior executive of the ICC in Paris. In such arbitration, the arbitrator shall select an independent technical expert with significant experience relating to the subject matter of such dispute to advise the arbitrator with respect to the subject matter of the dispute.  The place of arbitration shall be in (i) the State of California, USA, if initiated by the Licensee or (ii) Hong Kong, if initiated by BTI.  The costs of such arbitration shall be shared equally by the Parties, and each Party shall bear its own expenses in connection with the arbitration.  The Parties shall use good faith efforts to complete arbitration under this Clause 18.2 within six (6) months following the initiation of such arbitration.  The arbitrator shall establish reasonable additional procedures to facilitate and complete such arbitration within such six (6) month period.  All arbitration proceedings shall be conducted and all evidence and communications shall be in English, provided that any written evidence originally in a language other than English shall, insofar as practicable, is submitted in English translation accompanied by the original or true copy thereof.  Attorney’s fees will be paid to prevailing party.
 
Equitable Relief
 
18.3  
Nothing in this Agreement shall limit the right of either Party to seek to obtain in any court of competent jurisdiction any equitable or interim relief or provisional remedy, including injunctive relief.
 
19.         GOVERNING LAW
 
 
19.1 This Agreement and any dispute arising from the performance or breach hereof (including arbitration proceedings under Clause 18.2) shall be governed by and construed and enforced in accordance with the Laws of the State of California in the U.S., without reference to conflicts of laws principles.
 
20.         MISCELLANEOUS
 
20.1  
Assignment
 
This Agreement shall not be assignable by either Party to any Third Party without the prior written consent of the other Party. Notwithstanding the foregoing, either Party may assign this Agreement, without the written consent of the other Party, (i) to an Affiliate, or (ii) to an entity that acquires all or substantially all of the business or assets of such Party to which this Agreement pertains (whether by merger, reorganization, acquisition, sale or otherwise), and agrees in writing to be bound by the terms and conditions of this Agreement.  No assignment or transfer of this Agreement shall be valid and effective unless and until the assignee/transferee agrees in writing to be bound by the provisions of this Agreement.  The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the Parties.
 
 
Page - 21 -

 
Except as expressly provided in this, any attempted assignment or transfer of this Agreement shall be null and void.
 
20.2  
Notices
 
Any notice, request, delivery, approval or consent required or permitted to be given under this Agreement shall be in writing in the English language and shall be deemed to have been sufficiently given if delivered in person, transmitted by facsimile (receipt verified) or by reputable international -express courier service (signature required) to the Party to which it is directed at its address or facsimile number shown below or such other address or facsimile number as such Party will have last given by written notice to the other Party.
 
If to BTI, addressed to:                                           
 
BOSTON THERAPEUTICS Inc.
33 South Comercial St.
Manchester, NH 03101
Attention:          Ken Tassey Jr.
Telephone:        978.886.0421
Facsimile:           (603) 685-4784

 
If to the Licensee, addressed to:
Advance Pharmaceutical Co. , Ltd
Rm A 2- 3F, Dai Fu Street
Tai Po Industrial Est.
Tai Po, New Territories, Hong Kong
Attention:         Conroy Cheng                                
Telephone:       (852) 2947 0311
Facsimile:          (852) 2432 0106
 
20.3  
Waiver
 
Neither Party may waive or release any of its rights or interests in this Agreement except in writing.  The failure of either Party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition.  No waiver by either Party of any condition or term in any one or more instances shall be construed as a continuing waiver of such condition or term or of another condition or term.
 
 
Page - 22 -

 
20.4  
Severability
 
If any provision hereof should be held invalid, illegal or unenforceable in any jurisdiction, the Parties shall negotiate in good faith a valid, legal and enforceable substitute provision that most nearly reflects the original intent of the Parties and all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the Parties as nearly as may be possible.  Such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of such provision in any other jurisdiction.
 
20.5  
Entire Agreement/Modification
 
This Agreement, including its Exhibits, sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understanding between the Parties and supersedes and terminates all prior agreements and understanding between the Parties.  Subsequent alteration, amendment, change or addition to this Agreement which is agreed upon between the Parties within 60 days of the Effective Date shall be binding upon the Parties if and only if reduced to writing and signed by the respective duly authorized representatives of the Parties.
 
20.6  
Relationship of the Parties
 
The Parties agree that the relationship of BTI and the Licensee established by this Agreement is that of independent contractors.  Furthermore, the Parties agree that this Agreement does not, is not intended to, and shall not be construed to, establish an employment, agency or any other relationship.  Except as may be specifically provided herein, neither Party shall have any right, power or authority, nor shall they represent themselves as having any authority to assume, create or incur any expense, liability or obligation, express or implied, on behalf of the other Party, or otherwise act as an agent for the other Party for any purpose.
 
20.7  
Force Majeure
 
Except with respect to payment of money, neither Party shall be liable to the other for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by earthquake, riot, civil commotion, war, terrorist acts, strike, flood, or governmental acts or restriction, or other cause that is beyond the reasonable control of the respective Party (a “Force Majeure” event).  The Party affected by such Force Majeure event will provide the other Party with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and will use diligent efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable.  If the performance by the affected Party of any obligation under this Agreement is delayed owing to such a Force Majeure event for any continuous period of more than one hundred twenty (120) days, the other, unaffected Party shall have the right to terminate this Agreement upon sixty (60) days’ prior written notice; provided that such Force Majeure event has not ended during such sixty (60) day period.
 
20.8  
Compliance with laws/other
 
Notwithstanding anything to the contrary contained herein, all rights and obligations of BTI and the Licensee are subject to prior compliance with, and each Party shall comply with, all laws, including obtaining all necessary approvals required by the applicable agencies of the governments of the United States, the Territory and foreign jurisdictions.  In addition, each Party shall conduct its activities under this Agreement in accordance with good scientific and business practices.
 
 
Page - 23 -

 
20.9  
Interpretation
 
The captions and headings used in this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement.  Unless otherwise specified to the contrary, references to Clauses or Exhibits mean the particular Clauses or Exhibits of this Agreement, and references to this Agreement include all Exhibits hereto.
 
Unless the context otherwise clearly requires, whenever used in this Agreement:  (i) the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation;” (ii) the word “day” or “year” means a calendar day or year unless otherwise specified; (iii) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement; (iv) the words “hereof,” “herein,” “hereby,” “hereunder” and derivative or similar words refer to this Agreement (including any Exhibits) as a whole, and not to any particular provision of this Agreement; (v) the word “or” shall be construed as the inclusive meaning identified with the phrase “and/or;”(vi) provisions that require that a Party or the Parties “agree,” “consent” or “approve” or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter or otherwise; (vii) words of any gender include all genders; (viii) words using the singular or plural number also include the plural or singular number, respectively; and (ix) references to any specific law, rule or regulation, or article, section or other division thereof, shall be deemed to include the then-current amendments thereto or any replacement law, rule or regulation thereof. Neither Party shall be deemed to be acting “by or under authority” of the other Party for purposes of this Agreement.
 
20.10             
 Counterparts
 
This Agreement may be executed in two or more counterparts by original or facsimile signature, each of which shall be deemed an original, and all of which together, shall constitute one and the same instrument.
 
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their duly authorized representatives as of the Effective Date.
 
 
   
   
 
 ADVANCE PHARMACEUTICAL COMPANY LIMITED
 
 
 
 
 
By: /s/Conroy Cheng__________________
 Name:    Kenneth A Tassey, Jr.    Name:               Conroy Cheng
   
 Title:       Director, President    Title:                   Director
   
   
   
   
 
 
 
 
 
Page - 24 -

 

Exhibit 1

Option Agreement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page - 25 -

 
 
 
Exhibit 2
 
SUGARDOWN Certificate
 
Please see attached.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page - 26 -

 
Exhibit 3
 
List of Prices
 
Please see attached.
 
All manufacturing overheads, selling expenses, labeling and other costs are included in the prices set out, with the exception of sales tax (including VAT) and transfer costs, which the respective buyer shall bear.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page - 27 -

 
[***]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page - 28 -

 
 
 
Exhibit 4
 
Banking Information
 
 
BOSTON THERAPEUTICS, INC.
 
 
Name: BOSTON THERAPEUTICS, Inc
 
 
Bank: [***]
 

 
 
Account Number: [***]
 
 
Routing: [***]
 
 
ADVANCE PHARMACEUTICALS CO., LIMITED
 
 
Name: ZAPP BIOTECHNOLOGY COMPANY LIMITED
 
Bank:  [***]
 
 
Account Number: [***]
 
 
 
 
 

 
 
Page - 29 -

 
 
EXHIBIT 5
 
Reimbursement of Costs
 

 
Costs borne by BTI
Costs borne by the Licensee
 
(Region 1)
Reference/use in Additional Territory other than USA
(Region 2)
Reference/use in USA
(Region 3)
Reference/use in Territory
MAA in Territory
   
[***]%
 
[***]%#
[***]%##
[***]%#
 
[***]%##
[***]*
[***]*
1/3*
MAA in Europe
[***]%
   
[***]%##
 
[***]%#
[***]%##
[***]%#
 
[***]*
[***]*
[***]*
MAA in USA
 
[***]%
 
 
[***]%##
[***]%#
[***]%#
[***]%##
 
[***]*
[***]*
[***]*
 
#
In the event that a MAA is obtained by a first Party in its region and is referenced/used by the second Party in its region or one of its regions, such second Party – in respect of its reference/use in its region of the first Party’s MAA – shall reimburse to the first Party [***] percent ([***]%) of the costs of the first Party’s MAA.  BTI’s costs in Regions 1 and 2 will be similarly treated.
 
