The accompanying notes are
an integral part of these Consolidated Financial Statements
The accompanying notes are an integral part of
these Consolidated Financial Statements
The accompanying notes are an integral part of
these Consolidated Financial Statements
The accompanying notes are an integral part of
these Consolidated Financial Statements
ADAMIS PHARMACEUTICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31, 2022 |
|
|
Year Ended December 31, 2021 |
|
RECONCILIATION OF CASH & CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
|
|
|
|
|
|
Cash & Cash Equivalents |
|
$ |
1,081,364 |
|
|
$ |
23,220,770 |
|
Restricted Cash |
|
|
30,068 |
|
|
|
30,023 |
|
Total Cash & Cash Equivalents and Restricted Cash |
|
$ |
1,111,432 |
|
|
$ |
23,250,793 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash Paid for Income Taxes |
|
$ |
3,651 |
|
|
$ |
4,125 |
|
Cash Paid for Interest |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Fixed Asset Additions included in Accrued Expenses |
|
$ |
242,790 |
|
|
$ |
49,185 |
|
Forgiveness of PPP Loans |
|
$ |
— |
|
|
$ |
5,009,590 |
|
The accompanying notes are an integral part of
these Consolidated Financial Statements
Notes to the Consolidated Financial Statements
NOTE 1: |
NATURE OF BUSINESS |
Adamis Pharmaceuticals Corporation (the “Company,”
“Adamis Pharmaceuticals” or “Adamis”) has three wholly-owned subsidiaries: Adamis Corporation; U.S. Compounding,
Inc. (“USC”); and Biosyn, Inc.
Adamis is a specialty biopharmaceutical company
primarily focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose, respiratory
and inflammatory disease.
The Company’s SYMJEPI (epinephrine) Injection
is approved by the FDA for use in the emergency treatment of acute allergic reactions, including anaphylaxis. The Company’s ZIMHI
(naloxone) Injection is approved for the treatment of opioid overdose. Adamis operates under one operating segment.
USC, which was registered as a drug compounding
outsourcing facility under Section 503B of the U.S. Food, Drug & Cosmetic Act and the U.S. Drug Quality and Security Act, provided
prescription compounded medications, including compounded sterile preparations and non-sterile compounds, to patients, physician clinics,
hospitals, surgery centers and other clients in many states throughout the United States. USC also provided certain veterinary pharmaceutical
products for animals. In July 2021, we sold certain assets relating to USC’s human compounding pharmaceutical business and
approved a restructuring process to wind down the remaining USC business and sell, liquidate or otherwise dispose of the remaining USC
assets. Effective October 31, 2021, USC surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit and is
no longer selling compounded pharmaceutical or veterinary products.
The Company’s consolidated financial statements
are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. However, the Company has incurred substantial recurring losses from continuing
operations, negative cash flows from operations, and is dependent on additional financing to fund operations. We incurred a net loss of
approximately $26.5 million and $45.8 million
for the years ended December 31, 2022 and 2021. As of December 31, 2022, the Company had cash and cash equivalents of approximately
$1.1 million and an accumulated deficit of approximately $304.6
million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within
one year after the date the financial statements are issued. The consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence. The Company will need additional funding to sustain operations, satisfy existing and future
obligations and liabilities, and otherwise support the Company’s operations and business activities and working capital needs. Management’s
plans include attempting to secure additional required funding through equity or debt financings if available, seeking to enter into one
or more strategic agreements regarding, or sales or out-licensing of, intellectual property or other assets, products, product candidates
or technologies, seeking to enter into agreements with third parties to co-develop and fund research and development efforts, revenues
from existing agreements, a merger, sale or reverse merger of the Company, or other strategic transaction. There is no assurance that
the Company will be successful in obtaining the necessary funding to sustain its operations or meet its business objectives. The process
of obtaining funding, or the terms of a strategic transaction, could result in significant dilution to our existing stockholders. In addition,
a severe or prolonged economic downturn, political disruption or pandemic, such as the COVID-19 pandemic, could result in a variety of
risks to our business, including our ability to raise capital when needed on acceptable terms, if at all.
NOTE 3: |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation
The accompanying consolidated financial statements
include Adamis Pharmaceuticals and its wholly-owned operating subsidiaries. All significant intra-entity balances and transactions have
been eliminated in consolidation.
Accounting Estimates
In preparing financial statements in conformity
with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during
the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected
by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions
include warrant liabilities, valuing equity securities in share-based payments, estimating the useful lives of depreciable and amortizable
assets, estimates related to the calculation of the variable consideration from the Company’s transaction with Fagron in the connection
with the sale of certain assets of US Compounding and estimates associated with the assessment of impairment for long-lived assets.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with original maturities at the date of purchase of three months or less to be cash equivalents. There were no cash equivalents at December
31, 2022. At December 31, 2021, cash equivalents were comprised of money market funds.
Restricted cash are certificates of deposit that
are the underlying for the Company’s credit card.
Accounts Receivable
Accounts receivable are reported at the amount
management expects to collect on outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings
and credit to allowance for doubtful accounts. Uncollectible amounts are based on the Company’s history of past write-offs and collections
and current credit conditions. Allowance for doubtful accounts as of December 31, 2022 and 2021 was $0.
Inventories
Inventories are stated at the lower of standard
cost, which approximates actual cost determined on the weighted average basis, or net realizable value. Inventories are recorded using
the first-in, first-out method. The Company routinely evaluates quantities and values of inventories in light of current market conditions
and market trends, and records a write-down for quantities in excess of demand and product obsolescence. The evaluation may take into
consideration historic usage, expected demand, anticipated sales price, new product development schedules, the effect new products might
have on the sale of existing products, product obsolescence, customer concentrations, product merchantability and other factors. Market
conditions are subject to change and actual consumption of inventory could differ from forecasted demand. The Company also regularly reviews
the cost of inventories against their estimated market value and records a lower of cost or market write-down for inventories that have
a cost in excess of estimated market value, resulting in a new cost basis for the related inventories which is not reversed.
Fixed Assets
Property, plant and equipment are stated at cost,
net of accumulated depreciation and amortization. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization
are computed using the straight-line method over the following estimated useful lives ranging from 3 - 5 years.
Leases
The Company
determines if an arrangement is a lease at inception. Lease right-of-use assets represent our right to use an underlying asset for the
lease term and lease liabilities represent our obligation to make lease payments arising from the lease. For operating leases with an
initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based
on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised
of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the
lease when we are reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option
will not be exercised. For our operating leases, if the interest rate used to determine the present value of future lease payments is
not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. Our incremental borrowing
rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic
environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the
practical expedient to not separate lease and non-lease components.
Other Long-Lived Assets
The Company evaluates its long-lived assets with
definite lives, such as fixed assets and right-of-use assets for impairment. The carrying value of fixed assets and right-of use assets
is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment.
Some factors which the Company considers to be triggering events for impairment review include a significant decrease in the market value
of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate
that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current
period operating loss or cash flow decline combined with a history of operating loss or cash flow uses or a projection that demonstrates
continuing losses and a current expectation that, it is more likely than not, a long-lived asset will be disposed of at a loss before
the end of its estimated useful life. The factors that drive the estimate of the life are often uncertain and are reviewed on a periodic
basis or when events occur that warrant review. Recoverability is measured by comparison of the assets’ book value to future net
undiscounted cash flows that the assets are expected to generate. If the assets are not recoverable, the impairment charge is measured
as the amount by which the carrying value of the asset group exceeds the fair value.
Warrant Liabilities
Warrants are accounted for in accordance with the
applicable authoritative accounting guidance as either liabilities or as equity instruments depending on the specific terms of the agreements.
Liability-classified instruments are recorded at fair value at each reporting period with any change in fair value recognized as a component
of change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss.
Revenue Recognition
The Company recognizes revenues pursuant to ASC
Topic 606, “Revenue from Contracts with Customers” (ASC 606). See Note 5.
Revenue is recognized at an amount that reflects
the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. This principle
is applied using the following 5-step process:
|
1. |
Identify the contract with the customer. |
|
2. |
Identify the performance obligations in the contract. |
|
3. |
Determine the transaction price. |
|
4. |
Allocate the transaction price to the performance obligations in the contract.
|
|
5. |
Recognize revenue when (or as) each performance obligation is satisfied. |
Practical Expedients
As part of the adoption of the ASC Topic 606,
the Company elected to use the following practical expedients: (i) incremental costs of obtaining a contract in the form of sales commissions
are expensed when incurred because the amortization period would have been one year or less. These costs are recorded within Selling,
General and Administrative expenses; (ii) taxes collected from customers and remitted to government authorities and that are related to
the sales of the Company’s products, are excluded from revenues; and (iii) shipping and handling activities are accounted for as
fulfillment costs and recorded in cost of sales.
Product Recall
The Company establishes reserves for product recalls
on a product-specific basis when circumstances giving rise to the recall become known. The Company, when establishing reserves for a product
recall, considers cost estimates for any fees and incentives to customers for their effort to return the product, freight and destruction
charges for returned products, warehouse and inspection fees, repackaging materials, point-of-sale materials and other costs including
costs incurred by contract manufacturers. Additionally, the Company estimates product returns from consumers and customers across distribution
channels, utilizing third- party data and other assumptions. These factors are updated and reevaluated each period and the related reserves
are adjusted when these factors indicate that the recall reserves are either insufficient to cover or exceed the estimated product recall
expenses. Significant changes in the assumptions used to develop estimates for product recall reserves could affect key financial information,
including accounts receivable, inventory, accrued liabilities, net sales, gross profit, operating expenses and net income. In addition,
estimating product recall reserves requires a high degree of judgment in areas such as estimating consumer returns, shelf and in-stock
inventory at retailers across distribution channels, fees and incentives to be earned by customers for their effort to return the products,
future freight rates and consumers’ claims. During the year ended December 31, 2021, the company recorded products recall reserves,
specifically for the recall of certain lots of SYMJEPI from the marketplace that was initiated in March 2022. Aside from the approximately
$0.3 million product recall reserve related to SYMJEPI remaining at December 31, 2022, there were no new product-specific recall reserves
recorded during the year ended December 31, 2022. The Company reviews the product recall reserve for adequacy and adjusts the product
recall accrual, if necessary, based on actual experience and estimated costs to be incurred. Product recall costs are recorded as contra-revenue
to the extent of sales recorded related to the recalled product. Product recall costs in excess of the revenue amount originally recorded
on the recalled product are recorded as additional selling expense.
Cost of Goods Sold
The Company’s cost of goods sold includes
direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs,
packaging, storage, shipping and handling costs, the write-off of obsolete inventory and other related expenses.
Stock-Based Compensation
The Company accounts for transactions in which
the Company receives employee services in exchange for restricted stock units (“RSUs”) or options to purchase common stock
as stock-based compensation cost based on estimated fair value. The Company recognizes stock-based compensation cost as expense ratably
on a straight-line basis over the requisite service period. Stock-based compensation cost for RSUs is measured based on the closing fair
market value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at
the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. The Black-Scholes
option-pricing model, however, relies on unobservable inputs, in which any significant change in the unobservable inputs reasonably could
result in a significantly higher or lower fair value measurement at the reporting date, resulting in higher or lower stock-based compensation
that could be material to the Company’s financial statements.
Research and Development
Research and development costs are expensed as
incurred. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded
as an asset and are expensed when the research and development activities are performed.
Legal Expense
Legal fees are expensed as incurred and are included
in selling, general and administrative expenses on the consolidated statements of operations.
Income Taxes
The Company accounts for income taxes under the
deferred income tax method. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences
between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions and benefits are
based on changes to the assets and liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations
of the jurisdictions in which they operate, estimates of future taxable income, and available tax planning strategies. If tax regulations,
operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value of deferred tax assets and
liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more-likely-than-not”
criteria.
The Company accounts for uncertain tax positions
in accordance with accounting guidance which requires the Company to recognize the financial statement benefit of a tax position only
after determining that the relevant tax authority would, more likely than not, sustain the position following an audit. For tax positions
meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that
has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Company is subject to income taxes in
the United States and various states. Tax years since the Company’s inception remain open to examination by the major taxing jurisdictions
to which the Company is subject. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in its income
tax expense, if any. No interest or penalties have been accrued for any presented periods.
The Company sold USC related
customer relationship intangibles in the calendar year 2021 and the remaining USC assets and liabilities are classified as held for sale
in discontinued operations, and the related tax benefit of approximately $67,000 was allocated to discontinued operations.
Basic and Diluted Net Loss
Per Share
Under ASC 260, the Company is required
to apply the two-class method to compute earnings per share (or, EPS). Under the two-class method both basic and diluted EPS are
calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation
rights in undistributed earnings. The two-class method results in an allocation of all undistributed earnings as if all those earnings
were distributed. Considering the Company has generated losses in each reporting period since its inception through December 31,
2022, the Company also considered the guidance related to the allocation of the undistributed losses under the two-class method. The contractual
rights and obligations of the preferred stock shares were evaluated to determine if they have an obligation to share in the losses
of the Company. As there is no obligation for the preferred stock shareholders to fund the losses of the Company nor is the contractual
principal or redemption amount of the preferred stock shares reduced as a result of losses incurred by the Company, under
the two-class method, the undistributed losses will be allocated entirely to the common stock securities.
The Company computes basic loss per share by dividing
the loss attributable to holders of common stock for the period by the weighted average number of shares of common stock outstanding during
the period. The diluted loss per share calculation is based on the if-converted method for convertible preferred shares and gives
effect to dilutive if-converted shares and the treasury stock method and gives effect to dilutive options, warrants and other potentially
dilutive common stock. The preferred stock, however, is not considered potentially dilutive due to the contingency on the conversion feature
not being tied to stock price or price of the convertible instrument. The common stock equivalents were anti-dilutive and were excluded
from the calculation of weighted average shares outstanding. Potentially dilutive securities, which are not included in diluted weighted
average shares outstanding for the years ended December 31, 2022 and December 31, 2021, consist of outstanding warrants covering 14,952,824 shares
and 14,202,824 shares, respectively, outstanding options covering 4,436,362 shares and 4,985,415 shares,
respectively and outstanding restricted stock units covering 650,000 shares and 1,039,003 shares, respectively.
Segment Information
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic No. 280, Segment Reporting (“ASC 280”), establishes standards
for the way that public business enterprises report information about operating segments in their annual consolidated financial statements
and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes
standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segments
are based on the organization structure used by the chief operating decision maker for making operating and investment decisions and for
assessing performance. Our chief executive officer, who is our chief operating decision maker (“CODM”), manages our operations
as operating in two business segments: Drug Development and Commercialization which includes without limitation out-licensing the Company’s
FDA approved products; and Compounded Pharmaceuticals which includes the Company’s registered outsourcing facility, based on changes
to the way that management monitors performance, aligns strategies, and allocates resources results. We determined that each of these
operating segments represented a reportable segment.
Discontinued Operations
In accordance with ASC 205-20 Presentation of
Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required
to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s
operations and financial results when the component/s of an entity meets the criteria in paragraph 205-20-45-10. In the period in which
the component meets held-for-sale or discontinued operations criteria the major current assets, noncurrent assets, current liabilities,
and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing
operations. At the same time, the results of all discontinued operations, less applicable income taxes, shall be reported as components
of net loss separate from the net loss of continuing operations.
Assets classified as held for sale that are not
sold after the initial one-year period are assessed to determine if they meet the exception to the one-year requirement to continue being
classified as held for sale. The primary asset that is held for sale is the USC property with a carrying value of $2.9 million. At December
31, 2022, the Company determined that the exception criteria to continue held for sale classification were met as the Company initiated
actions to respond to changes in circumstances and the USC property is being actively marketed at a reasonable price based
on its recent market valuation.
The Company disposed of a component of its business
in August 2021 and met the definition of a discontinued operation as of December 31, 2021. Accordingly, the major current assets, noncurrent
assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from
those balances of the continuing operations as of December 31, 2022 and 2021, and the operating results of the business disposed are reported
as loss from discontinued operations in the accompanying consolidated statement of operations for the years ended December 31, 2022 and
2021. For additional information, see Note 4 - Discontinued Operations.
NOTE 4: |
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE |
In August 2021, we announced our agreement with
Fagron Compounding Services, LLC (“Fagron”) to sell to Fagron certain assets of our subsidiary, US Compounding, Inc., related
to its human compounding pharmaceutical business including certain customer information and information on products sold to such customers
by USC, including related formulations, know-how, and expertise regarding the compounding of pharmaceutical preparations, clinical support
knowledge and other data and certain other information relating to the customers and products. The agreement included fixed consideration
of approximately $107,000 and variable consideration estimated at approximately $6,385,000. As of December 31, 2021 the Company recorded
a gain of approximately $4,637,000 within discontinued operations related to this asset sale to Fagron, which was the total estimated
consideration net of approximately $1,856,000 of allocated costs related to USC’s customer relationships intangible that was sold
to Fagron. The variable consideration is tied to Fagron’s sales to former USC customers over the twelve-month-period commencing
on the agreement date. The Company used the expected value method to estimate Fagron’s sales over the twelve-month period following
the agreement date. In connection with the transaction, the Company accrued a $700,000 liability for a transaction fee payable to a financial
advisor as of December 31, 2021 which was recorded in selling, general and administrative expenses of continuing operations and paid in
2022. As of December 31, 2022, the total amount received in connection with this purchase agreement
was approximately $5,500,000, resulting in an earnout true-up of approximately $962,000 in loss recorded as other expense in the Company’s
consolidated statement of operations.
In July 2021, the Company
approved a restructuring process to wind down and cease the remaining operations at USC, with the remaining USC assets to be sold, liquidated
or otherwise disposed of. As of December 31, 2021, the Company had shut down the operations of USC, terminated all of USC’s
employees and is engaged in the process of selling or attempting to sell or otherwise dispose of USC’s remaining assets.
Fixed assets held for
sale at December 31, 2022 and December 31, 2021 were approximately $6,700,000 and $6,800,000, respectively, with approximately $2,800,000
and $2,600,000 valuation allowance, respectively, for a total net fixed assets held for sale of approximately $3,900,000 and $4,200,000,
respectively.
On a quarterly basis, management
reassesses the fair value less costs to sell of the land and buildings held for sale and recognizes a loss when the carrying value exceeds
the fair value less cost to sell, or a gain when the fair value less costs to sell increases, limited to the cumulative loss previously
recognized. In the absence of an executed sales agreement with a defined sales price, management’s estimate of the fair value is
based on assumptions, including but not limited to management’s estimates of comparable properties’ price per square foot,
market rents, and market capitalization rates.
The primary fixed asset
held for sale is USC’s land and building which, although there has not been a definitive offer on it, the land and building
continues to be actively marketed. Absent a definitive offer, in the Company’s estimation, marketing the land and building at its
recent appraised value of $3,200,000, which is supported by a third-party valuation that took into consideration comparable property’s
price per square foot, market rents and market capitalization rates, was a reasonable price. Given that the carrying value of USC’s
land and building at approximately $2,900,000 is less approximately $3,008,000 (its appraised fair value of approximately $3,200,000 less
its anticipated cost to sell of approximately 6%), the Company determined at December 31, 2022, that USC’s land and building were
not impaired.
