We have financed our operations primarily through private sales of equity
securities. As of September 30, 2004, we raised approximately $274,000 from the
sale of common stock and certain services for stock. Subsequent to September 30,
2004, we raised $200,000 in loans that were subsequently converted into to
stock.
Management expects to incur substantial expense in implementing its business
plan. The pace of this implementation will depend, in large part, on the ongoing
cash position. Management believes that the net proceeds of the offering,
together with our available cash, will be sufficient to meet our operating
expenses and capital requirements for at least twelve (12) months following
completion of this Prospectus. However, these expectations are based on certain
assumptions concerning the costs involved in purchase of equipment and hiring of
personnel for the establishment of the preliminary test site and the collection
of data from that site. These assumptions concern future events and
circumstances that management believes to be significant to our operations and
upon which its working capital requirements will depend. Some assumptions will
invariably not materialize and some unanticipated events and circumstances
occurring subsequent to the date of this Prospectus.
In addition, we require additional funding in order to achieve our operating
objectives. Such funding will be necessary for us to develop and expand the
"professional" and "direct-to-consumer" marketing strategies we have selected
for sale of our personal care products.
PLAN OF OPERATION
Upon the closing of the offering, we intend to commence scale-up, testing,
manufacturing and commercial sales of our personal care products and product
lines.
Upon completion of the preliminary laboratory studies and clinical studies, we
intend to market our products. Commencement and expansion of sales and marketing
activities will require funds to begin marketing initiatives, advertising and
public relations efforts and development of association alliances, as well as to
increase sales staff headcount and tradeshow attendance. In all likelihood,
additional financing will be required to conduct full-scale sales and marketing
activities.
Our plan assumes the completion of this offering in the first quarter of 2005
and includes the following activities over the next 12 months:
14
(i) The establishment of pilot and commercial scale manufacturing
facilities for the specialized biomass to be used in the final
product including the purchasing and installing of equipment and
hiring of personnel The pilot scale process includes propagating the
engineered plants, harvesting the biomass and extracting and drying
the protein product. This process is expected to provide sufficient
material for dermatological studies and initial marketing and sales;
(ii) Expansion of a genetic database for personal care ingredients. These
data will be used to design formulations based on the variations in
human genetic sequences identified through analysis of the database.
Formulations are planned to be developed that are reflective of the
genetic makeup of the intended user, or population group represented
by the intended user;
(iii) Brief clinical studies with collaborating dermatologists or testing
laboratories will be undertaken to evaluate the performance of a
tropoelastin formulation;
(iv) Formulation and manufacturing of finished product using Contract
manufacturing facilities for production, blending, quality analysis
and finishing of our products. The Company will provide the dried
plant extract to be incorporated into the final finished product;
and
(v) Establish a sales and marketing organization to market, distribute,
and fulfill a proprietary line personal care products, and/or joint
venture with existing organizations that can distribute the product.
If we begin to accrue meaningful amounts of revenues from the sales of products
to third parties, we may need additional capital to finance its accounts
receivable. The amount of funds required to finance revenue growth will depend
upon the rate of sales growth, the timeliness of payments from customers, the
availability of receivables and inventory financing from third parties, and the
extent to which we permit (and our customers select) financing arrangements
other than payment upon delivery. The terms of the arrangements (including
payment timing) with any third-party finance company, and the frequency with
which such company allows, and its customers select, such arrangements, will
have a direct impact upon our working capital needs.
IMPACT OF INFLATION
To date inflationary factors have not had a significant effect on our
operations. We are not aware of any material trend, event or capital commitment,
which would potentially adversely affect liquidity.
OTHER:
Except for historical information contained herein, the matters set forth above
are forward-looking statements that involve certain risks and uncertainties that
could cause actual results to differ from those in the forward-looking
statements. Potential risks and uncertainties include such factors as the level
of business and consumer spending, the amount of sales of our products, the
competitive environment within our industry, the ability to continue to expand
our operations, the level of costs incurred in connection with our expansion
efforts, economic conditions and the financial strength of our customers and
suppliers.
15
BUSINESS
HISTORY AND DEVELOPMENT
We were incorporated pursuant to the laws of Delaware on May 17, 2004 under the
name DermaPlus, Inc.
THE SCIENCE BEHIND OUR PRODUCTS
DermaPlus is a development stage skin care company that produces, designs and
synthesizes protein polymers and incorporates them into uniquely formulated
personal care products.
These protein polymers make up the Extracellular Matrix, a complex structural
entity which surrounds and supports cells that are found within human tissues.
The polymers include molecules such as elastin, laminin, keratin, fibrin and
collagen. Together they impart strength and elasticity to the skin, lung,
arteries, and other tissues. At present the Company synthesizes human
tropoelastin, the precursor to elastin, but anticipates producing other
Extracellular Matrix proteins in the future.
We intend to create anti-aging products that incorporate human tropoelastin
formulated specifically for users based on their genetic makeup. Unlike the
array of products on the market today that reduce the appearance of wrinkles
through sophisticated moisturizing and plumping, our products are the first to
provide human tropoelastin to the skin surface.
We believe that a fraction of human tropoelastin, when combined with carrier
agents and applied to the skin surface will penetrate the outer epidermal layer.
Once within the biochemical environment of the skin, the human-identical
tropoelastin is expected to become incorporated into the extracellular matrix
and increase the elastin content of the skin, reducing the appearance of
superficial wrinkles. We are currently conducting tests with contract
laboratories to establish the exact degree of tropoelastin absorption by skin.
We also intend to conduct safety and efficacy trials with human volunteers in
the future.
Many Extracellular Matrix proteins exist in the skin in more than one form,
reflecting the variable genetic makeup of human tissues. These combinations of
forms are unexpectedly complex and differ from tissue to tissue, with age and
from individual to individual. We have developed and continue to improve upon a
method of collecting data on the multiple forms (polymorphs) of human elastin
and is in the process of assembling a private database of tropoelastin genetic
sequences from human skin samples. This database will be used to guide the
manufacture of polymorphic tropoelastin preparations that match the genetic
characteristics of a selected or specified population group.
The personal care products containing these tropoelastin polymorphs will be the
first that can be specifically formulated for increased compatibility with the
skin of the user based on their genetic makeup. Benefits of this increased
compatibility include a lower chance of skin sensitivity and increased product
efficacy.
Currently, human tropoelastin and other Extracellular Matrix proteins are
synthesized by fermentation and available only in research quantities. When
produced through fermentation, they are far too scarce and expensive even to be
considered as an important ingredient in a personal care product. As far as we
are aware, no other similar materials are currently available in personal care
products. We have designed and contracted the construction of a proprietary gene
that can be incorporated into a green plant and cause the plant to synthesize
human tropoelastin as it grows. We believe that these plants can be grown
hydroponically in an enclosed facility, harvested and the human tropoelastin
extracted at a yield sufficient to provide the large volumes and low costs
necessary for use of this material in personal care products. We plan to
manufacture other Extracellular Matrix proteins using this method in the future.
We have a contractor currently assembling the engineered plants to be used in
the manufacturing process. We intend to scale up the tropoelastin manufacturing
processing in leased facilities.
MARKET OPPORTUNITY
The world market for wrinkle-reducing cosmeceutical products totaled $14.5
billion in 2003, an increase of 9.5% over the previous year. By 2008, this
global market is projected to reach $21.7 billion, based on a forecasted
compound annual growth rate (CAGR) of 8.4% from 2003 to 2008 (as reported by
Theta Reports Cosmeceuticals: Global Marketing & Breakthrough Therapies Report
No. 1246 June 2004).
16
The general aging of populations is expected continue to drive the market. Our
patented processes for the design and production of personal care products
provides a competitive advantage in this market.
Another attractive market segment is US ethnic personal care markets. It has
become a major source of revenue with 1996 sales estimated at $970 million (C&E
News, April 12, 2000). Formulations designed for specific ethnic groups
currently have double-digit sales growth rates. DermaPlus plans to compete
directly in those segments.
BUSINESS STRATEGY
We intend to develop a cosmeceutical business based on customized personal care
ingredients identical to those in human skin. We intend to evaluate sales of our
products through trial marketing efforts conducted in-house and sales via
dermatologists and spas. As our independent cosmeceutical business grows, we
will evaluate how to best increase its profitability. Marketing efforts will be
bolstered by laboratory and clinical studies supporting product performance
claims.
Cosmeceutical skin-care products can be sold through the same channels that
currently sell cosmetics, allowing for the difference in markets between
cosmetics and cosmeceuticals. For example, health and natural food stores hold a
significant share of the anti-aging products retail market, followed by chain
drugstores and mass merchandisers, but they are not nearly as large in the
anti-aging cosmeceutical products category. The main cosmeceutical distribution
channels and some of their characteristics are:
Prestige Products. The most important distribution channel for prestige products
is the cosmetics departments of department stores. The balance is sold in
specialty shops, beauty salons, dispensing dermatologists, fitness centers and
personal care practitioners that all sell special brands of personal care
ingredients.
Interestingly, department stores, although they are a major purveyor of upscale
skin-care products, are not currently the major sellers of other anti-aging
products. The dermatology business is very competitive. The market in the
developed countries of the world is supplied by over one hundred companies. This
segment is a target for DermaPlus' personal care ingredients because high costs
will not deter those that are able to afford our more expensive, but also more
effective, products.
Mass Market. Mass retailers, such as drugstores, discount stores and
supermarkets, together have a large share. Chain drugstores are the leading mass
channel, although supermarkets and mass merchandisers are growing rapidly. As
part of the overall trend to devote more shelf space to skin-care products,
retailers are allocating more shelf space to cosmeceutical products and are
expanding their assortment. They often cross-merchandise cosmeceuticals in the
cosmetics and skin-care sections.
Direct Sales Market. Direct Sales comprises door-to-door, mail order, catalogue,
multilevel marketing and television ordering and infomercials. This is the other
segment that DermaPlus will pursue early on by negotiating agreements with one
or more multilevel marketing companies, and by selling proprietary ingredients
on a non-exclusive basis.
Mail order customers are reached through print and electronic advertising and
through web sites on the Internet. Multilevel marketing organizations, such as
NuSkin International, sell products that generally cannot be obtained in stores.
Television has rapidly growing consumer appeal and is ideally suited for
"concept" products, such as MatrixDesign's. We will actively explore the
opportunities of selling products with its ingredients to companies advertising
on television channels, such as QVC.
17
Our marketing efforts will not be solely product - related. Since our personal
care ingredients, based on human proteins and biotechnology, is a new concept,
we will use the national media attention to focus on our story. We will also
increase industry awareness of our products through advertising and trade shows.
Alternatives approaches to developing these products include to contract for
proprietary manufacturing, introduce additional products related to existing
ones, explore new product areas, expand to other domestic markets and/or grow
internationally. Marketing is anticipated to be Direct To Consumer, as this is
the most effective method of making the customer aware of "the story" involving
elastin and other human polymers. Actual sales will be carried out through DTC
and selected third parties such as spas and dermatologists and multilevel
marketing organizations. Because these products can eventually be designed to
match the genetic profile of the intended customer, product design is intended
to be integrated with a marketing plan. The product will at some point in the
future literally contain a material design based on analysis of the intended
customer's elastin genetic profile. A marketing effort calculated to exploit
this novel factor would follow several steps:
(i) A target customer population in a specific area will be identified (Example
- Hispanic women aged 35 - 60 living in East Los Angeles);
(ii) Samples taken from a representative population of this group will be
analyzed for a characteristic pattern of elastin polymorphisms in the mRNA;
(iii) An elastin product closely matching or identical to the pattern
established by the mRNA analysis will be manufactured in plants and formulated
into a skin care product. This product will "be" the customer at the molecular
level;
(iv) A simultaneous marketing analysis of this group will be carried out to
identify preferences, buying patterns, pricing, advertising, sales locations;
(v) A marketing campaign aimed specifically at this customer group will be
planned and executed; and
(vi) Initial product launch and sales will be monitored and adjusted to maximize
the efficiency in expanded efforts to additional target population groups.
Competition. The US cosmetic skin-care market is highly segmented, with few
major national competitors. Only four companies; Estee Lauder, Procter & Gamble,
L'Oreal and Lever-Ponds have more than a 5% share of the market. Market shares
generally are divided on a producer and regional basis as well as by means of
distribution. In addition, there are a large number of in-house and toll
manufacturers that produce cosmetic ingredients. These ingredients are generally
inexpensive to manufacture, but often are ineffective.
Major competitors in each distribution channel are:
Prestige Sales. Cosmetic houses are the primary marketers of prestige
cosmeceutical product lines. These range from privately held independents, such
as Estee Lauder, to divisions of conglomerates, such as Elizabeth Arden, a
division of Unilever.
Direct Sales. Large personal care catalog companies, such as Avon and Mary Kay,
lead the group of alternative marketers. Niche marketers, which specialize in
anti-aging treatments, include CCA, Chantel Pharmaceuticals and University
Medical.
Mass Market. Pharmacia & Upjohn and Cosmair are leaders in the mass market.
Other large players are Unilever, Scott, Beiersdorff, Johnson & Johnson and
others, including private label companies. There are myriad mid to small size
cosmetic marketers and formulators.
The growing ethnic markets have attracted the attention of both specialized and
mainstream marketers. Whereas mainstream marketers, such as Cosmair and Procter
& Gamble, tend to target ethnic consumers through line extensions rather than
separate brands, smaller ethnic skin-care marketers formulate specific products
for Africans, Hispanics and Asians.
18
Some of the more important activities in the developing cosmeceutical market
are:
o Clinique is now offering stop signs, an anti-aging serum containing
select botanical ingredients, vitamins and anti-oxidants available
at Neiman Marcus.
o Biotec is promoting Skin Life Formula Q10 which contains plant
collagen (Natto Gum) plant albumin, superphyco D and coenzyme Q10
(Source: Biotec, USA Research Technology and Beauty 33101 New Mexico
Ave, NW Washington, DC 20016, 877-364-9577).
o Princess Marcella Borghese is offering Spa Lift For Face with
bio-engineered involucrin-protein complex, which is claimed to mimic
the involucrin protein in skin cells (Mirabella, April, 1993 p.
112).
o Shiseido has established an Institute for Advanced Skin Research in
Tokyo, and OSI Pharmaceuticals, New York University and Pfizer
recently formed Anaderm, Inc. (Uniondale, NY) to apply modern drug
discovery tools in finding pharmacological agents for cosmetic use,
according to Arthur Bruskin, VP of drug discovery.
o Senetek PLC (Napa, CA) has developed Kinetin, a plant hormone that
retards aging in plants and delays age-related changes in cultured
human skin cells. Kinetin has shown good-to-excellent response in
partially reversing the clinical signs of photo-damaged facial skin.
o Kinetin is a key ingredient in skin care products sold by Osmotics
(Denver, CO) at upscale department stores and in products
distributed through dermatologists by ICN Pharmaceuticals (Costa
Mesa, CA) (GEN May 1, 2000 pp. 45).
Manufacturing Process. We are developing and testing a manufacturing process for
growing transgenic plants in water without soil. These plants will produce the
desired human biopolymers during the growth process. The initial planned
capacity will be sufficient to exceed expected demand.
We intend to transition to a contract grower to cultivate the plants from seed
supplied by us. The plant material containing the desired cosmeceutical would be
dried and then shipped to a manufacturer for formulation and bottling. We do not
currently have contracts with contract growing or formulation/bottling.
Intellectual Property and Proprietary Rights. We hold the exclusive rights to
two issued United States patents covering tropoelastin isomorphs as cosmetic
ingredients. Exclusive rights to these patents have been licensed to us. We will
receive assignments or excusive licenses to pending patents and believes that
the issued and pending patents will enable it to establish an advantage position
in personal care ingredients. We expect that future improvements and discoveries
will be covered by additional patent applications.
Government Regulation
The formulation, manufacturing, processing, packaging, labeling, advertising,
distribution and sale of personal care ingredients such as those being sold by
us are subject to regulation by a number of federal, state and foreign agencies,
principally, the Food and Drug Administration ("FDA") and the Federal Trade
Commission ("FTC"). Among other matters, such regulation is concerned with
health claims made with respect to a product that assert the healing or health
value of such product. Such agencies have a variety of remedies and processes
available to them, including initiating investigations, issuing warning letters
and cease and desist orders, requiring corrective labels or advertising,
requiring consumer redress (for example, by requiring that a company offer to
repurchase products previously sold to consumers), seeking injunctive relief or
product seizure, imposing civil penalties, or commencing criminal prosecution.
Federal and state agencies have in the past used these remedies in regulating
participants in the personal care industry, including the imposition by federal
agencies of civil penalties in the millions of dollars against a few industry
participants. In addition, increased sales and publicity of personal care
products may result in increased regulatory scrutiny of the industry. There can
be no assurance that the regulatory environment in which we operate will not
change or that such regulatory environment, or any specific action taken against
us, will not result in a material adverse effect on our business, financial
condition or results of operations.
EMPLOYEES
Currently, we have one paid employee and is not covered by an ongoing collective
bargaining agreement and the relationship between DermaPlus one employee is
considered good.
19
COMPANY LOCATION AND FACILITIES
Our executive office address is 372 Fifth Avenue, New York, NY 10018. We intend
to lease additional manufacturing and laboratory space as the need arises. We
may require a larger office space as our business develops commercial
activities. Management believes there is an adequate supply of suitable office
space available for lease on terms that are acceptable.
SEASONALITY
We do not anticipate our business being seasonal in nature.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding nor are there any legal
actions contemplated by us at this time.
MANAGEMENT
DIRECTORS
Presently, we have three persons serving on our Board of Directors.