##
After reimbursement by the second Party, the costs borne by the first Party which obtained the MAA shall be reduced to [***] percent ([***]%) of the costs of such MAA.
 
*
In the event that the Licensee has previously paid [***]percent ([***]%) of MAA costs to BTI, then upon BTI’s reference/use of such MAA a 3rd region (i.e., reference/use is made by BTI in both the USA and in the Additional Territory), BTI shall repay the Licensee[***] ([***]) of the costs of such MAA, so that the overall result is as follows:  if the Parties reference/use a given MAA in each of the above 3 regions, the Licensee shall bear [***] ([***]) of the costs of such MAA, and BTI shall bear [***] ([***]) of such costs.
 
 
 
 
Page - 30 -

 
 
Exhibit 6
 
List of Patents
 
US Provisional patent #61410609 filed 05-Nov-2010;
 
US patent #5,527,770;
 
US patent #5,681,923;
 
US patent # 5,759,992;
 
US patent # 5891,861:
 
 
US patent # 6,423,314 B2
 
 

 
 
Page - 31 -

 
Exhibit 7
 
List of Products
 
(refer to the definition of Product(s))
 
 
 
 
 
 
 
1.            SUGARDOWN; and
 
2.           SUGARDOWN-related products
 

 

 
 
Page - 32 -

 

 

 
Exhibit 8
 
Certificated of analysis of SugarDown Chewable Tablet
 

 
Please see attached.
 
[***]
 

 
Page - 33 -

 
Exhibit 9

 
Declarations of Good Manufacturing Practice
 

 
Please see attached.
 
[***]]
 
 
 
 
 
Page - 34 -
 


EX-10.9 12 exh10_9.htm EXHIBIT 10.9 exh10_9.htm
 


 
Exhibit 10.9
 

 
EMPLOYMENT AGREEMENT
 
EMPLOYMENT AGREEMENT dated as of August 11, 2011 (the “Effective Date”), by and between BOSTON THERAPEUTICS, INC., a Delaware corporation (the “Company”) and Ken Tassey (the “Executive”).
 
WHEREAS, the Company has employed the Executive as President and Chief Operating Officer, and now desires to memorialize the terms of the employment relationship between the Company and the Executive; and
 
WHEREAS, the Executive is willing to accept his continued employment on the terms hereinafter set forth in this agreement (this “Agreement”);
 
NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties hereby agree as follows:
 
1. Term of Employment.  Subject to and upon the terms and conditions set forth in this agreement, the Executive shall be employed by the Company for an initial period  and ending on December 31, 2012; provided, however, that such period shall be automatically extended for an additional one (1) year period and for an additional year on the last day of each succeeding year thereafter unless the Company or the Executive notifies the other in writing not less than 90 days prior to such termination or anniversary date of its intention not to so extend the Agreement.  The initial period together with any subsequent one-year extension(s), if applicable, shall be referred to hereinafter as the “Employment Term.”
 
2. Position.
 
(a) The Company hereby confirms the engagement of the Executive as President and Chief Operating Officer of the Company for the Employment Term, and the Executive accepts such employment on the terms and conditions set forth in this Agreement.  During the Employment Term, the Executive shall perform such duties and exercise such authority as are commensurate with the duties and authority of a President and Chief Operating Officer and such other reasonable duties as shall be determined from time to time by the Chairman of the Company’s board of directors (the “Chairman”) in his discretion.
 
(b) During the Employment Term, the Executive shall devote all of his business time and best efforts to the performance of his duties for the Company, except as otherwise permitted herein.  The Executive shall act in accordance with the Company’s general policies and procedures applicable to other senior executives consistent with this Agreement and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Chairman.
 
3. Compensation.  During the Employment Term, the Company initially shall pay the Executive a salary (the “Salary”) at an annual rate of $36,000.  Salary shall be payable in regular installments in accordance with the Company’s usual payroll practices.  Salary shall be subject to periodic review and may be increased (but not decreased) from time to time by the Chairman in consultation with the board of directors of the Company. In addition to the Salary, the Company may pay Executive a discretionary bonus at such time or times and in such amounts as the Chairman in consultation with the Board of Directors of the Company may determine.
 
 
 

 
 
4. Employee Benefits.  During the Employment Term, the Executive shall be provided with benefits on the same basis as employee benefits are generally made available to other senior executives of the Company, including for example, health, life and disability insurance and participation in any non-discretionary executive bonus or similar plans, if any.   Nothing in this Agreement shall prevent the Company from amending, terminating or otherwise restructuring the employee benefit plans and arrangements made available to the senior executives of the Company.  The Executive shall be provided with three (3) weeks paid vacation per year and any additional paid days off to which he may be entitled under the Company’s personnel policies.
 
5. Business Expenses.  During the Employment Term, rea­son­able business expenses incurred by the Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with the Company’s policies.
 
6. Termination.  Notwithstanding any other provision of this Agreement:
 
(a) For Cause by the Company.  The Employment Term and the Executive’s employment hereunder may be terminated by the Company for “Cause.”  For purposes of this Agreement, “Cause” shall mean (i) gross neglect of duties, (ii) material dishonesty, fraud, misappropriation or intentional damage to the Company monetarily or otherwise, (iii) engagement in conduct which is demonstrably and materially injurious to the Company, or that materially harms the reputation or financial position of the Company, unless the conduct in question was undertaken in good faith on an informed basis with due care and with a rational business purpose and based upon the belief that such conduct was in the best interests of the Company; (iv) indictment or conviction of, or pleading guilty or no contest to, a felony, (v) conviction of or pleading guilty to a lesser crime or offense involving Company property, (vi) breach of fiduciary duties to the Company which may reasonably be expected to have a material adverse effect on the Company; (vii) obstructing or impeding, or failing to materially cooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity; (viii) violation of any nondisclosure, nonsolicitation, non-hire, or noncompete agreement or policy applicable to Executive which violation may reasonably be expected to have a material adverse effect on the Company or its reputation; (ix) violation of any policy of the Company that is generally applicable to all employees or officers of the Company including, but not limited to, policies concerning insider trading, workplace violence, discrimination, or sexual harassment, or the Company’s code of conduct, that Executive knows or reasonably should know could reasonably be expected to result in a material adverse effect on the Company or its reputation; (x) gross misconduct or misconduct which is repeated after written notice in connection with the performance of his duties; or (xi) any other breach on the part of the Executive which would make continued employment materially prejudicial to the Company, which is repeated after 10 days written notice and 10 day opportunity to cure all as determined in good faith by the Board of Directors of the Company.  The notice required by the prior sentence shall indicate the Company’s intention to terminate the Executive pursuant to this Section 6(a).  If the Executive is terminated for Cause, he shall be entitled to receive his Salary through the date of termination.
 
 
 

 
 
(b) Disability or Death.  The Employment Term and the Executive’s employment hereunder shall terminate upon his death and the Company may terminate the Executive if he becomes physically or mentally incapacitated and is therefore unable for a period of 45 consecutive working days or 75 working days in a six (6) month period to perform his duties (such incapacity is hereinafter referred to as “Disability”).  Any question as to the existence of the Disability of the Executive as to which the Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Executive and the Company.  Such qualified independent physician shall be selected by the Executive and the Company within 30 days of the date that the Company has given the Executive written notice of its intent to terminate the Executive due to his Disability.  Such qualified independent physician shall make a written determination as to the Executive’s Disability within 30 days of his selection.  Notwithstanding the foregoing, if the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician within 45 days of the date that the Company had given the Executive written notice of its intent to terminate the Executive due to his Disability and those two physicians shall select a third who shall make such determination in writing within 30 days of his selection.  The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement.
 
Upon termination of the Executive’s employment hereunder for either Disability or death, the Executive or his estate (as the case may be) shall be entitled to receive (i) any accrued but unpaid Salary through the end of the month in which such termination occurs and (ii) any unpaid non-discretionary bonus for the year prior to the year in which the termination occurs together with such severance as the Executive would have received had this Agreement been terminated by the Executive pursuant to Section 6(d)(ii) below.
 
(c) Termination by the Company Without Cause.  The Employment Term and the Executive’s employment hereunder may be terminated by the Company without “Cause” (other than by reason of Disability) upon Notice of Termination (as defined in Section 6(g) hereof) to the Executive.  In that event, the Executive shall be entitled to receive (A) any accrued but unpaid Salary through the date of such termination, and (B) any accrued but unpaid non-discretionary bonus through the end of the calendar year prior to the calendar year in which such termination occurs.  In addition, if the Executive’s employment is terminated without Cause by the Company during the Employment Term, the Executive shall receive severance in an amount equal to 50% of his annual Salary as in effect as of such termination date.  Such severance shall be paid in a single lump sum.
 
(d) Termination by the Executive or Non-Renewal.  The Employment Term and the Executive’s employment hereunder may be terminated by the Executive for any reason upon Notice of Termination (as defined in Section 6(g) below) to the Company.
 
