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PAULSON CAPITAL (DELAWARE) CORP. FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Change in Directors or Principal Officers, Financial Statements and Exhibits(Edgar Glimpses Via Acquire Media NewsEdge) Item 1.01 Entry into a Material Definitive Agreement. Merger Agreement On May 8, 2014, Paulson Capital (Delaware) Corp., a Delaware corporation (the "Registrant"), Variation Biotechnologies (US), Inc., a Delaware corporation ("VBI"), and VBI Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Registrant (the "Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, subject to the satisfaction or waiver of certain conditions, the Merger Sub will merge with and into VBI, with VBI surviving as a wholly owned subsidiary of the Registrant. At the effective time of the merger, each share of VBI common stock and Series A Preferred Stock will be converted into the right to receive 1.226 shares of the Registrant's common stock, par value $0.0001 per share (the "Paulson Common Stock") (as may be adjusted under the Merger Agreement, the "Exchange Ratio"). No fraction of a share of Paulson Common Stock will be issued, but instead each holder of shares of VBI common stock and Series A Preferred Stock who would otherwise be entitled to a fraction of a share of Paulson Common Stock will receive from the Registrant one full share of Paulson Common Stock (i.e., rounded up to the nearest whole share). The total number of shares of Paulson Common Stock to be issued to the former holders of VBI common stock and Series A Preferred Stock at the effective time of the merger would be 42,772,713. These newly issued shares, together with the options to purchase shares of VBI common stock that will be converted into options to purchase shares of Paulson Common Stock (and will be assumed by the Registrant at the effective time of the merger), would represent approximately 41.5% of the shares of Paulson Common Stock on a fully diluted basis after the effective time of the merger (not including shares of Paulson Common Stock issued to VBI stockholders in the $11 million private placement contemplated to be completed concurrently with the merger, which will represent approximately 19% of the shares of Paulson Common Stock on a fully diluted basis after the merger and the private placement). Subject to, and immediately prior to the effective time of the merger, all outstanding convertible debt securities issued by VBI will be converted into capital stock of VBI, and at the effective time of the merger, VBI shall have no convertible notes or other indebtedness outstanding (other than the Venture Debt, as defined in the Merger Agreement). At the effective time of the merger, each outstanding option to purchase a share of VBI common stock, whether vested or unvested, and so long as such option has not, prior to the effective time of the merger, been exercised, cancelled, terminated or expired, will be deemed to constitute an option to purchase, on the same terms and conditions, a number of shares of Paulson Common Stock (rounded down to the nearest whole share) equal to the product of (i) the number of shares of VBI common stock subject to such option multiplied by (ii) the Exchange Ratio (defined above), at an exercise price per share of Paulson Common Stock equal to the quotient of (i) the exercise price per share of VBI common stock (rounded up to the nearest cent) subject to such option divided by (ii) the Exchange Ratio. The Registrant and VBI each made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants by each of the Registrant and VBI to, subject to certain exceptions, conduct its business in the ordinary course during the interim period between the execution of the Merger Agreement and the consummation of the merger. The obligation of the parties to consummate the merger is subject to a number of closing conditions, including, among other customary conditions: • the Registrant's stockholders will have approved the merger proposal at a special meeting of its shareholders to be held at a time and place to be determined, and VBI stockholders will have approved the merger; • ten days shall have elapsed since an information statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder has been filed by the Registrant with the SEC and transmitted to the stockholders of the Registrant in accordance with Rule 14f-1; • VBI must have paid the reasonable legal fees on an accountable basis incurred by the Registrant on or prior to the effective date of the merger in connection with the preparation and negotiation of the documents prepared in connection with the merger and the closing of the transactions contemplated by the Merger Agreement or other documents prepared in connection with the merger; • the directors, officers and certain VBI stockholders must have entered into voting agreements at the time of execution of the Merger Agreement representing not less than fifty and one tenths percent (50.1%) voting power of VBI's capital stock in support of the merger; -------------------------------------------------------------------------------- • VBI must not have any material indebtedness for money borrowed (other than a venture debt facility for up to $6,000,000 to be entered into by VBI contemporaneously with the closing of the merger); • the name of Paulson Capital (Delaware) Corp. must have been changed to "VBI Vaccines Inc."; • the Registrant must have delivered to Broadridge Financial Solutions (the escrow agent) (or another escrow agent mutually agreed upon by the Registrant and VBI) instructions as to the reserve for issuance of the number of shares of Paulson Common Stock equal to $1,000,000 divided by the price per share used in the private placement (described