NAME AGE POSITION
---- --- --------
Burt D. Ensley 55 Director, President, Chief Financial Officer
Lorenzo A. DeLuca 54 Director
Amy Diamond 48 Director
BACKGROUND OF OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
BURT D ENSLEY has been a Director of the Company since its inception. From 2000
to the present, Dr. Ensley has served as the VP of Research and President of
NuCycle Therapy, a subsidiary of Integrated BioPharma, a publicly traded (INB)
nutraceutical Company. From 1993 through 2000, Dr. Ensley was President, Chief
Executive Officer and Director of Phytotech, Inc. A phytoremediation company.
Phytotech was sold in 2000. From 1989 through 1992, Dr. Ensley served as
Director of Advanced Technology at Envirogen, Inc., a microbial based
bio-remediation company. From 1981 to 1989, Dr. Ensley headed the Specialty
Chemicals Group at Amgen, Inc. Dr. Ensley received a B.S. and M.S. in Biology
from the University of New Mexico in 1974 and 1976 and a Ph.D. in Microbiology
from the University of Georgia in 1979. Since 1996, Dr. Ensley serves on the
National Science Foundation's BIO Directorate Advisory Board and as a Fellow of
the American Academy of Microbiology.
LORENZO A. DELUCA has served as a Director since inception. Mr. DeLuca is the
owner and President of Paxton Ventures Corp., a venture capital and consulting
firm specializing in emerging growth companies. In connection with Paxton's
portfolio investments, Mr. DeLuca has served as officer or director of Action
Industries Inc., General Vision Services, Inc., Bio-Reference Laboratories and
Merchants Advantage.com. Mr. DeLuca is an attorney admitted to practice in the
State of New York and was a founding member of Zervas & DeLuca. Mr. DeLuca
received a BA degree from Rutgers College and a J.D. degree from New York Law
School.
20
AMY DIAMOND has served as a Director since inception. She is the founder of Deep
River Capital and a Managing Director of Triumph Securities. Prior to that she
was Managing Director of Chatsworth Securities, LLC and Director of Nolan
Securities. She was an owner and Board member of Glemby International, an
international personal care services company with 1300 stores worldwide and was
responsible for successfully completing the sale of the Company. Ms. Diamond's
career includes corporate finance experience with Lazard Freres and Cornerstone
Asset Management. She has substantial experience in the media business having
spent several years with the American Broadcasting Company. She has a BA in
Psychology from New York University and an MBA in Finance from New York
University Graduate School of Business. Ms. Diamond serves on the board of
Shakespeare & Company, based in Lenox, Massachusetts.
None of the aforementioned directors and officers are related by blood.
COMPENSATION OF DIRECTORS
All directors receive reimbursement for reasonable out-of-pocket expenses in
attending board of directors meetings and for promoting the company's business
in addition the directors receive fees of $1000 for attending meetings of the
Board. From time to time the company may engage certain members of the board of
directors to perform services on its behalf. In such cases, the company will
compensate the members for their services at rates no more favorable than could
be obtained from unaffiliated parties.
EXECUTIVE COMPENSATION
At the present time we have entered into an employment agreement with Burt
Ensley to act as Chairman and Chief Executive Officer. In addition to the grant
of options set forth above, the Employment Agreement provides for a 3 year term
with an annual salary of $60,000 for the first two years rising to $200,000 in
the third year. The salary may be deferred at our option during the first two
years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS (#) COMPENSATION
---- ------ ----- ------- ------------
Burt Ensley -
Chairman, President 2004 $60,000 100,000
and Chief Executive
Officer
OPTIONS GRANTED DURING LAST FISCAL YEAR
At present time the Board of Directors has issued 250,000 options pursuant to
the Stock Option Plan to members of the Board of Directors at an exercise price
of $.15 per share as follows: Burt Ensley 100,000 Amy Diamond 75,000 and Lorenzo
DeLuca 75,000. In addition DermaPlus has agreed to issue 300,000 additional
options to the Chairman and Chief Executive Officer at the rate of 50,000
options for every six months completed during the term of the agreement in
accordance with his employment agreement.
SUMMARY OF 2004 STOCK OPTION PLAN
Qualified directors, officers, employees, consultants and advisors of ours and
our subsidiaries are eligible to be granted (a) stock options ("Options"), which
may be designated as nonqualified stock options ("NQSOs") or incentive stock
options
21
("ISOs"), (b) stock appreciation rights ("SARs"), (c) restricted stock
awards ("Restricted Stock"), (d) performance awards ("Performance Awards") or
(e) other forms of stock-based incentive awards (collectively, the "Awards"). A
director, officer, employee, consultant or advisor who has been granted an
Option is referred to herein as an "Optionee" and a director, officer, employee,
consultant or advisor who has been granted any other type of Award is referred
to herein as a "Participant."
The Omnibus Committee administers the Stock Option Plan and has full discretion
and exclusive power to (a) select the directors, officers, employees,
consultants and advisors who will participate in the Stock Option Plan and grant
Awards to such directors, officers, employees, consultants and advisors, (b)
determine the time at which such Awards shall be granted and any terms and
conditions with respect to such Awards as shall not be inconsistent with the
provisions of the Stock Option Plan, and (c) resolve all questions relating to
the administration of the Stock Option Plan. Members of the Omnibus Committee
receive no additional compensation for their services in connection with the
administration of the Stock Option Plan.
The Omnibus Committee may grant NQSOs or ISOs that are evidenced by stock option
agreements. A NQSO is a right to purchase a specific number of shares of common
stock during such time as the Omnibus Committee may determine, not to exceed ten
(10) years, at a price determined by the Omnibus Committee that, unless deemed
otherwise by the Omnibus Committee, is not less than the fair market value of
the common stock on the date the NQSO is granted. An ISO is an Option that meets
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). No ISOs may be granted under the Stock Option Plan to an employee
who owns more than 10% of our outstanding voting stock ("Ten Percent
Stockholder") unless the option price is at least 110% of the fair market value
of the common stock at the date of grant and the ISO is not exercisable more
than five (5) years after it is granted. In the case of an employee who is not a
Ten Percent Stockholder, no ISO may be exercisable more than ten (10) years
after the date the ISO is granted and the exercise price of the ISO shall not be
less than the fair market value of the common stock on the date the ISO is
granted. Further, no employee may be granted ISOs that first become exercisable
during a calendar year for the purchase of common stock with an aggregate fair
market value (determined as of the date of grant of each ISO) in excess of
$100,000USD. An ISO (or any installment thereof) counts against the annual
limitation only in the year it first becomes exercisable.
The exercise price of the common stock subject to a NQSO or ISO may be paid in
cash or, at the discretion of the Omnibus Committee, by a promissory note or by
the tender of common stock owned by the Option holder or through a combination
thereof. The Omnibus Committee may provide for the exercise of Options in
installments and upon such terms, conditions and restrictions as it may
determine.
A SAR is a right granted to a Participant to receive, upon surrender of the
right, but without payment, an amount payable in cash. The amount payable with
respect to each SAR shall be based on the excess, if any, of the fair market
value of a share of common stock on the exercise date over the exercise price of
the SAR, which will not be less than the fair market value of the common stock
on the date the SAR is granted. In the case of an SAR granted in tandem with an
ISO to an employee who is a Ten Percent Stockholder, the exercise price shall
not be less than 110% of the fair market value of a share of common stock on the
date the SAR is granted.
Restricted Stock is common stock that is issued to a Participant at a price
determined by the Omnibus Committee, which price per share may not be less than
the par value of the common stock, and is subject to restrictions on transfer
and/or such other restrictions on incidents of ownership as the Omnibus
Committee may determine.
A Performance Award granted under the Stock Option Plan (a) may be denominated
or payable to the Participant in cash, common stock (including, without
limitation, Restricted Stock), other securities or other Awards and (b) shall
confer on the Participant the right to receive payments, in whole or in part,
upon the achievement of such performance goals during such performance periods
as the Omnibus Committee shall establish. Subject to the terms of the Stock
Option Plan and any applicable Award agreement, the performance goals to be
achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted and the amount of any payment or
transfer to be made pursuant to any Performance Award shall be determined by the
Omnibus Committee.
22
The Omnibus Committee may grant Awards under the Stock Option Plan that provide
the Participants with the right to purchase common stock or that are valued by
reference to the fair market value of the common stock (including, but not
limited to, phantom securities or dividend equivalents). Such Awards shall be in
a form determined by the Omnibus Committee (and may include terms contingent
upon a change of control of DermaPlus); provided that such Awards shall not be
inconsistent with the terms and purposes of the Stock Option Plan.
The Omnibus Committee determines the price of any such Award and may accept any
lawful consideration.
The Omnibus Committee may at any time amend, suspend or terminate the Stock
Option Plan; provided, however, that (a) no change in any Awards previously
granted may be made without the consent of the holder thereof and (b) no
amendment (other than an amendment authorized to reflect any merger,
consolidation, reorganization or the like to which we are a party or any
reclassification, stock split, combination of shares or the like) may be made
increasing the aggregate number of shares of the common stock with respect to
which Awards may be granted or changing the class of persons eligible to receive
Awards, without the approval of the holders of a majority of our outstanding
voting shares.
In the event a Change in Control (as defined in the Stock Option Plan) occurs,
then, notwithstanding any provision of the Stock Option Plan or of any
provisions of any Award agreements entered into between any Optionee or
Participant and us to the contrary, all Awards that have not expired and which
are then held by any Optionee or Participant (or the person or persons to whom
any deceased Optionee's or Participant's rights have been transferred) shall, as
of such Change of Control, become fully and immediately vested and exercisable
and may be exercised for the remaining term of such Awards.
Although we have no intentions of merging, consolidating or otherwise
reorganizing, if we are a party to any merger, consolidation, reorganization or
the like, the Omnibus Committee has the power to substitute new Awards or have
the Awards be assumed by another corporation. In the event of a
reclassification, stock split, combination of shares or the like, the Omnibus
Committee shall conclusively determine the appropriate adjustments.
No Award granted under the Stock Option Plan may be sold, pledged, assigned or
transferred other than by will or the laws of descent and distribution, and
except in the case of the death or disability of an Optionee or a Participant,
Awards shall be exercisable during the lifetime of the Optionee or Participant
only by that individual.
The Stock Option Plan and all Award agreements shall be construed and enforced
in accordance with and governed by the laws of Delaware.
CODE OF ETHICS
As we presently have only one employee, we have not yet found the need to adopt
a code of ethics. However, it is our intent to adopt such a code with respect to
our executive officers once we have a minimum of 5 full-time employees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 14, 2004 a shareholder, A-Street Capital Corp. entered into a loan
agreement with us pursuant to which A-Street agreed to lend up to $400,000 to us
in four equal monthly installments beginning in November 2004. We have borrowed
$200,000 pursuant to this credit agreement. On December 15, 2004, the parties
agreed to convert the notes to shares of common stock at a price of $.20 per
share. At the present time we do not anticipate borrowing any additional funds
from A-Street
23
Under the terms of our exclusive license agreement with Matrix Design, Inc., we
agreed to pay a royalty of three percent (3%) on any amounts received from sales
of our products. Minimum royalties of twenty-five thousand dollars ($25,000) for
the year 2004 are payable January 31, 2005 and those of one hundred thousand
dollars ($100,000) for the year 2005 are payable January 31, 2006. Improvements
to the intellectual property by DemaPlus are subject to a royalty free license
to Matrix Design.
On October 1, 2004, we entered into a Research and Development Agreement with
Modular Genetics, Inc. requiring us to pay $20,000 per month for the development
and maintenance of a Data Library of human genetic sequences for Extracellular
Matrix Proteins for a period of 12 months. Data and any intellectual property
generated during the term of the agreement will be the property of DermaPlus.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our articles of Incorporation and By-Laws provide that our directors and
officers will not be personally liable to us or our stockholders for monetary
damages due to the breach of a fiduciary duty as a director or officer. Delaware
General Corporation Law, provides that we may indemnify any officer, director,
employee or agent who is party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
provided he was acting in good faith and in a manner which he reasonably
believed to be in, or not opposed to, our best interests, and, with respect to
any criminal action or proceeding, he had no reasonable cause to believe that
his conduct was unlawful. The indemnification includes all actual and reasonable
expenses, including attorney's fees, judgments, fines and settlement amounts.
The termination of any action, suit or proceeding by judgment, order, settlement
or conviction, does not of itself prevent indemnification so long as the officer
or director acted in good faith and in a manner which he reasonably believed to
be in, or not opposed to, our best interests, or, with respect to any criminal
action or proceeding, he had no reasonable cause to believe that his conduct was
unlawful.
In addition, Delaware General Corporation Law provides that we may indemnify any
officer, director, employee or agent who is party to any threatened, pending or
completed action or suit brought by us or by our stockholders on our behalf,
provided he was acting in good faith and in a manner which he reasonably
believed to be in, or not opposed to, our best interests. The indemnification
includes all actual and reasonable expenses, including attorney's fees,
judgments, fines and settlement amounts. However, indemnification is prohibited
as to any suit brought in our right in which the director or officer is adjudged
by a court to be liable to us.
To the extent that the officer or director is successful on the merits in any
proceeding pursuant to which such person is to be indemnified, we must indemnify
him against all actual and reasonable expenses incurred, including attorney's
fees.
The foregoing indemnity provisions will limit your ability as shareholders to
hold officers and directors liable and collect monetary damages for breaches of
fiduciary duty, and require us to indemnify officers and directors to the
fullest extent permitted by law.
To the extent that indemnification may be available to our directors and
officers for liabilities arising under the Securities Act, we have been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and therefore unenforceable.
We also intend to purchase customary directors' and officers' liability
insurance policies for its directors and officers, if such insurance is
available at a cost that the Board of Directors deems prudent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 16, 2004, information regarding
the beneficial ownership of our common stock by each person we know to own five
percent or more of the outstanding shares, by each of the directors and
officers. As of such date there were 5,790,000 shares of our common stock
outstanding.
24
Beneficial ownership has been determined in accordance with Rule 13d-3 of the
Exchange Act. Generally, a person is deemed to be the beneficial owner of a
security if he has the right to acquire voting or investment power within 60
days. Subject to community property laws, where applicable, the persons or
entities named in the table above have sole voting and investment power with
respect to all shares of our common stock indicated as beneficially owned by
them. The post-offering shares assume that the offering is fully-subscribed. All
shares reserved for outstanding warrants, options and incentive grants are not
included in the post-offering equity calculations.
Percentage of Shares
Beneficially Owned
After the
Name and Address of Number of Shares Shares Before the Offering
Beneficial Owner(1) Beneficially Owned Offering Assuming All
------------------- ------------------ -------- Shares Are Sold
---------------
Matrix Design(2)
2,450,000 42.3% 36%
Burt Ensley - Director
and Executive Officer
Amy Diamond - 620,000 10.7% 9.1%
Director
A Street Capital, LLC(3) 2,400,000 41.45% 35.3%
Lorenzo A. DeLuca(4) 300,000 5.2% 4.4%
All Officers and
Directors as a Group 3,370,000 58.2% 49.6%
(1) The address for these persons or entities named above is [insert], except
where otherwise noted.
(2) MatrixDesign is an affiliate of Burt Ensley, Chairman of the Board and
President of DermaPlus, Inc. The address for this entity is PMB 1319, 2675 w.
Hwy 89A, Sedona, AZ 86336
(3) The address for this entity is 203 N. LaSalle Street, Suite 1350, Chicago,
60601.
(4) Includes 200,000 shares owned by Adrian and Cristina DeLuca, of which Mr.
DeLuca disclaims beneficial ownership.
All officers and directors of DermaPlus, as a group, hold, either directly or
indirectly, 3,370,000 shares or 58.2% percent of the total common shares of the
issuer currently issued and outstanding. There have been no preferred shares
issued to any officer or director of DermaPlus.
DESCRIPTION OF SECURITIES
GENERAL
The following description of our capital stock does not purport to be complete
and is subject to and qualified in its entirety by our Articles of Incorporation
and By-laws, which are included as exhibits to the registration statement of
which this Prospectus forms a part, and by the applicable provisions of Delaware
law.
25
We are authorized to issue 10,000,000 shares of common stock, par value $0.001
per share and 5,000,000 shares of preferred stock, par value $0.001 per share.
Upon completion of the offering 6,790,000 shares of common stock will be
outstanding. No shares of preferred stock have been issued.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. Cumulative voting of shares of
Common Stock is prohibited and there are no pre-emptive rights. The holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefore. Subject to the prior rights of creditors, all shares of
Common Stock are entitled in the event of liquidation to participate ratably in
the distribution of all remaining assets of the Company.
As of December 29, 2004 we have 8 stockholders of record.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 6,790,000 shares of common stock
outstanding. Of these shares, the 1,000,000 shares sold in the offering will be
freely tradable without restriction or further registration under the Securities
Act, except for any shares purchased at any time by an "affiliate" of the
Company (as that term is defined in the rules and regulations under the
Securities Act). All of the remaining shares of Common Stock outstanding
(5,790,000) are held by existing stockholders and were sold without registration
under the Securities Act in reliance upon an exemption from registration and
will be "restricted" securities within the meaning of Rule 144. Pursuant to such
Rule, 4,000,000 will be eligible for sale in August 2005.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned "restricted" shares for at
least one year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (67,900 shares immediately after the offering) or the average
weekly trading volume of Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner of sale
provision, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to be an "affiliate" of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned "restricted"
shares for at least two years, would be entitled to sell such shares under Rule
144 without regard to the volume or manner of sale limitations referred to
above. We cannot make predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price for our
common stock prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices.