In the event the Executive terminates his employment with the Company, the Company shall pay to the Executive (A) any accrued but unpaid Salary through the date of such termination, and (B) any unpaid non-discretionary bonus for the calendar year prior to the calendar year in which the termination occurs.  Such payment(s) shall be made to the Executive within fourteen (14) days after the termination date.
 
 
 

 
 
(e) Upon the Executive’s termination pursuant to any of Sections 6(a) - (d), the Executive (or his estate, as the case may be) shall have no further rights, other than those set forth in whichever is applicable of Section 6(a), (b), (c) or (d) to any compensation or any other benefits under this Agreement.  All other benefits, if any, due the Executive following the Executive’s termination of employment pursuant to any of Sections 6(a) - (d) shall be determined in accordance with the plans, policies and practices of the Company.
 
(f) Notwithstanding any other provision of this Agreement, the payments required to be made under this Section 6 (or the acceleration of benefits described in Section 7) shall be made only if the Executive executes a release of claims in the form attached hereto as Exhibit I to this Agreement, or such similar form as the Company may determine, and such release or form, as applicable, has become effective.
 
(g) Notice of Termination.  Any purported termination of the Executive’s employment hereunder by the Executive or the Company shall be communicated by written Notice of Termination to the Company or the Executive, as applicable, in accordance with Section 11(g) hereof 20 days prior to the effective date of such termination (the “Termination Date”); provided, however, that a Notice of Termination provided to the Executive by the Company may provide that such termination shall be (i) effective immediately upon delivery of such Notice of Termination or (ii) at such other time as may be provided in such written Notice of Termination.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific section of this Agreement under which the Executive’s employment is being terminated.  Subject to the terms and conditions of this Agreement, during the period beginning on the date of delivery of the Notice of Termination and ending on the Termination Date, if such a time period shall exist, the Executive shall continue to perform his duties as set forth in this Agreement, and shall also perform such services as determined by the Chairman as may be necessary and appropriate to effectuate a smooth transition to the Executive’s successor, if any.  Notwithstanding the foregoing provisions of this Section 6(g), the Company may suspend the Executive from performing his duties under this Agreement following the delivery by the Company of the Notice of Termination providing for the Executive’s termination of employment.
 
(h) Mitigation/Offset.  Following the termination of his employment under any of the above clauses of this Section 6, the Executive shall have no obligation or duty to seek subsequent employment or engagement as an employee or as a consultant.
 
7. Change of Control.
 
(a) For purposes of this Agreement, the term “Change of Control” means: (i) the closing of the sale of all or substantially all of the Company’s assets as an entirety to any person or related group of persons; (ii) the merger or consolidation of the Company with or into another corporation or the merger or consolidation of another corporation with or into the Company, in either case with the effect that immediately after such transaction the stockholders of the Company immediately prior to such transaction hold less than a majority in interest of the total voting power of the outstanding voting securities of the entity surviving such merger or consolidation; or (iii) the closing of a transaction pursuant to which beneficial ownership of more than 50% of the Company’s outstanding Common Stock (assuming the issuance of Common Stock upon conversion or exercise of all then exercisable conversion or purchase rights of holders of outstanding convertible securities, options, warrants, exchange rights and other rights to acquire Common Stock) is transferred to a single person or entity, or a “group” (within the meaning of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934) of persons or entities, in a single transaction or a series of related transactions.
 
 
 

 
 
(b) If Executive is terminated without Cause within 120 days after a Change of Control, then he shall be entitled to the severance benefit described in Section 6(c).
 
8. Non-Solicitation.
 
The Executive acknowledges and recognizes the highly competitive nature of the business of the Company and its affiliates and accordingly agrees as follows:
 
(a) During the Employment Term and for a period of eighteen (18) months thereafter (the “Restricted Period”), the Executive will not, directly or indirectly, solicit or encourage any employee of the Company to leave the employment of the Company.
 
(b) During the Restricted Period, the Executive will not, directly or indirectly, solicit or encourage any consultant under contract with the Company to cease to work with the Company.
 
9. Non-Competition/Confidentiality.
 
(a) The Executive hereby agrees that he will comply with the Company’s general policies regarding confidentiality.  Without in any way limiting the foregoing sentence, the Executive further agrees that he will not, at any time during or after the Employment Term, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company, which he may have learned in connection with his employment.  For purposes of this Agreement, a “trade or business secret, process, method or means, or any other confidential information” shall mean and include written information treated as confidential or as a trade secret by the Company.  The Executive’s obligation under this Section 9 shall not apply to any information which (i) is known publicly; (ii) is in the public domain or hereafter enters the public domain without the fault of the Executive; (iii) is known to the Executive prior to his receipt of such information from the Company, as evidenced by written records of the Executive or (iv) is hereafter disclosed to the Executive by a third party not under an obligation of confidence to the Company.  The Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Board, any document or other object containing or reflecting any such confidential information.  The Executive recognizes that all such documents and objects, whether developed by him or by someone else, will be the sole exclusive property of the Company.  Except as specifically authorized by the Board upon termination of his employment hereunder, the Executive shall forthwith deliver to the Company all such confidential information, including without limitation all lists of customers, correspondence, accounts, records and any other documents (whether or not electronically or digitally produced) or property made or held by him or under his control in relation to the business or affairs of the Company, and no copy of any such confidential information shall be retained by him.
 
 
 

 
 
(b) During the Restricted Period, the Executive will not directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant, (i) engage in any business for the Executive’s own account that materially competes with the business of the Company, (ii) enter the employ of, or render any services to, any person engaged in any business that materially competes with the business of the Company, (iii) acquire a financial interest in, or otherwise become actively involved with, any person engaged in any business that materially competes with the business of the Company, directly or indirectly, or (iv) interfere with business relationships (whether formed before or after the date of this Agreement) between the Company and customers or suppliers of the Company.  For purposes of this Section 9, the Company shall be construed to include the Company and its majority owned subsidiaries, if any. Notwithstanding the foregoing, nothing in this Section 9 shall be construed to prevent the Executive from owning, as an investment, not more than 1% of a class of equity securities issued by any entity which is publicly traded and registered under the Securities and Exchange Act of 1934.
 
(c) It is expressly understood and agreed that although the Executive and the Company consider the restrictions contained in Sections 8 and 9 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against the Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable.  Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.
 
10. Specific Performance.  The Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of the provisions of Sections 8 or 9 of this Agreement would be inadequate and, in recognition of this fact, the Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.
 
11. Miscellaneous.
 
(a) Governing Law and Dispute Resolution.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.  Any dispute or controversy arising under or in connection with this Agreement, or any breach thereof, shall be resolved and settled exclusively by arbitration, conducted by a single arbitrator sitting in Boston, Massachusetts in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”) pertaining to expedited procedures.  The Company shall bear the cost of the reasonable attorney’s fees and expenses of the Executive connected with the negotiation and enforcement of this Agreement; provided, however, that fees and expenses pertaining to the enforcement of this Agreement shall be limited to $5,000 in the event that an arbitrator renders a decision in favor of the Company and adverse to the Executive.
 
 
 

 
 
(b) Entire Agreement/Amendments.  This Agreement contains the entire understanding of the parties with respect to the employment of the Executive by the Company.  There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein.  This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.
 
(c) No Waiver.  The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
 
(d) Severability.  In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.
 
(e) Assignment.  This Agreement shall not be assignable by the Executive.  This Agreement may be assigned by the Company to a company which is a successor in interest to substantially all of the business operations of the Company.  Such assignment shall become effective when the Company notifies the Executive of such assignment or at such later date as may be specified in such notice provided that any assignee expressly assumes the obligations, rights and privileges of this Agreement.  Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such successor company.
 
(f) Successors; Binding Agreement.  This Agreement shall inure to the benefit of and be binding upon the Company’s and the Executive’s personal or legal representatives, executors, administra­tors, successors, heirs, distributes, devises and legatees.
 
(g) Notice.  For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
 
 
 

 
 

 
To the Company:
 

Attention: CEO
 
To Executive:
 
Ken Tassey
226 Karatzas Ave. #309, Manchester, NH 03101
 
(h) Withholding Taxes.  The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
 
(i) Counterparts.  This Agreement may be signed in two (2) counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
 
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
 
                                   
 

                                                                          
Kenneth A. Tassey, Jr.
Boston Therapeutics, Inc.
By:                                                                             
Title:  CEO                                                                             
 
 
 

 
 
EXHIBIT I
 
GENERAL RELEASE OF ALL CLAIMS
 
This General Release of all Claims (this “Agreement”) is entered into by and between Ken Tassey (the “Executive”) and Boston Therapeutics, Inc. (the “Company”) effective as of August 11, 2011.
 
In consideration of the promises set forth in the employment agreement between the Executive and the Company, dated as of July 1, 2011, as it may have been amended as of the effective date hereof (the “Employment Agreement”), as well as any promises set forth in this Agreement, the Executive and the Company agree as follows:
 
(1)  
Employment Agreement Entitlement.
 
The Company will provide the Executive with the post-termination payments and benefits to which he is entitled pursuant to the Employment Agreement.
 
(2)  
Return of Property.
 
All Company files, access keys, desk keys, ID badges and credit cards, and such other property of the Company as the Company may reasonably request, in the Executive’s possession must be returned promptly following the date of the Executive’s termination from the Company (the “Termination Date”).
 