in the Merger Agreement) and must have deposited or caused to be deposited $250,000 with the escrow agent, each allocated among the VBI stockholders as provided in the Merger Agreement, as the sole source of recovery by VBI (absent fraud) for damages resulting from breaches of any representations, warranties or covenants of the Registrant or Merger Sub under the Merger Agreement; • the Registrant must have furnished to VBI the Liquidating Trust Indemnification Agreement (as defined in the Merger Agreement), pursuant to which the Liquidating Trust agrees to guarantee the Registrant's indemnification obligations in the Merger Agreement, substantially in the form attached to the Merger Agreement as Exhibit F, executed by the Registrant and the duly authorized representative of the Liquidating Trust (as defined in the Merger Agreement); • holders of approximately 40% of all Paulson Common Stock must have entered into voting agreements with the Registrant at the time of executing the Merger Agreement in form and substance acceptable to VBI and the Registrant in support of the merger; • the Registrant's Board must have, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and effective upon the effective time of the merger: (i) increased the Registrant's Board to seven directors; (ii) elected to the Registrant's Board (a) the following five VBI director designees: Jeff Baxter, Steven Gillis (Chairman), Michael Steinmetz, Michel De Wilde and Sam Chawla; and (b) Trent Davis and Alan Timmins, as the two designees of the Registrant; and (iii) appointed as the officers of the Registrant Jeff Baxter, President & CEO; David Anderson, Senior Vice President Research; Egidio Nascimento, Chief Financial Officer; Marc Kirchmeier, Vice President, Formulations; and T. Adam Buckley, Vice President, Operations & Project Management; • each of the officers and directors of the Registrant immediately prior to the effective time of the merger, other than Trent Davis and Alan Timmins, must have delivered duly executed resignations from their positions with the Registrant effective immediately after the effective time of the merger; • VBI and the Registrant must have in escrow for the benefit of the surviving company in the merger aggregate gross proceeds of at least $11,000,000 (rounded up to the nearest thousand) (or such lesser amount agreed to in writing by VBI in its sole discretion) received pursuant to a private placement of Paulson Common Stock solely to accredited investors in compliance with the exemption from registration provided by Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D thereunder, on terms satisfactory to VBI and the Registrant; and the conditions to closing such private placement must have been satisfied and such amount of gross proceeds must be unencumbered cash available to the surviving company in the merger at the effective time of the merger; • the Registrant shall have no liabilities except for the reasonable legal fees on an accountable basis incurred by the Registrant on or prior to the effective date of the merger in connection with the preparation and negotiation of the documents in connection with the merger and the closing of the transactions contemplated by the Merger Agreement or such . . . Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Effective following the merger and only if the merger is consummated, the Registrant has agreed to employ the following VBI officers in the following positions with the Registrant: Jeff Baxter, Chief Executive Officer; Egidio Nascimento, Chief Financial Officer; and Dr. David Anderson, Senior Vice President, Research. Each of Messrs. Baxter and Nascimento and Dr. Anderson entered into an employment agreement with the Registrant as described more fully below. Mr. Baxter, age 52, joined VBI in September of 2009, and has served as Chief Executive Officer and a member of the Board of Directors of VBI since September 2009. Previously, he was a managing partner of The Column Group, a venture capital firm. Until July of 2006, Mr. Baxter was SVP, R&D Finance and Operations, of GlaxoSmithKline (GSK). In his 19 years of pharma experience, he has held line management roles in commercial, manufacturing and IT and the office of the CEO. His most recent position in R&D included responsibility for finance, pipeline resource planning and allocation, business development deal structuring and SROne (GSK's in-house $125 million venture capital fund). He also chaired GSK's R&D Operating Board. Prior to GSK, he worked at Unilever and British American Tobacco. Mr. Baxter was educated at Thames Valley University and is a Fellow of the Chartered Institute of Management Accountants (FCMA). Pursuant to an employment agreement dated May 8, 2014 between Jeff Baxter and the Registrant, Mr. Baxter is to be employed as the Registrant's Chief Executive Officer, effective upon the merger. Pursuant to this agreement, Mr. Baxter shall receive an initial annual salary in the amount of $385,000. Mr. Baxter may be eligible for options to purchase common stock of the Registrant in the Board's discretion. Any outstanding options shall accelerate fully if Mr. Baxter is terminated without cause, is terminated during the period that begins when negotiations with an unrelated third party for a Change of Control (as defined in the employment agreement) begin and ends on the 12-month anniversary of the closing of the Change of Control transaction or terminates his employment for Good Reason (as defined in the employment agreement). Mr. Baxter is eligible to be considered for an annual cash bonus of up to fifty percent (50%) of his then applicable base salary based on Mr. Baxter meeting certain performance objectives, and if Mr. Baxter is dismissed from employment by the Registrant