TRANSFER AGENT AND REGISTRAR
We have not yet chosen a transfer agent and registrar for our common stock. We
anticipate retaining one prior to the effectiveness of this Prospectus.
PENNY STOCK CONSIDERATIONS
Broker-dealer practices in connection with transactions in penny stocks are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than US$ 5.00. Penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Our shares may be subject to such penny stock rules and our
shareholders will, in all likelihood, find it difficult to sell their
securities.
26
PLAN OF DISTRIBUTION
We are registering 1,000,000 shares of our common stock which shall be offered
and sold on a self-underwritten basis by Mr. Burt Ensley our Chief Executive
Officer and President, or, at our discretion, by participating broker-dealers
licensed by the National Association of Securities Dealers, Inc. Mr. Ensley will
be the person responsible for the sales of securities on behalf of DermaPlus and
that he will rely on the safe harbor from broker dealer registration set out in
Rule 3a4-1 under the Securities Exchange Act of 1934. Mr. Ensley meets each of
the qualifications set forth in such rule as follows: (i) he is not subject to
any statutory disqualification; (ii) he is not compensated in connection with
his participation by the payment of commissions or other remuneration based
either directly or indirectly on transactions in securities; (iii) he is not at
the time of his participation an associated person of a broker or dealer; and
(iv) he will restrict his participation with respect to such sales to the
following activities: (A) preparing any written communication or delivering such
communication through the mails or other means that does not involve oral
solicitation by the associated person of a potential purchaser; provided,
however, that the content of such communication is approved by a partner,
officer or director of the issuer; (B) responding to inquiries of a potential
purchaser in a communication initiated by the potential purchaser; provided,
however, that the content of such responses are limited to information contained
in a registration statement filed under the Securities Act of 1933 or other
offering document; or (C) Performing ministerial and clerical work involved in
effecting any transaction.
Although we anticipate being listed on the OTC-Bulletin Board concurrently with
the effectiveness of this Prospectus, we may not be. Regardless, we will offer
the shares to the public at a price of $5.00 per share. There is no minimum
investment requirement and funds received by us from this offering will not be
placed into an escrow account. The offering price of the shares was arbitrarily
determined by us. The offering price of the shares does not have any
relationship to our assets, book value, or earnings. We reserve the right to
reject any subscription in whole or in part, for any reason or for no reason.
There can be no assurance that we will sell any or all of the offered shares.
As our offering is "self-underwritten" in nature and at a fixed price of $5.00
per share, we are unsure whether we will sell any shares of common stock. As a
result, we are unable at this time to determine what State, if any, offers or
sales will be made. We may also seek out broker-dealers to assist us in placing
our stock. Regardless of whether we place our stock ourselves or through agents,
we will comply with all applicable blue sky requirements of each jurisdiction in
which we ultimately offer and sell our shares. We intend to register the shares
of common stock in [____________ ].
In addition to the possibility of procuring broker/dealers to sell our
securities, we will deliver prospectuses to any friends, relatives, business
contacts, colleagues and referrals. We may also place a tombstone(s)
advertisement in one or more financial journals such as Barrons or the Wall
Street Journal.
Under the Securities Exchange Act of 1934 and the regulations thereunder, any
person engaged in a distribution of the shares of our common stock offered by
this prospectus may not simultaneously engage in market making activities with
respect to our common stock during the applicable "cooling off" periods prior to
the commencement of such distribution.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective November 1, 2004, we engaged the firm of Meyler & Company, LLC, an
Independent Registered Public Accounting Firm as our principal accountant to
audit our financial statements. We had not consulted with the newly engaged
independent accountant on accounting matters prior to its engagement.
27
LEGAL MATTERS
The validity of the issuance of certain of the shares of Common Stock offered
hereby and certain other legal matters will be passed upon for us by Rubin,
Bailin, Ortoli, Mayer & Baker LLP.
EXPERTS
The financial statements of the company as of September 30, 2004, and for the
period from inception (May 2004) through September 30, 2004 have been included
herein and in the registration statement in reliance upon the reports, included
herein, of Meyler & Company, LLC, an Independent Registered Public Accounting
Firm, and upon the authority of said firm as experts in accounting and auditing.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN GIVEN ANY INFORMATION OR HAS BEEN
AUTHORIZED TO MAKE ANY REPRESENTATIONS OTHER THAN THE INFORMATION CONTAINED OR
INCORPORATED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US, BY THE
SELLING STOCKHOLDER OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES DESCRIBED IN THIS PROSPECTUS
OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SHARES IN ANY
CIRCUMSTANCES IN, WHICH SUCH OFFER, OR SOLICITATION IS UNLAWFUL.
ADDITIONAL INFORMATION
The effectiveness of this registration statement will render us subject to the
informational requirements of the Exchange Act, and, we will file reports, proxy
statements and other information with the Securities and Exchange Commission as
required by federal law. These reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
Securities Exchange Commission Investors may read and copy any of these reports,
statements, and other information at the SEC's public reference room located at
450 5th Street, N.W., Washington, D.C., 20549, or any of the SEC's other public
reference rooms. Investors should call the SEC at 1-800-SEC-0330 for further
information on these public reference rooms upon payment of the fees prescribed
by the Securities Exchange Commission. These SEC filings are also available free
at the SEC's web site at www.sec.gov.
This prospectus does not contain all of the information set forth in the
registration statement, parts of which are omitted to comply with the rules and
regulations of the Securities Exchange Commission. For further information,
please see the registration statement in its entirety.
28
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS
DERMAPLUS, INC.
(A Development Stage Enterprise)
September 30, 2004
CONTENTS
Report of Independent Registered Public Accounting Firm Page F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Cash Flows F-4
Statement of Stockholders' Equity F-5
Notes to Financial Statements F-6
29
Report of Independent Registered Public Accounting Firm
To the Board of Directors
DermaPlus, Inc.
New York, NY 10018
We have audited the accompanying balance sheet of DermaPlus, Inc. as of
September 30, 2004 and the related statements of operations, stockholders'
equity and cash flows for the period May 17, 2004 to September 30, 2004. These
financial statements are the responsibility of DermaPlus, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, present fairly in
all material respects the financial position of DermaPlus, Inc. as of September
30, 2004, and the results of its operations and its cash flows for the period
May 17, 2004 to September 30, 2004. in conformity with U.S. generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has incurred a net loss of $183,957 since
inception and there are existing uncertain conditions the Company faces relative
to its ability to obtain capital and operate successfully. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note B. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Cash $124,685
---------
Total Current Assets 124,685
---------
OTHER ASSETS
License agreement 2,000
--------
Total Assets $126,685
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued salary $ 15,000
Accrued royalty fees 14,912
Accrued other expenses 4,738
Due to employee 3,007
--------
Total Current Liabilities 37,657
STOCKHOLDERS' EQUITY
Preferred stock, authorized 5,000,000 shares;
$0.001 per value, none issued
Common stock, authorized 10,000,000
Shares; $0.001 par value; issued
and outstanding 4,220,000
shares at September 30, 2004 4,220
Additional contributed capital 269,780
Stock subscription receivable (1,015)
Deficit accumulated during the development stage (183,957)
---------
Stockholders' Equity 89,028
---------
Total Liabilities and Stockholders' Equity $126,685
++=======
See accompanying notes to financial statements.
F-2
DERMAPLUS, INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
For the Period May 17, 2004 to September 30, 2004
COSTS AND EXPENSES:
Research and development expenses $ 104,965
Administrative expenses 78,992
------------
NET (LOSS) FOR THE PERIOD $ (183,957)
============
NET (LOSS) PER SHARE OF COMMON STOCK
(BASIC AND DILUTED) (0.12)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC AND DILUTED) 1,535,285
See accompanying notes to financial statements.
DERMAPLUS, INC.
F-3
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
For the Period May 17, 2004 to September 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(183,957)
Changes in assets and liabilities:
Accrued salary 15,000
Accrued royalty fees 14,912
Accrued other expenses 4,738
Due to employee 3,007
---------
Net cash used by operating activities (146,300)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of common stock 270,985
---------
Net cash provided by investing activities 270,985
---------
Net increase in cash 124,685
CASH AT BEGINNING OF PERIOD
---------
CASH AT END OF PERIOD $ 124,685
=========
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash activities
Issuance of 2,000,000 shares of common stock to
principal stockholder for license agreement $ 2,000
=========
See accompanying notes to financial statements.
F-4
DERMAPLUS, INC.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
May 17, 2004 to September 30, 2004
Common Stock Additional
---------------------------- Contributed Accumulated Subscription
Shares Amount Capital Deficit Receivable Total
----------- ----------- ----------- ----------- ----------- -----------
Issuance of common stock
@ $0.10 per share 200,000 $ 200 $ 19,800 $ 20,000
Issuance of common stock
@ $0.125 per share 2,000,000 2,000 248,000 $ (1,015) 248,985
Issuance of common stock
@ $0.001 per share 2,000,000 2,000 2,000
Issuance of common stock
@ $0.10 per share 20,000 20 1,980 2,000
Net loss for the period $ (183,957) (183,957)
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2004 4,220,000 $ 4,220 $ 269,780 $ (183,957) $ (1,015) $ 89,028
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-5
DERMAPLUS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENT
September 30, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
DermaPlus, Inc. (the Company,) a development stage enterprise, was
organized under the laws of Delaware on May 17, 2004. The Company,
under a license agreement, produces, designs, and synthesizes protein
polymers and incorporates them into uniquely formulated personal care
products. At the present time, the Company is developing and improving
the patented formulation for future marketing and has not yet begun
production.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" prescribes
accounting and reporting standards for all stock-based compensation
plans, including employee stock options, restricted stock, employee
stock purchase plans and stock appreciation rights. SFAS No. 123
requires employee compensation expense to be recorded (1) using the
fair value method or (2) using the intrinsic value method as prescribed
by accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB25") and related interpretations with pro
forma disclosure of what net income and earnings per share would have
been if the Company adopted the fair value method. The Company accounts
for employee stock based compensation in accordance with the provisions
of APB 25. For non-employee options and warrants, the company uses the
fair value method as prescribed in SFAS 123.
Business Combinations and Goodwill
In July 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, "Business Combinations". SFAS No. 141 requires the
purchase method of accounting for business combinations initiated after
June 30, 2001 and eliminates the pooling-of-interests method.
In July 2001, the FASB issued SFAS NO. 142, "Goodwill and Other
Intangible Assets", which the Company adopted during 2003. SFAS No. 142
requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously
reported goodwill and the identification of reporting units for
purposes of assessing potential future impairment of goodwill.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 changes the
accounting for long-lived assets to be held and used by eliminating the
requirement to allocate goodwill to long-lived assets to be tested for
F-6
DERMAPLUS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENT (CONTINUED)
September 30, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business Combinations and Goodwill (Continued)
impairment, by providing a probability weighted cash flow estimation
approach to deal with situations in which alternative courses of action
to recover the carrying amount of possible future cash flows and by
establishing a primary-asset approach to determine the cash flow
estimation period for a group of assets and liabilities that represents
the unit of accounting for long-lived assets to be held and used. SFAS
No. 144 changes the accounting for long-lived assets to be disposed of
other than by sale by requiring that the depreciable life of a
long-lived asset to be abandoned be revised to reflect a shortened
useful life and by requiring the impairment loss to be recognized at
the date a long-lived asset is exchanged for a similar productive asset
or distributed to owners in a spin-off if the carrying amount of the
asset exceeds its fair value. SFAS No 144 changes the accounting for
long-lived assets to be disposed of by sale by requiring that
discontinued operations no longer be recognized at a net realizable
value basis (but at the lower of carrying amount or fair value less
costs to sell), by eliminating the recognition of future operating
losses of discontinued components before they occur, and by broadening
the presentation of discontinued operations in the income statement to
include a component of an entity rather than a segment of a business. A
component of an entity comprises operations and cash flows that can be
clearly distinguished operationally, and for financial reporting
purposes, from the rest of the entity.
Net Loss Per Common Share
The Company computes per share amounts in accordance with Statement of
Financial Accounting standards ("SFAS") No. 128, "Earnings per Share."
SFAS per share ("EPS") requires presentation of basic and diluted EPS.
Basic EPS is computed by dividing the income (loss) $(183,597)
available to Common Stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS is based on the
weighted-average number of shares of Common Stock and Common Stock
equivalents outstanding during the periods.
Research and Development Costs
Research and development costs are charged to research and development
expenses as incurred.
NOTE B - GOING CONCERN
As shown in the accompanying financial statements, the Company has
incurred cumulative net operating losses of $183,957 since inception
and is considered a company in the development stage. Management's
plans include the raising of capital through the equity markets to fund
future operations and the generating of revenue through its business.
Failure to raise adequate capital and generate adequate sales revenues
could result in the Company having to curtail or cease operations.
Additionally, even if the Company does raise sufficient capital to
support its operating expenses and generate adequate revenues, there
can be no assurances that the revenue will be sufficient to enable it
to develop business to a level where it will generate profits and cash
flows from operations. These matters raise substantial doubt about the
Company's ability to continue as a going concern. However, the
accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. These financial
statements do not include any adjustments relating to
F-7
DERMAPLUS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENT (CONTINUED)
September 30, 2004
NOTE B - GOING CONCERN (CONTINUED)
the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
License Agreement
On June 21, 2004, the Company was granted a license from Matrix Design,
Inc., a company owned and controlled by the President and Chief
Executive Officer of the Company. The license agreement allows the
Company to manufacture and market a personal skin care product under a
patent formulated and developed by Matrix Design, Inc. In consideration
for the license agreement, the Company granted to Matrix 2,000,000
shares of its common stocks. Under the terms of the license agreement,
the Company is required to pay (1) monthly royalties of 3% of net sales
of the licensed products sold and (2) minimum royalties of $25,000 for
the year 2004, $100,000 for the year 2005, and $300,000 for the year
2006. Commencing in 2007, an annual minimum royalty of $500,000 is due
annually. Monthly royalties will be offset against the annual minimums.
Additionally, any enhancements and/or improvements to the licensed
technology are subject to a royalty free worldwide license back to
Matrix Design, Inc. Under the terms of the license agreement, the
Company must meet certain financial and product development objectives.
The Company has defaulted on meeting these objectives and Matrix
Design, Inc. has extended the deadline to March 1, 2005.
DermaPlus Investors, LLC
On June 23, 2004, DermaPlus Investors, LLC, a Nevada limited liability
corporation invested $250,000 in the Company in exchange for 2,000,000
shares of the Company's common stock. The principal member of DermaPlus
Investors, LLC is A-Street Capital, an investment banking firm which
has a designee on the Board of DermaPlus, Inc..
NOTE D - INCOME TAXES
The Company has adopted Financial Accounting Statement SFAS No. 109,
Accounting for Income Taxes. Under this method, the Company recognizes
a deferred tax liability or asset for temporary differences between the
tax basis of an asset or liability and the related amount reported on
the financial statements. The principal types of differences, which are
measured at the current tax rates, are net operating loss carry
forwards. At September 30, 2004, these differences resulted in a
deferred tax asset of approximately $55,000. SFAS No. 109 requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. Since realization is not assured,
the Company has recorded a valuation allowance for the entire deferred
tax asset, and the accompanying financial statements do not reflect any
net asset for deferred taxes at September 30, 2004.
F-8
DERMAPLUS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENT (CONTINUED)
September 30, 2004
NOTE D - INCOME TAXES (CONTINUED)
The Company's net operating loss carry forward amounted to
approximately $184,000, which will expire through 2019.
NOTE E - STOCKHOLDERS' EQUITY
Issuance of Common Stock
On June 25, 2004, the Company issued 2,000,000 shares of its common
stock to Matrix Design, Inc. for a license agreement. Matrix Design,
Inc. is a company owned by the President and Chief Executive Officer
of the Company. The shares were valued at $0.001 per share.
On June 25, 2004, the Company, sold 2,000,000 shares of its common
stock to DermaPlus, Investors, LLC in consideration of $250,000 or
$0.125 per share.
On August 3, 2004, the Company sold 200,000 shares of its common stock
to the President of the Company in consideration of $20,000 or $0.10
per share.
On September 21, 2004, the Company sold 20,000 shares of its common
stock to an individual in consideration of $2,000 or $0.10 per share.
Stock Option Plan
The Company, on June 4, 2004, adopted Qualified and Non-Qualified
Incentive Stock Option Plans and reserved 2,000,000 shares of its
common stock for the plans. At September 30, 2004, the Board of
Directors had granted 16,000 Non-Qualified Stock Options to a
consultant. These options were granted in August and September 2004 at
the rate of 8,000 per month at an exercise price of $0.20 per share.
Under the terms of the option agreement, 20% of the options granted
become exercisable one year from date of grant and 20% become
exercisable on the next four anniversaries of the grant date. At
September 30, 2004, the Company has not recorded stock based
compensation for the options granted since the strike price of the
option is in excess of the Company's book value per share and the
Company's most recent per share amount for stock sold under Company
private placements.
NOTE F - COMMITMENTS AND CONTINGENCIES
On July 1, 2004, the Company entered into a 3 year employment agreement
with the President of the Company. On November 17, 2004, the contract
was amended to commence January 1, 2005 for a period of three years.
Compensation under the agreement is $60,000 for the first two years and
$200,000 for the third year. The agreement also provides for
reimbursement of reasonable travel expenses, an allowance of $500 per
month for a home office and the granting of 400,000 incentive stock
options at a price of $0.15 per share.