(3)  
Reasonable Assistance.
 
For a period of one year following the Termination Date, the Executive shall be available subject to reasonable request by the Company to assist the Company in the defense of any claim or litigation matter or other matter which relates to, or arose in connection with, the Executive’s performance of his duties pursuant to the Employment Agreement; provided that such cooperation shall not unreasonably interfere with the Executive’s employment.  The Company will reimburse the Executive for all his reasonable and necessary out-of-pocket expenses incurred by him in rendering the cooperation required under this Section 3 upon receipt by the Company of reasonable substantiation or documentation thereof, such expenses to be paid within 30 days after the Executive’s submission of such costs.  To the extent such cooperation requires the Executive to travel, all travel shall be arranged by the Company in accordance with relevant Company policies.
 
 
 

 
 
(4)  
General Release and Waiver of Claims.
 
Except as provided in the last sentence of this Section (4), the Executive hereby unconditionally and forever releases, discharges and waives any and all claims of any nature whatsoever, whether legal, equitable or otherwise, which the Executive may have against the Company arising at any time on or before the Termination Date, other than with respect to the obligations of the Company to the Executive under the Employment Agreement.  This release of claims extends to any and all claims of any nature whatsoever, other than with respect to the obligations of the Company to the Executive under the Employment Agreement, whether known, unknown or capable or incapable of being known as of the Termination Date of thereafter.  This Agreement is a release of all claims of any nature whatsoever by the Executive against the Company, other than with respect to the obligations of the Company to the Executive under the Employment Agreement and this Agreement, and includes, other than as herein provided herein, any and all claims, demands, causes of action, liabilities whether known or unknown including those caused by, arising from or related to the Executive’s employment relationship with the Company including, but without limitation and by way of example only, any and all alleged discrimination or acts of discrimination which occurred or may have occurred on or before the Termination Date based upon race, color, sex, creed, national origin, age, disability or any other violation of any Equal Employment Opportunity Law, ordinance, rule, regulation or order, including, but not limited to and by way of example only, Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended (as further described in Section 5 below); the Americans with Disabilities Act; the Massachusetts Fair Employment Practices Act, M.G.L. c. 151B; the Massachusetts Civil Rights Act; the Massachusetts Equal Rights Law; the Massachusetts Payment of Wages Statute; Chapters 149 through 154 of the Massachusetts General Laws; claims under the Employee Retirement Income Security Act (“ERISA”) (except with respect to vested benefits); or any other federal, state or local laws or regulations regarding employment discrimination or termination of employment.  This also includes claims for wrongful discharge, fraud in the inducement of employment or continuation of employment or employment related misrepresentation or any other misrepresentation under any statute, rule, regulation or under the common law.  This also includes the release, discharge and waiver of any claim which the Executive may have against any shareholder, employee, director or officer of the Company arising at any time on or before the Termination Date in respect of any matter described above, which is related in any way to the Executive’s employment with the Company or the termination of such employment.  The Executive expressly agrees and understands that this release and waiver of claims is a GENERAL RELEASE, and that any reference to specific claims arising out of or in connection with his employment is not intended to limit the release and waiver of claims.
 
The Executive agrees and understands and knowingly agrees to this release because it is his intent in executing this Agreement to forever discharge the Company from any and all present, future, foreseen or unforeseen causes of action except for the obligations of the Company set forth in the Employment Agreement and this Agreement.
 
 
 

 
 
This release shall not, however, have any effect with respect to any vested right the Executive or his beneficiaries may have regarding any employee benefit plan subject to regulation by ERISA in which the Executive is or was a participant.
 
(5)  
Release and Waiver of Claims Under the Age Discrimination in Employment Act.
 
The Executive acknowledges that the Company encouraged him to consult with an attorney of his choosing, and through this Agreement encourages him to consult with his attorney with respect to possible claims under the Age Discrimination in Employment Act of 1967, as amended (“ADEA”) and that the Executive acknowledges that he understands that the ADEA is a federal statute that prohibits discrimination, on the basis of age, in employment, benefits, and benefit plans.  The Executive wishes to waive any and all claims under the ADEA that he may have, as of the Termination Date, against the Company, its shareholders, employees, or successors and hereby waives such claims.  The Executive further understands that by signing this Agreement he is in fact waiving, releasing and forever giving up any claim under the ADEA that may have existed on or prior to the Termination Date.  The Executive acknowledges that the Company has informed him that he has at his option, twenty-one (21) days in which to sign the waiver of this claim under ADEA, and he does hereby knowingly and voluntarily waive said twenty-one (21) day period.  The Executive also understands that he has seven (7) days following the Termination Date within which to revoke the release contained in this section by providing a written notice of his revocation of the release and waiver contained in this section to the Company.  The Executive further understands that this right to revoke the release contained in this section relates only to this section and does not act as a revocation of any other term of this Agreement.
 
(6)  
Proceedings.
 
The Executive has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim or proceeding against the Company before any local, state or federal agency, court or other body relating to his employment or the termination of his employment, other than with respect to the obligations of the Company to the Executive under Sections 6 and 7 of the Employment Agreement (each individually, a “Proceeding”), and agrees not to voluntarily participate in any Proceeding.  The Executive waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any Proceeding.
 
 
 

 
 
(7)  
Remedies.
 
In the event the Executive initiates or voluntarily participates in any Proceeding, or if he fails to abide by any of the terms of this Agreement, or if he revokes the ADEA release contained in Section 5 of this Agreement within the seven-day period provided under Section 5, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him under the termination provisions of the Employment Agreement or terminate any benefits or payments that are subsequently due under the Employment Agreement, without waiving the release granted herein.  The Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Employment Agreement or his obligations under Sections 4, and 5 of this Agreement would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms.  Accordingly, the Executive acknowledges, consents and agrees that, in addition to any other rights or remedies which the Company may have at law, in equity or under this Agreement, upon adequate proof of his violation of any such provision of this Agreement, the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage.
 
The Executive understands that by entering into this Agreement he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.
 
(8)  
Severability Clause.
 
In the event any provision or part of this Agreement is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire agreement, will be inoperative.
 
(9)  
Non-Admission.
 
Nothing contained in this Agreement will be deemed or construed as an admission of wrongdoing or liability on the part of the Company nor on the part of the Executive.
 
(10)  
Governing Law.
 
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed in that State; Any dispute or controversy arising under or in connection with this Agreement, or any breach thereof, shall be resolved and settled exclusively by arbitration, conducted by a single arbitrator sitting in Boston, Massachusetts in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”) pertaining to expedited procedures.
 
 
 

 
 
(11)  
Notices.
 
For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth immediately below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
 
To Company:
Boston Therapeutics, Inc.
Attn:
 
   
To Executive:
Ken Tassey
[ADDRESS]
 
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
 
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the date first set forth above.

 
                       
    ___________________________________
    Kenneth A. Tassey, Jr.
 
 


EX-23.1 13 exh23_1.htm EXHIBIT 23.1 exh23_1.htm


                                
Exhibit 23.1



Consent of Independent Registered Public Accounting Firm

We consent to the use in this Registration Statement on Form S-1 of Boston Therapeutics, Inc. of our report dated March 30, 2012, relating to our audits of the financial statements for the years ended December 31, 2011 and 2010, appearing in the Prospectus, which is part of this Registration Statement.  Our report dated March 30, 2012 relating to the financial statements includes an emphasis paragraph relating to an uncertainty as to the Company's ability to continue as a going concern.

We also consent to the reference to our firm under the captions "Experts" in such Prospectus.

 
/s/ McGladrey LLP

Boston, Massachusetts
September 21, 2012
 
 


 


EX-23.2 14 exh23_2.htm EXHIBIT 23.2 exh23_2.htm
 



Exhibit 23.2
 

 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




We consent to the use in this Registration Statement on Form S-1 of Boston Therapeutics, Inc. (formerly AVANYX Therapeutics, Inc.) of our report dated September 27, 2010 relating to our audit of the statement of operations, changes in stockholders’ deficit and cash flows for the period from inception (August 24, 2009) to December 31, 2009 (not separately presented herein), appearing in the Prospectus, which is part of this Registration Statement.  Our report dated September 27, 2010 expresses an unqualified opinion and includes an emphasis paragraph relating to an uncertainty as to the Company's ability to continue as a going concern.
 
We also consent to the reference to our firm under the captions "Experts" in such Prospectus.



Caturano and Company, Inc.

Boston, Massachusetts
September 21, 2012




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(the &#147;Company&#148;) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the &#147;Merger Agreement&#148;) with Boston Therapeutics, Inc., a New Hampshire corporation (&#147;Target&#148;) providing for the merger of Target into the Company with the Company being the surviving entity (the &#147;Merger&#148;), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of Target in exchange for 100% of the outstanding common stock of Target, and the change of the Company&#146;s name to Boston Therapeutics, Inc. David Platt, the Company&#146;s Chief Executive Officer and Chief Financial Officer, is a founder of Target and was a director and minority stockholder of Target at the time of the Merger. Dr. Platt received 400,000 shares of the Company&#146;s common stock in connection with the Merger. Kenneth A. 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STOCK OPTION PLAN AND STOCK-BASED COMPENSATION (Details)
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Notes to Financial Statements    
Risk-free interest rate, Minimum 43.00% 60.00%
Risk-free interest rate, Maximum 1.27% 0.84%
Expected dividend yield 0.00% 0.00%
Volatility factor 90.00% 90.00%
Expected life of option, Minimum 3 years 1 month 24 days 4 years 9 months
Expected life of option, Maximum 7 years 10 years

XML 28 R9.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 4 - STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

 

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of June 30, 2012 and 2011, there were 78,400 and 499,637 and options outstanding under the 2010 Plan, respectively.