The remaining fixed assets
held for sale are primarily comprised of Construction In Progress - Equipment (“CIP”) assets that were primarily for the expansion
of USC’s operations and were to be placed into service contingent upon the completion of equipment validation and when the economy
had recovered from the COVID-19 pandemic. During the year ended December 31, 2021, with the decision to wind down and cease USC’s
operations, we recorded approximately $2,200,000 in losses relating to the fair value of CIP included in the net loss from discontinued
operations. Prefabricated cleanroom pods (“pods”) were the main components of CIP and had a carrying value of approximately
$972,000 at December 31, 2022. The Company received approximately $208,000 in 2022 and approximately $832,000 in 2023 for the purchase
of the pods from a third-party. At December 31, 2022, the remaining assets were impaired and an impairment charge of approximately $200,000
was recorded in the net loss from discontinued operations.
In August 2021, the Company
and its wholly-owned USC subsidiary entered into an Asset Purchase Agreement effective as of August 31, 2021 with a third party buyer,
providing for the sale and transfer by USC of certain assets related to USC’s veterinary compounded pharmaceuticals business. The
sale covers the transfer of all the veterinary business customers’ information belonging to USC or in USC’s control and possession
and USC’s know how, information and expertise regarding the veterinary business. Pursuant to the agreement, the buyer agreed to
pay the Company, for any sales of products in USC’s veterinary products list or equivalent products made to the customers included
in the agreement during the five-year period after the date of the agreement, an amount equal to twenty percent (20%) of the amount actually
collected by the buyer on such sales during the period ending three months after the end of such five year period. As of December
31, 2022, the Company has not recognized an amount under this agreement.
Discontinued operations comprise
those activities that were disposed of during the period, abandoned or which were classified as held for sale at the end of the period
and represent a separate major line of business or geographical area that was previously distinguished as Compounded Pharmaceuticals segment.
Assets Held for Sale
The Company considers assets to be held for sale
when management approves and commits to a plan to actively market the assets for sale at a reasonable price in relation to its fair value,
the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required
to complete the sale have been initiated, the sale of the assets is expected to be completed within one year and it is unlikely that significant
changes will be made to the plan. Upon designation as held for sale, the Company ceases to record depreciation and amortization expenses
and measures the assets at the lower of their carrying value or estimated fair value less costs to sell. Assets held for sale are included
as other current assets in the Company’s consolidated balance sheets and the gain or loss from sale of assets held for sale is included
in the Company’s general and administrative expenses.
The major assets and liabilities associated with
discontinued operations included in our consolidated balance sheets are as follows:
|
|
December 31, 2022 |
|
|
December 31 2021 |
|
Carrying amounts of major classes of assets included as part of
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
30,085 |
|
|
$ |
37,849 |
|
Accounts Receivable, net |
|
|
— |
|
|
|
693 |
|
Inventories |
|
|
— |
|
|
|
12,000 |
|
Fixed Assets, Held for Sale (i) |
|
|
6,719,252 |
|
|
|
6,799,090 |
|
Other Assets |
|
|
5,407 |
|
|
|
72,469 |
|
Less: Loss recognized on classification as
held for sale (i) |
|
|
(2,801,828 |
) |
|
|
(2,601,442 |
) |
Total assets of the disposal group classified
as discontinued operations in the statement of financial position |
|
$ |
3,952,916 |
|
|
$ |
4,320,659 |
|
|
|
|
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part
of discontinued operations |
|
|
|
|
|
|
|
|
Accounts Payable |
|
$ |
649,633 |
|
|
$ |
681,646 |
|
Accrued Other Expenses |
|
|
75,602 |
|
|
|
133,313 |
|
Lease Liabilities |
|
|
243,008 |
|
|
|
412,357 |
|
Contingent Loss Liability |
|
|
50,000 |
|
|
|
410,000 |
|
Other Current Liabilities |
|
|
208,000 |
|
|
|
— |
|
Deferred Tax Liability, net |
|
|
45,930 |
|
|
|
45,930 |
|
Total liabilities of the disposal group
classified as discontinued operations in the statement of financial position |
|
$ |
1,272,173 |
|
|
$ |
1,683,246 |
|
|
(i) |
In January 2023, the Company sold the pods with a carrying value of approximately $1.0 million for approximately $1.0 million. |
The revenues and expenses associated with discontinued
operations included in our consolidated statements of operations were as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
Major line items constituting pretax loss of discontinued operations |
|
|
|
|
|
|
REVENUE, net |
|
$ |
— |
|
|
$ |
6,216,545 |
|
COST OF GOODS SOLD |
|
|
— |
|
|
|
(5,620,313 |
) |
|
|
|
— |
|
|
|
596,232 |
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
(462,274 |
) |
|
|
(7,802,066 |
) |
RESEARCH AND DEVELOPMENT |
|
|
— |
|
|
|
(89,710 |
) |
Impairment Expense – Intangible |
|
|
— |
|
|
|
(3,835,158 |
) |
Impairment Expense – Goodwill |
|
|
— |
|
|
|
(868,412 |
) |
Impairment Expense – Inventory |
|
|
— |
|
|
|
(871,180 |
) |
Impairment Expense – Right of Use Asset |
|
|
— |
|
|
|
(448,141 |
) |
Impairment Expense – Fixed Assets |
|
|
(200,386 |
) |
|
|
(9,346 |
) |
Loss from Held for Sale Classification |
|
|
— |
|
|
|
(2,601,442 |
) |
Total |
|
|
(662,660 |
) |
|
|
(15,929,223 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
— |
|
|
|
(70,903 |
) |
Interest Income |
|
|
45 |
|
|
|
45 |
|
Change in Estimate of Contingent Liability |
|
|
360,000 |
|
|
|
— |
|
Gain on Sale of Assets to Fagron |
|
|
— |
|
|
|
4,636,702 |
|
Gain on Sale of Fixed Assets |
|
|
15,138 |
|
|
|
— |
|
Other Income |
|
|
8,610 |
|
|
|
68,946 |
|
Net Loss from discontinued operations before income taxes |
|
|
(278,867 |
) |
|
|
(11,294,433 |
) |
Income Tax Benefit |
|
|
— |
|
|
|
66,588 |
|
Net Loss from discontinued operations |
|
$ |
(278,867 |
) |
|
$ |
(11,227,845 |
) |
Discontinued Operations - Revenue
Compounded Pharmaceuticals Facility Revenue
Recognition. With respect to sales of prescription compounded medications by the Company’s USC subsidiary, revenue
arrangements consisted of a single performance obligation which is satisfied at the point in time when goods are delivered to the customer.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods
and services to the customer which is the price reflected in the individual customer’s order. Additionally, the transaction price
for medication sales is adjusted for estimated product returns that the Company expects to occur under its return policy. The estimate
is based upon historical return rates, which has been immaterial. The standard payment terms are 2%/10 and Net 30. The Company does
not have a history of offering a broad range of price concessions or payment term changes, however, when the transaction price includes
variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing
the expected value method. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting
period for any changes. Variable consideration is not a significant component of the transaction price for sales of medications
by USC.
Discontinued Operations - Lease
USC has two operating leases,
one for an office space and one for office equipment. As of December 31, 2022, the leases have remaining terms between one year and less
than four years. The operating leases do not include an option to extend beyond the life of the current term. There are no short-term
leases, and the lease agreements do not require material variable lease payments, residual value guarantees or restrictive covenants.
The company leases a building which requires monthly base rent of $10,824 through December 31, 2023.
As part of the restructuring process to wind down
and cease the operations at USC, the Company is working to cancel or transfer the leases of the discontinued operations. During the year
ended December 31, 2021, the Right-of-Use assets related to the leases of approximately $448,000 were fully impaired because there is
no benefit expected from the subject leases. As of December 31, 2022 and 2021, the liabilities of the discontinued operations include
approximately $243,000 and $412,000 in lease liabilities, respectively.
Discontinued Operations - Impairments
Impairment of Intangibles—For
the year ending December 31, 2021, USC’s intangible assets were fully impaired as a result of the decision to wind down and
cease USC’s operations. Prior to that impairment, approximately $1,856,000 of USC’s customer relationships intangible asset
was allocated to the asset sale to Fagron. That amount is recorded within the gain from sale of assets of discontinued operations. The
remaining intangibles had a carrying balance of approximately $3,835,000, which were fully impaired during the year ended December 31,
2021. USC’s intangible assets had a carrying value of $0 at December 31, 2022 and December 31, 2021.
Impairment of Goodwill—In the third
quarter of 2021, USC’s Goodwill was completely impaired, since there are no more expected future cash flows relating to USC’s
Goodwill as a result of the decision to wind down and cease operations. USC recognized an impairment expense of approximately $868,000
related to USC’s Goodwill for the year ended December 31, 2021. The carrying value of Goodwill at December 31, 2022 and December
31, 2021 was $0.
Loss from Held for Sale Classification—For
the year ended December 31, 2021, USC’s fixed assets were impaired as a result of meeting the criteria to be classified as held
for sale. USC determined that the fair value, less costs to sell, of the disposal group was lower than the book values of certain assets,
thus USC recorded fixed asset impairments related to the held for sale classification of $2,601,442 for the year ended December 31, 2021.
The Company made certain estimates and relied on its appraisals, vendor quotes, and its judgement in order to estimate the fair value
of USC’s fixed assets and believes USC’s fixed assets are fairly valued as of December 31, 2021. For the year ended December
31, 2022, the Company continued to rely on appraisals, vendor quotes and its judgement in its impairment analysis, which resulted in the
further impairment of fixed assets (other than the USC property) by approximately $200,000 to net the remaining, unsold CIP and equipment
to $0 book value, due to uncertainty of the ability to sell these remaining assets. The USC property with a carrying value of approximately
$2,946,000 remains actively and reasonably marketed at its fair value of approximately $3,200,000 which is based on its most recent
valuation. Due to the nature of estimates, the actual amounts realized upon sale may be more than or less than estimated fair value
of the fixed assets. Any difference will be recognized as a gain or loss in discontinued operations of future financial statements.
Impairment of Right of Use (ROU) Assets—For
the year ended December 31, 2021, USC’s ROU assets related to leases were impaired as a result of the decision to wind down and
cease operations. USC determined that the future expected cash flows to be generated by those ROU assets were $0, thus USC recorded a
full impairment totaling approximately $448,000 during the year ended December 31, 2021. The balance of USC’s ROU assets at December
31, 2022 and December 31, 2021 was $0.
Impairment of Inventory—For the year
ended December 31, 2021, USC’s Inventory was impaired as a result of the decision to wind down and cease operations. USC determined
that certain inventories needed to be destroyed or that the net realizable value (NRV) for certain inventories was lower than cost, resulting
in an impairment expense recognition of approximately $871,000 related to its inventory for the year ended December 31, 2021. Approximately
$598,000 of the impairment was related to chemicals and non-sellable finished goods that were destroyed, and approximately $273,000 of
the impairment was related to devices which were impaired based on a NRV analysis that showed the device costs exceeded recent sales prices.
In June 2022, the devices were sold. The balance of USC’s inventory at December 31, 2022 and 2021 was $0 and $12,000.
USC inventories at December 31, 2022 and 2021 consisted
of the following:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Finished Goods |
|
$ |
— |
|
|
$ |
— |
|
Devices |
|
|
— |
|
|
|
12,000 |
|
Inventories |
|
$ |
— |
|
|
$ |
12,000 |
|
Reserve for obsolescence as of December 31, 2022
and 2021 was $0.
Restructuring Costs
Due to the facts and circumstances detailed above,
the Company has identified three major types of restructuring activities related to the disposal of USC in addition to the approximately
$8.6 million of asset impairments detailed above. These three types of activities are employee terminations, contract termination costs,
and chemical destruction costs. For those restructuring activities, the Company recorded approximately $920,000 for employee termination
costs, approximately $410,000 for contract termination costs, and approximately $422,000 for chemical destruction costs for the year ended
December 31, 2021 within selling, general and administrative expenses of discontinued operations. The estimated amount of approximately
$410,000 of contract termination cost was related to the termination of a contract between USC and a vendor. The amount for contract termination
cost was recorded as a loss contingency as the Company believes a loss is probable and can be reasonably estimated. The Company records
accruals for loss contingencies associated with legal matters when the Company determines it is probable that a loss has been or will
be incurred and the amount of the loss can be reasonably estimated. Where a material loss contingency is reasonably possible and the reasonably
possible loss or range of possible loss can be reasonably estimated, U.S. GAAP requires us to disclose an estimate of the reasonably possible
loss or range of loss or make a statement that such an estimate cannot be made. The following summarizes the restructuring activities
and their related accruals as of December 31, 2022:
Schedule of restructuring costs
|
|
Contract |
|
|
Chemical |
|
|
|
|
|
|
Termination Cost |
|
|
Destruction Costs |
|
|
Total |
|
Balance at December 31, 2021 |
|
$ |
410,000 |
|
|
$ |
3,023 |
|
|
$ |
413,023 |
|
Decrease from change in estimate |
|
|
(360,000 |
) |
|
|
— |
|
|
|
(360,000 |
) |
Payments |
|
|
— |
|
|
|
(3,023 |
) |
|
|
(3,023 |
) |
Balance at December 31, 2022 |
|
$ |
50,000 |
|
|
$ |
— |
|
|
$ |
50,000 |
|
At December 31, 2021, the
liabilities of approximately $410,000 related to the contract termination costs was recorded in contingent loss liability of discontinued
operations. In December 2022, the Company received communication from vendor’s attorney that the contract termination could be settled
with payment. The Company offered payment of $50,000 as a settlement and the vendor agreed. As such, the Company reversed $360,000 of
the loss previously recognized as the criteria for liability derecognition was met. The Company paid the vendor $50,000 in January 2023.
The liability of approximately $3,000 related to chemical destruction costs was paid in the second quarter of fiscal year 2022.
Discontinued Operations - Debt
Building Loan
On November 10, 2016, a Loan Amendment and Assumption
Agreement was entered with into the lender. Pursuant to the agreement, as subsequently amended, the Company agreed to pay the lender monthly
payments of principal and interest which were approximately $19,000 per month, with a final payment due and payable in August 2021.
In July 2021, the Company, in connection with the
sale of certain USC assets to Fagron, paid to the lender the outstanding principal balance, accrued unpaid interest and other obligations
under the Company’s loan agreement, promissory note and related loan documents relating to the outstanding building loan relating
to the building and property on which USC’s offices are located. The land and building were included in the assets of discontinued
operations.
As of December 31, 2022 and December 31, 2021,
there was no outstanding principal balance owed on the applicable. The loan bore an interest of 6.00% per year and interest expense
for the years ended December 31, 2022 and 2021 was approximately $0 and $49,000, respectively. The amount of interest allocated to the
discontinued operations was based on the legal obligations of USC.
Revenue from Contracts with Customers
Revenue is recognized pursuant to ASC Topic 606,
“Revenue from Contracts with Customers” (ASC 606).
Adamis is a specialty biopharmaceutical company
focused on developing and commercializing products in various therapeutic areas, including allergy, opioid overdose, respiratory and inflammatory
disease. The Company’s subsidiary US Compounding, Inc. or USC, (a discontinued operation – see Note 4) provided compounded
sterile prescription medications and certain nonsterile preparations and compounds, for human and veterinary use by patients, physician
clinics, hospitals, surgery centers, vet clinics and other clients throughout most of the United States. USC’s product offerings
broadly include, among others, corticosteroids, hormone replacement therapies, hospital outsourcing products, and injectables. In
July 2021, we sold certain assets relating to USC’s human compounding pharmaceutical business and approved a restructuring process
to wind down the remaining USC business and sell, liquidate or otherwise dispose of the remaining USC assets. Effective October
31, 2021, USC surrendered its Arkansas retail pharmacy permit and wholesaler/outsourcer permit and is no longer selling compounded pharmaceutical
or veterinary products.
Adamis and USC (prior to the sale of certain
of its assets) have contracts with customers when (i) the Company enters into an enforceable contract with a customer that defines each
party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has
commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Exclusive Distribution and Commercialization Agreement for SYMJEPI
and ZIMHI with US WorldMeds
On May 11, 2020 (the “Effective Date”)
the Company entered into an exclusive distribution and commercialization agreement (the “USWM Agreement”) with USWM for the
United States commercial rights for the SYMJEPI products, as well as for the Company’s ZIMHI (naloxone HCI Injection, USP)
5mg/0.5mL product intended for the emergency treatment of opioid overdose. The Company’s revenues relating to its
FDA approved products SYMJEPI and ZIMHI are dependent on the USWM Agreement.
Under the terms of the USWM Agreement, the Company
appointed USWM as the exclusive (including as to the Company) distributor of SYMJEPI in the United States and related territories (“Territory”)
effective upon the termination of a Distribution and Commercialization Agreement previously entered into with Sandoz Inc., and of the
ZIMHI product approved by the U.S. Food and Drug Administration (“FDA”) for marketing, and granted USWM an exclusive license
under the Company’s patent and other intellectual property rights and know-how to market, sell, and otherwise commercialize and
distribute the products in the Territory, subject to the provisions of the USWM Agreement, in partial consideration of an initial payment
by USWM and potential regulatory and commercial based milestone payments totaling up to $26 million, if the milestones are achieved. There
can be no assurances that any of these milestones will be met or that any milestone payments will be paid to the Company. The Company
retains rights to the intellectual property subject to the USWM Agreement and to commercialize both products outside of the Territory.
In addition, the Company may continue to use the licensed intellectual property (excluding certain of the licensed trademarks) to develop
and commercialize other products (with certain exceptions), including products that utilize the Company’s Symject™ syringe
product platform.
The initial term for the USWM Agreement began on
the Effective Date and continues for a period of 10 years from the launch by USWM of the first product in the United States
pursuant to the agreement, unless terminated earlier in accordance with its terms.
The Company has determined that the individual
purchase orders, whose terms and conditions taken with the distribution and commercialization agreement, creates a contract according
to ASC 606. The term will automatically renew for five-year terms after the initial 10-year term, unless terminated by
either party.
The Company has determined
that there are multiple performance obligations in the contract which are the following: the manufacture and supply of SYMJEPI™
and ZIMHI™ products to USWM, the license to distribute and commercialize SYMJEPI™ and ZIMHI™ products in the United
States and the clinical development of ZIMHI™.
The Company utilized
significant judgement to develop estimates of the stand-alone selling price for each distinct performance obligation based upon the relative
stand-alone selling price. The transaction price allocated to the clinical development of ZIMHI was immaterial.
Revenues from the manufacture and supply of SYMJEPI™
and ZIMHI™ are recognized at a point in time upon delivery to the carrier. The licenses to distribute and commercialize SYMJEPI™
and ZIMHI™ products in the United States is distinct from the other performance obligations identified in the arrangement and has
stand-alone functionality; the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license
is transferred to the licensee and the licensee is able to benefit from the license.
Payments received
under USWM Agreement may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements
and net-profit sharing payments based on certain percentages of net profit generated from the sales of products over a given quarter.