NOTE G - SUBSEQUENT EVENTS
On October 12, 2004, the Board of Directors approved a loan arrangement
with A-Street Capital in the amount of $400,000. The loan includes
interest at the rate of 6% and is unsecured. The loan will be made in
four equal advances of $100,000 on October 15, 2004, December 1, 2004,
F-9
DERMAPLUS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENT (CONTINUED)
September 30, 2004
NOTE G - SUBSEQUENT EVENTS (CONTINUED)
January 15, 2005, and March 1, 2005. The first two advances have been
received by the Company. At the November 17, 2004 Board of Directors
meeting, the Board approved the conversion of $200,000 of loan proceeds
into 1,000,000 shares of its common stock. As at December 12, 2004,
this conversion has not yet taken place.
On November 17, 2004, the Board approved a consulting agreement to a
Professor of Agricultural Chemistry at Texas A&M University at the rate
of $1,000 per day and 10,000 stock options at an exercise price of
$0.25 per share.
On November 17, 2004, the Board approved the issuance of 120,000 shares
of its common stock to two officers of the corporation for services
rendered.
On November 17, 2004, the Board approved the issuance of 250,000 shares
of its common stock to the President of the Company for salary accrued
under his employment contract. Additionally, the board extended the
start and termination dates of the agreement by 6 months.
On November 2, 2004, the Company entered into a consulting agreement to
conduct research and development in the area of molecular biology of
elastin. The agreement provides for a monthly payment to Modular
Genetics, Inc. of $20,000 per month commencing October 1, 2004.
F-10
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS.
Our Articles of Incorporation permit indemnification to the fullest extent
permitted by Delaware law. Our by-laws require us to indemnify any person who
was or is an authorized representative of ours, and who was or is a party or is
threatened to be made a party to any corporate proceeding, by reason of the fact
that such person was or is an authorized representative of ours, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of ours and,
with respect to any criminal third party proceeding (including any action or
investigation which could or does lead to a criminal third party proceeding) had
no reasonable cause to believe such conduct was unlawful. We shall also
indemnify any person who was or is an authorized representative of ours and who
was or is a party or is threatened to be made a party to any corporate
proceeding by reason of the fact that such person was or is an authorized
representative of ours, against expenses actually and reasonably incurred by
such person in connection with the defense or settlement of such corporate
action if such person acted in good faith and in a manner reasonably believed to
be in, or not opposed to, the best interests of ours, 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 us unless and only to
the extent that the court in which such corporate proceeding was pending shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which any court
shall deem proper. Such indemnification is mandatory under our by-laws as to
expenses actually and reasonably incurred to the extent that an authorized
representative of ours have been successful on the merits or otherwise in
defense of any third party or corporate proceeding or in defense of any claim,
issue or matter therein. The determination of whether an individual is entitled
to indemnification may be made by a majority of disinterested directors,
independent legal counsel in a written legal opinion or the shareholders. We
currently do not maintain a directors and officers liability insurance policy.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling our company
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in that Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which are to be borne by us,
are as follows. All amounts are estimates except the Securities and Exchange
Commission registration fee:
Registration Fee............................ $ 655
Printing and Engraving Expenses ............ $ 5,000
Accounting Fees and Expense ................ $ 25,000
Legal Fees and Expenses .................... $ 50,000
Transfer Agent's Fees and Expenses ......... $ 1,500
Miscellaneous .............................. $ 5,500
Total................ $ 87,155
II-1
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
Set forth below is information regarding the issuance and sale of our common
stock without registration during the last three (3) years. No such sales
involved the use of an underwriter.
On or June 28, 2004 the Company issued 2,000,000 shares of common stock to
Dermaplus Investors LLC a Nevada limited liability company one third owned by
director Amy Diamond in consideration of the sum of $250,000. The remaining two
thirds of Dermaplus Investors LLC is owned by A-Street Capital. A-Street, in
addition to having access to the books and records of DermaPlus as well as ample
access to our management, was considered sophisticated enough pursuant to
Registration D of the Securities Act to understand the risks of an investment in
our company. As it had such knowledge and experience in financial and business
matters, it was in a position to evaluate such risks. This transaction did not
involve any public offering and was exempt from the registration requirements
under the Securities Act pursuant to Section 4(2) thereof.
On or June 1, 2004 the Company issued 2,000,000 shares of common stock to Matrix
Design Inc. a Delaware corporation 80% owned by Burt Ensley in consideration of
the execution of a License Agreement to use the certain patented technology and
know how owned by Matrix Design. Matrix, in addition to having access to the
books and records of DermaPlus as well as ample access to our management, was
considered sophisticated enough pursuant to Registration D of the Securities Act
to understand the risks of an investment in our company. As it had such
knowledge and experience in financial and business matters, it was in a position
to evaluate such risks. This transaction did not involve any public offering and
was exempt from the registration requirements under the Securities Act pursuant
to Section 4(2) thereof.
On August 3, 2004 the Company issued 200,000 shares of common stock to Burt
Ensley, our President, in consideration of the sum of $20,000. This transaction
did not involve any public offering and was exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof.
On November 2, 2004 the Company issued 200,000 shares of common stock to Adrian
and Cristina DeLuca, adult children of Lorenzo DeLuca, our Secretary, in
consideration of the sum of $20,000. Mr. DeLuca disclaims beneficial ownership
of this stock. This transaction did not involve any public offering and was
exempt from the registration requirements under the Securities Act pursuant to
Section 4(2) thereof.
In November, 2004 the Company issued 250,000 shares of its common stock to Mr.
Burt Ensley in consideration of his waiver of all outstanding and unpaid
salaries in the amount of $20,000 and the amendment of his employment agreement
to start as of January 1, 2005 and terminate on December 31, 2008. This
transaction did not involve any public offering and was exempt from the
registration requirements under the Securities Act pursuant to Section 4(2)
thereof.
In November, 2004 the Company issued 100,000 shares of its common stock to Mr
DeLuca in consideration of his waiver of outstanding legal fees in the sum of
$10,000. This transaction did not involve any public offering and was exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof.
In November, 2004 the Company issued 20,000 shares of its common stock to Ms
Diamond in consideration of his waiver of outstanding consulting fees in the sum
of $2,000. This transaction did not involve any public offering and was exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof.
II-2
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Incorporation of the Registrant*
3.2 By-laws of the Registrant
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Rubin, Bailin, Ortoli, Mayer & Baker LLP with respect to
the validity of the shares
9.1 Shareholders Agreement between Matrix and Dermaplus Investors LLC
10.1 A-Street Loan Agreement*
10.2 Matrix License Agreement
10.3 2004 Omnibus Stock Option Plan
10.4 Form of Subscription Agreement*
10.5 Ensley Employment Agreement
23.1 Consent of Meyler & Company LLC
23.2 Consent of Rubin, Bailin, Ortoli, Mayer & Baker LLP (included in
Exhibit 5.1)
*To be included in a subsequent amended filing
II-3
Item 28. Undertakings.
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have 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 by us of expenses incurred or paid by
our director, officer or controlling person 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, we will, unless in
the opinion of our 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 of 1933 and will be governed by the final adjudication of such issue.
B. We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To specify in the prospectus any facts or events arising after the
effective date of the Registration Statement or most recent post-effective
amendment thereof which, individually or in the aggregate, represent a
fundamental change in the information set forth 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 Securities and Exchange Commission pursuant to Rule 424(b),
Section 230.424(b) of Regulation S-B, if, in the aggregate, the changes in
volume and price 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
(iii) To include any additional or changed material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-4
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
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New York
on December 29, 2004.
DERMAPLUS, INC.
By: /s/ Burt Ensley
---------------------------
Burt Ensley
Chairman of the Board of Directors
and President
(Principal Executive Officer)
BY-LAWS
OF
DERMAPLUS, INC.
ARTICLE I
OFFICES
1.1. Registered Office: The registered office shall be established
and maintained at Wilmington, Delaware and Corporation Service Corp be the
registered agent of the Corporation in charge thereof.
1.2. Other Offices: The Corporation may have other offices, either
within or outside the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
Corporation may require, provided, however, that the Corporation's books and
records shall be maintained at such place within the continental United
States as the Board of Directors shall from time to time designate.
ARTICLE II
STOCKHOLDERS
2.1. Place of Stockholders' Meetings: All meetings of the
stockholders of the Corporation shall be held at such place or places,
within or outside the State of Delaware as may be fixed by the Board of
Directors from time to time or as shall be specified in the respective
notices thereof. The Board of Directors may, in its sole discretion,
determine that the meeting shall not be held at any designated place but may
instead be held solely by means of remote communication. Stockholders and
proxyholders not physically present at a meeting of stockholders may, by
means of remote communication participate in a meeting of stockholders and
be deemed present in person and vote at a meeting of stockholders whether
such meeting is to be held at a designated place or solely by means of
remote communication, provided that (i) the Corporation shall implement
reasonable measures to verify that each person deemed present and permitted
to vote at the meeting by means of remote communication is a stockholder or
proxyholder, (ii) the Corporation shall implement reasonable measures to
provide such stockholders and proxyholders a reasonable opportunity to
participate in the meeting and to vote on matters submitted to stockholders,
including an opportunity to read or hear the proceedings of the meeting
substantially concurrently with such proceedings, and (iii) if any
stockholder or proxyholder votes or takes other action at the meeting by
means of remote communication, a record of such vote or other action shall
be maintained by the Corporation.
2.2. Date and Hour of Annual Meetings of Stockholders: If there be a
failure to hold the annual meeting or to take action by written consent to
elect Directors in lieu of an annual
1
meeting for a period of 30 days after the date designated for the annual
meeting, or if no date has been designated, for a period of 13 months. after the
latest to occur of the organization of the Corporation, its last annual meeting
or the last action by written consent to elect Directors in lieu of an annual
meeting, the Court of Chancery may summarily order a meeting to be held upon the
application of any stockholder or Director.
2.3. Purpose of Annual Meetings: At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any further proper business may be
transacted.
2.4. Special Meetings of Stockholders: Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called by
the Board of Directors, President or by the Chairman of the Board of Directors,
or at the request in writing by stockholders of record owning at least fifty
(50%) percent of the issued and outstanding voting shares of common stock of the
Corporation.
2.5. Notice of Meetings of Stockholders: Except as otherwise expressly
required or permitted by law, not less than ten days nor more than sixty days
before the date of every stockholders' meeting the Secretary shall give to each
stockholder of record entitled to vote at such meeting, written notice, served
personally by mail or by telegram, stating the following: the place, date and
hour of the meeting, the means of remote communications, if any, by which
stockholders and proxyholders may be deemed to be present in person and vote at
such meeting; and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Such notice, if mailed shall be deemed to be given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address for notices to such stockholder as it appears on the
records of the Corporation. Any notice to stockholders shall be effective if
given by a form of electronic transmission consented to by the stockholder to
whom notice is to be given.
2.6. Quorum of Stockholders: (a) Unless otherwise provided by the
Certificate of Incorporation or by law, at any meeting of the stockholders, the
presence in person or by proxy of stockholders entitled to cast a majority of
the votes thereat shall constitute a quorum. The withdrawal of any stockholder
after the commencement of a meeting shall have no effect on the existence of a
quorum, after a quorum has been established at such meeting.
(b) At any meeting of the stockholders at which a quorum shall
be present, a majority of voting stockholders, present in person or by proxy,
may adjourn the meeting from time to time without notice other than announcement
at the meeting so long as the time, place, if any, and the means of remote
communications, if any, by which stockholders and proxyholders may be deemed to
be present in person and vote at such adjourned meeting are announced at the
meeting at which the adjournment is taken. the absence of a quorum, the Officer
presiding thereat shall have power to adjourn the meeting from time to time
until a quorum shall be present. Notice of any adjourned meeting, other than
announcement at the meeting, shall not be required to be given except as
provided in paragraph (d) below and except where expressly required by law.
2
(c) At any adjourned session AT which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting originally called but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) However, if an adjournment is for more than thirty 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 of
record entitled to vote at the meeting.
2.7. Chairman and Secretary of Meeting: The President, shall preside at
meetings of the stockholders. The Secretary shall act as secretary of the
meeting or if he is not present, then the presiding Officer may appoint a person
to act as secretary of the meeting.
2.8. Voting by Stockholders: Except as may be otherwise provided by the
Certificate of Incorporation or these by-laws, at every meeting of the
stockholders each stockholder shall be entitled to one vote for each share of
voting stock standing in his name on the books of the Corporation on the record
date for the meeting. Except as otherwise provided by these by-laws, all
elections and questions shall be decided by the vote of a majority in interest
of the stockholders present in person or represented by proxy and entitled to
vote at the meeting.
2.9. Proxies: Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy. A proxy may be in writing,
subscribed by the stockholder or his duly authorized attorney-in-fact, but need
not be dated, sealed, witnessed or acknowledged, but no such proxy shall be
voted or acted upon after three (3) years from its date, unless the proxy calls
for a longer period. A stockholder may authorize another person to act for such
stockholder as proxy by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the
proxyholder, provided that any such communication must either set forth or be
submitted with information from which it can be determined that such
communication was authorized by the stockholder.
2.10. Inspectors: The election of Directors and any other vote by
ballot at any meeting of the stockholders shall be supervised by one or more
inspectors. Such inspectors may be appointed by the presiding Officer before or
at the meeting; or if one or both inspectors so appointed shall refuse to serve
or shall not be present, such appointment shall be made by the Officer presiding
at the meeting.
2.11. List of Stockholders: (a) At least ten days before every meeting
of stockholders, the Secretary shall prepare and make a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder.
(b) For a period of at least ten days prior to the meeting,
such list shall be open to examination by any stockholder for any purpose
germane to the meeting, either at the principal place of business of the
Corporation during ordinary business hours or on a reasonably accessible
electronic network, and the information required to gain access to such list is
3
provided with the notice of the meeting. if the meeting is to be held at a
designated place, then the list shall be produced and kept at the time and place
where the meeting is to be held and may be inspected by any stockholder who is
present. If the meeting is to be held solely by means of remote communication,
then the list shall be open to inspection of any stockholder during the meeting
on a reasonably accessible electronic network and the information required to
access such list shall be provided with the notice of the meeting.
(c) The stock ledger shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger, the list required by this
Section 2.11 or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
2.12. Procedure at Stockholders' Meetings: Except as otherwise provided
by these bylaws or any resolutions adopted by the stockholders or Board of
Directors, the order of business and all other matters of procedure at every
meeting of stockholders shall be determined by the presiding Officer.
2.13. Action By Consent Without Meeting: Unless otherwise provided by
the Certificate of Incorporation, any action required to one taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. An electronic transmission consenting to an
action to be taken and transmitted by a stockholder, member or proxyholder or by
a person authorized to act for a stockholder, member or proxyholder, shall be
deemed to be written, signed and dated for the purposes of this section provided
that such electronic transmission sets forth information from which the
Corporation can determine that the electronic transmission was transmitted by
the stockholder or proxyholder and the date on which the stockholder or
proxyholder transmitted such electronic transmission. The date on which such
electronic transmission is transmitted shall be deemed the date on which such
consent was signed. No consent given by electronic transmission shall be deemed
delivered until reproduced in paper and delivered to the Corporation at its
registered office in the state, its principal place of business or an Officer
having custody of the record book of stockholder meetings in the manner provided
by the Board of Directors.
DIRECTORS
3.1. Powers of Directors: The property, business and affairs of the
Corporation shall be managed by its Board of Directors which may exercise all
the powers of the Corporation except such as are by the law of the State of
Delaware or the Certificate of Incorporation or these by-laws required to be
exercised or done by the stockholders.
3.2. Number, Method of Election. Terms of Office of Directors: The
number of Directors, which shall constitute the Board of Directors, shall be
three (---3- ) unless and until otherwise determined by a vote of a majority of
the entire Board of Directors. Each Director shall hold office until the next
4
annual meeting of stockholders and until his successor is elected and qualified,
provided, however, that a Director may resign at any time. Directors need not be
stockholders. All elections of Directors shall be by written ballot, unless
otherwise provided in the Certificate of Incorporation; if authorized by the
Board of Directors, such requirement of a written ballot shall be satisfied by a
ballot submitted by electronic transmission, provided that any such electronic
transmission must either set forth or be submitted with information from which
it can be determined that the electronic transmission was authorized by the
stockholder or proxyholder.
3.3. Vacancies on Board of Directors; Removal: (a) Any Director may
resign his office at any time by delivering his resignation in writing or by
electronic transmission to the Chairman of the Board or to the President. The
resignation will take effect at the time specified therein or, if no time is
specified, it will be effective at the time of its receipt by the Corporation.
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
(b) Any vacancy in the authorized number of Directors may be
filled by majority vote of the stockholders and any Director so chosen shall
hold office until the next annual election of Directors by the stockholders and
until his successor is duly elected and qualified or until his earlier
resignation or removal.
(c) Any Director may be removed with or without cause at any
time by the majority vote of the stockholders given at a special meeting of the
stockholders called for that purpose.
3.4. Meetings of the Board of Directors: (a) The Board of Directors may
hold its meetings, both regular and special, either within or outside the State
of Delaware.
(b) Regular meetings of the Board of Directors may be held at
such time and place as shall from time to time be determined by resolution of
the Board of Directors. No notice of such regular meetings shall be required. if
the date designated for any regular meeting shall be a legal holiday, then the
meeting shall be held on the next day that is not a legal holiday.
(c) The first meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of the stockholders for
the election of Officers and the transaction of such other business as may come
before it. If such meeting is held at the place of the stockholders' meeting, no
notice thereof shall be required.
(d) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman of the Board or the President or at
the written request of any one Director.