 

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock.  As of June 30, 2012, there were 1,800,000 options outstanding under the 2011 Plan. There were no options outstanding as of June 30, 2011 under the 2011 Plan.

 

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options expire ten years from the date of grant.

 

The fair value of stock options granted or revalued for six months ended June 30, 2012 and 2011 was calculated with the following assumptions:

 

 

  2012   2011
Risk-free interest rate 0.43-1.27%   0.60-0.84%
Expected dividend yield 0%   0%
Volatility factor 90%   90%
Expected life of option 3.15-7.0 years   4.75-10.0 years

 

 

The weighted-average fair value of stock options granted during the periods ended June 30, 2012 and 2011, under the Black-Scholes option pricing model was $0.21 and $0.21 per share, respectively.

 

The Company recognized $43,384 and $4,261 of stock-based compensation costs in the accompanying statement of operations for the three months ended June 30, 2012 and 2011, respectively. The Company recognized $116,866 and $13,118 of stock-based compensation costs in the accompanying statement of operations for the six months ended June 30, 2012 and 2011, respectively. No actual tax benefit was realized from stock option exercises during these periods. As of June 30, 2012, there was $317,270 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.6 years.

 

The following table summarizes the activity under the Stock Plans: 

 

  Shares   Exercise Price Per Share   Weighted Average Exercise Price
Outstanding as of December 31, 2011 1,578,400           $   0.10 – 1.85   $                    0.19
    Granted 300,000   0.10   0.10
    Exercised -                            -                               -
    Options forfeited/cancelled               -         -                            -                               -
Outstanding as of June 30, 2012 1,878,400   $    0.10 – 1.85   $                    0.17

 

The following table summarizes information about stock options that are vested or expected to vest at June 30, 2012:

 

Vested or Expected to Vest  Exercisable Options
Exercise
Price
  Number of
Options
  Weighted
Average
Exercise
Price Per
Share
  Weighted
Average
Remaining
Contractual
Life (Years)
  Aggregate
Intrinsic
Value
  Number of
Shares
Exercisable
  Weighted
Average
Exercise Price
Per Share
  Weighted
Average
Remaining
Contractual
Life (Years)
$0.10    1,800,000    0.10    4.41   $738,000    1,093,750    0.10    4.50   $448,438 
 1.85    78,400    1.85    3.15    —      58,800    1.85    3.15    —   
                                           
 $0.10– 1.85    1,878,400    0.17    4.36   $738,000    1,152,550    0.19    4.43   $448,438 
                                           

 

At June 30, 2012, the Company has 300,000 and 4,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.

 

 

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of December 31, 2011, there were 78,400 options outstanding under the 2010 Plan.

 

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock.  As of December 31, 2011, there were 1,500,000 options outstanding under the 2011 Plan.

 

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options expire ten years from the date of grant.

  

The following table summarizes the activity under the Stock Plans.

 

    Shares     Exercise Price Per Share    

Weighted 

Average Exercise Price

 
                   
Balance at December 31, 2009     -     $ -     $ -  
                         
Granted     78,400       1.85       1.85  
Exercised     -               -  
Options forfeited/cancelled     -       -       -  
Outstanding, December 31, 2010     78,400       1.85       1.85  
                         
Granted     1,921,237     0.10 to 0.25       0.13  
Exercised     -               -  
Options forfeited/cancelled     (421,237 )     0.25       0.25  
Outstanding, December 31, 2011     1,578,400     $ 0.10 to 1.85     $ 0.19  

 

The following table summarizes information about stock options that are vested or expected to vest at December 31, 2011:

 

         Vested or Expected to Vest     Exercisable Options  

Exercise

Price

   

Number of

Options

   

Weighted

Average

Exercise

Price Per

Share

   

Weighted

Average

Remaining

Contractual

Life (Years)

   

Aggregate

Intrinsic

Value

   

Number of

Shares

Exercisable

   

Weighted

Average

Exercise Price

Per Share

   

Weighted

Average

Remaining

Contractual

Life (Years)

   

Aggregate

Intrinsic

Value

 
$ 0.10       1,500,000       0.10       4.75     $ 219,900       656,250       0.10       4.75     $ 96,206  
  1.85       78,400       1.85       3.75       -       39,200       1.85       3.75       -  
                                                                     
$ 0.10– 1.85       1,578,400       0.19       4.70     $ 219,900       695,450       0.20       4.69     $ 96,206  

 

The weighted-average remaining contractual life for options exercisable at December 31, 2011 is 4.70 years. At December 31, 2011 the Company has 600,000 and 4,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.

 

The intrinsic value for fully vested, exercisable options was $96,206 and $0 at December 31, 2011 and 2010, respectively.  No actual tax benefit was realized from stock option exercises during these periods.

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STOCKHOLDERS' EQUITY
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 3 - STOCKHOLDERS' EQUITY

 

The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 100,000,000 shares of its $0.001 par value common stock.

 

Common Stock

 

On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders.  Eight million shares were issued to the Company’s Chief Executive Officer (CEO), Chairman of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP.  As a result, the value of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009.  The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.

 

On March 31, 2010, the Company issued 20,000 shares of common stock for $10,000 cash to an investor.  On April 9, 2010, the Company issued 11,236 shares of common stock in exchange for $11,236 to a related party.  On October 4, 2010, the Company issued 10,000 shares for $10,000 cash to an investor.  On November 6, 2010, the Company issued 4,000,000 shares of common stock in connection with the merger transaction described in Note 1.

 

On June 21, 2011, the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement.  On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250.  On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000.

 

On March 20, 2012 the Company entered into a subscription agreement to sell 20,000 shares of common stock at price per share of $1.10 and issue a warrant to purchase an additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000.   The warrant associated with the subscription agreement is exercisable immediately and has five year term.  The Company estimated the relative fair value of the warrant to be $9,000 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. On May 7, 2012, the subscription agreement closed and the Company issued 20,000 shares of its common stock for $22,000.

 

  

During June 2012, the Company issued 105,000 shares of its common stock in exchange for professional consulting services valued at $25,000. On June 29, 2012, the Company issued 1,000,000 shares to an affiliate of Advance Pharmaceutical Co., Ltd. (APC) in a private placement for net proceeds of $500,000. APC is licensed to distribute SUGARDOWN® in Hong Kong, China and Macau.  The Company reviewed the private placement issuance and determined that the issuance price of $0.50 per share approximates fair value as of the date of issuance.  No other issuances of preferred or common stock have been made during the period cover by the accompanying financial statements.

 

The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 100,000,000 shares of its $0.001 par value common stock.

 

Preferred Stock

 

No shares of preferred stock have been issued and the terms of such preferred stock have not been designated by the Board of Directors.

 

Common Stock

 

On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders. Eight million shares were issued to the Company’s Chief Executive Officer (CEO), Chairman of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP. As a result, the value of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009. The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.

 

On March 31, 2010, the Company issued 20,000 shares of common stock for $10,000 cash to an investor. On April 9, 2010, the Company issued 11,236 shares of common stock in exchange for $11,236 to a related party. On October 4, 2010, the Company issued 10,000 shares for $10,000 cash to an investor. On November 6, 2010, the Company issued 4,000,000 shares of common stock in connection with the merger transaction described in Note 7.

 

On June 21, 2011, the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement. On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250. On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000. No other issuances of preferred or common stock have been made.