At the inception of arrangements that include milestone payments, the Company uses judgement to evaluate whether the milestones are probable
of being achieved and estimates the amount to include in the transaction price utilizing the most likely amount method. If it is probable
that a significant revenue reversal will not occur, the estimated amount is included in the transaction price. Milestone payments that
are not within the Company or the licensee’s control, such as regulatory approvals are not included in the transaction price until
those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of development
milestones and any related constraint and adjusts the estimate of the overall transaction price, if necessary. The Company recognizes
aggregate sales-based milestones, and net-profit sharing as royalties from product sales at the later of when the related sales occur
or when the performance obligation to which the sales-based milestone or royalty has been allocated has been satisfied. The amounts receivable
from USWM have a payment term of Net 30.
Revenues do not include any state or local taxes
collected from customers on behalf of governmental authorities. The Company made the accounting policy election to continue to exclude
these amounts from revenues.
Product Recall
On March 21, 2022,
we announced a voluntary recall of four lots of SYMJEPI (epinephrine) Injection 0.15 mg (0.15 mg/0.3 mL) and 0.3 mg (0.3 mg/0.3 mL) Pre-Filled
Single-Dose Syringes to the consumer level, due to the potential clogging of the needle preventing the dispensing of epinephrine. USWM
will handle the recall process for the Company, with Company oversight. SYMJEPI is manufactured and tested for us by Catalent Belgium
S.A. The costs of the recall and the allocation of costs of the recall, including the costs to us resulting from the recall, were
estimated at approximately $2.0 million; moreover, the recall could cause the Company to suffer reputational harm, depending on the resolution
of matters relating to the recall could result in the Company incurring financial costs and expenses which could be material, could adversely
affect the supply of SYMJEPI products until manufacturing is resumed, and depending on the resolution of matters relating to the recall
could have a material adverse effect on our business, financial condition, and results of operations.
For the period ended
December 31, 2022 and December 31, 2021, a liability of approximately $0.3 million and $2.0 million, respectively, associated with the
recall is reflected in the balance sheet. The estimated costs of the recall were reflected in the consolidated statement of operations
for the year ended December 31, 2021 as a reduction of net sales because we expect to offer the customers a cash refund or credit. Approximately,
$0.3 million and $0.2 million in product recall costs were recorded in net revenue and selling, general and administrative expense, respectively
during the year ended December 31, 2022. Total product recall costs from inception of the recall through December 31, 2022, were approximately
$2.5 million. The Company may be able to be reimbursed by certain third parties for some of the costs of the recall under the terms of
its manufacturing agreements or insurance policies, but there are no assurances regarding the amount or timing of any such recovery.
Deferred Revenue
Deferred revenue are contract liabilities that
the Company records when cash payments are received or due in advance of the Company’s satisfaction of performance obligations.
The Company’s performance obligation is met when control of the promised goods is transferred to the Company’s customers. The
following is a rollforward of deferred revenue at December 31, 2022 and 2021:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Opening Balance |
|
$ |
850,000 |
|
|
$ |
950,000 |
|
Revenue Recognized |
|
|
(644,000 |
) |
|
|
(100,000 |
) |
Ending Balance |
|
$ |
206,000 |
|
|
$ |
850,000 |
|
The increase of approximately $544,000 in
recognition of deferred revenue for the year ended December 31,2022, was due to the Company’s reassessment of performance obligations
met under the USWM agreement and $100,000 of amortization.
The Company capitalizes incremental costs
of obtaining a contract with a customer if the Company expects to recover those costs and that it would not have been incurred if the
contract had not been obtained. The deferred costs, reported in the prepaid expenses and other current assets and other non-current assets
on the Company’s Consolidated Balance Sheets, will be amortized over the economic benefit period of the contract.
Financial instruments that potentially subject
the Company to credit risk consist principally of cash, trade receivables, and accounts payable.
Cash and Cash Equivalents
The Company at times may have cash in excess of
the Federal Deposit Insurance Corporation (“FDIC”) limit. The Company maintains its cash with larger financial institutions.
The Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks
on such accounts.
Sales and Trade Receivables
Trade receivables are short-term receivables from
sales of the Company’s FDA-approved SYMJEPI and ZIMHI products to its exclusive distributor, USWM. All revenues are US-based.
Inventories at December 31, 2022 and December 31,
2021 consisted of the following:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Finished Goods |
|
$ |
267,554 |
|
|
$ |
— |
|
Work-in-Process |
|
|
261,720 |
|
|
|
386,610 |
|
Raw Materials |
|
|
709,504 |
|
|
|
31,997 |
|
Total Inventories |
|
$ |
1,238,778 |
|
|
$ |
418,607 |
|
Reserve for obsolescence as of December 31, 2022
and December 31, 2021 was $0.
NOTE 8: |
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets at December
31, 2022 and December 31, 2021:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Employee Retention Credit |
|
$ |
875,307 |
|
|
$ |
— |
|
Prepaid Insurance |
|
|
323,143 |
|
|
|
347,511 |
|
Prepaid - Research and Development |
|
|
588,354 |
|
|
|
115,119 |
|
Other Prepaid |
|
|
78,590 |
|
|
|
635,620 |
|
Other Current Assets |
|
|
18,621 |
|
|
|
215,296 |
|
|
|
$ |
1,884,015 |
|
|
$ |
1,313,546 |
|
Employee Retention Credit:
The Company applied for the Employee Retention
Credit (ERC) which was available under the CARES Act. The ERC is a fully refundable tax credit for employers equal to 50 percent of qualified
wages (including allocable qualified health plan expenses) that eligible employers paid their employees. The ERC applied to wages paid
after March 12, 2020 and before January 1, 2021. The Company hired a third-party to assess if the Company qualified as an eligible employer
and to prepare the application for the ERC credit if the Company was determined to be an eligible employer. Prior to December 31, 2022,
the Company was informed by the Internal Revenue Service that it would receive approximately $875,000 from its ERC application. As the
likelihood of realization of the gain was probable at December 31, 2022, the Company recorded a gain for the full amount of the ERC to
be received. The Company received the full amount from the Department of Treasury in January 2023.
Fixed assets at December 31, 2022 and December
31, 2021 are summarized in the table below:
Description |
|
Useful Life (Years) |
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Machinery and Equipment |
|
3 - 7 |
|
$ |
5,209,575 |
|
|
$ |
4,522,583 |
|
Less: Accumulated Depreciation |
|
|
|
|
(4,665,067 |
) |
|
|
(3,181,567 |
) |
Construction In Progress – Equipment (CIP) |
|
|
|
|
744,386 |
|
|
|
993,752 |
|
Fixed Assets, net |
|
|
|
$ |
1,288,894 |
|
|
$ |
2,334,768 |
|
For the years ended December 31, 2022 and 2021,
depreciation expense was approximately $1,484,000 and $1,436,000, respectively.
The Company has one operating
lease for an office space. As of December 31, 2022, the lease has a remaining term of approximately 11 months. The operating lease does
not include an option to extend beyond the life of the current term. There are no short-term leases, and the lease agreements do not require
material variable lease payments, residual value guarantees or restrictive covenants.
The Company previously entered into a lease agreement
to occupy leased premises with a term commencing December 1, 2014 (as amended, the “Lease”) and expiring on November 30, 2018. On
December 29, 2017, the Company entered into a First Amendment to Lease (the “Amendment”) with the Lessor of the space, amending
the Lease. Pursuant to the Amendment, the Company and Lessor agreed to extend the term of the Lease through November 30, 2023. The Amendment
provides that the Company will pay its current base rent through November 30, 2018. Commencing on December 1, 2018 base rent was initially
approximately $28,000 per month for the first 12 months and will increase annually to approximately $32,000 per month for the 12 months
ending November 30, 2023. The Amendment also provides for one option to expand pursuant to which the Company has a right of first refusal
for additional office space within the property. Total annual rent expense for the years ended December 31, 2022 and 2021 was approximately
$354,000.
The amortizable lives of operating
leased asset is limited by the expected lease term.
The Company’s lease
generally does not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring
operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease
commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency
environment. The Company used incremental borrowing rates as of January 1, 2019 for leases that commenced prior to that date and the prevailing
incremental borrowing rate thereafter.
The Company’s weighted average remaining
lease term and weighted average discount rate for operating and financing leases as of December 31, 2022 and 2021 are:
December 31, 2022 |
|
|
Operating |
|
Weighted Average Remaining Lease Term |
|
|
|
0.92 Years |
|
Weighted Average Discount Rate |
|
|
|
3.95 |
% |
December 31, 2021 |
|
|
Operating |
|
Weighted Average Remaining Lease Term |
|
|
|
1.92 Years |
|
Weighted Average Discount Rate |
|
|
|
3.95 |
% |
The table below reconciles
the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more
than one year to the total lease liabilities recognized on the audited consolidated balance sheets as of December 31, 2022:
|
|
Operating |
|
2023 |
|
$ |
349,365 |
|
Undiscounted Future Minimum Lease Payments |
|
|
349,365 |
|
Less: Difference between undiscounted lease payments and discounted lease liabilities |
|
|
6,803 |
|
Total Lease Liabilities |
|
$ |
342,562 |
|
Short-Term Lease Liabilities |
|
$ |
342,562 |
|
Long-Term Lease Liabilities |
|
$ |
— |
|
Operating lease expense was
approximately $354,000 for the years ended December 31, 2022 and 2021. Operating lease costs are included within selling, general and
administrative expenses on the consolidated statements of operations.
Cash paid for amounts included in the measurement
of operating lease liabilities were approximately $371,000 and $360,000 for the years ended December 31, 2022 and 2021, respectively.
NOTE 11: |
ACCRUED OTHER EXPENSES |
Accrued other expenses at December 31, 2022 and
December 31, 2021:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Accrued Expenses - R&D |
|
$ |
42,400 |
|
|
$ |
741,521 |
|
Accrued Expenses - COGS |
|
|
1,099,571 |
|
|
|
658,282 |
|
Accrued Expenses - Inventory |
|
|
— |
|
|
|
584,731 |
|
Accrued Expenses - Other |
|
|
200,363 |
|
|
|
500,309 |
|
Accrued PTO |
|
|
167,719 |
|
|
|
315,398 |
|
|
|
$ |
1,510,053 |
|
|
$ |
2,800,241 |
|
Accrued other expenses includes firm purchase commitment
losses related to batches produced that were determined to be commercially unviable and, therefore, not inventoriable. Accrued Expenses-
COGS of approximately $348,000 represent the amount of loss on firm purchase commitments recognized in the Company’s consolidated
statement of operations at December 31, 2022.
Additionally, firm purchase commitment losses of
approximately $250,000 are included in Accounts Payable.
First Draw Paycheck Protection Program Loan
On April 13, 2020, the Company received $3,191,700
in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The
unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company (the “Note”), in the principal
amount of $3,191,700, to Arvest Bank (the “Bank”), the lender. The application for these funds required the Company
to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of
the Company. Subsequent guidance from the SBA and the Department of the Treasury indicated that in assessing the economic need for the
loan, a borrower must take into account its current activity and ability to access other sources of liquidity sufficient to support ongoing
operations in a manner that is not significantly detrimental to the business. The receipt of these funds pursuant to the PPP Loan, and
the forgiveness of the PPP Loan attendant to these funds, is dependent on the Company having initially qualified for the loan and, in
the case of forgiveness, qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
Under the terms of the Note and the PPP Loan, interest
accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, unless sooner provided in connection
with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make
equal monthly payments of principal and interest, beginning seven months from the date of the Note (or later if a timely loan forgiveness
application has been submitted), until the maturity date.
The CARES Act and the PPP provide a mechanism for
forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for and be granted forgiveness for all or part of
the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors,
including the amount of loan proceeds used by the Company during a specified period after the loan origination for certain purposes including
payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided
that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining
salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds
spent on payroll and other eligible costs during the covered eight-week or 24-week period will qualify for forgiveness.
In December 2020, the Company submitted an application
for the forgiveness of our PPP Loan. In August 2021, the Company received notification through the Bank that as of August 5, 2021,
the PPP Loan, including principal and interest thereon, has been fully forgiven by the SBA and that the remaining PPP Loan balance is
zero. The Company recognized, $3,244,095, the amount forgiven as other income.
Second Draw Loan (or, “Second Draw PPP Loan”)
On March 15, 2021, the Company entered into
a Note (the “PPP2 Note”) in favor of the Bank, in the principal amount of $1,765,495 relating to funding under a Second
Draw loan (the “Second Draw Loan”) pursuant to the terms of the PPP, the CARES Act, and the Economic Aid to Hard-Hit Small
Businesses, Nonprofits, and Venues Act enacted in December 2020. Under the terms of the PPP2 Note and Second Draw Loan, interest accrues
on the outstanding principal at the rate of 1.0% per annum. The term of the PPP2 Note was five years, unless sooner provided
in connection with an event of default under the PPP2 Note. The Company may prepay the Second Draw Loan at any time prior to maturity
with no prepayment penalties. Under the PPP, the proceeds of the Second Draw Loan may be used to pay payroll and make certain covered
interest payments, lease payments and utility payments. The Company may apply for forgiveness of some or all of the Second Draw Loan pursuant
to the PPP. In order to obtain full or partial forgiveness of the Second Draw Loan, the borrower must timely request forgiveness, must
provide satisfactory documentation in accordance with applicable SBA guidelines, and must satisfy the criteria for forgiveness under the
PPP and applicable SBA requirements. The Company applied for forgiveness of the PPP2 Loan and received notification through the Bank that
as of September 28, 2021, the Second Draw PPP Loan, including principal and interest thereon, was fully forgiven by the SBA. The Company
recognized, $1,765,495, the amount forgiven as other income in the third quarter of 2021. However, as described further in
Note 14 below, in March 2022 the Company was informed that the Civil Division of the U.S. Attorney’s Office for the Southern District
of New York was investigating the Company’s Second Draw PPP Loan and eligibility for that loan, and the Company’s financial
statements for the quarter ended March 31, 2022, included a $1,850,000 contingent loss liability relating to the possible repayment of
the full amount of the Second Draw PPP Loan (or, “PPP2 Loan Contingent Loss”) as well as accrued interest and processing fees
of the lending bank. In June 2022, following the inquiry, the Company paid a total of $1,787,417 in repayment of the Second
Draw PPP Loan principal and such related interest and fees.
Even though the PPP Loan has been forgiven
and the Second Draw PPP Loan repaid, our PPP loans and applications for forgiveness of loan amounts remain subject to review and audit
by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form, including
without limitation the required economic necessity certification by the Company that was part of the PPP loan application process. Accordingly,
the Company is subject to audit or review by federal or state regulatory authorities as a result of applying for and obtaining the PPP
Loan and Second Draw PPP Loan or obtaining forgiveness of those loans. If the Company were to be audited or reviewed and receive
an adverse determination or finding in such audit or review, including a determination that the Company was ineligible to receive the
applicable loan, the Company could be required to return or repay the full amount of the applicable loan and could be subject to additional
fines or penalties, which could reduce the Company’s liquidity and adversely affect our business, financial condition and results
of operations.
NOTE 13: |
FAIR VALUE MEASUREMENTS |
Fair value is defined as the exchange price that
would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level
valuation hierarchy for disclosure of fair value measurements as follows:
|
Level 1: |
Unadjusted quoted prices in active markets for identical assets or liabilities; |
|
|
|
|
Level 2: |
Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in
markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the related assets or liabilities; and |
|
|
|
|
Level 3: |
Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.
|
The carrying value of the Company’s cash
and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due
to the short-term nature of these items based on Level 1 of the fair value hierarchy. Based on the borrowing rates currently available
to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the Ben Franklin Note discussed
in Note 16 approximates fair value based on Level 2 of the fair value hierarchy.
The categorization of a financial instrument within
the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table sets forth the Company’s
financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
at December 31, 2022 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
2020 Warrant liability |
|
$ |
7,492 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,492 |
|
Total common stock warrant liabilities |
|
$ |
7,492 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,492 |
|
The fair value measurement of the warrants
issued by the Company in February 2020 (the “2020 Warrants”) are based on significant inputs that are unobservable and thus
represents a Level 3 measurement. The Company’s estimated fair value of the Warrant liability is calculated using the Black Scholes
Option Pricing Model. Key assumptions at December 31, 2022 include the expected volatility of the Company’s stock of approximately
70% (based on calculated volatility and management’s judgement), the Company’s stock price at valuation date of $0.17, expected
dividend yield of 0.0%, expected term of 2.68 years and average risk-free interest rate (based on the published treasury par yield curves
from the US Department of Treasury) of approximately 4.362%. The Level 3 estimates are based, in part, on subjective assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
at December 31, 2021 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
2020 Warrant liability |
|
$ |
99,655 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
99,655 |
|
Total common stock warrant liabilities |
|
$ |
99,655 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
99,655 |
|
The fair value measurement of the warrants
issued by the Company in February 2020 (the “2020 Warrants”) are based on significant inputs that are unobservable and thus
represents a Level 3 measurement. The Company’s estimated fair value of the Warrant liability is calculated using the Black Scholes
Option Pricing Model. Key assumptions at December 31, 2021 include the expected volatility of the Company’s stock of approximately
70% (based on calculated volatility and management’s judgement), the Company’s stock price at valuation date of $0.605, expected
dividend yield of 0.0%, expected term of 3.68 years and average risk-free interest rate (based on the published treasury par yield curves
from the US Department of Treasury) of approximately 1.038%. The Level 3 estimates are based, in part, on subjective assumptions.
During the periods presented, the Company has not
changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs.
The following table sets forth a summary of the
changes in the fair value of the Company’s Level 3 financial instruments, which are treated as liabilities, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Warrant |
|
|
2020 Warrant |
|
|
|
Number of Warrants |
|
|
Liability |
|
|
Number of Warrants |
|
|
Liability |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
Balance at December 31, 2020 |
|
|
13,800,000 |
|
|
$ |
2,484,000 |
|
|
|
8,700,000 |
|
|
$ |
2,001,000 |
|
Adoption of ASC 2020-06 |
|
|
(13,800,000 |
) |
|
|
(2,484,000 |
) |
|
|
— |
|
|
|
— |
|
Change in Fair Value of Warrants at Date of Exercise |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,521,150 |
|
Exercise of Warrants |
|
|
— |
|
|
|
— |
|
|
|
(8,350,000 |
) |
|
|
(9,441,650 |
) |
Change in Fair Value, Year ended December 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,155 |
|
Balance at December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
350,000 |
|
|
$ |
99,655 |
|
Change in Fair Value, Year ended December, 31, 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(92,163 |
) |
Balance at December 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
350,000 |
|
|
$ |
7,492 |
|
The Company may from time to time become party
to actions, claims, suits, investigations or proceedings arising from the ordinary course of our business, including actions with respect
to intellectual property claims, breach of contract claims, labor and employment claims and other matters. We may also become party to
litigation in federal and state courts relating to opioid drugs. Any litigation could divert management time and attention from Adamis,
could involve significant amounts of legal fees and other fees and expenses, or could result in an adverse outcome having a material adverse
effect on our financial condition, cash flows or results of operations. Actions, claims, suits, investigations and proceedings are inherently
uncertain and their results cannot be predicted with certainty. Except as described below, we are not currently involved in any legal
proceedings that we believe are, individually or in the aggregate, material to our business, results of operations or financial condition.
However, regardless of the outcome, litigation can have an adverse impact on us because of associated cost and diversion of management
time.