(e) The Secretary shall give notice to each Director of any
special meeting of the Board of Directors by mailing the same at least three
days before the meeting or by telegraphing, telexing, or delivering the same not
later than the date before the meeting.
Unless required by law, such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting. Any and all business may be transacted at any meeting of the Board of
Directors. No notice of any adjourned meeting need be given.
No notice to or waiver by any Director shall be required with
respect to any meeting at which the Director is present.
5
3.5. Quorum and Action: Unless provided otherwise by law or by the
Certificate of Incorporation or these by-laws, a majority of the Directors shall
constitute a quorum for the transaction of business; but if there shall be less
than a quorum at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time. The vote of a majority of the Directors
present at any meeting at which a quorum is present shall be necessary to
constitute an act of the Board of Directors.
3.6. Presiding Officer and Secretary of the Meeting: The President, or,
in his absence a member of the Board of Directors selected by the members
present, shall preside at meetings of the Board. The Secretary shall act as
secretary of the meeting, but in his absence the presiding Officer may appoint a
secretary of the meeting.
3.7. Action by Consent Without Meeting: 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 or
committee, as the case may be, consent thereto in writing or by electronic
transmission, and the writing or writings or electronic transmission or
electronic transmissions are filed with the minutes or proceedings of the Board
or committee. Such filing shall be in paper form if the minutes are maintained
in paper form and shall be in electronic form if the minutes are maintained in
electronic form.
3.8. Action by Telephonic Conference: Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting.
3.9. Committees: The Board of Directors shall, by resolution or
resolutions passed by a majority of Directors, designate one or more committees,
each of such committees to consist of one or more Directors of the Corporation,
for such purposes as the Board shall determine. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee.
3.10. Compensation of Directors: Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
4.1. Officers, Title, Elections. Terms: (a) The elected Officers of the
Corporation shall be a President, a Vice President, a Treasurer and a Secretary,
and such other Officers as the Board of Directors shall deem advisable. The
Officers shall be elected by the Board of Directors at its annual meeting
following the annual meeting of the stockholders, to serve at the pleasure of
the Board or otherwise as shall be specified by the Board at the time of such
election and until their successors are elected and qualified.
(b) The Board of Directors may elect or appoint at any time,
and from time to time, additional Officers or agents with such duties as it may
deem necessary or desirable. Such additional Officers shall serve at the
pleasure of the Board or otherwise as shall be specified by the Board at the
time of such election or appointment. Two or more offices may be held by the
same person.
6
(c) Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
(d) Any Officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect at the time specified
therein or, if no time be specified, at the time of its receipt by the
Corporation. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.
(e) The salaries of all Officers of the Corporation shall be
fixed by the Board of Directors.
4.2. Removal of Elected Officers: Any elected Officer may be removed at
any time, either with or without cause, by resolution adopted at any regular or
special meeting of the Board of Directors by a majority of the Directors then in
office.
4.3. Duties: (a) President: The President shall be the principal
executive Officer of the Corporation and, subject to the control of the Board of
Directors, shall supervise and control all the business and affairs of the
Corporation. He shall, when present, preside at all meetings of the stockholders
and of the Board of Directors. He shall see that all orders and resolutions of
the Board of Directors are carried into effect (unless any such order or
resolution shall provide otherwise), and in general shall perform all duties
incident to the office of president and such other duties as may be prescribed
by the Board of Directors from time to time.
(b) Treasurer: The Treasurer shall: (1) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(2) receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever; (3) deposit all such moneys in the name of the
Corporation in such banks, trust companies, or other depositaries as shall be
selected by resolution of the Board of Directors; and (4) in general perform all
duties incident to the office of treasurer and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors. He
shall, if required by the Board of Directors, give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board of Directors shall determine.
(c) Secretary: The Secretary shall: (1) keep the minutes of
the meetings of the stockholders, the Board of Directors, and all committees, if
any, of which a secretary shall not have been appointed, in one or more books
provided for that purpose; (2) see that all notices are duly given in accordance
with the provisions of these by-laws and as required by law; (3) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the Corporation is affixed to all documents, the execution of which on behalf
of the Corporation under its seal, is duly authorized; (4) keep a register of
the post office address of each stockholder which shall be furnished to the
Secretary by such stockholder; (5) have general charge of stock transfer books
of the Corporation; and (6) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
7
ARTICLE V
CAPITAL STOCK
5.1. Stock Certificates: (a) Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of, the
Corporation by the President or a Vice President and by the Treasurer or the
Secretary, certifying the number of shares owned by him.
(b) If such certificate is countersigned by a transfer agent
other than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, the signatures of the Officers of the Corporation
may be facsimiles, and, if permitted by law, any other signature may be a
facsimile.
(c) if any Officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such Officer before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such Officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board of Directors, and shall be numbered and registered in the order in which
they were issued.
(e) All certificates surrendered to the Corporation shall be
canceled with the date of cancellation, and shall be retained by the Secretary,
together with the powers of attorney to transfer and the assignments of the
shares represented by such certificates, for such period of time as shall be
prescribed from time to time by resolution of the Board of Directors.
5.2. Record Ownership: A record of the name and address of the holder
of such certificate, the number of shares represented thereby and the date of
issue thereof shall be made on the Corporation's books. The Corporation shall be
entitled to treat the holder of any share of stock as the holder in fact
thereof, and accordingly shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as required by law.
5.3. Transfer of Record Ownership: Transfers of stock shall be made on
the books of the Corporation only by direction of the person named in the
certificate or his attorney, lawfully constituted in writing, and only upon the
surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to do
so.
5.4. Lost, Stolen or Destroyed Certificates: Certificates representing
shares of the stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed in such manner and on
such terms and conditions as the Board of Directors from time to time may
authorize.
5.5. Transfer Agent; Registrar; Rules Respecting Certificates: The
Corporation may maintain one or more transfer offices or agencies where stock of
the Corporation shall be transferable. The Corporation may also maintain one or
more registry offices where such stock shall be registered. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6. Fixing Record Date for Determination of Stockholders of Record:
The Board of Directors may fix, in advance, a date as the record date for the
purpose of determining stockholders entitled to notice of, or to vote at, any
meeting of the stockholders or any adjournment thereof, or the stockholders
entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or to express consent to corporate
action in writing without a meeting, or in order to make a determination of the
stockholders for the purpose of any other lawful action. Such record date in any
case shall be not more than sixty days nor less than ten days before the date of
a meeting of the stockholders, nor more than sixty days prior to any other
action requiring such determination of the stockholders. A determination of
stockholders of record entitled to notice 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.
8
5.7. Dividends: Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
its discretion deems proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the Corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
6.1. Voting: Unless the Board of Directors shall otherwise order, the
President, the Secretary or the Treasurer shall have full power and authority,
on behalf of the Corporation, to attend, act and vote at any meeting of the
stockholders of any corporation in which the Corporation may hold stock, and at
such meeting to exercise any or all rights and powers incident to the ownership
of such stock, and to execute on behalf of the Corporation a proxy or proxies
empowering another or others to act as aforesaid. The Board of Directors from
time to time may confer like powers upon any other person or persons.
6.2. General Authorization to Transfer Securities Held by the
Corporation: (a) Any of the following Officers, to wit: the President and the
Treasurer shall be, and they hereby are, authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase warrants,
evidence of indebtedness, or other securities now or hereafter standing in the
name of or owned by the Corporation, and to make, execute and deliver, under the
seal of the Corporation, any and all written instruments of assignment and
transfer necessary or proper to effectuate the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed pursuant to and in accordance with the
foregoing paragraph (a), a certificate of the Secretary of the Corporation in
office at the date of such certificate setting forth the provisions of this
Section 6.2 and stating that they are in full force and effect and setting forth
the names of persons who are then Officers of the Corporation, then all persons
to whom such instrument and annexed certificate shall thereafter come, shall be
entitled, without further inquiry or investigation and regardless of the date of
such certificate, to assume and to act in reliance upon the assumption that the
shares of stock or other securities named in such instrument were theretofore
duly and properly transferred, endorsed, sold, assigned, set over and delivered
by the Corporation, and that with respect to such securities the authority of
these provisions of the bylaws and of such Officers is still in full force and
effect.
9
ARTICLE VII
MISCELLANEOUS
7.1. Signatories: All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such Officer or Officers or such other person or
persons as the Board of Directors may from time to time designate.
7.2. Seal: The seal of the Corporation shall be in such form and shall
have such content as the Board of Directors shall from tine to time determine.
7.3. Notice and Waiver of Notice: Whenever any notice of the time,
place or purpose of any meeting of the stockholders, Directors or a committee is
required to be given under the law of the State of Delaware, the Certificate of
Incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, or a waiver by electronic
transmission by the person entitled to notice whether before or after the
holding thereof, or actual attendance at the meeting in person or, in the case
of any stockholder, by his attorney-in-fact, shall be deemed equivalent to the
giving of such notice to such persons.
7.4. Indemnity: The Corporation shall indemnify its Directors, Officers
and employees to the fullest extent allowed by law, provided, however, that it
shall be within the discretion of the Board of Directors whether to advance any
funds in advance of disposition of any action, suit or proceeding, and provided
further that nothing in this section 7.4 shall be deemed to obviate the
necessity of the Board of Directors to make any determination that
indemnification of the Director, Officer or employee is proper under the
circumstances because he has met the applicable standard of conduct set forth IN
subsections (a) and (b) of Section 145 of the Delaware General Corporation Law.
7.5. Fiscal Year: Except as from time to time otherwise determined by
the Board of Directors, the fiscal year of the Corporation shall end on
September 30 of each year.
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Rubin, Bailin, Ortoli, Mayer & Baker LLP
405 Park Avenue
New York, NY 10022
December 28, 2004
DermaPlus, Inc.
372 Fifth Avenue, Suite 10B
New York, NY 10018
Re: REGISTRATION STATEMENT ON FORM SB-2
Dear Ladies and Gentlemen:
We have acted as counsel to DermaPlus, Inc. (the "Company"), a Delaware
corporation, in connection with the preparation and filing of a Registration
Statement on Form SB-2 including a prospectus ("Prospectus") to be filed on
December 29, 2004 (the "Registration Statement") covering 1,000,000 authorized
but unissued shares of Common Stock, par value $0.001, being offered by the
Company (collectively, the "Shares"). Pursuant to the Registration Statement,
the Shares are to be sold to the public by the Company on a self-underwritten
basis.
We have examined copies of the Articles of Incorporation, the By-Laws
of the Company, the Registration Statement, and such other corporate records,
proceedings and documents, including the consents of the Board of Directors of
the Company, as we have deemed necessary for the purpose of rendering this
opinion. In our examination of such material, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies submitted
to us. We have further examined the Delaware General Corporation Law, all
applicable provisions of the Delaware Constitution and the reported judicial
decisions interpreting those laws.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, to be issued in accordance with the terms of the offering as set forth
in the Prospectus included as part of the Registration Statement, and when
issued and paid for, will constitute validly authorized and legally issued
Shares, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Prospectus.
AGREEMENT made as of this ___ day of June, 2004 by and between Matrix
Design, Inc. ("Matrix")and DermaPlus Investors LLC ("DermaPlus") and sometimes
hereinafter referred to individually as "Stockholder" and collectively as
"Stockholders"
WITNESSTH
WHEREAS, Matrix and DermaPlus each own 2,000,000 shares of common stock
("Shares") of DermaPlus, Inc., a Delaware corporation (the "Company") and at
present the only shareholders of the Company; and
WHEREAS, Matrix and DermaPlus want to provide for the joint election of
directors and the orderly sale of their shares upon receipt of an offer from a
third party.
NOW THEREFORE, Matrix and DermaPlus, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, and intending to be bound
do hereby covenant and agree as follows:
ARTICLE I
RESTRICTIONS ON TRANSFER; RIGHT OF
FIRST REFUSAL
2.1 Transfer Restrictions. No Stockholder shall directly or indirectly
sell, assign, pledge or encumber or otherwise transfer (a "Transfer") to any
person any Shares held by such Stockholder unless such Stockholder has complied
with all of the provisions of this Section 1, as well as any other applicable
provisions of this Agreement. Any purported sale, assignment, pledge,
encumbrance or other transfer in violation of this Section 1 shall be void ab
initio and ineffectual and shall not operate to transfer any interest or title
to the purported transferee or assignee. The foregoing to the contrary
notwithstanding, DermaPlus may pledge and/or transfer up to 1,400,000 Shares to
Wellington Matrix Investors LLC without offering the Shares to the Company or
Matrix as provided for herein, provided that in the event of transfer,
Wellington Matrix Investors LLC executes this Shareholders Agreement and agrees
to be bound hereby.
2.2 Right of First Refusal.
(A) Transfer Notice. If at any time a Stockholder proposes to
Transfer Shares to one or more third parties pursuant to an understanding with
such third parties, then such Stockholder shall give the Company and each other
Stockholder written notice of the Stockholder's intention to make the Transfer
(the "Transfer Notice"), which Transfer Notice shall include (i) a description
of the Shares to be transferred ("Offered Shares"), (ii) the identity of the
prospective transferee(s) and (iii) the consideration and the material terms and
conditions upon which the proposed Transfer is to be made (including a
description of any expenses a Stockholder exercising its purchase option under
this Section 1.2 would be required to bear or any indemnification such holder
would be required to provide pursuant to subsection 1.3e of this Agreement). The
Transfer Notice shall certify that the Stockholder has received a firm offer
from the prospective transferee(s) and in good faith believes a binding
agreement for the Transfer is obtainable on the terms set forth in the Transfer
Notice. The Transfer Notice shall also include a copy of any written proposal,
term sheet or letter of intent or other agreement relating to the proposed
Transfer.
(B) Company's Option. The Company shall have an option for a period
of twenty (20) days from receipt of the Transfer Notice to elect to purchase the
Offered Shares at the same price and subject to the same material terms and
conditions as described in the Transfer Notice. The Company may exercise such
purchase option and, thereby, purchase all (or a portion of) the Offered Shares
by notifying the Stockholder in writing before expiration of such twenty (20)
day period as to the number of such Offered Shares which it wishes to purchase.
If the Company gives the Stockholder notice that it desires to purchase some or
all of the Offered Shares, then payment for the Offered Shares shall be by check
or wire transfer, against delivery of the Offered Shares to be purchased at a
place agreed upon between the parties and at the time of the scheduled closing
therefore, which shall be no later than forty-five (45) days after the Company's
receipt of the Transfer Notice, unless the Transfer Notice contemplated a later
closing with the prospective third party transferee(s) or unless the value of
the purchase price has not yet been established pursuant to Section 1.2(e). If
the Company fails to purchase all of the Offered Shares by exercising the option
granted in this Section 1.2(b) within the period provided, the Offered Shares
shall be subject to the options granted to the other Stockholder pursuant to
this Agreement.
(C) Additional Transfer Notice. Subject to the Company's right set
forth in Section 1.2(b), if at any time a Stockholder proposes a Transfer, then,
after the Company has declined to purchase all, or a portion of, the Offered
Shares, the Stockholder shall give the other Stockholder an "Additional Transfer
Notice" which shall include all of the information and certifications required
in a Transfer Notice and shall additionally identify the Offered Shares which
the Company has declined to purchase (the "Remaining Shares") and briefly
describe the Stockholder's rights of first refusal and co-sale rights with
respect to the proposed Transfer.
(D) The Stockholder's Option. Said Stockholder shall have an option
for a period of thirty (30) days from such Stockholder's receipt of the
Additional Transfer Notice from the transferring Stockholder set forth in
Section 1.2(c) to elect to purchase its Proportionate Share of the Remaining
Shares at the same price and subject to the same material terms and conditions
as described in the Additional Transfer Notice. Each Stockholder may exercise
such purchase option and, thereby, purchase all or any portion of the Shares by
notifying the transferring Stockholder and the Company in writing, before
expiration of the thirty (30) day period as to the number of such shares which
he, she or it wishes to purchase.
(E) Valuation of Property. Should the purchase price specified in
the Transfer Notice or Additional Transfer Notice be payable in property other
than cash or evidences of indebtedness, the Company (or the other Stockholder)
shall have the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If the transferring Stockholder and the
Company (or the other Stockholder) cannot agree on such cash value within ten
(10) days after the Company's receipt of the Transfer Notice (or the other
Stockholders' receipt of the Additional Transfer Notice), the valuation shall be
made by an appraiser of recognized standing selected by the Stockholder and the
Company (or the other Stockholder) or, if they cannot agree on an appraiser
within twenty (20) days after the Company's receipt of the Transfer Notice (or
the other Stockholders' receipt of the Additional Transfer Notice), each shall
select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the transferring Stockholder and the Company (or the other Stockholder), with
half of the cost borne by the Company and the cost borne pro rata by each
Stockholder based on the number of shares such parties were interested in
purchasing pursuant to this Section 1. The transferring Stockholder may elect,
either before or after an appraisal has been completed, to withdraw its offer to
make a Transfer, in which event all options to purchase under this Section 1.2
shall be null and void as to such withdrawn Transfer; provided however that in
such event, the transferring Stockholder shall bear all the costs of the
appraisal, if any, including any costs associated with the selection and
retention of appraiser(s). If the time for the closing of the Company's purchase
or the other Stockholders' purchase has expired but for the determination of the
value of the purchase price offered by the prospective transferee(s), then such
closing shall be held on or prior to the fifth (5th) business day after such
valuation shall have been made pursuant to this subsection.