 

 

XML 31 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
Balance Sheets (USD $)
Jun. 30, 2012
Dec. 31, 2011
Dec. 31, 2010
ASSETS      
Cash $ 417,510 $ 225,995 $ 15,193
Prepaid expenses 5,495 5,331 1,728
Inventory, net 24,726 23,596 4,149
Total current assets 447,731 254,922 21,070
Property and equipment, net 4,297      
Intangible assets 792,857 825,000 889,286
Goodwill 69,782 69,782 69,782
Other assets 2,125      
Total assets 1,316,792 1,149,704 980,138
LIABILITIES AND STOCKHOLDERS' EQUITY      
Accounts payable 335,954 341,873 45,917
Accrued expenses and other current liabilities 133,851 125,316 222,512
Total current liabilities 469,805 467,189 268,429
Advances - related party 297,820 257,820 177,820
Total liabilities 767,625 725,009 446,249
Stockholders' equity:      
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding 0 0 0
Common stock, $0.001 par value, 100,000,000 shares authorized, 17,348,206 and 16,223,206 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively 17,348 16,223 14,041
Additional paid-in capital 2,284,497 1,621,756 905,964
Deficit accumulated during the development stage (1,752,678) (1,213,284) (386,116)
Total stockholders' equity 549,167 424,695 533,889
Total liabilities and stockholders' equity $ 1,316,792 $ 1,149,704 $ 980,138
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GENERAL ORGANIZATION AND BUSINESS
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 1 - GENERAL ORGANIZATION AND BUSINESS

 Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“Target”) providing for the merger of Target into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of Target in exchange for 100% of the outstanding common stock of Target, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of Target and was a director and minority stockholder of Target at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of Target at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger. Boston Therapeutics, headquartered in Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: SUGARDOWN®, a non-systemic chewable complex carbohydrate dietary supplement designed to moderate post-meal blood glucose; PAZ320, a non- systemic chewable therapeutic compound designed to reduce post-meal glucose elevation, and IPOXYN™, an injectable anti-hypoxia drug specifically designed to treat lower limb ischemia associated with diabetes. More information is available at www.bostonti.com. The Company has minimal operations and is considered to be in the development stage as of June 30, 2012. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity with limited resources and operating history. As shown in the accompanying financial statements, the Company has incurred net losses of $1,752,678 for the period from August 24, 2009 (inception) to June 30, 2012 and has negative working capital of $22,074 as of June 30, 2012. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“Target”) providing for the merger of Target into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of Target in exchange for 100% of the outstanding common stock of Target, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of Target and was a director and minority stockholder of Target at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of Target at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger. The Company’s primary business is the development and commercialization of therapeutic drugs and dietary supplements to treat diabetes and inflammatory diseases. We are currently focusing on three products: SUGARDOWN®, a complex carbohydrate-based chewable dietary supplement that we are currently marketing, PAZ320, a non-systemic, chewable drug candidate for reduction of blood glucose in diabetics currently in Phase ll clinical trial, and IPOXYN™, an injectable anti-hypoxia drug that we are currently developing to treat lower limb ischemia. The Company has minimal operations and is considered to be in the development stage as of December 31, 2011. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity with limited resources and operating history. As shown in the accompanying financial statements, the Company has incurred net losses of $1,213,284 for the period from August 24, 2009 (inception) to December 31, 2011 and has negative working capital of $212,267 as of December 31, 2011. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

XML 33 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
INTANGIBLE ASSETS (Details Narrative) (USD $)
3 Months Ended 6 Months Ended 12 Months Ended 28 Months Ended 34 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Jun. 30, 2012
Notes to Financial Statements                
Useful lives of intangible assets     14 years          
Amortization expense $ 16,071 $ 16,071 $ 32,143 $ 32,143 $ 64,286 $ 10,714 $ 75,000 $ 107,143
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COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $)
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
Monthly installment payments in year1 $ 2,125
Monthly installment payments in year2 2,208
Monthly installment payments in year3 2,292
Total future contractual obligation $ 79,500
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SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

Basis of Presentation The financial statements have been prepared in conformity with accounting principles generally accepting in the United States of America (“US GAAP”). Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Segment Information Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment. Cash and Cash Equivalents For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents. The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation. Revenue Recognition The Company generates revenues from sales of SUGARDOWN®. Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured. Revenue is recognized as product is shipped from an outside fulfillment operation. Terms of product sales contain no contractual rights of return or multiple elements. In practice, the Company has not experienced or granted returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales. Inventory Inventory consists of raw materials and finished goods of SUGARDOWN®. Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This adjustment for the years ended December 31, 2011 and 2010 was $1,667 and $0, respectively. The Company continues to monitor the valuation of its inventories. Intangible Assets Intangible assets consist of identifiable finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition. Certain acquired intangible assets, including developed technology, products and trade names, are amortized over their economic useful lives on a straight line basis. Goodwill The Company tests goodwill for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The test is based on a comparison of the reporting unit’s book value to its estimated fair value. The Company has concluded that no impairment existed at the 2011 testing date. A considerable amount of judgment is required in calculating this impairment analysis, principally in determining financial forecasts and discount rates. Differences in actual cash flows as compared to the discounted cash flows could require the Company to record an impairment loss in the future. Impairment of Long-lived Assets The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made. Loss per Share Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the years ended December 31, 2011 and 2010 did not include consideration of 1,578,400 and 78,400 common stock options, respectively, because of their anti-dilutive effect. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the gross deferred tax asset will not be realized. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature. The carrying value of the notes payable as of December 31, 2011 and 2010, is not materially different from the fair value of the notes payable. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash and cash equivalent balances with financial institutions that occasionally exceed federally insured limits. The Company has not experienced any losses related to these balances, and management believes its credit risk to be minimal. Stock-Based Compensation Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straightline basis over the vesting period of the award. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of the common stock as, and as such volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vesting period, based on awards that are ultimately expected to vest. The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period. The fair value of stock options granted was calculated with the following assumptions: [insert table] The weighted-average fair value of stock options granted during the years ended December 31, 2011 and 2010, under the Black-Scholes option pricing model was $0.20 and $0.08 per share, respectively. For the years ended December 31, 2011 and 2010, the Company recorded stock-based compensation expense of $149,727 and $122, respectively, in connection with share-based payment awards. As of December 31, 2011, there was $172,953 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.1 years. Recent Accounting Pronouncements Accounting Standards Update (“ASU”) 2010-28, Intangibles – Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts - a consensus of the FASB Emerging Issues Task Force, modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

 

 

 

 

 

 

 

 

 

 

  Basis of Presentation The financial statements have been prepared in conformity with accounting principles generally accepting in the United States of America (“US GAAP”). Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Segment Information Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment. Cash and Cash Equivalents For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents. The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation. Revenue Recognition The Company generates revenues from sales of SUGARDOWN®. Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured. Revenue is recognized as product is shipped from an outside fulfillment operation. Terms of product sales contain no contractual rights of return or multiple elements. In practice, the Company has not experienced or granted returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales. Inventory Inventory consists of raw materials and finished goods of SUGARDOWN®. Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This adjustment for the years ended December 31, 2011 and 2010 was $1,667 and $0, respectively. The Company continues to monitor the valuation of its inventories. Intangible Assets Intangible assets consist of identifiable finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition. Certain acquired intangible assets, including developed technology, products and trade names, are amortized over their economic useful lives on a straight line basis. Goodwill The Company tests goodwill for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The test is based on a comparison of the reporting unit’s book value to its estimated fair value. The Company has concluded that no impairment existed at the 2011 testing date. A considerable amount of judgment is required in calculating this impairment analysis, principally in determining financial forecasts and discount rates. Differences in actual cash flows as compared to the discounted cash flows could require the Company to record an impairment loss in the future. Impairment of Long-lived Assets The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made. Loss per Share Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the years ended December 31, 2011 and 2010 did not include consideration of 1,578,400 and 78,400 common stock options, respectively, because of their anti-dilutive effect. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the gross deferred tax asset will not be realized. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature. The carrying value of the notes payable as of December 31, 2011 and 2010, is not materially different from the fair value of the notes payable. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash and cash equivalent balances with financial institutions that occasionally exceed federally insured limits. The Company has not experienced any losses related to these balances, and management believes its credit risk to be minimal. Stock-Based Compensation Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straightline basis over the vesting period of the award. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of the common stock as, and as such volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vesting period, based on awards that are ultimately expected to vest. The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period. The fair value of stock options granted was calculated with the following assumptions: [insert table] The weighted-average fair value of stock options granted during the years ended December 31, 2011 and 2010, under the Black-Scholes option pricing model was $0.20 and $0.08 per share, respectively. For the years ended December 31, 2011 and 2010, the Company recorded stock-based compensation expense of $149,727 and $122, respectively, in connection with share-based payment awards. As of December 31, 2011, there was $172,953 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.1 years. Recent Accounting Pronouncements Accounting Standards Update (“ASU”) 2010-28, Intangibles – Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts - a consensus of the FASB Emerging Issues Task Force, modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