for any reason other than "cause," the Registrant is obligated to pay Mr. Baxter severance compensation equal to six months plus one month for every full year of service up to a maximum of 12 months. Mr. Nascimento, age 48, joined Variation Biotechnologies Inc., a wholly owned subsidiary of VBI, in 2005, and has served as Chief Financial Officer of VBI since December 2006, with experience in finance and accounting, having previously worked as Vice President of Finance at Genome Canada and as CFO of two start-up companies. Subsequent to starting and managing a new & emerging business group in Ottawa, Ontario he has focused his career on managing and securing financing for leading-edge technology and biotechnology companies. During his career, he has played a key role in helping six companies raise over $205 million in capital and is currently on the board of several private for-profit and not-for-profit organizations. Mr. Nascimento is a Chartered Professional Accountant (CPA) and Chartered Accountant (CA) and holds a Bachelor of Commerce degree from the University of Ottawa, Canada. Pursuant to an employment agreement dated May 8, 2014 between Egidio Nascimento and the Registrant, Mr. Nascimento is to be employed as the Registrant's Chief Financial Officer, effective upon the merger. Pursuant to this agreement, Mr. Nascimento shall receive an initial annual salary in the amount of $240,000. Mr. Nascimento may be eligible for options to purchase common stock of the Registrant in the Board's discretion. Any outstanding options shall accelerate fully if Mr. Nascimento is terminated without cause, is terminated during the period that begins when negotiations with an unrelated third party for a Change of Control (as defined in the employment agreement) begin and ends on the 12-month anniversary of the closing of the Change of Control transaction or terminates his employment for Good Reason (as defined in the employment agreement). Mr. Nascimento is eligible to be considered for an annual cash bonus of up to twenty-five percent (25%) of his then applicable base salary based on Mr. Nascimento meeting certain performance objectives, and if Mr. Nascimento is dismissed from employment by the Registrant for any reason other than "cause," the Registrant is obligated to pay Mr. Nascimento severance compensation equal to six months plus one month for every full year of service up to a maximum of 12 months. -------------------------------------------------------------------------------- Dr. Anderson, age 43, is an immunologist with expertise in the areas of vaccine development, autoimmunity and tumor immunology. Dr. Anderson joined VBI full time as Vice President of Immunology in 2009 from Harvard Medical School, where he held a position as Assistant Professor. As a co-founder of VBI and Vice President of Research, Dr. Anderson is an inventor on many of VBI's patents and actively manages VBI's research operation. Dr. Anderson holds a Ph.D. from Harvard University and a B.S. from the University of California at Davis. Pursuant to an employment agreement dated May 8, 2014 between David Anderson and the Registrant, Dr. Anderson is to be employed as the Registrant's Senior Vice President, Research, effective upon the merger. Pursuant to this agreement, Dr. Anderson shall receive an initial annual salary in the amount of $250,000. Mr. Anderson may be eligible for options to purchase common stock of the Registrant in the Board's discretion. Any outstanding options shall accelerate fully if Dr. Anderson is terminated without cause, is terminated during the period that begins when negotiations with an unrelated third party for a Change of Control (as defined in the employment agreement) begin and ends on the 12-month anniversary of the closing of the Change of Control transaction or terminates his employment for Good Reason (as defined in the employment agreement). Dr. Anderson is eligible to be considered for an annual cash bonus of up to thirty-five percent (35%) of his then applicable base salary based on Dr. Anderson meeting certain performance objectives, and if Dr. Anderson is dismissed from employment by the Registrant for any reason other than "cause," the Registrant is obligated to pay Dr. Anderson severance compensation equal to six months plus one month for every full year of service up to a maximum of 12 months. The foregoing descriptions of the employment agreements do not purport to be complete, and are qualified in their entirety by reference to the full text of the employment agreements, which are filed herewith as Exhibits 10.9, 10.10 and 10.11 and are incorporated herein by reference. Item 9.01 Financial Statements and Exhibits. (d) Exhibits Exhibit No. Description 2.1 Agreement and Plan of Merger (incorporated by reference to Annex A to the Registrant's Preliminary Proxy Statement on Schedule 14A filed with the Commission on May 9, 2014) 10.1 Voting Agreement with Clarus Lifesciences I, L.P.* 10.2 Voting Agreement with Arch Venture Fund VI, L.P.* 10.3 Voting Agreement with 5AM Ventures, L.P.* 10.4 Voting Agreement with 5AM Co-Investors II, L.P.* 10.5 Voting Agreement between Variation Biotechnologies (US), Inc. and Paulson Family LLC* 10.6 Leak-Out Agreement No. 1* 10.7 Leak-Out Agreement No. 2* 10.8 FINRA Filing Agreement (incorporated by reference to Exhibit G to Annex A to the Registrant's Preliminary Proxy Statement on Schedule 14A filed with the Commission on May 9, 2014) 10.9 Employment Agreement with Jeff Baxter* 10.10 Employment Agreement with Egidio Nascimento* 10.11 Employment Agreement with David Anderson* -------------------------------------------------------------------------------- *Filed herewith -------------------------------------------------------------------------------- |