2.3 Right of Co-Sale.
(A) To the extent the Company and the other Stockholders do not
exercise their respective rights of refusal as to all of the Offered Shares
pursuant to Section 1.2 and the transferring Shareholder intends to sell at
least 60% of its Shares, then each non-exercising Stockholder (a "Selling
Stockholder" for purposes of this Section 1.3) which notifies the transferring
Stockholder in writing within thirty (30) days after receipt of the Transfer
Notice referred to in Section 1.2(a), shall have the right to participate in
such sale of Shares on the same terms and conditions as specified in the
Transfer Notice. Such Selling Stockholder's notice to the transferring
Stockholder shall indicate the number of shares of Shares the Selling
Stockholder wishes to sell under his, her or its right to participate. To the
extent one or more of the Selling Stockholders exercise such right of
participation in accordance with the terms and conditions set forth below, the
number of shares of Shares that the transferring Stockholder may sell in the
Transfer shall be correspondingly reduced.
(B) Each Selling Stockholder may sell all or any part of that number
of shares of Shares equal to the product obtained by multiplying (i) the
aggregate number of shares of Shares covered by the Transfer Notice by (ii) a
fraction, the numerator of which is the number of shares of Common Stock owned
by the Selling Stockholder on the date of the Transfer Notice and the
denominator of which is the sum of total number of shares of Common Stock owned
by the transferring Stockholder and the total number of shares of Common Stock
owned by all of the Selling Stockholders on the date of the Transfer Notice.
(C) Each Selling Stockholder shall effect its participation in the
sale by promptly delivering to the transferring Stockholder for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent:
(I) the type and number of shares of Shares which such Selling
Stockholder elects to sell; or
(II) that number of shares of Equities Securities which are at
such time convertible into the number of shares of Common Stock which such
Selling Stockholder elects to sell; provided, however, that if the prospective
third-party purchaser objects to the delivery of Shares in lieu of Common Stock,
such Selling Stockholder shall convert such Shares into Common Stock and deliver
Common Stock as provided in this Section 1.3. The Company agrees to make any
such conversion concurrent with the actual transfer of such shares to the
purchaser and contingent on such transfer.
(D) The stock certificate or certificates that the Selling
Stockholder delivers to the transferring Stockholder pursuant to Section 1.3(c)
shall be transferred to the prospective purchaser in consummation of the sale of
the Shares pursuant to the terms and conditions specified in the Transfer
Notice, and the transferring Stockholder shall concurrently therewith remit to
such Selling Stockholder that portion of the sale proceeds to which such Selling
Stockholder is entitled by reason of its participation in such sale. To the
extent that any prospective purchaser or purchasers prohibit such assignment or
otherwise refuse to purchase shares or other securities from a Selling
Stockholder exercising its rights of co-sale hereunder, the transferring
Stockholder shall not sell to such prospective purchaser or purchasers any
Shares unless and until, simultaneously with such sale, the transferring
Stockholder shall purchase such shares or other securities from such Selling
Stockholder for the same consideration and on the same terms and conditions as
the proposed transfer described in the Transfer Notice.
(E) Each Selling Stockholder participating in a Transfer pursuant to
this Section 1.3 shall pay its pro rata share (based on the total number of
shares to be sold) of the expenses incurred in connection with such sale and
shall be obligated to join on a pro rata basis (based on the total number of
shares to be sold) in any indemnification or other obligations that the
transferring Stockholder originating the sale agrees to provide in connection
with such sale (other than any such obligations that relate specifically to a
particular transferring Stockholder such as indemnification with respect to
representations and warranties given by the transferring Stockholder regarding
the transferring Stockholder's title to and ownership of the shares being sold),
provided, however, that the no Selling Stockholder shall be obligated in
connection with such sale to agree to indemnify or hold harmless the purchasers
with respect to an amount in excess of the net cash proceeds paid to such
Selling Stockholder in connection with such sale.
2.4 [RESERVED]
2.5 Non-Exercise of Rights. To the extent that the Company and the other
Stockholders have not exercised their rights to purchase the Offered Shares
within the time periods specified in Section 1.2 and the Investor Stockholders
have not exercised their rights to participate in the sale of the Offered Shares
or the Remaining Shares within the time periods specified in Section 1.3, the
transferring Stockholder shall have a period of forty-five (45) days from the
expiration of such rights in which to sell the Offered Shares or the Remaining
Shares, as the case may be, upon terms and conditions (including the purchase
price) no more favorable than those specified in the Transfer Notice to the
third-party transferee(s) identified therein. The third-party transferee(s)
before acquiring such shares must execute a written instrument in form and
substance satisfactory to the Company, agreeing to be bound by the terms of this
Agreement, including the rights of first refusal, co-sale and other rights
described in this Section 4, as applicable. In the event the transferring
Stockholder does not consummate the sale or disposition of such shares within
the forty-five (45) day period from the expiration of these rights, the first
refusal rights and co-sale rights provided in the foregoing sections of this
Section 1 shall continue to be applicable to any subsequent disposition of the
Offered Shares or the Remaining Shares, as the case may be, by the transferor
until such rights lapse in accordance with the terms of this Agreement.
Furthermore, the exercise or non exercise of the rights of the Company and the
Stockholders under this Section 4 to purchase Shares from the transferor or
participate in sales of Shares by the transferor shall not adversely affect
their rights to make subsequent purchases from the transferor of Shares or
subsequently participate in sales of Shares by the transferor as provided in
this Section 1.
2.6 Limitations to Rights of Refusal and Co-Sale.
(A) Notwithstanding the provisions of Sections 1.1 through 1.3 of
this Agreement, each Stockholder may sell, transfer or otherwise assign, with or
without consideration, Shares to: any spouse or member of such Stockholder's
immediate family, or to a custodian, trustee (including a trustee of a voting
trust), executor, or other fiduciary for the account of the Stockholder's spouse
or members of the Stockholder's immediate family, or to a trust for the
Stockholder's own self, or a charitable remainder trust, or to an entity that is
controlled by the Stockholder and one or more members of the Stockholder's
immediate family; provided, each such transferee or assignee referred to in this
Section 1.6(a), prior to the completion of such sale, transfer or assignment,
shall have executed documents assuming the obligations of a transferring
Stockholder under this Agreement with respect to the transferred securities.
(B) Notwithstanding the provisions of Sections 1.1 and 1.5 of this
Agreement, each Investor Stockholder may sell, transfer or otherwise assign,
with or without consideration, Shares to: its partners or former partners in
accordance with their partnership interests if such Investor Stockholder is a
partnership; or to its members or former members in accordance with their
membership interests if such Investor Stockholder is a limited liability
company; or to its shareholders or former shareholders if such Investor
Stockholder is a corporation; or to family members or a trust or limited
partnership for the benefit of an individual or family member thereof if such
Investor Stockholder is an individual; or to any subsidiary of affiliate of such
Investor Stockholder; provided, further, that each such transferee or assignee
referred to in this Section 1.6(b), prior to the completion of such sale,
transfer or assignment, shall have executed documents assuming the obligations
of the Investor Stockholder under this Agreement with respect to the transferred
securities.
2.7 Prohibited Transfers.
(A) In the event a transferring Stockholder should sell any Shares
in contravention of the co-sale rights of the Investor Stockholders under
Section 1.3 (a "Prohibited Transfer"), the other Stockholders, in addition to
such other remedies as may be available at law, in equity or hereunder, shall
have the put option provided below, and such transferor shall be bound by the
applicable provisions of such option.
(B) In the event of a Prohibited Transfer, each Investor Stockholder
shall have the right to sell to the transferor the type and number of shares of
Shares equal to the number of shares each Investor Stockholder would have been
entitled to transfer to the third-party transferee(s) under Section 1.3 hereof
had the Prohibited Transfer been effected pursuant to and in compliance with the
terms hereof. Such sale shall be made on the following terms and conditions:
(I) The price per share at which the Shares are to be sold to
the transferor shall be equal to the price per share paid by the third-party
transferee(s) to the transferor in the Prohibited Transfer. The transferor shall
also reimburse each Investor Stockholder for any and all fees and expenses,
including legal fees and expenses, incurred pursuant to the exercise or the
attempted exercise of the Investor Stockholder's rights under Section 4 of this
Agreement.
(II) Within sixty (60) days after the later of the dates on
which the Investor Stockholder (A) received notice of the Prohibited Transfer or
(B) otherwise become aware of the Prohibited Transfer, each Investor Stockholder
shall, if exercising the option created hereby, deliver to the transferor the
certificate or certificates representing Shares to be sold, each certificate to
be properly endorsed for transfer.
(III) The transferor shall, upon receipt of the certificate or
certificates for the Shares to be sold by an Investor Stockholder, pursuant to
this Section 1.7, pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in subparagraph 1.7(b)(i), in cash
or by other means acceptable to the Investor Stockholder.
(C) Notwithstanding the foregoing, any attempt by a Stockholder to
transfer Shares in violation of Sections 1.2 through 1.6 hereof, as applicable,
shall be void and the Company agrees it will not effect such a transfer nor will
it treat any alleged transferee(s) as the holder of such shares.
2.8 Unlocking Provisions.
(A) If the Company shall receive a bona fide offer from a third
party to purchase all or substantially all of the issued and outstanding capital
stock of the Company or all or substantially all of the assets of the Company,
whether by merger, share exchange, purchase or otherwise (a "Company Offer"),
the Company promptly shall provide written notice thereof to the Stockholders.
In the event the Board of Directors of the Company determines not to accept such
Company Offer by majority vote within ninety (90) days after its receipt, or the
stockholders of the Company (or any class if a class vote is required)
thereafter determine not to accept such Company Offer whether by majority vote
at the stockholders' meeting called for such purpose or by written consent
within ninety (90) days thereafter or otherwise, then, upon receipt by the
Company of the written consent of the holders more than fifty percent (50%) of
the shares of Common Stock then held by the Investor Stockholders, each of the
Investor Stockholders shall have the right and option, by written consent or
agreement of such Investor Stockholder delivered to the Company, to cause the
Company to purchase all of the then outstanding shares of Common Stock held by
such Investor Stockholder upon the same terms and conditions as the Company
Offer. Thereafter, within sixty (60) days of the date specified in such written
consent or agreement, the Company shall either (i) purchase all of such
outstanding shares of Common Stock upon the terms and conditions of the Company
Offer or (ii) accept the Company Offer. If the Company cannot for any reason
purchase all of such outstanding shares of Common Stock under clause (i) of the
immediately preceding sentence, then it shall accept the Company Offer (provided
that the parties hereto understand that any stockholders of the Company not
parties to this Agreement are not bound by this Agreement). If the Company Offer
is not consummated for any reason, then the provisions of this Section 1.8 shall
similarly apply to each successive Company Offer.
If the consideration, terms or other conditions of the Company Offer
are not all cash or are such that the Company may not reasonably furnish the
same consideration, terms or conditions, then the Company may purchase the
shares of Common Stock held by the Investor Stockholders for a reasonable
equivalent in cash and upon such other reasonably equivalent terms and
conditions. If the parties cannot agree within thirty (30) days on a reasonable
equivalent in cash and other terms and conditions, an independent appraiser
reasonably acceptable to the Stockholders shall be designated by the Company
within ten (10) business days after notice is given by either the Company or the
Investor Stockholders that such thirty (30) day period has expired. Such
independent appraiser shall promptly determine the value in cash of such
consideration and other terms and conditions and such appraiser's determination
shall be final and binding. The fees and expenses of such appraiser shall be
borne by the Company.
(B) At any time and from time to time after __________, 200__, upon
receipt by the Company from the holder or holders of more than fifty percent
(50%) of the outstanding shares of Common Stock then held by the Investor
Stockholders of a written demand therefor, the Company shall conduct an auction
for the sale of or otherwise sell the Company (whether by merger, sale of all or
substantially all of the assets of the Company or otherwise). Such auction shall
be conducted in a commercially reasonable manner in order to attain the highest
price per share for holders of the Company's capital stock in such sale. The
Company shall use its best efforts to consummate such sale on terms and
conditions reasonably satisfactory to the Investor Stockholders. Nothing herein
shall be construed so as to limit the ability of any of the then existing
Investor Stockholders of the Company or their affiliates from being entitled to
participate in the auction as a purchaser.
ARTICLE II
ELECTION OF DIRECTORS
2.1 Each Stockholder agrees to vote all of such person's Shares and take
all other actions reasonably necessary to ensure that two (2) directors of the
Company are the designees of Matrix (the "Matrix Directors") and that two (2)
directors of the Company are the designees of the DermaPlus (the "DermaPlus
Directors"). The fifth director shall be chosen by the elected directors until
such time as the Matrix and DermaPlus (and its permitted transferee) own
collectively less than 50% of the issued and outstanding shares of common stock
entitled to vote for directors. Upon the occurance of this event the parties
hereto shall be free to vote for any candidate for Director without regard to
the nominating party.
2.2 The Company will pay the reasonable expenses incurred by each of the
directors in attending meetings of the board or of committees thereof, in
connection with attending such meetings. So long as any directors designated
pursuant to this Section 2 serves as a director of the Company and for three (3)
years thereafter, the Company shall maintain directors' and officers' liability
insurance coverage in amounts appropriate for a company of this size and nature,
provided however that the Board of Directors may waive this provision for any
period by unanimous vote. The Company's Certificate and Bylaws shall provide for
indemnification and exculpation of directors to the fullest extent permitted by
applicable law.
2.3 The provisions of this Section 2 shall be binding upon, and inure to
the benefit of, the successors in interest of the Stockholders to any of the
shares of Common Stock held by the Stockholders and references to the
"Stockholders" herein shall be deemed to also refer to their respective
successors in interest. The Company shall not permit the transfer of any shares
of Common Stock on its books or issue a new certificate representing any shares
of Common Stock unless and until the person to whom such security is to be
transferred shall have executed an agreement or instrument pursuant to which
such person agrees to be bound by all the provisions of this Section 2, in
addition to any other requirements contained in this Agreement. The shares of
Common Stock shall an appropriate legend to reflect these restrictions, in
addition to any other legends required hereunder or by other applicable law.
Agreed to and executed as of the date first above written.
Matrix Design, Inc. DermaPlus Investors LLC
By: By:
--------------------------------- --------------------------------
Its President Its Manager
DERMAPLUS, INC.
2004 LONG TERM INCENTIVE COMPENSATION PLAN
1. PURPOSE. This 2004 Stock Plan (the"Plan") is intended to provide
incentives and rewards to certain persons who contribute to the growth of
DERMAPLUS, INC. (the "Company") by providing officers, employees, consultants
and directors ("Eligible Recipients") of the Company, its parent (if any) and
any present or future subsidiaries of the Company (collectively, "Related
Corporations") the ability to participate in the growth of the Company. As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation", respectively, as those terms are defined in Section
424 of the Internal Revenue Code of 1986, as amended (the "Code").
2. STOCK RIGHTS. To provide long-term incentives, the Company may provide
to Eligible Recipients one or more stock rights under this Plan. The stock
subject to rights under this Plan shall be authorized but unissued shares of
Common Stock of the Company, no par value per share (the "Common Stock"), or
shares of the Common Stock reacquired by the Company in any manner.
The following are the rights, which may be granted under this Plan, (a)
with respect to employees only, options to purchase Common Stock which qualify
as "incentive stock options" under Code Section 422(b) ("ISO or"ISOs"); (b)
options to purchase Common Stock which do not qualify as ISOs ("Non-Qualified
Option" or "Non-Qualified Options"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options";
(c) awards of Common Stock, which may be restricted, ("Awards"); and (d)
opportunities to make direct purchases of Common stock ("Purchases"). Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights".
3. ADMINISTRATION OF THE PLAN
A. Board or Committee Administration. The Plan shall be administered
by the Board of Directors of the Company (the "Board"). The Board may appoint a
Stock Plan committee (the "Committee") of two or more of its members to
administer this Plan. If the Committee has been so appointed, no member of the
Committee, while a member, shall be eligible to participate in the Plan.
Hereinafter, all references in this Plan to the "Committee" shall mean the Board
if no Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and Related Corporation
(from among the class of employees eligible under paragraph 4 to receive ISOs)
to whom ISOs may be granted, to determine from among the class of Eligible
Recipients the individuals or entities to receive Non-Qualified Options, and
Awards or who can make Purchases, (ii) determine the time or times at which
Stock Rights may be granted or made; (iii) determine the price, if any, of the
Option, Common Stock subject to each Stock Right, which price shall not be less
than the minimum price specified in paragraph 7, (iv) determine whether each
Option granted shall be an ISO or Non-Qualified Option; (v) determine (subject
to paragraph 8) the time or times when each Stock Right shall become exercisable
and the duration of the exercise period; (vi) determine whether restrictions
such as repurchase options are to be imposed on shares subject to Stock Rights
and the nature of such restrictions, if any and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it.
If the Committee determines to issue a Non-Qualified Option, it
shall take whatever actions it deems necessary, under Section 422 of the Code
and the regulations promulgated thereunder, to ensure that such Option is not
treated as an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under it shall be final
unless otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan, as it may deem best.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and place as it may
determine. Acts by a majority of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee, shall be the valid
acts of the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution thereof, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. GRANT OF STOCK RIGHTS: BOARD MEMBERS. Stock Rights may be granted
to members of the Board, but any such -------------------------------------
grant shall be made and approved in accordance with paragraph 3(d), if
applicable. All grants of Stock Rights to members of the Board shall in all
other respects be made in accordance with the provisions of this Plan applicable
to other eligible persons. Members of the Board who are either (i) eligible for
Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights, may
vote on any matters affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such member shall act upon the
granting to himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting to him of the Stock Rights.