Investigation
On May 11,
2021, each of the company and its USC subsidiary received a grand jury subpoena from the U.S. Attorney’s Office for the Southern
District of New York (the “USAO”) issued in connection with a criminal investigation, requesting a broad range of documents
and materials relating to, among other matters, certain veterinary products sold by the company’s USC subsidiary, certain practices,
agreements and arrangements relating to products sold by USC, including veterinary products, and certain regulatory and other matters
relating to the company and USC. The Audit Committee of the Board engaged outside counsel to conduct an independent internal investigation
to review these and other matters. The company has also received requests from the Securities and Exchange Commission (“SEC”)
for the voluntary production of documents and information relating to the subject matter of the USAO’s subpoenas and certain other
matters arising therefrom in connection with the SEC’s investigation. The company has produced documents and will continue to produce
and provide documents in response to the subpoenas and requests as needed. Additionally, on March 16, 2022, we were informed that
the Civil Division of the USAO (“Civil Division”) is investigating the company’s Second Draw PPP Loan application disclosed
in previous reports. The Audit Committee of the Board engaged outside counsel to conduct an internal inquiry into the matter. In June
2022, following the inquiry the company paid a total of $1,787,417 in repayment of the Second Draw PPP Loan principal and such related
interest and fees. The company intends to continue cooperating with the USAO, SEC, and Civil Division. We have received additional requests
for production of documents from the SEC and the USAO, have responded to those requests, and continue to engage in communications with
the SEC and the USAO regarding their investigations. Additional issues or facts could arise or be determined, which may expand the scope,
duration, or outcome of the investigation. As of the date of this Report, the company is unable to predict the duration, scope, or final
outcome of the investigations by the USAO, SEC, Civil Division, or other agencies; what, if any, proceedings the USAO, SEC, Civil Division,
or other federal or state authorities may initiate; what penalties, payments, by the company, remedies or remedial measures the USAO,
SEC, Civil Division or other federal or state authorities may seek; what penalties, payments by the company, remedies or remedial measures
the USAO, SEC or other federal or state authorities may require in order to resolve the investigations; or what, if any, impact the foregoing
matters may have on the company’s business, financial condition, previously reported financial results, financial results included
in this Report, or future financial results. We or our USC subsidiary may be found to have violated one or more laws arising from the
subject matter of the subpoenas. We could receive additional requests from the USAO, SEC, Civil Division, or other authorities, which
may require further investigation. There can be no assurance that any resolution of these matters and investigations with the USAO or
SEC will not have a material and unfavorable or adverse outcome of the company. The foregoing matters have diverted and may continue to
divert management’s attention, have caused the company to suffer reputational harm, have required and will continue to require
the company to devote significant financial resources, could subject the company and its officers and directors to civil or criminal proceedings,
and depending on the resolution of the matters or any proceedings, could result in fines, payments, or financial remedies in amounts that
may be material to our financial condition, or equitable remedies, and materially and affect the company’s business, previously
reported financial results, financial results included in this Report, or future financial results. The occurrence of any of these events
could have a material adverse effect on the company’s business, financial condition and results of operations.
Regulatory
In October 2021, following the sale in July 2021
of certain assets of the Company’s USC subsidiary relating to USC’s human compounding pharmaceutical business and the Company’s
approval of a restructuring process of winding down the remaining operations and business of USC and selling or disposing of the remaining
assets of USC, the Company entered into a Consent Order with the Arkansas State Board of Pharmacy to resolve an ongoing administrative
proceeding before the pharmacy board, pursuant to which USC agreed to surrender its Arkansas retail pharmacy permit and wholesaler/outsourcer
permit effective October 31, 2021, to pay a civil penalty of $75,000 relating to violations of various Arkansas pharmacy laws and the
pharmacy board’s regulations, and to pay $75,000 in investigative costs of the pharmacy board. The total amount of $150,000
levied by the pharmacy board was paid during the year ended December 31, 2021.
Nasdaq
Compliance
December 28, 2022, the Company was notified
by the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that, based
upon the Company’s non-compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”)
as of December 27, 2022, the Company’s common stock was subject to delisting unless the Company timely requested
a hearing before the Nasdaq Hearings Panel (the “Panel”). The Company timely requested a hearing before the Panel,
and a hearing was held on February 16, 2023. On February 21, 2023, the Staff notified the Company that the Panel has granted
the Company’s request for continued listing of the Company’s common stock on the Nasdaq Stock Market and an
extension until June 26, 2023 (the “Compliance Period”) to regain compliance with the continued listing requirements for
The Nasdaq Capital Market, including the minimum $1.00 bid price requirement of Nasdaq Listing Rule 5500(a)(2) (the “Rule”).
The extension granted by the Panel is subject to the Company’s timely undertaking certain corporate actions during the Compliance
Period, including without limitation holding a Special Meeting of stockholders to obtain approval for a reverse stock split of our common
stock, and effecting a reverse stock split, if required, in order to achieve a closing minimum bid price of $1.00 or more per share for
a minimum of ten consecutive trading sessions during the Compliance Period. The notice indicated that June 26, 2023, represents
the full extent of the Panel’s discretion to grant continued listing while it is non-compliant, and that the Panel reserved the
right to reconsider the terms of the exception. The Company intends to diligently work to take the actions required to satisfy
the terms of the Panel’s extension and regain compliance with the Rule; however, there can be no assurance that the Company will
be able to take the actions required to comply with the terms of the Panel’s extension and regain compliance with the Rule
within the extension period granted by the Panel.
Jerald
Hammann
On June 8, 2021, Jerald Hammann filed a complaint
against the Company and each of its directors in the Court of Chancery of the State of Delaware, captioned Jerald Hammann v. Adamis
Pharmaceuticals Corporation et al., C.A. No. 2021-0506-PAF (the “Complaint”), seeking injunctive and declaratory relief.
The Complaint alleges, among other things, that the defendants (i) violated Rule 14a-5(f) and 14a-9(a) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), in connection with the Company’s 2021 annual meeting of stockholders—which
was subsequently held on July 16, 2021 (the “2021 annual meeting”)—and disseminated false and misleading information
in the Company’s proxy materials relating to the 2021 annual meeting, (ii) violated certain provisions of the Company’s bylaws
relating to the 2021 annual meeting, (iii) violated section 220 of the Delaware General Corporation Law (“DGCL”) in connection
with a request for inspection of books and records submitted by the plaintiff, and (iv) breached their fiduciary duties of disclosure
and loyalty, including relating to establishing and disclosing the date of the Company’s 2021 annual meeting and to the Company’s
determination that a solicitation notice delivered to the Company by plaintiff was not timely and was otherwise deficient. The plaintiff
has also filed various motions with the Court, which have been resolved. The Company has filed a motion for summary judgment with respect
to one of the counts in the complaint and a motion to dismiss certain other counts of the plaintiff’s amended complaint. Those
motions are pending before the Court, and the case continues to proceed. On October 13, 2022, the Court entered an order scheduling
oral arguments on the motion for summary judgment and motion to dismiss for December 19, 2022. On March 13, 2023, the Court denied
the Company’s motion for summary judgment. The Court also denied the Company’s motion to dismiss Count Seven, and reserved
until trial a decision on the Company’s motion to dismiss Counts Eight and Nine. Trial on the merits of the plaintiff’s claims
is scheduled for March 16, 2023. The Company believes the claims in the plaintiff’s
complaint are without merit and intends to vigorously dispute them.
The Company records accruals for loss contingencies
associated with legal matters when the Company determines it is probable that a loss has been or will be incurred and the amount of the
loss can be reasonably estimated. Where a material loss contingency is reasonably possible and the reasonably possible loss or range of
possible loss can be reasonably estimated, U.S. GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss
or make a statement that such an estimate cannot be made. The company has not accrued any amount in respect of the matters described under
the headings “Investigation” or “Jerald Hammann,” as we cannot estimate the probable loss or the range of probable
losses that we may incur. We are unable to make such an estimate because (i) with respect to the matters described under the heading “Investigation,”
we are unable to predict whether any proceedings will be initiated by the USAO, SEC or other authorities arising from such matters, what,
if any, relief, remedies or remedial measures the USAO, SEC, or other authorities may seek if proceedings are commenced, and the duration,
scope, or outcome of any such proceedings, if they are commenced, (ii) litigation and other proceedings are inherently uncertain and unpredictable,
and (iii) with respect to the matters described under the heading “Jerald Hammann,” the complaint seeks declaratory and injunctive
relief. Because legal proceedings and investigations are uncertain and unpredictable and unfavorable results could occur, assessing contingencies
is highly subjective and requires significant judgments about future events, including determining both the probability and reasonably
estimated amount of a possible loss or range of loss. The amount of any ultimate loss may differ from any accruals or estimates that the
Company may make.
NOTE 15: |
LICENSING AGREEMENTS |
Tempol
On June 12, 2020, we entered into a license agreement
with a third party, or the Licensor, to license rights under patents, patent applications and related know-how of Licensor relating to
Tempol, an investigational drug. The exclusive license included the worldwide use under the licensed patent rights and related rights
of Tempol for the fields of COVID-19 infection, asthma, respiratory syncytial virus infection, and influenza infection. In addition,
the exclusive license includes the use of Tempol as a therapeutic for reducing radiation-induced dermatitis in patients undergoing treatment
for cancer. In consideration for the Licensor providing the rights under its patent rights and related know-how relating to Tempol
within the licensed fields, we paid Licensor $250,000 and also issued to the Licensor 1,000,000 shares of our Series B Convertible Preferred
Stock, which was converted into an equal number of shares of our common stock during the year ended December 31, 2020.
On October 27, 2022, we received a communication
from the Licensor asserting that the license agreement between the Licensor and us relating to Tempol has terminated by virtue of alleged
noncompliance by us with certain financial covenants contained in the agreement. We dispute, and do not agree, that the agreement has
terminated. We are also evaluating potential claims against the Licensor including possible breach of its obligations under the agreement,
and we intend to vigorously defend our rights relating to the agreement. We do not believe that the agreement or any termination
of the agreement is material to the Company’s current or presently anticipated future business, financial conditions or results
of operations.
NOTE 16: |
COMMITMENTS AND CONTINGENCIES |
Maintenance Fees and Firm Purchase Commitments:
The Company has a production threshold commitment
to a manufacturer of our SYMJEPI products where the Company would be required to pay for maintenance fees if it does not meet certain
periodic purchase order minimums. Any such maintenance fees would be prorated as a percentage of the required minimum production threshold.
Maintenance fees for the years ended December 31, 2022 and 2021 were approximately $0 and $0, respectively.
The Company also has firm purchase commitments to a
manufacturer of our SYMJEPI products based on rolling forecasts where a portion of the forecast represents binding orders and the remaining
portion non-binding. For the years ended December 31, 2022 and 2021, purchases under firm purchase commitments were approximately $0.6
million and $1.1 million, respectively.
Legal Matters:
For information concerning contingencies relating
to legal proceedings, see Note 14 of the notes to the consolidated financial statements.
Ben Franklin Note:
Biosyn issued a note payable to Ben Franklin
Technology Center of Southeastern Pennsylvania (“Ben Franklin Note”) in October 1992, in connection with funding the development
of Savvy (C31G), a compound then under development to prevent the transmission of HIV/AIDS. The repayment terms of the non-interest bearing
obligation include the remittance of an annual fixed percentage of 3.0% of future revenues of Biosyn, if any, until the principal balance
of $777,902 (face amount) is satisfied.
Upon the Company’s acquisition of Biosyn
in 2004, the value of the Ben Franklin Note would be impacted by the ability to estimate Biosyn’s expected future revenues, which
in turn hinge largely upon future efforts to commercialize the product candidate, C31G, the realization of which was not likely given
that the two Savvy clinical trials were halted in 2005 and 2006. Additionally, final results released in 2008 noted that for statistical
reasons, a continuation of either study could not have established Savvy’s ability to prevent HIV infections. The Company determined
that the Ben Franklin Note will have no future cash flows, as the Company does not believe the product will create a revenue stream in
the future due to the futility of the two clinical trials, and as a result, had no fair value at the time of acquisition.
In January and February 2021, the Company issued
common stock upon exercise of investor warrants. The warrant holders exercised for cash at exercise prices ranging from $0.70 to $1.15
per share. The Company received total proceeds of approximately $5,852,000 and the warrant holders received 8,356,000 shares of common
stock.
On February 2, 2021, the Company completed the
closing of an underwritten public offering of 46,621,621 shares of common stock at a public offering price of $1.11 per share, which included
6,081,081 shares pursuant to the full exercise of the over-allotment option granted to the underwriters. Net proceeds were approximately
$48.4 million, after deducting approximately $3.3 million in underwriting discounts and commissions and estimated offering expenses payable
by the Company.
NOTE 18: |
CONVERTIBLE PREFERRED STOCK |
July 2022 Series C Preferred Stock
On July 5, 2022, the Company entered into a private
placement transaction with Lincoln Park Capital Fund, LLC, (or, “Lincoln Park”) pursuant to which the Company issued an aggregate
of 3,000 shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred”), together
with warrants (the “Warrants”) to purchase up to an aggregate of 750,000 shares of common stock of the Company, at an exercise
price of $0.47 per share (subject to adjustment as provided in the Warrants). Gross proceeds were $300,000, excluding transaction costs,
fees and expenses of $15,000. The Warrants become exercisable commencing January 3, 2023 and have a term ending on January 5, 2028.
The Series C Preferred is entitled to dividends,
on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of common stock, when, as and if actually
paid on shares of common stock (subject to adjustments pursuant to the related Certificate of Designation.) The Series C Preferred will
have no voting rights (other than the right to vote as a class on certain matters as provided in the related Certificate of Designation).
However, each share of Series C Preferred entitles the holder thereof (i) to vote exclusively on a proposal to effect a reverse stock
split of the common stock (the “Proposal”) and any proposal to adjourn any meeting of stockholders called for the purpose
of voting on the Proposal, and (ii) to 1,000,000 votes per each share of Series C Preferred.
The Series C Preferred shall, except as required
by law, vote together with the common stock and any other issued and outstanding shares of preferred stock of the Company entitled to
vote, as a single class; provided, however, that such shares of Series C Preferred shall, to the extent cast on the Proposal, be automatically
and without further action of the holders thereof voted in the same proportion as shares of common stock (excluding any shares of common
stock that are not voted) and any other issued and outstanding shares of preferred stock of the Company entitled to vote (other than the
Series C Preferred or shares of such preferred stock not voted) are voted on the Proposal and any proposal to adjourn any meeting of stockholders
called for the purpose of voting on the Proposal.
The Series C Preferred has a “Stated Value”
of $100 per share of Series C Preferred. (i) Upon any liquidation, dissolution or winding up of the Company (a “Liquidation”),
the holders of Series C Preferred are entitled to be paid in cash an amount per share of Series C Preferred equal to 110% of the Stated
Value (the “Liquidation Amount”), or (ii) in the event of a “Deemed Liquidation Event” as defined in the Certificate
of Designation, which generally includes certain merger transactions or a sale, lease or other disposition of all or substantially all
of the assets of the Company, the holders of Series C Preferred are entitled to paid out of the consideration payable to stockholders
in such Deemed Liquidation Event or out of the “Available Proceeds” (as defined in the Certificate of Designation), in each
case before any payment may be made to the holders of Common Stock by reason of their ownership thereof, an amount per share of Series
C Preferred equal to the Liquidation Amount. Upon certain of the Deemed Liquidation Events, if the Company does not effect a dissolution
within 90 days after such event, then the holders of Series C Preferred may require the Company to redeem the Series C Preferred for an
amount equal to the Liquidation Amount.
The Series C Preferred is convertible into shares
of common stock at the option of the holder, any time after the effective date of a reverse stock split of the outstanding shares of the
Common Stock at a ratio set forth in a reverse stock split proposal by means of an amendment to the Company’s certificate of incorporation
approved by the board of directors and the stockholders of the Company (a “Reverse Stock Split”), into that number of shares
of common stock (subject to certain beneficial ownership limitations applicable to each holder, and to compliance with the rules and regulations
of the Nasdaq Capital Market) determined by dividing the Stated Value of such share of Series C Preferred by the conversion price then
in effect, rounded down to the nearest whole share (with cash paid in lieu of any fractional shares). The conversion price for the Series
C Preferred equals 90% of the lesser of (i) the closing sale price of the Common Stock on the trading day immediately prior to the Closing
Date and (ii) the average of the closing sale prices for the common stock on the five trading days immediately prior to the closing date,
subject to adjustment as provided in the certificate of designation; provided, that the conversion price may not fall below the par value
per share of the common stock and may not exceed $0.60 per share. Based on the initial conversion price of $0.43 per share, the 3,000
Shares of Series C Preferred are initially convertible into approximately 697,674 shares of common stock. The conversion price is subject
to adjustment as set forth in the certificate of designation for stock dividends, stock splits, reverse stock splits, and similar events.
The Series C Preferred also contain redemption features by the holder at 110%, at any time after the effective date of a Reverse Stock
Split and by the issuer at 105%, at any time after the effective date of a Reverse Stock Split. Additionally, in accordance with the transaction
agreement, the Company filed a registration statement with the SEC, which has been declared effective, to register the resale from time
to time of shares of common stock underlying the Series C Preferred and the Warrants.
The Company determined that the Series C
Preferred should be classified as mezzanine equity (temporary equity outside of permanent equity), that the Series C Preferred more closely
aligned with debt as the intent is for redemption by either the holder or issuer, mostly likely the issuer (the Company) due to the more
favorable redemption terms. The embedded conversion feature was determined to meet the derivative scope exception. The Company did
not separately account for the redemption features as the fair value of such feature is not material. The Warrants are freestanding and
detachable; and the Company determined that the warrants meet the criteria for equity classification in the Company’s consolidated
balance sheet. With the equity classification of both the Series C Preferred and the warrants, the $15,000 in transaction costs were allocated
between the Series C Preferred and the Warrants, which netted the proceeds received. Net proceeds were allocated between the Series
C Preferred and the Warrants based on their relative fair values.
Fair value for both the Series C Preferred
and the related warrants were based on significant inputs that were unobservable and thus represented Level 3 measurements.
Fair value for the Series C Preferred was based on the weighted value of the Reverse Stock Split approval and the value of the Reverse
Stock Split rejection times the probability of each scenario as assessed by management at the time of the Series C Preferred stock issuance.
Fair value of the Warrants was based on the Black-Scholes pricing model, using the following inputs: $0.53 stock price, $0.47 exercise,
5.5 years remaining expected term, 70% volatility, 0% dividend rate and 2.82% risk free rate. The relative fair value ascribed to the
Series C Preferred was approximately $157,300 and the relative fair value ascribed to the Warrants was approximately $127,700.
Subsequent to the issuance of the Series
C Preferred, in connection with the Company’s annual meeting of stockholders, in September 2022 the Company’s stockholders
voted on a reverse stock split proposal, and the proposal was not approved. Pursuant to the Series C Preferred transaction agreements,
the Company paid $15,000 to Lincoln Park resulting from the failure of the reverse stock split proposal to be approved at the
meeting. Based on the failure of the proposed stock split proposal, redemption of the Series C Preferred is not probable at December 31,
2022, and, as such, no accretion was recorded to the redemption value. The warrants are equity-classified, and, as such do not require
revaluation and 750,000 warrants remain outstanding as of December 31, 2022.