XML 37 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Balance Sheets (Parenthetical) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Dec. 31, 2010
Stockholders' equity :      
Preferred Stock, par or stated value $ 0.001 $ 0.001 $ 0.001
Preferred Stock, shares authorized 5,000,000 5,000,000 5,000,000
Preferred Stock, shares issued         
Preferred Stock, shares outstanding         
Common Stock, par or stated value $ 0.001 $ 0.001 $ 0.001
Common Stock, shares authorized 100,000,000 100,000,000 100,000,000
Common Stock, shares issued 17,348,206 16,223,206 14,041,236
Common Stock, shares outstanding 17,348,206 16,223,206 14,041,236
XML 38 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
GENERAL ORGANIZATION AND BUSINESS (Details Narrative) (USD $)
3 Months Ended 6 Months Ended 12 Months Ended 28 Months Ended 34 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Jun. 30, 2012
General Organization And Business Details Narrative                
Net loss incured $ (281,989) $ (96,697) $ (539,394) $ (192,716) $ (827,168) $ (248,295) $ (1,213,284) $ (1,752,678)
Net working capital     $ (22,074)          
XML 39 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
6 Months Ended
Jun. 30, 2012
Document And Entity Information  
Entity Registrant Name Boston Therapeutics, Inc.
Entity Central Index Key 0001473579
Document Type S-1
Document Period End Date Jun. 30, 2012
Amendment Flag false
Current Fiscal Year End Date --12-31
Is Entity a Well-known Seasoned Issuer? No
Is Entity a Voluntary Filer? No
Is Entity's Reporting Status Current? Yes
Entity Filer Category Smaller Reporting Company
XML 40 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Details Narrative) (USD $)
6 Months Ended 3 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended
Jun. 30, 2012
Integer
Dec. 31, 2011
Jun. 30, 2012
Stock Options [Member]
Jun. 30, 2011
Stock Options [Member]
Jun. 30, 2012
Stock Options [Member]
Jun. 30, 2011
Stock Options [Member]
Jun. 30, 2012
Warrant [Member]
Jun. 30, 2011
Warrant [Member]
Jun. 30, 2012
Warrant [Member]
Jun. 30, 2011
Warrant [Member]
Jun. 30, 2012
Office Furniture and Equipment [Member]
Jun. 30, 2012
Computer Equipment and Software [Member]
Estimated useful life of assets                     5 years 3 years
Number of operating segments 1                      
Maximum maturity period of highly liquid investments 90 days                      
Term of money back gaurantee on product sale 30 days                      
Inventory reserve $ 1,667 $ 1,667                    
Weighted average number of common shares excluded from calculation     1,898,400 1,898,400 1,898,400 1,898,400 138,577 138,577 138,577 138,577    
XML 41 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
Statements of Operations (USD $)
3 Months Ended 6 Months Ended 12 Months Ended 28 Months Ended 34 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Jun. 30, 2012
Income Statement [Abstract]                
Revenue $ 2,376 $ 1,767 $ 21,230 $ 2,247 $ 4,112 $ 428 $ 4,540 $ 25,770
Cost of goods sold 4,162 1,287 2,250 31,757 6,375 398 6,773 38,530
Gross margin (1,786) 480 (3) (10,527) (2,263) 30 (2,233) (12,760)
Research and development 67,924 16,072 33,211 119,552 194,276 10,772 205,048 324,600
Sales and marketing 66,898 1,542 1,997 134,078 206,517 3,676 210,193 344,271
General and administrative 139,435 75,459 150,295 263,971 408,454 226,790 772,138 1,036,109
Total operating expenses 274,257 93,073 185,503 517,601 809,247 241,238 1,187,379 1,704,980
Operating loss (276,043) (92,593) (185,506) (528,128) (811,510) (241,208) (1,189,612) (1,717,740)
Interest Expense (4,178) (4,104) (7,210) (8,356) 15,658 7,087 23,672 (32,028)
Foreign currency loss (1,768)    (2,910)             (2,910)
Net loss $ (281,989) $ (96,697) $ (539,394) $ (192,716) $ (827,168) $ (248,295) $ (1,213,284) $ (1,752,678)
Net loss per share - basic and diluted $ (0.02) $ (0.01) $ (0.03) $ (0.01) $ (0.05) $ (0.02)    
Weighted average shares outstanding - basic and diluted 16,287,381 14,264,914 16,255,293 14,153,075 15,147,196 10,699,567    
XML 42 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
COMMITMENTS AND CONTINGENCIES
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company entered into a three year lease agreement for their office facility commencing August 1, 2012 which requires monthly installment payments of $2,125 in year one, $2,208 in year two and $2,292 in year three. The lease continues through July 31, 2015 for a total future contractual obligation of $79,500.

 During the three months ended March 31, 2011, the Company entered into an agreement with a consultant whereby the consultant accrued monthly fees, commencing February 15, 2011, of $10,000 to be paid should the Company raise $1,000,000 in equity capital from investors prior to January 15, 2012.  The Company terminated the agreement with the consultant in the quarter ended June 30, 2011.  The Company did not raise $1,000,000 in equity capital prior to January 15, 2012, and as a result the Company is not obligated to pay the consultant $25,000 under the terms of the agreement as of the date of termination.  

 

The Company entered into a lease agreement for their office facility in December 2011 which require monthly installment payments of $557 through June 30, 2012 for a total future contractual obligation of $3,342.

XML 43 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
INTANGIBLE ASSETS
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 6 - INTANGIBLE ASSETS

The SUGARDOWN® technology and provisional patents are being amortized on a straight-line basis over their useful lives of 14 years.  Goodwill is not amortized, but is evaluated annually for impairment.

 

Intangible assets consist of the following at June 30, 2012 and December 31, 2011:

 

    2012     2011  
SUGARDOWN® technology and provisional patents   $ 900,000     $ 900,000  
Less accumulated amortization     (107,143 )     (75,000 )
Intangible assets, net   $ 792,857     $ 825,000  

 

 

Amortization expense was $16,071 and $32,143 for the three and six months ended June 30, 2012 and 2011, respectively.

 

The SUGARDOWN® technology and provisional patents, which were obtained through the acquisition of the Target in 2010 are being amortized on a straight-line basis over their estimated useful lives of 14 years. 

 

Intangible assets consist of the following:

 

   December 31, 
   2011   2010 
SUGARDOWN® technology and provisional patents  $900,000   $900,000 
Less accumulated amortization   (75,000)   (10,714)
Intangible assets, net  $825,000   $889,286 

  

Amortization expense for the years ended December 31, 2011 and 2010, was $64,286 and $10,714, respectively.

 

The estimated remaining amortization expense related to intangible assets with finite lives for each of the five succeeding years and thereafter is as follows:

 

 Year ending December 31:      
       
 2012   $ 64,286  
 2013     64,286  
 2014     64,286  
 2015     64,286  
 2016     64,286  
 Thereafter        503,570  
    $   825,000  

XML 44 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENTS (Details Narrative) (USD $)
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
Outstanding notes $ 297,820
Consultation fee in cash 4,000
Consultation fee in shares 7,500
Increase in consultation fee $ 5,000
Increase in consultation fee in shares 7,500
XML 45 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCKHOLDERS' EQUITY (Details Narrative) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Dec. 31, 2010
Notes to Financial Statements      
Preferred Stock, shares authorized 5,000,000 5,000,000 5,000,000
Preferred Stock, par or stated value $ 0.001 $ 0.001 $ 0.001
Common Stock, par or stated value $ 0.001 $ 0.001 $ 0.001
Common Stock, shares authorized 100,000,000 100,000,000 100,000,000
XML 46 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCK OPTION PLAN AND STOCK-BASED COMPENSATION (Tables)
6 Months Ended
Jun. 30, 2012
Stock Option Plan And Stock-Based Compensation Tables  
Assumptions for fair value of stock options

The fair value of stock options granted or revalued for six months ended June 30, 2012 and 2011 was calculated with the following assumptions:

 

 

  2012   2011
Risk-free interest rate 0.43-1.27%   0.60-0.84%
Expected dividend yield 0%   0%
Volatility factor 90%   90%
Expected life of option 3.15-7.0 years   4.75-10.0 years

Activity under Stock Plans

The following table summarizes the activity under the Stock Plans: 

 

  Shares   Exercise Price Per Share   Weighted Average Exercise Price
Outstanding as of December 31, 2011 1,578,400           $   0.10 – 1.85   $                    0.19
    Granted 300,000   0.10   0.10
    Exercised -                            -                               -
    Options forfeited/cancelled               -         -                            -                               -
Outstanding as of June 30, 2012 1,878,400   $    0.10 – 1.85   $                    0.17

 

Information about stock options vested or expected to vest

The following table summarizes information about stock options that are vested or expected to vest at June 30, 2012:

 

Vested or Expected to Vest  Exercisable Options
Exercise
Price
  Number of
Options
  Weighted
Average
Exercise
Price Per
Share
  Weighted
Average
Remaining
Contractual
Life (Years)
  Aggregate
Intrinsic
Value
  Number of
Shares
Exercisable
  Weighted
Average
Exercise Price
Per Share
  Weighted
Average
Remaining
Contractual
Life (Years)
$0.10    1,800,000    0.10    4.41   $738,000    1,093,750    0.10    4.50   $448,438 
 1.85    78,400    1.85    3.15    —      58,800    1.85    3.15    —   
                                           
 $0.10– 1.85    1,878,400    0.17    4.36   $738,000    1,152,550    0.19    4.43   $448,438 
                                           

 

XML 47 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENTS
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 8 - SUBSEQUENT EVENTS

The Company has evaluated events and transactions that occurred from June 30, 2012 through the date of filing, for possible disclosure and recognition in the financial statements. Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.

 

On August 6, 2012, the outstanding notes of $297,820 were amended to extend the various maturity dates to June 29, 2014.

 

On July 8, 2012, the Company entered into a consulting agreement whereby the Company will pay the consultant a combination of $4,000 cash and 7,500 shares of restricted stock per month during the first 90 days, with an increase to $5,000 cash and 7,500 shares of restricted stock per month if the agreement extends beyond the first 90 days.  The agreement is on a month-to-month basis.

 

 On September 1, 2012, the Company granted a consultant a non-qualified stock option to purchase up to 500,000 shares of the Company’s common stock at an exercise price of $0.51 per share. The option has a 7 year term and vests 25% upon grant with the balance vesting in 6 equal quarterly installments at the end of each calendar quarter starting on December 31, 2012.

 

 The Company has evaluated events and transactions that occurred from December 31, 2011 through the date of filing, for possible disclosure and recognition in the financial statements.  Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.

 

On January 16, 2012, the outstanding notes of $257,820 were amended to extend  the various maturity dates to June 29, 2013.