D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. In the event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") any grant of
Stock Rights to a member of the Board (made at any time from the effective date
of such registration until six months after the termination of such
registration) must be approved by a majority vote of the Committee; provided,
however, that the Committee shall consist of two or more directors, each of whom
is a disinterested person, (i.e., a director who is not, during the one year
prior to service as an administrator of the Plan, granted or awarded Stock
Rights or equity securities pursuant to the Plan or any other plan of the
Company or a Related Company.)
4. ELIGIBLE RECIPIENTS. ISOs may be granted only to employees of the
Company or any Related Corporation. Those officers and directors of the Company
who are not employees may not be granted ISOs under the Plan. Non-Qualified
Options, Awards and authorizations to make Purchases may be granted to an
employee, officer or director (whether or not also an employee) or consultant of
the Company or any Related Corporation. The Committee may take into
consideration an Eligible Recipient's individual circumstances in determining
whether to grant an ISO, a Non-Qualified Option, an Award or an authorization to
make a Purchase of Common Stock and whether or not such Common Stock shall carry
restrictions. Granting of any Stock Right to any individual or entity shall
neither entitle that individual or entity to, nor disqualify him from,
participation in any other grant of Stock Rights. Any Eligible Recipient who
receives and accepts a grant or award under this Plan shall be referred to as a
"Participant."
5. AVAILABLE STOCK. The aggregate number of shares which may be issued as
Stock Rights pursuant to the Plan is 2,000,000 subject to adjustment as provided
in paragraph 14. If any Option granted under the Plan shall expire or terminate
for any reason without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part, or if the Company shall reacquire
any unvested shares issued pursuant to other Stock Rights, the unpurchased
shares or reacquired shares subject to such Stock Rights shall again be
available for grants of Stock Rights under the Plan.
6. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
any time on or after June 1, 2004 and prior to May 31, 2014. The date of grant
of a Stock Right under the Plan will be the date specified by the Committee at
the time it grants the Stock Right; provided, however, that such date shall not
be prior to the date on which the Committee acts to approve the grant. All
grants under this Plan shall be made under a relevant Stock Rights Agreement
between the Eligible Recipient and the Company which shall set forth all
relevant detail with respect to that grant ("Stock Rights Agreement"). The
Committee shall have the right, with the consent of the Participant, to convert
an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph
18.
7. PRICE; ISO LIMITATIONS
A. PRICE FOR NON-QUALIFIED RIGHTS. The price per share specified in
the Stock the Stock rights Agreement relating to each Non-Qualified
Option, Award or Purchase granted under the Plan, shall be set by the
Board at the time of each grant.
B. PRICE FOR ISO'S. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by
such employee during any calendar year in a manner which would entitle the
employee to purchase more than $100,000 in fair market value (determined
at the time the ISOs were granted) of Common Stock in that year. Any
Options granted to an employee in excess of such amount will be granted as
Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time a Stock Right
is granted or exercised under the Plan, the Common Stock is publicly
traded, "fair market value" shall be determined as of the last business
day for which the prices or quotes are available prior to the relevant
determination date for the Stock Right and shall mean (i) the average (on
that date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the
Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price (on the date) of to Common Stock on the NASDAQ
National Market List, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the
NASDAQ National Market List.
However, if the Common Stock is not publicly traded at the relevant
determination date, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation recent sale and offer prices of the Common Stock in private
transactions negotiated at arms length.
8. STOCK RIGHT DURATION. Subject to earlier termination as provided in
Paragraphs 10 and 11, each Stock Right shall expire on the date specified by the
Committee in the Stock Rights Agreement, but not more than (i) ten years from
the date of grant in the case of ISOs and other Stock Rights generally, and (ii)
five years from the date of grant in the case of ISOs granted to an employee
owning stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Related Corporation. Subject
to earlier termination as provided in paragraphs 10 and 11, the term of each ISO
shall be the term set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a Non-Qualified
Option pursuant to paragraph 18.
9. EXERCISE OF STOCK RIGHT. Subject to the provisions of paragraphs
through 13, each Stock Right granted under the Plan shall be exercisable as
follows:
A) VESTING. The Stock Right shall either be fully vested and
exercisable on the date of grant or shall become vested and exercisable
thereafter in such installments as the Committee may specify in the Stock
Rights Agreement.
B) FULL VESTING OF INSTALLMENTS. Once an installment becomes vested
and exercisable it shall remain vested and exercisable until expiration or
termination of the Stock Right, unless otherwise specified by the
Committee.
C) PARTIAL EXERCISE. Each Stock Right or installment may be
exercised at any time or from to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
D) ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Stock Right;
provided that the Committee shall not, without the consent of a
Participant, accelerate the exercise date of any installment of any ISO
(not previously converted into a Non-Qualified Option pursuant to
paragraph 18) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in
paragraph 7 (C).
10. TERMINATION OF EMPLOYMENT. If a Participant ceases to be employed by
the Company and all Related Corporations or otherwise ceases to be an Eligible
Recipient other than by reason of death or disability as defined in paragraph
11, no further installments of his Stock Rights shall become exercisable and his
Stock Rights shall terminate after the passage of ninety (90) days from the date
of termination of his employment or other relationship with the Company or
Related Corporations, but in no event later than on their specified expiration
dates. A Participant shall cease being an Eligible Recipient on the date that
such Participant is no longer an employee, officer, director or independent
contractor for the Company or any Related Corporation.
Notwithstanding the foregoing, if the Participant is terminated for
"Misconduct", this Option shall terminate on the date of such removal and shall
thereupon not be exercisable to any extent whatsoever. "Misconduct" is conduct,
as determined by the Board of Directors, involving one or more of the following:
(i) the substantial and continuing failure of the Participant to render services
to the Company in accordance with his duties; (ii) ad determination by
two-thirds of the members of the Board of Directors that the Participant has
inadequately performed his duties; (iii) disloyalty, gross negligence,
dishonesty or breach of fiduciary duty to the Company; (iv) the commission of an
act of embezzlement, fraud, disloyalty, dishonesty or deliberate disregard of
the rules or polices of the Company which results in loss, damage or injury to
the Company, whether directly or indirectly; (v) the unauthorized disclosure of
any trade secret or confidential information of the Company; or (vi) the
commission of an act which constitutes unfair competition with the Company or
which induces any customer of the Company to break a contract with the Company.
In making such determination, the Board of Directors shall act fairly and in
utmost good faith and shall give the Participant an opportunity to appear and to
be heard at a hearing before the Board of Directors or any Committee and present
evidence on his behalf. For the purposes of this paragraph, termination of the
Participant shall be deemed to occur when the Participant receives notice from
the Board of Directors or President that he has been terminated.
Eligible Recipient status shall be considered as continuing uninterrupted
during any bona fide leave of absence (such as those attributable to illness,
military obligations or governmental service) provided that the period of such
leave does not exceed 90 days or, if longer, any period during which such
Participant's right to reemployment is guaranteed by statute. A bona fide leave
of absence with the written approval of the Committee shall not be considered an
interruption of employment or Eligible Recipient status under the Plan, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of or other relationship with the
Participant after the approved period of absence. Stock Rights granted under the
Plan shall not be affected by any change of employment within or among the
Company and Related Corporations, so long as the Participant continues to be an
Eligible Recipient. Nothing in the Plan shall be deemed to give any grantee of
any Stock Right the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time.
11. DEATH; DISABILITY
A. DEATH. If a Participant ceases to be employed by or provide
service to the Company and all Related Corporations by reason of his
death, any Stock Right of his may be exercised, to the extent of the
number of shares with respect to which he could have exercised it on the
date of his death, by his estate, personal representative or beneficiary
who has acquired the Stock Right by will or by the laws of descent and
distribution, at any time prior to the earlier of the specified expiration
date of the Stock Right or 180 days from the date of the Participant's
death.
B. DISABILITY. If a Participant ceases to be an Eligible Recipient
by reason of his disability, he shall have the right to exercise any Stock
Right held by him on the date of termination of employment, to the extent
of the number of shares with respect to which he could have exercised it
on that date, at any time prior to the earlier of the specified expiration
date of the Stock Right or 180 days from the date of the termination of
the Participant's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or successor statue.
12. ASSIGNABILITY. No Stock Right shall be assignable or transferable by
the Participant except by will or by the laws of descent and distribution, and
during the lifetime of the Participant each Stock Right shall be exercisable
only by him. Notwithstanding the foregoing, except with respect to ISOs, at the
time of a grant, the Committee may, in its sole discretion, provide in the Stock
Rights Agreement that the Stock Right is transferable to a Trust for the benefit
of the Participant, the Participant's children or the Participant's spouse. Any
restrictions of the Stock Right shall remain fully applicable to any such
transferee.
13. TERMS AND CONDITIONS OF STOCK RIGHTS. Stock Rights shall be evidenced
by instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 12 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Stock Rights. In granting any Stock Right, the
Committee may specify that such Stock Rights shall be subject to such other
termination and cancellation provisions as the Committee may determine. The
Committee may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments.
14. ADJUSTMENTS. Upon the occurrence of any of the following events a
Participant's rights with respect to Stock Rights granted to him hereunder shall
be adjusted as hereinafter provided, unless otherwise specifically provided in
the written agreement between the Participant and the Company relating to such
Stock Right.
A. STOCK DIVIDENDS, STOCK SPLITS, SPIN-OFFS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock or in a spin-off of a Subsidiary
or if it is spun-off in a transaction described in Code Section
368(a)(1)(D) or Code Section 355 the number of shares of Common Stock
deliverable upon the exercise of Stock Rights shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination, stock dividend or spin-off.
B. PUBLIC REGISTRATION, CONSOLIDATIONS OR MERGERS. If the Company is
to be consolidated with or acquired by another entity in a merger, sale of
all or substantially all of the Company's assets or otherwise (an
"Acquisition"), or the Company and its Related Companies are split into
two or more separate companies as provided in Code Section 368(a)(1)(D) or
Code Section 355 (a "Split-Up"0, or its shares become publicly traded, the
Committee, the Board, or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall as to
outstanding Stock Rights, either (i) make appropriate provision for the
continuation of such Stock Rights by substituting on an equitable basis
for the shares then subject to such Stock Rights the consideration payable
with respect to the outstanding shares of Common Stock in connection with
the Acquisition or Split-Up; or (ii) upon written notice to the
Participants, provide that all Stock Rights must be exercised, to the
extent then exercisable, within a specified number of days of the date of
such notice, at the end of which period the Stock Rights shall terminate;
or (iii) terminate all Stock Rights in exchange for a cash payment equal
to the excess of the fair market value of the shares subject to such Stock
Rights (to the extent then exercisable) over the exercise price thereof;
of (iv) upon written notice to the Participants, provide that all Stock
Rights shall be immediately exercisable in full regardless of any vesting
schedule otherwise applicable.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph (b) above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common stock, (including any divisive
reorganization), a Participant upon exercising a Stock Right shall be
entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Stock Right
prior to such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs a, b or c with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation such action or at such other time
and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Stock Rights. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the Participant shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs a, b or c above, the class and aggregate number of share set
forth in paragraph 5 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 15 and, subject to
paragraph 3; its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of a Stock Right made hereunder receives shares or securities or cash,
in connection with a corporate transaction described in subparagraphs a, or c
above as a result of owning such restricted Common Tock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
15. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefore
either (a) in United State dollars in cash or by check, or (b) at the discretion
of the Committee, through delivery of shares of Common Stock having a fair
market value equal as of the date of the exercise to the cash exercise price of
the Stock Right, or (c) at the discretion of the Committee, by delivery of the
grantee's personal recourse note bearing interest payable not less than annually
at not less than 100% of the lowest applicable Federal rate, as defined in
Section 1274(d) of the Code, or (d) at the discretion of the Committee, by any
combination of (a), (b) and (c) above. If the Committee exercises its discretion
to permit payment of the exercise price of an ISO by means of the methods set
forth in clauses (b), (c), or (d) of the preceding sentence, such discretion
shall be exercised in writing at the time of the grant of the IPSO in question.
The holder of a Stock Right shall not have the rights of a shareholder
with respect to the Shares covered by his Stock Right until the date of issuance
of a stock certificate to him for such shares. Except as expressly provided
above in paragraph 14 with respect to changes in capitalization and stock
dividends, no adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is issued.
16. CANCELLATION AND RECISSION OF AWARDS. By accepting the Stock Rights a
Participant agrees to the following terms. In addition to the Company's remedies
at law, the Committee may cancel any unexpired, unpaid, or deferred Stock Rights
at any time if the participant is not in compliance with these and all other
applicable provisions of the Plan and the Rights Agreement.
A) CONFIDENTIAL INFORMATION. A participant shall not, without prior
written authorization from the Company, disclose to anyone outside the
Company, or use in other than the Company's business, any confidential
information or material relating to the business of the Company, acquired
by the participant either during or after employment with the Company.
B) NO SOLICITATION OF CUSTOMERS OR PARTICIPANTS OF THE COMPANY.
During the period of any participant's employment with the Company and for
a period of two (2) years following the termination of the participant's
employment for any reason, the participant shall not directly or
indirectly, as a proprietor, partner, shareholder, officer, director,
employee, agent, consultant or in any other capacity, for his own benefit
or for or with any person, firm, corporation or other business entity, (i)
induce or influence, or attempt to induce or influence, any other employee
of the Company employed as of the termination of participant's employment
with Company to terminate or curtail his or her employment with Company,
or (ii) solicit, or perform services for, any clients of Company which
have been serviced by the Company at any time during the two (2) years
immediately prior to the termination of participant's employment, or (iii)
request that any previous or existing client of Company curtail or suspend
or cancel their business with the Company.
C) INVENTIONS. A Participant, shall disclose promptly and assign to
the Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the participant during employment
by the Company, relating in any manner to the actual or anticipated
business, research or development work of the Company and shall do
anything reasonably necessary to enable the Company to secure a patent
where appropriate in the United States and in other countries.
D) CERTIFICATION. Upon exercise, payment or delivery pursuant to a
Stock Right, the participant shall certify on a form acceptable to the
Committee that he or she is in compliance with the terms and conditions of
the Plan. Failure to comply with the provisions of Section 16.1, 16.2 16.3
prior to, or during the six months after, any exercise, payment or
delivery pursuant to an Stock Right may, at the option of the Company,
cause such exercise, payment or delivery to be rescinded. The Company
shall notify the participant in writing of any such rescission within two
years after such exercise, payment or delivery. Within ten days after
receiving such a notice from the Company, the participant shall pay to the
Company the amount of any gain realized or payment received as a result of
the rescinded exercise, payment or delivery pursuant to a Stock Right.
Such payment shall be made either in cash or by returning to the Company
the number of shares of Capital Stock that the participant received in
connection with the rescinded exercise, payment or delivery.
E) EFFECTIVENESS OF ARTICLE. This Article 16 shall be a bar against
the acts described in this Agreement not withstanding any other employment
or other agreement between the Company and the participant unless such
other agreements specifically references the terms of this Article 16.]
17. TERM AND AMENDMENT OF THE PLAN. This Plan was adopted by the Board on
June__, 2004 subject (with respect to the validation of Stock Rights granted
under the Plan) to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to December31, 2004 any grants of
Stock Rights under the Plan made prior to that date will be rescinded. The Plan
shall expire at the end of the day on February 28, 2014 (except as to Stock
Rights outstanding on that date). Subject to the provisions of paragraph 5
above, Stock Rights may be granted under the Plan prior to the date of
stockholder approval of the Plan. The Board may terminate or amend the Plan in
any respect at any time, except that, without the approval of the stockholder
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the total number of shares that
may be issued under the Plan may not be increased (except by adjustment pursuant
to paragraph 14); (b) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified (c) the provisions of paragraph 7(b)
regarding the exercise price at which shares may be offered pursuant to ISO may
not be modified (except by adjustment pursuant to paragraph 14); and (d) the
expiration date of the Plan may not be extended except as otherwise provided in
this paragraph 14, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.
18. CONVERSION OF ISOS TO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS. The
Committee, at the written request of any Participant, may in its discretion take
such actions as may be necessary to convert such Participant's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At the
time of such conversion, the Committee (with the consent of the Participant) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
Participant, may also terminate any portion of any ISO that have not been
exercised at the time of such conversion.
19. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Stock Rights granted under the Plan shall be used for
general corporate purposes.
20. GOVERNMENT REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
21. WITHHOLDING OF ADDITIONAL EMPLOYMENT TAXES. Upon the exercise of a
Non-Qualified Stock Option, the grant of an Award or the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 22) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the Participant, Award
recipient or purchaser to pay additional employment and withholding taxes in
respect of the amount that is considered compensation included in such person's
gross income. The Committee in its discretion may condition (i) the exercise of
an Option, (ii) the grant of any Award (iii) the making of a Purchase of Common
Stock for less than its fair market value, or (iv) the vesting of restricted
Common stock acquired by exercising a Stock Right, on the grantees payment of
such additional withholding taxes.
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
23. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the Laws of the
State of New York without regard to the conflict of laws provisions thereof. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the contest otherwise
requires.
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 1, 2004 by and between DermaPlus, Inc.. a
Delaware corporation with offices at 372 Fifth Avenue Suite 10B, New York, NY
10018 (the "Employer" or the "Corporation") and Burt Ensley, residing at PMB
1319 2675, W. Highway 89A, Sedona, AZ 86336 (hereinafter called the "Employee")
W I T N E S S E T H
WHERE AS the parties wish to define their respective rights, duties and
obligations to each other during the term of this Agreement and thereafter; and
WHEREAS the Employee has been fully advised as to the nature and extent
of the conditions, terms, provisions and limitations on the engagement of his
services;
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained, the parties hereto do hereby agree as follows:
1. Employment.
The Employer hereby employs the Employee and the Employee hereby accepts
employment upon the terms and conditions set forth herein.