NOTE 19: |
STOCK-BASED COMPENSATION, WARRANTS AND SHARES RESERVED |
The Company accounts for transactions in which
the Company receives services in exchange for restricted stock units (“RSUs”) or options to purchase common stock as stock-based
compensation cost based on estimated fair value. Stock-based compensation cost for RSUs is measured based on the closing fair market value
of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date
based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. The Company accounts for forfeitures
as they occur and will reduce compensation cost at the time of forfeiture.
At the Company’s 2020 annual meeting of stockholders,
the stockholders approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the
grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation
rights, performance stock awards, and other forms of equity compensation (collectively “stock awards”). In addition, the 2020
Plan provides for the grant of cash awards. The initial aggregate number of shares of common stock that may be issued initially pursuant
to stock awards under the 2020 Plan is 2,000,000 shares. The number of shares of common stock reserved for issuance automatically increases
on January 1 of each calendar year during the term of the 2020 Plan, commencing January 1, 2021, by 5.0% of the total number
of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares of common stock
determined by the Company’s board of directors before the start of a calendar year for which an increase applies. One of the provisions
of the 2020 Plan is that no award may be granted, issued or made under the 2020 Plan until such time as the fair market value of the common
stock has been equal to or greater than $3.00 per share (subject to proportionate adjustment for stock splits, reverse stock splits, and
similar events) for at least ten consecutive trading days, after which time awards may be made under the 2020 Plan. In September 2022,
the Company’s Board of Directors (or, “Board”) determined and resolved that it was in the best interests of the
Company and its stockholders that the current share reserve and shares covered by 2020 Plan not be available for awards made pursuant
to the 2020 Plan but instead be available to be issued for other corporate purposes, that no awards shall be made providing for the issuance
or possible issuance of shares included in the current share reserve, that the shares covered by the current share reserve shall not be
considered as reserved for issuance pursuant to awards under the 2020 Plan, until such time in the future, if any, as the Board adopts
an express resolution providing that the shares in the current share reserve shall be available to be issued pursuant to awards made under
the 2020 Plan; and that the shares covered by and included in the current share reserve shall be considered as authorized, unreserved
and unallocated shares of common stock that are available to be issued for other corporate purposes. Additionally, in December 2022, the
Board determined and resolved, that the 2020 Plan share reserve shall not be increased effective January 1, 2023, and that there shall
not be any increase in share reserve for the 2023 year by virtue of the annual share reserve increase. No awards had been made pursuant
to the 2020 Plan as of December 31, 2022. As of December 31, 2022, the current share reserve under the 2020 Plan was 14,171,816.
On January 1, 2022, pursuant to the 2020 Equity
Incentive Plan the number of shares reserved for the issuance of stock awards increased by 7,479,713 shares.
The Company had a 2009 Equity Incentive Plan (the
“2009 Plan”). The 2009 Plan terminated effective February 2019 and no new awards may be made under the 2009 Plan.
In June 2022, the Company issued 250,000 shares
of common stock to a former executive officer of the Company pursuant to a separation agreement between the Company and the officer. The
separation agreement resulted in the modification of the RSU previously issued to the officer, accelerating the RSU vesting upon his separation.
As a result of this modification, the Company determined the cumulative compensation cost that should have been recognized at the
date of the modification as if the fair value of the modified award had been recognized from the original grant date over his requisite
service period, which resulted in the reversal of approximately $540,000 in expense.
Stock Options
The following summarizes the stock option activity
for the year ended December 31, 2022 below:
2009 Equity
Incentive Plan (or, 2009 Plan):
|
|
2009 Equity Incentive Plan |
|
|
Weighted Average Exercise
Price |
|
|
Weighted Average Remaining
Contract Life * |
|
Total Outstanding and Vested and Expected to Vest as of December 31, 2021 |
|
|
4,985,415 |
|
|
$ |
4.21 |
|
|
|
4.05 years |
|
Options Canceled/Expired |
|
|
(679,053 |
) |
|
|
4.20 |
|
|
|
— |
|
Total Outstanding and Vested as of December 31, 2022 |
|
|
4,306,362 |
|
|
$ |
4.21 |
|
|
|
2.09 years |
|
* |
|
Maximum contractual term for options is 10 years.
|
As of December 31, 2022, the unamortized compensation
expense related to 2009 Plan awards was approximately $0.
The aggregate intrinsic value (the difference between
the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money
options) of all options outstanding at December 31, 2022 and 2021 was $0.
Non-Plan Awards:
|
|
Non-Plan Awards |
|
|
Weighted-Average Exercise Price |
|
|
Weighted-Average Remaining Contract
Life |
|
Total Outstanding, as of December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Granted |
|
|
130,000 |
|
|
|
0.62 |
|
|
|
9.13 years |
|
Total Outstanding as of December 31, 2022 |
|
|
130,000 |
|
|
$ |
0.62 |
|
|
|
9.13 years |
|
Vested and Expected to Vest at December 31, 2022 |
|
|
57,499 |
|
|
$ |
0.62 |
|
|
|
9.13 years |
|
Non-plan awards are granted pursuant to Rule 5635(c)(4)
of the Nasdaq Listing Rules, as a material inducement to the willingness of such person to join the Company as a non-officer employee,
effective upon the effective date of Board of Director-approved resolutions to grant nonqualified stock options to such person, (or, inducement
grant.) Inducement grants, although granted outside of the Company’s 2020 Equity Incentive Plan, are subject to the terms and conditions
set forth in that plan. The terms of inducement grants are generally the same as terms would be under the 2020 Equity Incentive Plan,
wherein the exercise price of the options is equal to the fair value of the Company’s common stock at date of grant, with vesting
commencing on date of grant. And, vesting schedule consisting of one-sixth (1/6) of
the options becoming exercisable six (6) months after vesting commences, and one thirty-sixth (1/36)
of the options on becoming exercisable each subsequent monthly anniversary of the vesting commencement date, such that the option is exercisable
in full after three years from the vesting commencement date of the option grant, subject to the option holder providing continuous service.
As of December 31, 2022, the unamortized compensation
expense related to non-plan awards was approximately $0.
Restricted Stock Units
The following summarizes the RSU activity for the
year ended December 31, 2022 below:
|
|
Number of Shares/Unit |
|
|
Weighted Average Grant Date
Fair Value |
|
Non-vested RSUs as of December 31, 2021 |
|
|
1,039,003 |
|
|
$ |
4.16 |
|
RSUs vested during the period |
|
|
(389,003 |
) |
|
$ |
3.35 |
|
Non-vested RSUs as of December 31, 2022 |
|
|
650,000 |
|
|
$ |
4.64 |
|
The following summarizes the non-vested RSU’s
as of December 31, 2022:
|
|
RSUs |
|
|
Price Per Share at
Grant Date |
|
Non-Employee Board of Directors |
|
|
150,000 |
(1) |
|
$ |
8.46 |
|
Company Executive and employees |
|
|
500,000 |
(1) |
|
$ |
3.50 |
|
Total RSUs |
|
|
650,000 |
|
|
|
|
|
(1) |
|
The RSUs will have cliff vesting after seven years of continuous service or
upon change of control from date of grant or upon death or disability. |
As of December 31, 2022, the unamortized compensation
expense related to RSUs was approximately $189,000 and will be recognized over 0.87 years.
Total
Stock-Based Compensation:
The following summaries stock-based compensation
recognized as research and development costs (or, R&D) and selling, general and administrative costs (or, SG&A) for the year-ended
December 31, 2022 and 2021:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
R&D |
|
$ |
(66,222 |
) |
|
$ |
688,611 |
|
SG&A |
|
|
(274,048 |
) |
|
|
1,328,029 |
|
Total Stock-based Compensation |
|
$ |
(340,270 |
) |
|
$ |
2,016,640 |
|
As discussed earlier in this Report, the negative
stock-based compensation for the year-ended December 31, 2022, is primarily due to RSU award modifications resulting from accelerated
vesting due to a separation agreement and the decline in the Company’s stock price which decreased the fair value of the accelerated
awards
Warrants
The following table summarizes warrants outstanding
at:
December 31, 2022 |
|
Warrant Shares* |
|
|
Exercise Price Per Share |
|
|
Date Issued |
|
Expiration Date |
Old Adamis Warrants |
|
|
58,824 |
|
|
$ |
8.50 |
|
|
November 15, 2007 |
|
November 15, 2023 |
2019 Warrants |
|
|
13,794,000 |
|
|
$ |
1.15 |
|
|
August 5, 2019 |
|
August 5, 2024 |
2020 Warrants |
|
|
350,000 |
* |
|
$ |
0.70 |
|
|
February 25, 2020 |
|
September 3, 2025 |
Series C Preferred Warrants |
|
|
750,000 |
|
|
$ |
0.47 |
|
|
July 5, 2023 |
|
January 5, 2028 |
Total Warrants |
|
|
14,952,824 |
|
|
|
|
|
|
|
|
|
* |
|
|
See Note 13 for the fair value of the warrant liability related to the 2020
Warrants which are liability classified. |
Shares Reserved
At December 31, 2022, the Company has reserved
shares of common stock for issuance upon exercise of outstanding options and warrants, and vesting of RSUs, as follows:
Warrants |
|
|
14,952,824 |
|
Convertible Preferred Stock |
|
|
697,674 |
|
RSU |
|
|
650,000 |
|
Non-Plan Awards |
|
|
130,000 |
|
2009 Equity Incentive Plan |
|
|
4,306,362 |
|
Total Shares Reserved |
|
|
20,736,860 |
|
Net operating losses and tax credit carryforwards
as of December 31, 2022 are as follows:
|
|
Amount |
|
|
Expiration Years |
Net operating losses, federal (Post December 31, 2017) |
|
$ |
135,375,006 |
|
|
N/A |
Net operating losses, federal (Pre January 1, 2018) |
|
|
86,660,717 |
|
|
2027 - 2038 |
Net operating losses, state |
|
|
91,134,554 |
|
|
2030 - 2043 |
Tax credits, federal |
|
|
3,541,039 |
|
|
2037 - 2043 |
Tax credits, state |
|
|
2,145,442 |
|
|
N/A |
Under the new tax law,
the federal net operating loss arising in tax years ending after December 31, 2017 will be carried forward indefinitely with an 80% taxable
income limitation.
Pursuant to Internal Revenue
Code Section 382, the annual use of the net operating loss carry forwards and research and development tax credits could be limited by
any greater than 50% ownership change during any three year testing period. As a result of any such ownership change, portions of the
Company’s net operating loss carry forwards and research and development tax credits are subject to annual limitations. The Company
completed a Section 382 analysis in 2017, and the net operating loss deferred tax assets reflect the results of the analysis. The recoverability
of these carry forwards could be subject to limitations upon future changes in ownership as defined by Section 382 of the Internal Revenue
Code. The Company has not completed an ownership change analysis pursuant to IRC Section 382 since 2017. However, the Company has established
a valuation allowance as the realization of such deferred tax assets has not met the more likely than not threshold requirement. If ownership
changes within the meaning of IRC Section 382 have occurred, the amount of remaining tax attribute carryforwards available to offset future
taxable income and income taxes in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax
assets, along with the corresponding valuation allowance, associated with such tax attributes could be significantly reduced upon an ownership
change within the meaning of IRC Section 382 and such changes could be material. Due to the existence of the valuation allowance, changes
in the Company’s deferred tax assets from any such limitation will not impact the Company’s effective tax rate.
ASC 740 requires that
the tax benefit of net operating losses, temporary differences and credit carry forwards be recorded as an asset to the extent that management
assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s
ability to generate sufficient taxable income within the carry forward period. Because of the Company’s recent history of operating
losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently
not likely to be realized and, accordingly, has provided a valuation allowance.
At December 31, 2022 and 2021, the Company reassessed
its need for valuation allowance and decreased the valuation allowance because it impaired an indefinite lived trademark during the year
which previously represented a taxable temporary difference for which no deferred tax asset could be realized. This was determined to
be a future source of taxable income. This reassessment resulted in a tax benefit of $44,000 and $65,000, respectively. Of this, $46,000
and $67,000 were allocated to the discontinued operation for the years ended December 31, 2022 and December 31, 2021, respectively.
The expense for income taxes from operations consists
of the following for the years ended December 31, 2022 and 2021:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Current |
|
$ |
2,000 |
|
|
$ |
2,000 |
|
Deferred |
|
|
(46,000 |
) |
|
|
(67,000 |
) |
Tax Expense (Benefit) |
|
|
(44,000 |
) |
|
|
(65,000 |
) |
Tax Benefit Allocated to Discontinued Operations |
|
|
46,000 |
|
|
|
67,000 |
|
Tax Expense Allocated to Continuing Operations |
|
$ |
2,000 |
|
|
$ |
2,000 |
|
At December 31, 2022 and December 31, 2021
the significant components of the deferred tax assets from operations are summarized below (all of which are domestic):
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
Net Operating Losses Carryforwards |
|
$ |
51,482,000 |
|
|
$ |
47,419,000 |
|
Tax Credits |
|
|
5,686,000 |
|
|
|
4,982,000 |
|
Stock Compensation |
|
|
746,000 |
|
|
|
1,008,000 |
|
Accrued Expenses |
|
|
47,000 |
|
|
|
189,000 |
|
Warranty Expenses |
|
|
75,000 |
|
|
|
449,000 |
|
Intangibles |
|
|
948,000 |
|
|
|
1,017,000 |
|
Fixed Assets |
|
|
253,000 |
|
|
|
127,000 |
|
Lease Liabilities |
|
|
143,000 |
|
|
|
248,000 |
|
R&D Capitalization |
|
|
1,963,000 |
|
|
|
— |
|
Other |
|
|
833,000 |
|
|
|
838,000 |
|
Total Deferred Tax Assets |
|
|
62,176,000 |
|
|
|
56,277,000 |
|
Valuation Allowance |
|
|
(60,227,000 |
) |
|
|
(54,261,000 |
) |
Deferred Tax Assets, Net of Valuation Allowance, Total |
|
$ |
1,949,000 |
|
|
$ |
2,016,000 |
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
Intangibles - Indefinite Lived |
|
$ |
— |
|
|
$ |
(187,000 |
) |
Right-of-use Assets |
|
|
(78,000 |
) |
|
|
(146,000 |
) |
State Taxes |
|
|
(1,871,000 |
) |
|
|
(1,729,000 |
) |
Fixed Assets |
|
|
— |
|
|
|
— |
|
Total Deferred Tax Liabilities |
|
|
(1,949,000 |
) |
|
|
(2,062,000 |
) |
Net Deferred Tax Liability |
|
$ |
— |
|
|
$ |
(46,000 |
) |
Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.
The Company has determined at December 31,
2022 and December 31, 2021 that a full valuation allowance would be required against of all the Company’s operating loss carry forwards
and deferred tax assets that the Company does not expect to be utilized from the reversal of its deferred tax liabilities.
The following table reconciles the Company’s
losses from operations before income taxes for the year ended December 31, 2022 and December 31, 2021:
|
|
December 31,
2022 |
|
|
|
|
|
December 31,
2021 |
|
|
|
|
Federal Statutory Rate |
|
$ |
(5,555,000 |
) |
|
|
21.00 |
% |
|
$ |
(9,637,000 |
) |
|
|
21.00 |
% |
State Income Tax, net of Federal Tax |
|
|
(7,000 |
) |
|
|
0.03 |
% |
|
|
(9,000 |
) |
|
|
0.02 |
% |
Indefinite Lived - DTL |
|
|
(35,000 |
) |
|
|
0.13 |
% |
|
|
(52,000 |
) |
|
|
0.11 |
% |
Other Permanent Differences |
|
|
682,000 |
|
|
|
(2.58 |
%) |
|
|
1,032,000 |
|
|
|
(2.25 |
%) |
Research and Development Credits |
|
|
(506,000 |
) |
|
|
1.91 |
% |
|
|
(377,000 |
) |
|
|
0.82 |
% |
Other |
|
|
80,000 |
|
|
|
(0.30 |
%) |
|
|
(539,000 |
) |
|
|
1.17 |
% |
Change in Valuation Allowance |
|
|
5,297,000 |
|
|
|
(20.02 |
%) |
|
|
9,517,000 |
|
|
|
(20.74 |
%) |
Expected Tax Expense |
|
$ |
(44,000 |
) |
|
|
0.17 |
% |
|
$ |
(65,000 |
) |
|
|
0.13 |
% |
The Company files income tax returns in the United
States, California and other state jurisdictions. Due to the Company’s losses incurred, the Company is essentially subject
to income tax examination by tax authorities from inception to date. Interest and penalties related to uncertain tax positions are recognized
as a component of income tax expense. For the tax year ended December 31, 2022 and 2021, the Company recognized no interest or penalties,
and identified no material amount of unrecognized tax benefits.
NOTE 21: |
SUBSEQUENT EVENTS |
On February 27, 2023, the Company announced that
it had entered into an Agreement and Plan of Merger and Reorganization with DMK Pharmaceuticals Corporation. DMK Pharmaceuticals is a
privately-held, clinical stage neuro-biotechnology company focused on the development and commercialization of potential products for
the treatment of a variety of neuro-based disorders, including without limitation opioid use disorder, acute and chronic pain, bladder
problems, and Parkinson’s disease. Completion of the transaction is subject to a number of conditions, including without limitation
approval by the Adamis stockholders of certain matters relating to the transaction. There can be no assurances that the proposed
merger transaction with DMK will be completed.
On February 8, 2023, the Company received notice from
the Food and Drug Administration (“FDA”) that the FDA considers the voluntary recall of the Company’s SYMJEPI products
to be terminated. With the termination of the voluntary recall, the Company anticipates having SYMJEPI relaunched and commercially available
in the first half of 2023.
On March 14, 2023, the Company entered into a securities
purchase agreement with an investor for the purchase and sale of 16,500,000 shares of its common stock and pre-funded warrants to purchase
up to 7,500,000 shares of common stock, together with warrants to purchase up to 48,000,000 shares of common stock, at a combined purchase
price of $0.125 per share (and $0.1249 per pre-funded warrant) and accompanying warrants, pursuant to a registered direct offering. The
warrants will have an exercise price of $0.138 per share, will be initially exercisable beginning six months following the date of issuance
and will expire five years and six months from the date of issuance. The closing of the offering occurred on March 16, 2023. Gross proceeds
from the offering were approximately $3.0 million, with net proceeds estimated at approximately $2.7 million. The Company intends to use
the net proceeds from the offering for general working capital purposes.
DMK
Pharmaceuticals Corporation
Financial
Statements and Notes to Combined Financial Statements
December
31, 2022 and 2021
Report of Independent Registered Public Accounting
Firm
To the shareholders and the board of directors of
DMK Pharmaceuticals Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of
DMK Pharmaceuticals Corporation as of December 31, 2022 and 2021, the related statements of operations, stockholders’ equity (deficit),
and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Substantial Doubt about the Company’s Ability
to Continue as a Going Concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative
cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the
current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that
(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,
or complex judgments.
We determined that there are no critical audit matters.