 

On January 1, 2012 the Company issued a non-qualified stock option under the 2011 Plan to a consultant to purchase up to 200,000 shares of common stock at an exercise price of $0.10 per share. 

 

On February 1, 2012 the Company issued a non-qualified stock option under the 2011 Plan to a consultant to purchase up to 100,000 shares of common stock at an exercise price of $0.10 per share. 

 

XML 48 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Policies)
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information and the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q. It is suggested that these condensed financial statements be read in conjunction with the Company's financial statements for its year ended December 31, 2011 included in its Form 10-K. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of June 30, 2012 and the results of operations for the three month period ended June 30, 2012 and 2011 and the period from inception (August 24, 2009) through June 30, 2012.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Segment Information

Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.

Cash and Cash Equivalents

For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents.

 

The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation.

 

Accounts Receivable

Accounts receivable is stated at the amount management expects to collect from outstanding balances. Management establishes a reserve for doubtful accounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off against the allowance. Based on management's assessment, no allowance was necessary as of June 30, 2012.

Revenue Recognition

The Company generates revenues from sales of SUGARDOWN®.  Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured

 

Revenue is recognized as product is shipped from an outside fulfillment operation.  Terms of product sales provide for 30 day money back guarantee.  In practice, the Company has not experienced or granted returns of product.  Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.

Inventory

Inventory consists of raw materials and finished goods of SUGARDOWN®. Inventory is stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This reserve was $1,667 at June 30, 2012 and December 31, 2011. The Company continues to monitor the valuation of its inventories.

Property and Equipment

Property and equipment is depreciated using the straight-line method over the following estimated useful lives:

 

 

 

Asset Category Estimated Useful Life
Office Furniture and Equipment 5 years
Computer Equipment and Software 3 years

 

 

 

The Company begins to depreciate assets when they are placed in service. The costs of repairs and maintenance are expensed as incurred; major renewals and betterments are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations.

 

Goodwill

The Company follows the guidance of Financial Accounting Standards Board (FASB) Accounting    Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually.

Impairment of Long-lived Assets

The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made.

Loss per Share

Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method.    The weighted average number of common shares for the three and six months ended June 30, 2012 and 2011 did not include 1,898,400 and 138,577 options and warrants, respectively, because of their anti-dilutive effect.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.

 

The carrying value of the notes payable as of June 30, 2012 and December 31, 2011 is not materially different from the fair value of the notes payable.

Stock-Based Compensation

Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight-line basis over the vesting period of the award.

 

The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of the common stock as, and as such volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vesting period, based on awards that are ultimately expected to vest.

 

The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period.

Recent Accounting Pronouncements

Accounting Standards Update (“ASU”) 2010-28, Intangibles – Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts - a consensus of the FASB Emerging Issues Task Force, modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.

 

This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

XML 49 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
INTANGIBLE ASSETS (Tables)
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
Intangible assets consist

Intangible assets consist of the following at June 30, 2012 and December 31, 2011:

 

    2012     2011  
SUGARDOWN® technology and provisional patents   $ 900,000     $ 900,000  
Less accumulated amortization     (107,143 )     (75,000 )
Intangible assets, net   $ 792,857     $ 825,000  

 

XML 50 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
INTANGIBLE ASSETS (Details) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Intangible assets consist    
SUGARDOWN technology and provisional patents $ 900,000 $ 900,000
Less accumulated amortization (107,143) (75,000)
Intangible assets, net $ 792,857 $ 825,000
XML 51 R26.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCK OPTION PLAN AND STOCK-BASED COMPENSATION (Details 1) (USD $)
6 Months Ended
Jun. 30, 2012
Stock Option Plan And Stock-Based Compensation Details 1  
Outstanding as of December 31, 2011, Shares 1,578,400
Granted, Shares 300,000
Exercised, Shares   
Options forfeited/cancelled, Shares   
Outstanding as of June 30, 2012, Shares 1,878,400
Outstanding as of December 31, 2011, Exercise Price Per Share, Minimum $ 0.1
Outstanding as of December 31, 2011, Exercise Price Per Share, Maximum $ 1.85
Granted, Exercise Price Per Share $ 0.1
Exercised, Exercise Price Per Share   
Options forfeited/cancelled, Exercise Price Per Share   
Outstanding as of June 30, 2012, Exercise Price Per Share, Minimum $ 0.1
Outstanding as of June 30, 2012, Exercise Price Per Share, Maximum $ 1.85
Outstanding as of December 31, 2011, Weighted Average Exercise Price $ 0.19
Granted, Weighted Average Exercise Price $ 0.1
Exercised, Weighted Average Exercise Price   
Options forfeited/cancelled, Weighted Average Exercise Price   
Outstanding as of June 30, 2012, Weighted Average Exercise Price $ 0.17
XML 52 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
Statements of Cash Flows (USD $)
6 Months Ended 12 Months Ended 28 Months Ended 34 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Jun. 30, 2012
Cash flows from operating activities:            
Net loss $ (539,394) $ (192,716) $ (827,168) $ (248,295) $ (1,213,284) $ (1,752,678)
Adjustments to reconcile net loss to cash used in operating activities:            
Amortization of intangible assets 32,143 32,143 64,286 10,714 75,000 107,143
Stock based compensation 116,866 13,118 149,727 122 149,849 266,715
Issuance of common stock in exchange for consulting services 25,000    45,250 0 45,250 70,250
Changes in:            
Inventory (1,130) (10,280) (19,447) 221 (19,226) (20,356)
Prepaid expenses (164) 18 (3,603) 1,189 (2,414) (2,578)
Other assets (2,125)            (2,125)
Accounts payable (5,919) 157,046 295,956 (2,337) 341,873 335,954
Accrued expenses 8,535 (154,112) (97,196) 121,416 78,497 87,032
Net cash used in operating activities (366,188) (154,783) (392,195) (116,970) (544,455) (910,643)
Cash flows from investing activities:            
Purchase of property and equipment (4,297)             (4,297)
Net cash acquired in acquisition of Boston Therapeutics, Inc.       0 8,397 8,397 8,397
Net cash (used in) provided by investing activities (4,297)    0 8,397 8,397 4,100
Cash flows from financing activities            
Proceeds from advances - related parties 40,000 80,000 80,000 69,000 197,820 237,820
Proceeds from issuance of common stock - related party       0 11,236 21,236 21,236
Proceeds from issuance of common stock 522,000 500,000 522,997 20,000 542,997 1,064,997
Net cash provided by financing activities 562,000 580,000 602,997 100,236 762,053 1,324,053
Net increase in cash and cash equivalents 191,515 425,217 210,802 (8,337) 225,995 417,510
Cash and cash equivalents, beginning of period 225,995 15,193 15,193 23,530      
Cash and cash equivalents, end of period 417,510 440,410 225,995 15,193 225,995 417,510
Supplemental disclosure of cash flow information:            
Cash paid during the period for:Interest       0 0 0   
Cash paid during the period for:Income taxes       0 0 0   
Acquisition of Boston Therapeutics, Inc.:            
Fair value of assets acquired       0 985,466 985,466 985,466
Subscription receivable    8,867       8,867
Assumed liabilities       $ 0 $ (106,819) $ (106,819) $ (106,819)
Fair value of common stock issued       0 878,647 878,647 878,647
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RELATED PARTY TRANSACTIONS
6 Months Ended 12 Months Ended
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
NOTE 5 - RELATED PARTY TRANSACTIONS

Through December 31, 2011, the CEO advanced $197,820 to the Company and $60,000 to Target to fund start-up costs and operations of the Company and Target. Advances by the CEO carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, the Company’s CEO and COO entered into promissory notes to advance to the Company an aggregate of $40,000. These notes also accrue interest at 6.5% per year and are due June 30, 2013. As of June 30, 2012, and December 31, 2011, $33,996 and $25,641, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet. On August 6, 2012, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2014. The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital.

Since inception, the CEO has advanced $197,820 to the Company and $60,000 to Target to fund start-up costs and operations of the Company and Target.  The liability for Target advances was assumed by the Company upon closing of the Merger described in Note 7. These advances had a scheduled maturity date of  June 30, 2012 and carry an annual interest rate of 6.5%.  As of December 31, 2011 and 2010, $25,641 and $9,983 of accrued interest, respectively, is included in accrued expenses on the accompanying balance sheet.  The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital. As discussed in Note 11, the Advances were amended subsequent to the year ended December 31, 2011 to extend the maturity dates to June 29, 2013.

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STOCK OPTION PLAN AND STOCK-BASED COMPENSATION (Details 2) (USD $)
Jun. 30, 2012
Vested or Expected to Vest  
Exercise Price $0.1-1.85
Number of Options 1,878,400
Weighted Average Exercise Price Per Share $ 0.17
Weighted Average Remaining Contractual Life (Years) 4 years 4 months 10 days
Exercisable Options  
Number of Shares Exercisable 1,152,550
Weighted Average Exercise Price Per Share $ 0.19
Weighted Average Remaining Contractual Life (Years) 4 years 5 months 5 days
Aggregate Intrinsic Value $ 448,438
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RELATED PARTY TRANSACTIONS (Details Narrative) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Notes to Financial Statements    
Advance from CEO of company $ 197,820 $ 60,000
Percentage of interest rate on advance from CEO 6.50%  
Accrued interest included in accrued expenses $ 33,996 $ 25,641