2. Term.
Subject to the provisions for termination as provided elsewhere in this
Agreement, the term of this Agreement shall begin as of the date first set forth
above and shall terminate June 30, 2007 (the "Initial Term"). However, this
Agreement shall thereafter be automatically renewable from year to year unless
either party gives notice of termination to the other not less than ninety (90)
days prior to the end of the Initial Term or any renewal thereof. The Initial
Term and all successive renewals are sometimes hereinafter referred to as the
"Term."
3. Duties.
(a) General. The Employee is hereby engaged as Chairman of the Board and Chief
Executive Officer of the Corporation. Employee shall be in charge of the
operation of the Employer's business, and shall have full authority and
responsibility, subject to the general direction, approval and control of the
Board of Directors of the Corporation, in formulating policies and administering
the Employer's business. The Employee will be appointed as a director of the
Employer and will continue to serve during the Term in such capacity without
further compensation. The Employer agrees that it will use its best efforts to
obtain directors' liability insurance but the Employee understands that there is
no assurance that the Employer will be able to obtain such insurance.
(b) Extent of Services. The Employee shall use his best efforts to promote the
interests of the Employer and will devote such of his time, attention and
energies to the business of the Employer as, in his reasonable discretion, shall
be required to fulfill his obligations under this Agreement. During the Term the
Employee shall be permitted to engage in other business activities as long as
such activities do not interfere with his duties and obligations to the Employer
and are not competitive with the Employer's business.
4. Compensation.
(a) Salary. For all services to be rendered by the Employee under this Agreement
except as provided in Paragraph 4 (b) below, the Employer shall pay the Employee
and the Employee shall accept an annual salary as follows: (i) Sixty Thousand
($60,000) Dollars in the first two years hereof , all or part of which may be
deferred at the option of the Employer, and (ii) a base compensation of Two
hundred Thousand ($200,000.00) dollars thereafter (the "Base Compensation"). The
Base Compensation shall be reviewed annually by the Employer to determine
whether such Compensation shall be increased based on the Employer's general
financial condition at the time of such review and the quality of the services
performed by the Employee for the 12 prior to such review. The Base Compensation
shall be generally payable on a bi-weekly basis, but in no event less frequently
than monthly.
(b) Bonuses. The Employee shall be entitled to participate in any bonus pool
established for senior management of the Employer which bonus pool may be
modified from time to time by the Board of Directors.
5. Grant of Options.
(a) Grant of Options. As of the commencement of the term of Employee's
employment hereunder, the Company, subject to approval of the Board of Directors
of the Company, shall grant to Employee options to purchase up to 400,000 shares
of Common Stock (the "Options"), within the Company's 2004 Long Term Incentive
Stock Option Plan ("Plan"), exercisable at $0.15 per share which shall vest, (i)
100,000 Options shall vest immediately upon execution of this agreement and (ii)
thereafter, subject to Employee's continuing employment hereunder, at the rate
of 50,000 Options on each June 1 and January 1 that Employee is employed by the
Company beginning July 1, 2005 through June 1, 2007. The Options shall be
further subject to the terms and conditions of a Stock Option Agreement to be
executed and delivered by the Company and the Employee, in such form as the
parties shall agree, but such agreement shall be in substance as similar as
practicable to the terms of Stock Option Agreement under the Plan.
(b) Investment Representations. The Employee understands that the Option Shares
issuable upon the exercise of the Option are being sold to him pursuant to and
exemption from the registration provisions of the Securities Act of 1933 (the
"33 Act") provided by section 4 (2) thereof, and, accordingly, agrees and
represents that he is acquiring these securities for investment and not with a
view to distribution. The Employee further represents that he will not sell or
otherwise transfer these securities unless such sale or transfer is registered
pursuant to the 33 Act or is, in the opinion of the Employer's counsel, exempt
from the registration provisions thereof. The Employee also understands and
agrees that the foregoing transfer restrictions will be placed on the
certificates representing the Option Shares.
2
6. Working Facilities. The Employee shall be furnished with a private office,
computer, executive telephone and such other facilities, staffing and services
suitable to his position and adequate for the performance of his duties and
comparable to all other executives. Employer will reimburse Employee for the use
of his existing home office located at Sedona, AZ at the rate of $500 per month.
7. Expenses.
(a) General. The Employee is authorized to incur reasonable expenses for
promoting the business of the Employer, including expenses for entertainment,
travel and similar items. Such expenses shall include, in addition to the
foregoing, the use of a cellular telephone and such other facilities as may
reasonably be required by the Employee to perform his services as provided by
this Agreement. The Employer will reimburse the Employee for such expenses after
the presentation by the Employee, from time to time, of an itemized account of
such expenditures in the form then required by the Employer for such accounting.
Payment will be made within the time period in which the Employer pays expenses
to its employees which is then in effect after the submission of the expense
report but in no event later than thirty (30) days after such submission. The
Employer shall provide the Employee with a credit card and the Employee shall be
entitled to the use of such card for the Employer's business in an amount not to
exceed the actual expenses, which the Employee can document as having been
incurred by him on behalf of the Employer.
(b) Automobile Expenses. The Employer will pay for all expenses incurred by
Employee for the use of any personal automobile in connection with the business
of the Company.
8. Vacations. The Employee shall be entitled each year to a vacation of four (4)
weeks on reasonable notice to the Employer, during which time his compensation
shall be paid in full.
9. Insurance.
(a) Health Insurance. The Employer shall provide the Employee with a health
insurance plan which is provided by the Employer to its senior management and/to
its key employees.
3
(b) Disability Insurance. The Employer shall secure and pay the premiums for the
disability plan if and to the extent it may institute such coverage for its
senior management and/to its key employees.
(c) Life Insurance. The Employer shall secure and pay the premiums for term
insurance on the life the Employee in the principal amount of equal to two and
one half (2 &1/2)times the Employee's annual salary, the beneficiary of which
shall be designated by the Employee. The Employee agrees to submit to the usual
and customary medical examinations and otherwise cooperate with the Employer in
the procurement of such insurance.
10. Additional Benefits. The Employee shall have the right to participate in
such other health, insurance, pension, profit sharing and other plans, if any,
as the Employer's Board of Directors from time to time may provide.
11. Representations and Warranties of the Employee. The Employee represents and
warrants that he (i) is subject to no currently existing agreement which would
interfere with his entering into this Agreement; (ii) has made no commitment of
any kind inconsistent with the provisions of this Agreement and his duties
hereunder; (iii) is under no disability of any kind which would prevent him from
entering into this Agreement and performing all of his obligations hereunder.
12. Termination
(a) Disability If the Employee is unable to perform his services by reason of
illness, disability or other incapacity for a period of up to three (3) months,
he will continue to receive full salary, less the amount paid to the Employee
from any mandatory disability insurance, for the period of such illness,
disability or incapacity. In the event that Employer elects to provide
disability insurance to its executive employees, Employer will use its best
efforts to obtain disability insurance for the employee in a comparable amount
and upon comparable terms as all other executive level employees of Employer.
(b) Death This Agreement shall be terminated immediately upon the death of the
Employee.
(c) Termination by the Employer for Cause. The Employer shall have the right to
terminate this Agreement immediately upon notice for cause. For the purpose
hereof the term "cause" shall mean during the Term any (i) material acts of
theft (including misappropriation of any assets of the Employer), gross
negligence or fraud by the Employee; (ii) commission by the Employee of a felony
or other crime involving moral turpitude; (iii) a material failure by the
Employee to comply with the reasonable and necessary directions of the
Employer's Board of Directors so long as such directions are consistent with the
terms of this Agreement; (iv) failure by the Employee to remedy a material
breach of any of his obligations under this Agreement after he is afforded a
reasonable opportunity to correct the acts or omissions complained of; or (v)
any representation or warranty made by the Employee herein having been false in
any material respect when made. In the event of a discharge for cause which the
Employee believes is improper, upon written demand for same made within ten (10)
days after termination, the Employer shall provide to the Employee a detailed
statement as to the reason for termination and copies of any written evidence in
support of its position.
4
(d) Termination by the Employee for Good Reason. The Employee shall have the
right to terminate this Agreement immediately upon notice for Good Reason. Such
notice shall state the basis for termination. For the purpose hereof the term
"Good Reason" shall mean the occurrence of any of the following events without
the Employee's consent: (i) the assignment to the Employee of any duties
inconsistent with his status as Chief Executive Officer of the Employer; (ii) an
adverse alteration or the diminution in the Employee's title, status or
responsibilities from those in effect as of the date first written above; (iii)
the relocation of the Employer's business requiring Employee's presence outside
of Sedona, AZ for more than five days per month; (iv) (A) change of control of
the Employer, or (B) a merger or other business combination by the Employer
where the Employer is not the surviving entity; (v) failure by the Employer to
pay Salary or Bonus to the Employee within thirty (30) days after such payments
are due; or (vi) failure by the Employer to remedy a material breach of any of
its obligations under this Agreement after it is afforded a reasonable
opportunity to correct the acts or omissions complained of.
(e) Effects of Termination. Upon termination of this Agreement by the Employer
for any reason the Employer shall be obligated to pay the Employee or his
estate, as the case may be, (i) only the compensation due him to the date of
termination which amount shall include compensation due him to the date of
termination which amount shall include compensation earned by him but unpaid as
of such date; (ii) an additional sum representing a severance allowance equal to
one years salary; and (iii) the Employee shall be bound by the provisions of
Section 14 for a period of one (1) year after termination. In the event of
termination pursuant to the provisions of Paragraph 12 (d), the Employee shall
be paid on the date of termination a severance allowance equal to the amount of
salary the Employee would have received through the end of the Term, including
any then earned but unpaid Bonus, if the Agreement had not been terminated, (B)
all Options then held by the Employee plus all other Options promised herein but
nor granted shall be shall be immediately granted in full and thereafter become
immediately exercisable at the original price, and (C ) the Employee shall be
bound only by the provisions of Paragraphs 14 (c ) and (d).
(f) Probationary Period. Notwithstanding the foregoing, the Employer may, in its
absolute discretion, terminate this agreement at any time within the first six
months (the "Probationary Period") of the initial term. In event of termination
during the Probationary Period, without cause as defined in Paragraph 12 (c),
none of the provisions of Paragraph 12 (e) shall apply. All options granted
herein shall be cancelled. The Employee will be entitled to a severance
allowance equal to the greater of the salary due through the end of the
Probationary Period or two month's salary.
5
13. Confidential Information and Material.
(a) Confidential Information. Confidential Information means information
disclosed to or learned by the Employee in connection with his employment by the
Employer and not generally known in the industry in which the Employer is or may
become engaged, about the Employer's business and includes, among other things,
all information concerning technical, administrative, management, financial, or
marketing and sales activities (such as software programs, marketing and sales
plans and strategies, customer names, cost or financial or other data, as well
as trade secrets, know-how, ideas, or methods of marketing and selling any of
the products and services offered by the Employer) all of which are most
valuable, special and unique assets of the Employer.
(b) Confidential Material. Confidential Material includes all physical
embodiments of Confidential Information (such as drawings, specification sheets,
recording media, software listings, contracts, reports, customer lists, manuals,
quotations, proposals, correspondence, and samples).
(c ) Restrictions on Disclosure and Dissemination. The Employee recognizes and
acknowledges that he is employed in a fiduciary capacity by the Employer and
that the work for which his is employed, and upon which he will be engaged, is
and will be of a secret, confidential and proprietary nature. Accordingly, he
recognizes, acknowledges and covenants that , except as required to perform his
services for the Employer, with the written permission of the Employer, or as
provide in Paragraph 13 (d) below, he will never, directly or indirectly, during
or after his employment, use, disseminate, disclose, deliver, lecture upon or
otherwise divulge any Confidential Information or Confidential Material that he
may acquire during his employment, as long as the same shall not become public
information without breach of this Agreement by him. The Employee understands
and agrees that the Employer shall be under no obligation to grant such
permission, and that any refusal by the Employer shall be in its sole
discretion, without explanation to the Employee or recourse by him.
(d) The Employee shall not be liable for disclosure of Confidential Information
which he may be required to disclose by law, in which event he will notify the
Employer prior to any such disclosure.
(e) Return of Confidential Material. The Employee will return to the Employer
all Confidential Material and copies thereof at any time upon request of the
Employer and, in any event and without such a request, prior to the termination,
for whatever reason, of this Agreement.
(f) Additional Agreements. The Employee further covenants and agrees to execute
any other reasonable agreements and covenants to protect the confidentiality of
information as the Employer may deem to be reasonably required to protect its
operations.
6
14. Restrictive Covenants.
(a) Participation in Competing Business. The Employee covenants and agrees that
during the term of this Agreement and as required by the provisions of Section 2
and Paragraph 12 (f) above after termination of employment for a period of two
years, neither he nor any business that he owns any interest in, shall, directly
or indirectly, own any interest in, participate, engage in, assist, render any
services (including advisory services) to, become employed by or otherwise
associated with, or be in any other way or manner connected with a business
enterprise engaged in any business or activity which may be competitive with the
business of the employer or any of its divisions, subsidiaries or affiliates,
including but not limited to the following: sale of ophthalmic products and
optometric services, eyeglasses, contact lenses and sunglasses.
(b) Saving Clause. The parties hereby acknowledge and agree that the foregoing
restrictive covenant is reasonable, both in time and geographical scope, in
order to protect the Corporation and its business. The parties further agree
that such restrictive covenant is a material inducement for the Corporation's
entering into this agreement and that the Corporation would not execute this
Agreement without the inclusion of such covenant. The parties hereby agree that
if any court or other tribunal of competent jurisdiction determines that the
restrictive covenant contained herein is unenforceable, then such restrictive
covenant shall be deemed to be modified to the maximum legally permissible time,
geographical area and scope in accordance with the determination by the court or
other tribunal and shall remain in full force and effect
(c ) Restrictions on offers of Employment. The Employee covenants and agrees
that for a period of one (1) year after the termination of the Agreement for any
reason, neither he nor any business that he owns any interest in, participates,
engages in, assists, renders any services (including advisory services) to,
becomes employed by or otherwise associated with or becomes in any way or manner
connected with the ownership, management, operation , or control of, shall
solicit or offer employment to or employ persons who at termination were, or for
up to six (6) months prior thereto had been, in the employ of the Employer
without the Employer's written consent which can be withheld within the
Employer's sole discretion.
(d) Breach of Employee's Covenants; Remedies The Employee agrees that the
employer will not have an adequate remedy at law in the event of a breach of the
covenants by him as set forth herein. Employee agrees that his violation of any
of the provisions of this Paragraph 6 shall cause immediate and irreparable harm
to the Corporation. In the event of any breach or threatened breach of said
provisions. Employee consents to the entry of preliminary and permanent
injunctions by a court of competent jurisdiction prohibiting him from any
violation or threatened violation of these provisions and compelling Employee to
comply with these provisions. The injunctive relief provided in this
subparagraph (c) shall be in addition to any other remedies available to the
Corporation at law or in equity.
(e) Indemnities. Employee shall indemnify and hold the Corporation and its
officers, directors, agents, and employees harmless from and against any loss,
cost, damage, liability, claim, demand, suit and expense (including reasonable
attorneys' fees) which may be incurred by any of them as the result of or
relating to any claim arising out of or relating to actions by Employee which
would entitle the Corporation (whether or not it exercises such right) to
terminate this agreement for "Cause" pursuant to clause (ii) of subparagraph (e)
of Paragraph 1 hereof, including but not limited to a third party claim for
personal injury, wrongful discharge, discrimination or defamation. The
provisions of this Paragraph 14(e) shall not survive the termination or
expiration of this Agreement.
7
15. Survival of Covenants. The covenants and agreements of the Employee and the
Employer as set forth herein shall survive termination of this Agreement as
provided herein.
16. Applicable Law. This Agreement is being executed in the State of New York
and the validity, interpretation, performance and enforcement hereof shall be
governed by the domestic laws of the State of New York without giving effect to
the principles of conflicts of laws thereof. In the event of a dispute, the
Employee agrees that any law suit brought to enforce or interpret the provisions
hereof be brought in a state or federal court, as appropriate, in Orange County,
California, and he agrees to submit to the personal jurisdiction of such court.
17. Notices. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been give only when
delivered in person or, if mailed, when mailed by certified or registered mail
prepaid, to the parties at the addresses first set forth above, or at such other
address as may be given in writing in future by either party to the other.
18. Waiver of Breach. The waiver by either party of a breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
by the non breaching party of any subsequent breach by the other party.
19. Assignment. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of any successor or successors of the
Employer by reorganization, merger or consolidation and any assignee of all or
substantially all of its business and properties, but, except as to any such
successor or assignee of the Employer, neither this Agreement nor any rights or
benefits hereunder may be assigned by the Employer or the Employee.
20. Interpretation. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provisions had never been contained
herein. If, moreover, any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law as it shall then appear.
8
21. Entire Agreement. This instrument contains the entire agreement of the
parties and supersedes all prior ones with respect to the subject matter herein.
It may not be changed orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought
22. Headings. The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
23. Counterparts This Agreement may be executed by either of the parties hereto
in counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
DERMAPLUS, INC.
By:
Employee
By: ___________________________
9
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated December 9, 2004, relating to the financial statements of
DermaPlus, Inc, and to the reference to our Firm under the caption "Experts" in
the Prospectus.
/s/ Meyler & Company LLC
------------------------
MEYLER & COMPANY LLC
New York, New York
December 28, 2004
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