/S/ BF Borgers CPA PC
(PCAOB ID 5041)
We have served as the Company’s auditor since
2022
Lakewood, CO
March 28, 2023
DMK PHARMACEUTICALS CORPORATION
COMBINED BALANCE SHEETS
|
|
December 31, |
|
|
2022 |
|
2021 |
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
131,310 |
|
|
$ |
2,804 |
|
Total current assets |
|
|
131,310 |
|
|
|
2,804 |
|
Total assets |
|
$ |
131,310 |
|
|
$ |
2,804 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ (deficit) equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5,560 |
|
|
$ |
— |
|
Due to related party |
|
|
4,621 |
|
|
|
285 |
|
Accrual Interest and other current liabilities |
|
|
364,042 |
|
|
|
145,466 |
|
Deferred grant revenue |
|
|
122,118 |
|
|
|
25,000 |
|
Total current liabilities |
|
|
496,341 |
|
|
|
170,751 |
|
|
|
|
|
|
|
|
|
|
Long - Term Liabilities |
|
|
|
|
|
|
|
|
Convertible debt - related
party |
|
|
3,093,224 |
|
|
|
2,228,373 |
|
Total liabilities |
|
$ |
3,589,565 |
|
|
$ |
2,399,124 |
|
Commitments and contingencies (Note 5) |
|
|
|
|
|
|
|
|
Stockholders’ (deficit) equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 38,837
and 15,288 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively |
|
|
39 |
|
|
|
15 |
|
Additional paid-in capital |
|
|
579,455 |
|
|
|
458,573 |
|
Accumulated deficit |
|
|
(4,037,749 |
) |
|
|
(2,854,908 |
) |
Total stockholders’ (deficit) |
|
|
(3,458,255 |
) |
|
|
(2,396,320 |
) |
Total liabilities, and stockholders’
(deficit) equity |
|
$ |
131,310 |
|
|
$ |
2,804 |
|
See accompanying notes to combined financial statements.
DMK PHARMACEUTICALS CORPORATION
COMBINED STATEMENTS
OF OPERATIONS
|
|
Twelve Months Ended
December 31, |
|
|
2022 |
|
2021 |
Grant Revenue |
|
$ |
100,350 |
|
|
$ |
168,593 |
|
Total revenue |
|
|
100,350 |
|
|
|
168,593 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
336,554 |
|
|
|
430,260 |
|
General and administrative |
|
|
727,527 |
|
|
|
1,734,971 |
|
Total operating expenses |
|
|
1,064,081 |
|
|
|
2,165,231 |
|
Loss from operations |
|
|
(963,731 |
) |
|
|
(1,996,638 |
) |
Other Income (Expense) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(219,110 |
) |
|
|
(110,523 |
) |
Net loss |
|
$ |
(1,182,841 |
) |
|
$ |
(2,107,161 |
) |
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted |
|
$ |
(66.20 |
) |
|
$ |
(137.83 |
) |
Weighted-average number of common shares used
in net loss per share attributable to common stockholders — basic and diluted |
|
|
17,869 |
|
|
|
15,288 |
|
See accompanying notes to combined financial statements.
DMK PHARMACEUTICALS CORPORATION
COMBINED STATEMENTS
OF CASH FLOWS
|
|
Twelve Months Ended
December 31, |
|
|
2022 |
|
2021 |
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,182,841 |
) |
|
$ |
(2,107,161 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Convertible notes issued for services |
|
|
873,033 |
|
|
|
1,877,144 |
|
Equity-based compensation |
|
|
120,882 |
|
|
|
120,640 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
5,560 |
|
|
|
(30,010 |
) |
Accrued expenses |
|
|
218,600 |
|
|
|
110,813 |
|
Due to (from) related party |
|
|
13,654 |
|
|
|
— |
|
Deferred Revenue |
|
|
97,118 |
|
|
|
25,000 |
|
Net cash provided by (used in) operating activities |
|
|
146,006 |
|
|
|
(3,574 |
) |
Financing activities |
|
|
|
|
|
|
|
|
Payments on note payable |
|
|
(17,500 |
) |
|
|
— |
|
Net cash (used in) financing activities |
|
|
(17,500 |
) |
|
|
— |
|
Net increase in cash |
|
|
128,506 |
|
|
|
(3,574 |
) |
Cash at beginning of period |
|
|
2,804 |
|
|
|
6,378 |
|
Cash at end of period |
|
$ |
131,310 |
|
|
$ |
2,804 |
|
See accompanying notes to combined financial statements.
DMK PHARMACEUTICALS CORPORATION
COMBINED STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Total |
|
|
|
|
Additional |
|
|
|
Stockholders’ |
|
|
Common
Stock |
|
Paid-In |
|
Accumulated |
|
(Deficit) |
|
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Equity |
Balance at December 31, 2020 |
|
|
15,288 |
|
|
$ |
15 |
|
|
$ |
337,933 |
|
|
$ |
(747,747 |
) |
|
$ |
(409,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based Compensation Expenses |
|
|
— |
|
|
|
— |
|
|
|
120,640 |
|
|
|
— |
|
|
|
120,640 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,107,161 |
) |
|
|
(2,107,161 |
) |
Balance at December 31, 2021 |
|
|
15,288 |
|
|
$ |
15 |
|
|
$ |
458,573 |
|
|
$ |
(2,854,908 |
) |
|
$ |
(2,396,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based Compensation Expenses |
|
|
— |
|
|
|
— |
|
|
|
120,882 |
|
|
|
— |
|
|
|
120,882 |
|
Shares issued for Merger |
|
|
23,949 |
|
|
|
24 |
|
|
|
— |
|
|
|
— |
|
|
|
24 |
|
Common stock repurchased |
|
|
400 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,182,841 |
) |
|
|
(1,182,841 |
) |
Balance at December 31, 2022 |
|
|
38,837 |
|
|
$ |
39 |
|
|
|
579,455 |
|
|
|
(4,037,749 |
) |
|
|
(3,458,255 |
) |
See accompanying notes to combined financial
statements.
DMK PHARMACEUTICALS CORPORATION
NOTES TO COMBINED FINANCIAL
STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
Nature of Business
DMK Pharmaceuticals Corporation. (“DMK”
or the “Company”) is a pre-clinical stage biotechnology company focused on developing neurotherapies for central nervous system
disorders of significant unmet need. The Company is located at 50 Division Street, Suite 501, Somerville, New Jersey.
Merger with Dina Pharma Inc.
On November 1, 2022, the Company entered into an Agreement and Plan of
Merger (“Agreement”) with Dina Pharma Inc, a New Jersey corporation (“Dina”). Pursuant to the Agreement, Dina
merged with and into DMK, with DMK as the surviving company (the “Dina Merger”). The Dina Merger was completed on November
28, 2022. Prior to the Dina Merger, Versi Group LLC (“Versi Group”) owned 100% of the outstanding shares of Dina and more
than 90% of DMK. In exchange for the issuance of 23,949 shares of DMK common stock to Versi Group, the sole shareholder of Dina, DMK assumed
all of the assets and liabilities of Dina, including two convertible promissory notes dated December 31, 2021 and October 1, 2022 issued
by Dina to Ebrahim Versi, the Chief Executive Officer of DMK.
The transaction is considered a business combination under common control.
A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately
controlled by the same party both before and after the business combination, and control is not transitory. Assets and liabilities for
the combined entity were recorded at their same value as prior to the combination. The transaction combines two commonly controlled entities
that historically have not been presented together and the resulting financial statement are effectively considered to be those of a different
reporting entity, which requires retrospective combination of the entities for all periods presented as if the combination has been in
effect since inception of common control in accordance with ASC 250-10-45-21.
Going Concern
DMK has no products approved for commercial sale, has not generated any
revenue from product sales to date and has suffered recurring losses from operations since its inception. The lack of revenue from product
sales to date and recurring losses from operations since its inception raise substantial doubt as to the Company's ability to continue
as a going concern. The accompanying financial statements are prepared using accounting principles generally accepted in the United States
applicable to a going concern, which contemplate the realization of assets and the satisfaction of liabilities in the normal course of
business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts and classification of liabilities should the Company be unable to continue as a going concern. DMK will require substantial additional
capital to fund its research and development expenses related to its oncology drug. Based on DMK’s expected cash requirements, DMK
believes that there is doubt that its existing cash and cash equivalents will be sufficient to fund its operations through one year from
the financial statements’ issuance date. The Company intends to obtain additional capital through the sale of equity securities
in one or more offerings or through issuances of debt instruments and may also consider new collaborations or selectively partnering its
technology. However, the Company cannot provide any assurance that it will be successful in accomplishing any of its plans.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements
have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Any reference
in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standard Codification (“ASC”)
and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America as defined by the FASB ASC requires management
to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.
Reclassification
Certain reclassifications of prior period presentations have been
made to conform to the current period presentation.
Cash and Cash Equivalents
DMK considers all highly-liquid investments
with original maturities of three months or less to be cash equivalents.
Intangibles
Intangible assets that have finite useful lives
are amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions. Intangible assets are included
in other assets in the Company’s Combined Balance Sheets.
Financial Instruments and Credit Risks
Financial instruments that potentially subject
the Company to credit risk include cash and cash equivalents and restricted cash. Cash is deposited in demand accounts in federally insured
domestic institutions to minimize risk. Insurance is provided through the Federal Deposit Insurance Corporation (“FDIC”).
Although the balances in these accounts exceed the federally insured limit from time to time, the Company has not incurred losses related
to these deposits.
Revenue Recognition
DMK’s source of revenue has been from
research and developmental grants received from the United States National Institute of Health (“NIH”) and New Jersey state
entities. Grant revenue is recognized when qualifying costs are incurred and there is reasonable assurance that conditions of the grant
have been met. Cash received from grants in advance of incurring qualifying costs is recorded as deferred revenue and recognized as revenue
when qualifying costs are incurred. The Company records revenue and a corresponding grants receivable when qualifying costs are incurred
before the grants are received.
Research and Development Costs
Research and development costs consist of expenses
incurred in performing research and development activities, including pre-clinical studies and clinical trials. Research and development
costs include salaries and personnel-related costs, consulting fees, fees paid for contract research services, the costs of laboratory
equipment and facilities, license fees and other external costs. Research and development costs are expensed when incurred.
Convertible Debt Instruments
The Company follows ASC 480-10, Distinguishing
Liabilities from Equity in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional
obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or
may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if,
at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary
amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations
inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not
further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements
reported in change on fair value expense in the accompanying Statements of Operations. The convertible promissory notes issued by the
Company is stock-settled debt in substance without beneficial conversion option since the conversion price was defined as the outstanding
notes balance divided by certain percent of the market price of the common stock on the date of the conversion.
Equity-Based Compensation
DMK measures equity-based compensation based
on the grant date fair value of the awards and recognizes the associated expense in the financial statements over the requisite service
period of the award, which is generally the vesting period.
The Company uses the Black-Scholes option valuation
model to estimate the fair value of the stock-based compensation and incentive units. Assumptions utilized in these models include expected
volatility calculated based on implied volatility from traded stocks of peer companies, dividend yield and risk-free interest rate. Additionally,
forfeitures are accounted for in compensation cost as they occur.
Income Taxes
Income taxes are recorded in accordance with
FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.
Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the
tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely than not that the deferred tax assets will be realized. The Company has evaluated available
evidence and concluded that the Company may not realize the benefit of its deferred tax assets; therefore, a valuation allowance has been
established for the full amount of the deferred tax assets.
The Company accounts for uncertain tax positions
in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions
to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely
than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
As of December 31, 2022 and 2021, the Company did not have any significant uncertain tax positions and no interest or penalties have
been charged. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company is subject to routine audits by taxing jurisdictions.
NOTE 3. CONVERTIBLE PROMISSORY NOTES TO
RELATED PARTIES
During the year ended December 31, 2020, the
Company issued an aggregated of $215,396 convertible promissory notes to related parties, The notes bear simple interest at 8% per annum,
convertible to capital stock of the Company that are issued in a qualified financing event at 50% of the price per share or other unit
of equity securities issued in such qualified financing. $198,600 of the notes were issued for consulting services in year 2020, $16,796
were issued for cash.
During the year ended December 31, 2021, the
Company issued an aggregated of $1,864,864 convertible promissory notes to related parties including its Chief Executive Officer and Chief
Operating Officer. The notes bear simple interest at 8% per annum, convertible to capital stock of the Company that are issued in a qualified
financing event at 50% of the price per share or other unit of equity securities issued in such qualified financing. $1,863,600 of the
notes were issued for consulting services in year 2021, $1,264 were issued for cash.
During the year ended December 31, 2022, the
Company repaid $17,500 convertible notes to one of its debt holders, and issued $873,033 convertible notes to related parties including
its Chief Executive Officer and Director of Research Operations. The convertible notes balance as of December 31, 2022 is $3,093,224.
NOTE 4. GRANT REVENUE
On April 21, 2021, NIH awarded a supplemental grant
in the amount of $55,000 to the Company, these funds are restricted for the NIH I-Corps program and may not be used for any other purposes
without approval.
On March 9, 2022, the Company received a grant of
$25,000 from the New Jersey Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”)
Support Program. The Company recognized approximately $22,000 of the grant as grant revenue as of December 31, 2022.
On July 28, 2022, the Company entered into a Round
1 Catalyst Seed Research and Development Grant Program Agreement (“Grant Agreement”) with New Jersey Commission on Science,
Innovation and Technology (“CSIT”). CSIT will provide the Company up to $150,000 to accelerate the development of technologies
to transform new discoveries from the research stage into commercially viable products and services. This six year grant award expires
on July 28, 2028. The Company may request in writing and without cost, a maximum of one three-month extension of the project term, subject
to the written approval of CSIT. Subject to a written projection completion report delivered to CSIT within 30 days from the expiration
date of July 28, 2023, 80% of the grant ($120,000) will be delivered within thirty days of the Grant Agreement is executed and all conditions
set forth in Section 5 of the Grant Agreement are satisfied. The remaining 20% of the grant shall be issued within thirty days of receipt
by CSIT of an approved project completion report. The Company received $120,000 from CSIT on August 18, 2022 and recorded deferred grant
revenue as of December 31, 2022.
NOTE 5. COMMITMENTS AND CONTINGENCIES
License Agreement with Versi Group LLC
On August 18, 2016, the Company entered into a license
agreement with Versi Group LLC, under which, the Company acquired an exclusive license to certain compounds and corresponding international
patents used in the treatment of pain as an analgesic. In exchange for the license, the Company issued to Versi Group LLC 14,000 shares
of the Company’s common stock.
On February 1, 2021, Dina entered into a license agreement
with Versi Group LLC, under which, Dina acquired an exclusive license to certain compounds and corresponding international patents. The
licensed compounds are the entire delta opioid receptor ligand library of compounds owned by Versi Group LLC and all data related to these
compounds. In exchange for the license, Dina issued to Versi Group 20,000 shares of Dina’s common stock.
The cost incurred in obtaining the exclusive
license to certain compounds and corresponding patents were expensed immediately since the assets have no alternative future use.
Lease Agreement
The Company presently leases office space under
operating lease agreements on a month-to-month basis.
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain assets and liabilities are carried
at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use
of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the
last is considered unobservable, are used to measure fair value:
Level 1-Unadjusted quoted prices in
active markets for identical assets or liabilities.
Level 2-Inputs other than Level 1
that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3-Significant unobservable inputs
including DMK’ own assumptions in determining fair value.
The Company believes the recorded values of
its financial instruments, including cash and cash equivalents, accounts payable and notes payable approximate their fair values due to
the short-term nature of these instruments.
Stock based compensation expenses related to
options issued under the 2016 Stock Plan (“Stock Plan”) were measured at Level 3 fair value for the years ended December 31,
2022 and 2021, respectively.
NOTE 7. STOCKHOLDERS’
EQUITY
Common Stock
In addition to the common stock issued to Versi
Group LLC in exchange for the licenses disclosed in NOTE 5, the Company also has common shares issued to its consultants, employees and
directors. As of December 31, 2022 and 2021 total common stock outstanding were 38,837 and 15,288, respectively.
NOTE 8. EQUITY-BASED COMPENSATION
The Company has granted options to employees
and directors under the Stock Plan. The Stock Plan provides for the grant of incentive stock options ("ISOs"), nonstatutory stock
options, stock bonus and opportunities to make direct purchase of the Company’s common stock to employees and directors. The total
number of shares of common stock reserved for the Stock Plan is 4,850.
During the twelve months ended December 31,
2022 and 2021, the Company awarded 900 stock options each year to its employees and directors, pursuant to the Stock Plan, with exercise
price of $149. Stock options fully vest on the grant date and have a contractual term of ten years. Stock options are valued using the
Black-Scholes option pricing model and compensation cost is recognized based on the resulting value over the vesting period. Expected
volatilities utilized in the model are based on implied volatilities from traded stocks of peer companies. Similarly, the dividend yield
is based on historical experience and the estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury
yield curve in effect at the time of grant. The expected term of the options is based on the average period the stock options are expected
to remain outstanding. The fair value of the option grants of $120,640 and $120,883 respectively, has been estimated with the following
assumptions for the year ended December 31, 2022 and 2021:
|
|
2022 |
|
2021 |
Risk-free interest rate |
|
1.86% |
|
0.75% |
Volatility |
|
132.64 |
|
133.26 |
Expected life (years) |
|
6 |
|
6 |
Expected dividend yield |
|
- |
|
- |
The following table summarizes stock option activity for employees
and non-employees for the twelve months ended December 31, 2022 and 2021:
|
|
Shares |
|
Weighted-Average
Exercise Price |
|
Weighted-Average
Remaining
Contractual
Term (in years) |
Outstanding at December 31, 2020 |
|
2,700 |
|
$149 |
|
8.14 |
Granted |
|
900 |
|
$149 |
|
10 |
Exercised |
|
- |
|
|
|
|
Forfeited |
|
- |
|
|
|
|
Expired |
|
- |
|
|
|
|
Outstanding at December 31, 2021 |
|
3,600 |
|
$149 |
|
7.64 |
Exercisable at December 31, 2021 |
|
3,600 |
|
$149 |
|
7.64 |
|
|
|
|
|
|
|
Granted |
|
900 |
|
$149 |
|
10 |
Exercised |
|
- |
|
|
|
|
Forfeited |
|
- |
|
|
|
|
Expired |
|
- |
|
|
|
|
Outstanding at December 31, 2022 |
|
4,500 |
|
$149 |
|
7.14 |
Exercisable at December 31, 2022 |
|
4,500 |
|
$149 |
|
7.14 |
NOTE 9. INCOME TAX
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The
components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
The Company recognized the amount of taxes payable
or refundable for the current year and recognizes deferred tax liabilities and assets for the expected future tax consequences of events
and transactions that have been recognized in the Company’s financial statements or tax returns. The Company currently has a substantial
net operating loss carryforward and the Company has recorded a 100% valuation allowance against net deferred tax assets due to uncertainty
of their ultimate realization.
Significant components of the Company’s
net deferred tax assets for federal income taxes at December 31, 2021 and 2022 consist of the following:
|
|
Years Ended December 31 |
|
|
2022 |
|
2021 |
Net operating loss carryforward |
|
$ |
584,260 |
|
$ |
524,507 |
Stock compensation |
|
|
14,103 |
|
|
14,075 |
Deferred tax assets |
|
|
598,363 |
|
|
538,582 |
Valuation allowance |
|
|
-598,363 |
|
|
-538,582 |
|
|
|
|
|
|
|
Effective income tax asset |
|
$ |
0 |
|
$ |
0 |
Effective tax rate |
|
|
0% |
|
|
0% |
NOTE 10. SUBSEQUENT EVENTS
On February 27, 2023, Adamis Pharmaceuticals Corporation (NASDAQ:
ADMP), a specialty biopharmaceutical company focused on developing and commercializing products in various therapeutic areas, including
opioid overdose, allergy, respiratory and inflammatory disease, and DMK announced that the companies entered into an Agreement and
Plan of Merger and Reorganization on February 24, 2023. Pursuant to the Agreement and Plan of Merger and Reorganization, Adamis will acquire
DMK, including its library of approximately 750 small molecule neuropeptide analogues and on-going government funding for its development
programs.
Annex A
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
between
ADAMIS
PHARMACEUTICALS CORPORATION,
a
Delaware corporation,
AARDVARK
MERGER SUB, INC.,
a
Delaware corporation
and
DMK
PHARMACEUTICALS CORPORATION,
a
New Jersey corporation
Dated
as of February 24, 2023
TABLE
OF CONTENTS
|
|
Page |
ARTICLE I |
THE MERGER |
A-2 |
1.1 |
Merger of DMK into Merger Sub |
A-2 |
1.2 |
Effect of the Merger |
A-2 |
1.3 |
Closing; Effective Time |
A-2 |
1.4 |
Certificate of Incorporation and Bylaws; Directors and Officers |
A-3 |
1.5 |
Reverse Split of Adamis Common Stock |
A-3 |
1.6 |
Shares to be Issued; Effect on Capital Stock |
A-4 |
1.7 |
Calculation of the Exchange Ratio |
A-6 |
1.8 |
Dissenting Shares |
A-7 |
1.9 |
No Further Transfer of DMK Capital Stock |
A-8 |
1.10 |
Exchange of Certificates |
A-8 |
1.11 |
Further Action |
A-10 |
1.12 |
Tax Consequences; Withholding |
A-10 |
1.13 |
Plan of Merger |
A-10 |
ARTICLE II |
REPRESENTATIONS AND WARRANTIES OF DMK |
A-10 |
2.1 |
Organization and Qualification; Charter Documents |
A-11 |
2.2 |
Subsidiaries |
A-11 |
2.3 |
Authority; Vote Required |
A-11 |
2.4 |
No Conflict |
A-12 |
2.5 |
Non-Contravention; Consents |
A-12 |
2.6 |
Governmental Authorizations |
A-13 |
2.7 |
Capitalization |
A-13 |
2.8 |
Title to Assets |
A-15 |
2.9 |
DMK Financial Statements |
A-16 |
2.10 |
Absence of Certain Changes |
A-16 |
2.11 |
Interested Party Transactions |
A-17 |
2.12 |
Intellectual Property |
A-17 |
2.13 |
Taxes |
A-18 |
2.14 |
Employee Benefit Plans |
A-20 |
2.15 |
Employee Matters |
A-21 |
2.16 |
Insurance |
A-21 |
2.17 |
Compliance with Law |
A-21 |
2.18 |
Environmental Matters |
A-22 |
2.19 |
Legal Proceedings |
A-22 |
2.20 |
Contracts; No Defaults |
A-22 |
2.21 |
Labor Matters |
A-23 |
2.22 |
Regulatory Compliance |
A-23 |
2.23 |
Unlawful Payments |
A-24 |
2.24 |
Financial Advisor |
A-24 |
2.25 |
Takeover Statutes; No Rights Plan; Appraisal Rights |
A-24 |
2.26 |
No Other Representations |
A-24 |
ARTICLE III |
REPRESENTATIONS AND WARRANTIES OF ADAMIS AND MERGER SUB |
A-25 |
3.1 |
Organization and Qualification; Charter Documents |
A-25 |
TABLE
OF CONTENTS
(continued)
|
|
Page |
3.2 |
Subsidiaries |
A-25 |
3.3 |
Authority |
A-26 |
3.4 |
No Conflict |
A-26 |
3.5 |
Non-Contravention; Consents |
A-26 |
3.6 |
Governmental Authorizations |
A-27 |
3.7 |
Capitalization |
A-28 |
3.8 |
Title to Assets |
A-28 |
3.9 |
SEC Reports; Financial Statements; Listing and Maintenance Requirements |
A-28 |
3.10 |
Absence of Certain Changes |
A-29 |
3.11 |
Interested Party Transactions |
A-29 |
3.12 |
Intellectual Property |
A-29 |
3.13 |
Taxes |
A-30 |
3.14 |
Employee Benefit Plans |
A-32 |
3.15 |
Employee Matters |
A-33 |
3.16 |
Insurance |
A-33 |
3.17 |
Compliance with Law |
A-33 |
3.18 |
Environmental Matters |
A-34 |
3.19 |
Legal Proceedings |
A-34 |
3.20 |
Contracts; No Defaults |
A-34 |
3.21 |
Labor Matters |
A-35 |
3.22 |
Regulatory Compliance |
A-35 |
3.23 |
Unlawful Payments |
A-36 |
3.24 |
Representations Complete |
A-36 |
3.25 |
Financial Advisor |
A-36 |
3.26 |
Disclaimer of Reliance |
A-36 |
ARTICLE IV |
CONDUCT BEFORE THE EFFECTIVE TIME |
A-37 |
4.1 |
Access and Investigation |
A-37 |
4.2 |
Operation of Adamis’ Business |
A-37 |
4.3 |
Operation of DMK’s Business |
A-38 |
4.4 |
Notification of Certain Matters |
A-38 |
4.5 |
No Solicitation |
A-39 |
ARTICLE V |
ADDITIONAL AGREEMENTS |
A-41 |
5.1 |
Proxy Statement |
A-41 |
5.2 |
DMK Stockholder Approval |
A-42 |
5.3 |
Adamis Stockholders Meeting; Change in the Adamis Board Recommendation;
Adoption of Agreement by Adamis as Sole Stockholder of Merger Sub |
A-42 |
5.4 |
Registration Statement |
A-43 |
5.5 |
Information Statement; DMK Written Consent |
A-44 |
5.6 |
Adamis Stockholders Meeting |
A-45 |
5.7 |
Regulatory Approvals |
A-46 |
5.8 |
Indemnification of Officers and Directors |
A-46 |
5.9 |
Additional Agreements |
A-47 |
5.10 |
Disclosure; Public Announcements |
A-48 |
5.11 |
Directors; Officers |
A-48 |
5.12 |
Tax Matters |
A-48 |
5.13 |
Adamis Amendments |
A-49 |
TABLE
OF CONTENTS
(continued)
|
|
Page |
5.14 |
DMK’s Auditors |
A-49 |
5.15 |
Legends |
A-49 |
5.16 |
Confidentiality |
A-50 |
5.17 |
Section 16 Matters |
A-50 |
5.18 |
Listing |
A-50 |
5.19 |
Private Placement |
A-50 |
5.20 |
Termination of Certain DMK Agreements |
A-51 |
5.21 |
DMK Options |
A-51 |
5.22 |
Allocation Certificate |
A-52 |
5.23 |
Employee Benefit Matters |
A-52 |
5.24 |
Takeover Statutes |
A-52 |
5.25 |
Merger Sub |
A-53 |
5.26 |
Supplement to Disclosure Schedules |
A-53 |
5.27 |
Series C Preferred Certificate of Designation |
A-53 |
ARTICLE VI |
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY |
A-53 |
6.1 |
Stockholder Approval |
A-53 |
6.2 |
No Restraints |
A-54 |
6.3 |
Governmental Authorization |
A-54 |
6.4 |
No Governmental Proceedings Relating to Contemplated Transactions
or Right to Operate Business |
A-54 |
6.5 |
Series E Preferred Certificate of Designation |
A-54 |
ARTICLE VII |
ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF ADAMIS AND
MERGER SUB |
A-54 |
7.1 |
Accuracy of Representations |
A-54 |
7.2 |
Performance of Covenants |
A-54 |
7.3 |
No Material Adverse Effect |
A-55 |
7.4 |
Agreements and Other Documents |
A-55 |
7.5 |
Conversion of DMK Convertible Notes |
A-55 |
7.6 |
FIRPTA Certificate |
A-55 |
7.7 |
Third Party Consents |
A-55 |
7.8 |
Securities Law Matters |
A-55 |
7.9 |
Dissenting Shares |
A-56 |
7.10 |
DMK License Agreements |
A-56 |
ARTICLE VIII |
ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATION OF DMK |
A-56 |
8.1 |
Accuracy of Representations |
A-56 |
8.2 |
Performance of Covenants |
A-56 |
8.3 |
No Material Adverse Effect |
A-56 |
8.4 |
Documents |
A-56 |
8.5 |
Sarbanes-Oxley Certifications |
A-57 |
8.6 |
Board of Directors |
A-57 |
8.7 |
Officers |
A-57 |
8.8 |
Adamis Reverse Stock Split Certificate of Amendment |
A-57 |
8.9 |
SEC Reports |
A-57 |
8.10 |
Nasdaq Listing |
A-57 |
ARTICLE IX |
TERMINATION |
A-57 |
9.1 |
Termination |
A-57 |
TABLE
OF CONTENTS
(continued)
|
|
Page |
9.2 |
Effect of Termination |
A-59 |
9.3 |
Expenses |
A-59 |
ARTICLE X |
MISCELLANEOUS PROVISIONS |
A-59 |
10.1 |
Non-Survival of Representations and Warranties |
A-59 |
10.2 |
Amendment |
A-60 |
10.3 |
Waiver |
A-60 |
10.4 |
Entire Agreement; Counterparts; Exchanges by Facsimile |
A-60 |
10.5 |
Applicable Law; Jurisdiction |
A-60 |
10.6 |
Waiver of Jury Trial |
A-61 |
10.7 |
Notices |
A-61 |
10.8 |
Cooperation |
A-62 |
10.9 |
Severability |
A-62 |
10.10 |
Other Remedies; Specific Performance |
A-62 |
10.11 |
Conflict Waiver; Attorney-Client Privilege |
A-62 |
10.12 |
Construction |
A-65 |
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
THIS
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the “Agreement”) is dated as of February 24, 2023 (the “Agreement
Date”), and is entered into by and among Adamis Pharmaceuticals Corporation, a Delaware corporation (“Adamis”),
Aardvark Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Adamis (“Merger Sub”), and
DMK Pharmaceuticals Corporation, a New Jersey corporation (“DMK”). Certain capitalized terms used in this Agreement
are defined in Exhibit A attached hereto.
BACKGROUND
A.
The Board of Directors of Adamis (the “Adamis Board”) and the Board of Directors of DMK (the “DMK
Board”) have each determined that it is in the best interests of their respective stockholders for DMK and Adamis to enter
into a business combination transaction pursuant to which DMK will merge with and into Merger Sub (the “Merger”),
with Merger Sub continuing after the Merger as the surviving corporation and a wholly owned subsidiary of Adamis.
B.
Pursuant to the Merger, each outstanding share of common stock, $0.001 par value per share, of DMK (“DMK Common Stock”)
will, in accordance with the provisions of this Agreement, be converted into the Merger Consideration, consisting of shares of Adamis
common stock, $0.0001 par value per share (“Adamis Common Stock”) and, in some instances, shares of Adamis Series
E (or other series designated by Adamis) Convertible Preferred Stock, $0.0001 par value per share (“Series E Preferred”),
established pursuant to the Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock
(the “Series E Preferred Certificate of Designation”), substantially in the form of Exhibit
C attached hereto, with such changes thereto as Adamis and DMK may mutually agree, all as described in this Agreement.
C.
In connection with, and before the consummation of, the Merger, a reverse stock split of Adamis Common Stock shall be consummated, pursuant
to which a certain number of outstanding shares of Adamis Common Stock (determined by the Reverse Stock Split Ratio) will be converted
into one (1) share of Adamis Common Stock, as described further in Section 1.5 below.
D.
The Board of Directors of Adamis (i) has approved and declared advisable this Agreement (including the plan of merger, as such term is
used in Section 14A:10-1 of the New Jersey Business Corporation Act (the “NJBCA”)) (the “Plan
of Merger”), the Merger and the other transactions contemplated by this Agreement, (ii) has determined that the Merger is
in the best interests of Adamis and its stockholders and has determined to recommend to the stockholders of Adamis the issuance of Adamis
shares to the DMK securityholders in the Merger and related matters contemplated by this Agreement, and (iii) has determined to recommend
that Adamis, in its capacity as the sole stockholder of Merger Sub, vote to adopt this Agreement and approve the Merger and such other
actions as are contemplated by this Agreement; and the board of directors of Merger Sub has adopted, approved and declared advisable this
Agreement (including the Plan of Merger), the Merger, and the other transactions contemplated by this Agreement, on the terms and subject
to the conditions set forth in this Agreement.
E.
The Board of Directors of DMK (i) has approved and declared advisable this Agreement (including the Plan of Merger), the Merger and the
other transactions contemplated by this Agreement, and (ii) has determined that the Merger is in the best interests of DMK and its stockholders
and has determined to recommend the approval of this Agreement (and the related matters contemplated by this Agreement) and the Merger
to the stockholders of DMK.
F.
The Parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended.
G.
As an inducement to Adamis to enter into this Agreement, concurrently herewith certain securityholders of DMK have entered into an agreement
with Adamis, in substantially the form attached hereto as Exhibit B, or such other form
as is reasonably satisfactory to Adamis (a “DMK Support Agreement”), pursuant to which each such person has
agreed, among other things, to vote all shares of capital stock of DMK owned by such person to approve the Merger, this Agreement and
the transactions contemplated hereby.
AGREEMENT
The
Parties to this Agreement, intending to be legally bound, agree as follows:
ARTICLE
I
THE MERGER
1.1.
Merger of DMK into Merger Sub. Upon the terms and subject to the conditions set forth
in this Agreement and in accordance with the NJBCA, at the Effective Time DMK shall be merged with and into Merger Sub, and the separate
existence of DMK shall cease. Merger Sub will continue as the surviving corporation following the Merger (the “Surviving Corporation”)
under the DGCL.
1.2.
Effect of the Merger. The Merger shall have the effects set forth in this Agreement
and the applicable provisions of the NJBCA. As a result of the Merger, Merger Sub will continue as a wholly-owned subsidiary of Adamis.
Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers
and franchises of DMK and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of DMK and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
1.3.
Closing; Effective Time. Unless this Agreement is earlier terminated pursuant to the
provisions of Section 9.1, and subject to the satisfaction or waiver of the conditions set forth in Articles VI, VII and VIII, the consummation
of the Merger (the “Closing”) shall take place remotely, on a date to be agreed by Adamis and DMK (the “Closing
Date”), which shall be no later than the fifth Business Day after the satisfaction or waiver of the last to be satisfied
or waived of the conditions set forth in Articles VI, VII and VIII (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or waiver of such conditions), or at such other time, date and place as Adamis and DMK
may mutually agree in writing. At the Closing, subject to the terms and conditions of this Agreement, the Parties hereto shall (a) cause
the Merger to be consummated by executing and filing with the Secretary of State of Delaware and the Secretary of State of New Jersey
a certificate of merger, executed and acknowledged in accordance with and containing such information as is required by the Delaware General
Corporation Law (the “DGCL”) and the NJBCA to effect the Merger (the “Certificate of Merger”)
and (b) on or after the Closing Date duly make all other filings and recordings required by the NJBCA and the DGCL in order to effectuate
the Merger. The Merger shall become effective at such time as the Certificate of Merger has been duly filed with the Secretary of State
of the State of Delaware and the Secretary of State of New Jersey or at such later time as is agreed to by the Parties hereto in writing
and specified in the Certificate of Merger in accordance with the relevant provisions of the DGCL and the NJBCA (the time as of which
the Merger becomes effective being referred to as the “Effective Time”).
1.4.
Certificate of Incorporation and Bylaws; Directors and Officers. At the Effective
Time:
(a)
Surviving Corporation Certificate of Incorporation. By virtue of the Merger, the certificate
of incorporation of Merger Sub, as in effect immediately before the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by the DGCL and such certificate of incorporation;
(b)
Adamis Certificate of Incorporation. Adamis shall take all actions necessary so that the
restated certificate of incorporation of Adamis, as amended (the “Adamis Restated Certificate”), shall remain
in effect following the Effective Time, until such time as it may be thereafter amended as permitted by the DGCL; provided, however, that
before the Effective Time, Adamis shall file an amendment to its Restated Certificate to effect the Reverse Stock Split;
(c)
Surviving Corporation Bylaws. The Bylaws of the Surviving Corporation shall be identical
to the bylaws of Merger Sub as in effect immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and
such bylaws;
(d)
Surviving Corporation Directors and Officers. The Parties shall take the actions necessary
so that the directors and officers of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation
and bylaws of the Surviving Corporation, shall be the directors and officers of Adamis as described in Section 5.11, or such other directors
and officers as Adamis and DMK may mutually agree; and
(e)
Directors and Officers of Adamis. The Parties shall take the actions necessary so that
the directors and officers of Adamis, each to hold office in accordance with the Restated Certificate and Adamis Bylaws, shall be as set
forth in Section 5.11.
1.5.
Reverse Split of Adamis Common Stock.
(a)
Adamis Reverse Stock Split Certificate of Amendment. Before the Effective Time, and subject
to receipt of the requisite stockholder approval at the Adamis Stockholders Meeting, Adamis shall cause to be filed a certificate of amendment
to its Restated Certificate in form and substance satisfactory to Adamis (the “Adamis Reverse Stock Split Amendment”),
whereby without any further action on the part of Adamis, DMK or any stockholder of Adamis:
(i) a
number of shares of Adamis Common Stock, based on the Reverse Stock Split Ratio, issued and outstanding immediately before the filing
of the Adamis Reverse Stock Split Amendment shall automatically, without any action by the holder thereof, be reclassified and combined
into one validly issued, fully paid and non-assessable share of Adamis Common Stock (sometimes referred to as “New Adamis
Common Stock”), subject to the treatment of fractional share interests as described below (the “Reverse Stock
Split”); and
(ii) a
number of shares of Adamis Common Stock, based on the Reverse Stock Split Ratio, held as treasury stock or held or owned by Adamis immediately
before the filing of the Adamis Reverse Stock Split Amendment, shall each be reclassified and combined into and become one share of Adamis
Common Stock.
(iii) As
used in this Agreement, references to “Adamis Common Stock” shall, after the Effective Time of the Reverse Stock Split, refer
to post-Reverse Stock Split shares of New Adamis Common Stock.
(b)
No Fractional Shares. No fractional shares of Adamis Common Stock shall be issued in connection
with the Reverse Stock Split, and no certificates or scrip representing such fractional shares shall be issued. Any holder of Adamis Common
Stock who would otherwise be entitled to receive a fraction of a share of Adamis Common Stock (after aggregating all fractional shares
of Adamis Common Stock issuable to such holder) shall, in lieu of such fraction of a share and upon surrender of such holder’s certificate
representing such fractional shares of Adamis Common Stock, instead receive from Adamis an amount of cash (rounded to the nearest whole
cent), without interest, equal to the product of (1) the closing sale price per share of the Adamis Common Stock as reported by The Nasdaq
Capital Market (or other exchange or market on which the Adamis Common Stock is then traded) on the last trading day preceding the date
of the effective date of the Reverse Stock Split by (2) the number of pre-Reverse Stock Split shares of Adamis Common Stock held by such
holder that would otherwise have been exchanged for such fractional share interests.
(c)
Reverse Stock Split and the Exchange Ratio. The Exchange Ratio set forth herein assumes
the effectiveness of the Reverse Stock Split described above.
1.6.
Shares to be Issued; Effect on Capital Stock. Subject to the terms and conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Adamis, Merger Sub, DMK or any
DMK Stockholder, the following shall occur:
(a)
Conversion of DMK Common Stock. Subject to the terms of Section 1.8 and Section 1.10(h)
regarding Dissenting Shares, and subject to the other provisions of this Section 1.6(a), each share of DMK Common Stock issued and outstanding
immediately before the Effective Time (other than any shares of DMK Common Stock to be canceled pursuant to Section 1.6(b), if any, and
excluding any Dissenting Shares, to the extent provided in Section 1.8), will be converted automatically into the right to receive: (i) that
number of shares of New Adamis Common Stock equal to the Exchange Ratio, and (ii) any cash, without interest, to be paid in lieu
of any fractional share of DMK Common Stock in accordance with Section 1.6(e). Notwithstanding the preceding sentence, in the event that
the aggregate number of shares of Adamis Common Stock that would be issuable to a particular DMK Stockholder (a “Specified
DMK Stockholder”) pursuant to the preceding sentence would result in such Specified DMK Stockholder beneficially owning
shares of Adamis Common Stock in excess (or having voting power in excess) of 9.99% of the shares of Adamis Common Stock outstanding immediately
after the Effective Time (the “Adamis Common Stock Consideration Cap”), then in lieu of the issuance to the
Specified DMK Stockholder of shares of Adamis Common Stock in excess of the Adamis Common Stock Consideration Cap (such number of shares
of Adamis Common Stock in excess of the Adamis Common Stock Consideration Cap referred to as the “Excess Cap Shares”),
such Specified DMK Stockholder shall instead receive a number of shares of Series E Preferred (the “Merger Consideration Preferred
Shares”), which Merger Consideration Preferred Shares shall be convertible, subject to the beneficial ownership limitations
and other provisions set forth in the Series E Preferred Certificate of Designation, into a number of shares of Adamis Common Stock (the
“Series E Preferred Conversion Shares”) equal to the Excess Cap Shares, with such Merger Consideration Preferred
Shares entitled to such voting rights, including voting together with the Adamis Common Stock on an as-converted basis with the number
of votes to which such Merger Consideration Preferred Shares are entitled calculated as set forth in the Series E Preferred Certificate
of Designation. The aggregate number of shares of Adamis Common Stock and Merger Consideration Preferred Shares (including, upon conversion
of shares of Series E Preferred, the shares of Adamis Common Stock issuable upon conversion of the Merger Consideration Preferred Shares)
that are issuable to the stockholders of DMK as a result of the Merger will be referred to as the “Merger Consideration”
or the “Merger Consideration Shares.” For purposes of the foregoing determination, unless otherwise provided
in the Series E Preferred Certificate of Designation, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
(b)
Cancellation of Treasury and Adamis-Owned Shares. Any shares of DMK Capital Stock held
as treasury stock or held or owned by DMK, Adamis or any direct or indirect wholly-owned Subsidiary of DMK or of Adamis immediately before
the Effective Time shall be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
(c)
DMK Restricted Stock. If any shares of DMK Common Stock issued and outstanding immediately
before the Effective Time are unvested or are subject to a repurchase option or the risk of forfeiture or under any applicable restricted
stock purchase agreement, stock restriction agreement, cancellation agreement or other agreement with DMK (such shares, the “DMK
Restricted Stock”), then subject to any acceleration of vesting or lapse of repurchase options or risk of forfeiture resulting
from the transactions contemplated by this Agreement, the Merger Consideration Shares issued in exchange for such shares of DMK Restricted
Stock pursuant to Section 1.6(a) will to the same extent be unvested and subject to the same repurchase option or risk of forfeiture,
and the certificates or, if shares are represented in uncertificated or in book-entry form, then the comparable evidence of such shares,
representing such Merger Consideration Shares shall accordingly be marked with appropriate legends to reflect such repurchase option or
risk of forfeiture. DMK and Adamis shall take all action that may be necessary to ensure that, from and after the Effective Time, Adamis
is entitled to exercise any such repurchase option or right of cancellation or other right set forth in any such restricted stock purchase
agreement or other agreement that will continue after the Effective Time.
(d)
Capital Stock of Merger Sub. Each share of common stock of Merger Sub issued and outstanding
immediately before the Effective Time shall remain outstanding and shall represent one validly issued, fully paid and nonassessable share
of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall, as of
the Effective Time, evidence ownership of such shares of common stock of the Surviving Corporation.
(e)
No Fractional Shares. No fractional shares of Adamis Common Stock shall be issued in connection
with the Merger, and no certificates or scrip representing such fractional shares shall be issued. Each holder of shares of DMK Common
Stock who would otherwise be entitled to receive a fraction of a share of Adamis Common Stock (after aggregating all fractional shares
of Adamis Common Stock to be received by such holder) shall, in lieu of such fraction of a share and upon surrender of such holder’s
certificate representing shares of DMK Capital Stock (the “DMK Stock Certificate”), instead receive from Adamis
an amount of cash (rounded to the nearest whole cent), without interest and subject to applicable Tax withholding, equal to (1) the Adamis
Average Closing Price, multiplied by (2) such fraction of a share of New Adamis Common Stock that such holder would otherwise be entitled
to receive.
(f)
Unregistered Shares. The issuance of the Merger Consideration Shares of Adamis capital
stock to be issued to the DMK Stockholders shall not be registered under the Securities Act of 1933, as amended (the “Securities
Act”), in reliance upon the private placement exemption under Regulation D and/or Section 4(a)(2) of the Securities Act.
As described further below, after the Closing, Adamis will endeavor to file a registration statement (or a prospectus supplement) covering
the resale, from time to time, of the shares of Adamis Common Stock issued (or issuable) as Merger Consideration (including without limitation
the Series E Preferred Conversion Shares), and in the case of a registration statement use reasonable efforts to cause such registration
statement to become effective.
1.7.
Calculation of the Exchange Ratio. For purposes of this Agreement, the “Exchange
Ratio” shall be a number of shares of New Adamis Common Stock issuable in exchange for one (1) share of DMK Common Stock
outstanding immediately before the Effective Time, with such number of shares of Adamis Common Stock determined as follows: subject to
Section 1.6(a), (1) the DMK Valuation, divided by (2) the Adamis Average Closing Price (with the result rounded to two (2) decimal places
or such other number of places as Adamis and DMK may agree), and then (3) divided by the number of DMK Outstanding Shares (with the result
rounded to six (6) decimal places, or such other number of places as Adamis and DMK may agree), in which:
(a)
“DMK Valuation” means $27,000,000.00;
(b)
“Adamis Average Closing Price” means the average, for the five (5) trading days ending one (1) trading day before
the effective date of the Merger, of (i) for trading days commencing on the first trading day after the effective date of the Reverse
Stock Split, the Closing Price of the Adamis Common Stock, and (ii) for trading days on or before the effective date of the Reverse Stock
Split, the Closing Price multiplied by the Reverse Stock Split Ratio;
(c)
“Closing Price” means, with respect to any particular trading day, the last reported sale price of the Adamis
Common Stock at the 4:00 p.m., Eastern Time, end of regular trading hours on the Nasdaq Capital Market (or other principal exchange, market
or quotation system on which the Adamis Common Stock is then-listed or traded) (and if closing sale prices are not reported on such other
market or quotation system, then the average of the high bid and low asked prices for such trading days); and
(d)
“DMK Outstanding Shares” means the total number of shares of DMK Capital Stock outstanding immediately prior
to the Effective Time, assuming, without limitation or duplication, the conversion of any DMK Convertible Notes into DMK Common Stock;
provided,
however, that notwithstanding the foregoing, if the calculation of the Exchange Ratio as provided above would result in the holders of
Adamis Common Stock immediately before the Effective Time owning less than 50.1% of the aggregate of (i) the number of shares of Adamis
Common Stock held by such stockholders immediately after the Effective Time, plus (ii) the number of shares of Adamis Common Stock issuable
to the DMK Stockholders pursuant to the Exchange Ratio as calculated above (including shares issuable upon conversion of the Merger Consideration
Preferred Shares determined without regard to beneficial ownership limitations), plus (iii) the number of shares of Adamis Common Stock
that are issuable upon exercise of DMK Options assumed by Adamis pursuant to this Agreement (the “Adamis Percentage Threshold”),
then the number of shares constituting the Merger Consideration (determined on an as-converted basis including shares issuable upon conversion
of the Merger Consideration Preferred Shares) shall be a number such that the holders of Adamis Common Stock immediately before the Effective
Time hold a number of shares of Adamis Common Stock immediately after the Effective Time equal to the Adamis Percentage Threshold.
1.8.
Dissenting Shares. Notwithstanding any other provision of this Agreement to the contrary,
only to the extent that dissenters’ rights or appraisal rights pursuant to the NJBCA apply to the transactions contemplated by this
Agreement and that DMK Stockholders have dissenters rights or appraisal rights under the NJBCA with respect to the Merger and the transactions
contemplated by this Agreement, then any shares of DMK Capital Stock that are outstanding immediately prior to the Effective Time and
which are held by stockholders who have exercised and perfected applicable dissenters’ rights or appraisal rights for such shares
of DMK Capital Stock in accordance with the NJBCA (such shares referred to as “Dissenting Shares”), shall not
be converted into or represent a right to receive Adamis Common Stock pursuant to Section 1.6(a), but instead shall be converted in to
the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the NJBCA. If
a holder of Dissenting Shares (a “Dissenting Stockholder”) withdraws such holder’s demand for such payment
and appraisal or becomes ineligible for such payment and appraisal, then, as of the later of the Effective Time or the date of which such
Dissenting Stockholder withdraws such demand or otherwise becomes ineligible for such payment and appraisal, such holder’s Dissenting
Shares will cease to be Dissenting Shares and will be converted into the right to receive shares of Adamis Common Stock attributable to
such Dissenting Shares as determined in accordance with Section 1.6(a). DMK will give Adamis prompt notice of any demands received by
DMK for appraisal of shares of DMK Capital Stock, withdrawals of such demands, and any other instruments that relate to such demands received
by DMK. Adamis and DMK shall jointly participate in all negotiations and proceedings with respect to such demands except as limited by
applicable Law. Neither Adamis nor DMK will, except with prior written consent of the other, make any payment with respect to, or settle
or offer to settle, any such demands, unless and to the extent required to do so under applicable Law.
1.9.
No Further Transfer of DMK Capital Stock. At the Effective Time, all shares of DMK
Capital Stock outstanding immediately before the Effective Time shall automatically be exchanged, and all holders of DMK Capital Stock
that were outstanding immediately before the Effective Time shall cease to have any rights as stockholders of DMK, except the right to
receive the consideration described in Section 1.6(a) or Section 1.8, as applicable. No further transfer of any such shares of DMK Capital
Stock shall be made on such stock transfer books after the Effective Time. Subject to Section 1.10(f), if, after the Effective Time, any
shares of DMK Capital Stock are presented to DMK or Adamis (or the Exchange Agent), such shares of DMK Capital Stock shall be canceled
and shall be exchanged as provided in Section 1.10.
1.10.
Exchange of Certificates.
(a)
Exchange Agent. The transfer agent for Adamis, or such other bank, trust company or transfer
agent as Adamis may select and designate before the Effective Time (the “Exchange Agent”), will act as agent
of Adamis for such purposes as Adamis may determine, which may include purposes of mailing and receiving transmittal letters and distributing
the Merger Consideration to the holders of DMK Common Stock. In the alternative, Adamis may perform some actions not undertaken by the
Exchange Agent.
(b)
Adamis to Provide Common Stock. Promptly after the Effective Time, Adamis shall supply
or cause to be supplied or made available to the Exchange Agent for exchange in accordance with this Section 1.10, through such procedures
as Adamis may adopt, instructions regarding issuance of certificates (or evidence of issuance in uncertificated or book-entry form) evidencing
the shares of Adamis Common Stock (or Merger Consideration Preferred Shares, as the case may be) issuable as the Merger Consideration
(sometimes referred to as the “Exchange Shares”).
(c)
Exchange Procedures. As promptly as practicable after the Effective Time, Adamis or the
Exchange Agent will mail to each holder of record of DMK Capital Stock whose shares would be converted into the right to receive shares
of the Merger Consideration pursuant to Section 1.6(a): (i) a letter of transmittal in customary form mutually agreeable to DMK and Adamis;
(ii) such other customary documents as may be required pursuant to such instructions; and (iii) instructions for use in effecting the
surrender of DMK Capital Stock in exchange for certificates representing shares of Adamis constituting Merger Consideration (or evidence
of shares in uncertificated or book-entry form). Upon surrender of DMK Capital Stock for cancellation to the Exchange Agent, together
with such letter of transmittal and other documents, duly completed and validly executed in accordance with the instructions thereto,
the holder of such DMK Capital Stock shall be entitled to receive in exchange therefor, (x) a certificate (or evidence of shares in uncertificated
or book-entry form) representing the number of whole Exchange Shares into which the DMK Common Stock represented thereby shall have been
converted into the right to receive as of the Effective Time, (y) any dividends or other distributions to which such holder is entitled
pursuant to Section 1.10(d), and (z) cash in respect of any fractional shares as provided in Section 1.6(e), and the DMK Capital
Stock so surrendered shall forthwith be canceled. Until so surrendered, each such outstanding share of DMK Capital Stock will be deemed
from and after the Effective Time, for all corporate purposes other than the payment of dividends, to evidence the ownership of the number
of full Exchange Shares into which such shares of DMK Capital Stock shall have been so converted and the right to receive cash in lieu
of the issuance of any fractional shares. If any DMK Stock Certificate shall have been lost, stolen or destroyed, Adamis may, in its discretion
and as a condition precedent to the issuance of any certificate (or evidence of shares in uncertificated or book-entry form) representing
Merger Consideration, require the owner of such lost, stolen or destroyed DMK Stock Certificate to provide a reasonable affidavit as indemnity
against any claim that may be made against the Exchange Agent, Adamis or the Surviving Corporation with respect to such DMK Stock Certificate.
(d)
Distributions With Respect to Unexchanged Shares. No dividends or other distributions
with respect to Adamis Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered DMK Capital
Stock with respect to the Merger Consideration consisting of Adamis Common Stock represented thereby until the holder of record of such
DMK Capital Stock shall surrender such shares of DMK Capital Stock. Subject to applicable law, following surrender of any such DMK Capital
Stock, there shall be delivered to the record holder of DMK Capital Stock a certificate representing whole shares of Adamis Common Stock
or shares of Merger Consideration Preferred Shares, as applicable, issued in exchange therefor (or evidence of shares in uncertificated
or book-entry form) (including any cash in respect of any fractional shares), without interest at the time of such surrender, and the
amount of any such dividends or other distributions with a record date after the Effective Time theretofore payable (but for the provisions
of this Section) with respect to such shares of Adamis Common Stock.
(e)
Transfers of Ownership. If any certificate for Exchange Shares (or evidence of shares
in uncertificated or book-entry form) is to be issued in a name other than that in which DMK Stock Certificate surrendered in exchange
therefor is registered, it will be a condition of the issuance thereof that the DMK Capital Stock so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Adamis or any agent designated
by it any transfer or other taxes required by reason of the issuance of a certificate for Exchange Shares in any name other than that
of the registered holder of the DMK Capital Stock surrendered, or established to the satisfaction of Adamis or any agent designated by
it that such tax has been paid or is not payable, and shall provide such written assurances regarding federal and state securities law
compliance as Adamis may reasonably request, including, without limitation, an opinion of counsel to such DMK holder.
(f)
Termination of Exchange Shares. Any Exchange Shares which remain undistributed to the
stockholders of DMK twelve (12) months after the Effective Time shall be delivered to Adamis, upon demand, and any stockholders of DMK
who have not previously complied with this Section shall thereafter look only to Adamis for payment of their claim for their portion of
the Exchange Shares and any dividends or distributions with respect to the Exchange Shares.
(g)
No Liability. Notwithstanding anything to the contrary in this Section, none of the Exchange
Agent, Adamis, DMK or any party hereto shall be liable to any person for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar Legal Requirement.
(h)
Dissenting Shares. The provisions of this Section shall also apply to Dissenting Shares
that lose their status as such, except that the obligations of Adamis under this Section shall commence on the date of loss of such status
and the holder of such shares shall be entitled to receive in exchange such shares to which such holder is entitled pursuant to Section 1.6.
1.11.
Further Action. If, at any time after the Effective Time, any further action that
is commercially reasonable and lawful is determined by Adamis and DMK to be necessary or appropriate to carry out the purposes of this
Agreement or to vest Adamis with full right, title and possession of all shares of DMK Capital Stock, then the officers and directors
of DMK and Adamis shall be fully authorized (in the name of DMK and/or Adamis or otherwise) to take such action.
1.12.
Tax Consequences; Withholding. For U.S. federal (and applicable state and local) income
tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code (the “U.S.
Tax Treatment”). The Parties hereby (a) adopt this Agreement insofar as it relates to the Merger as a “plan of
reorganization” within the meaning of Treasury Regulations Section 1.368-2(g), (b) agree to file and retain such information
as shall be required under Treasury Regulations Section 1.368-3, and (c) agree to file all Tax Returns on a basis consistent with
the U.S. Tax Treatment, unless otherwise required by a “determination” that is final within the meaning of Section 1313(a)
of the Code. Notwithstanding the foregoing or anything else to the contrary contained in this Agreement, the Parties acknowledge and agree
that, other than the representations set forth in Sections 2.13(i) and 3.13(i), no Party is making any representation or warranty as to
the qualification of the Merger as a reorganization under Section 368(a) of the Code or as to the effect, if any, that any transaction
consummated on, after or prior to the Effective Time has or may have on any such reorganization status. Each of the Parties acknowledges
and agrees that each such Party (A) has had the opportunity to obtain independent legal and tax advice with respect to the transactions
contemplated by this Agreement, and (B) is responsible for paying its own Taxes, including any adverse Tax consequences that may result
if the Merger is determined not to qualify as a reorganization under Section 368(a) of the Code.
1.13.
Plan of Merger. Article I and Article II hereof and, solely to the extent necessary
under the NJBCA, the other provisions of this Agreement shall constitute a “plan of merger” for the purposes of the NJBCA,
including Section 14A.10-1 thereof. In addition, the Parties agree to prepare, adopt and approve a mutually agreeable plan of merger
for purposes of the DGCL and the NJBCA, consistent with the provisions of this Agreement.
ARTICLE
II
REPRESENTATIONS AND WARRANTIES OF DMK
DMK
represents and warrants to Adamis that the statements contained in this Article II are true and correct as set forth herein and as qualified
by the disclosure schedules separately delivered to Adamis concurrently herewith (collectively, the “DMK Disclosure Schedule”).
The disclosures set forth in the DMK Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article II. The disclosures in any section or subsection of the DMK Disclosure Schedule shall qualify other sections
and subsections in this Article II to the extent it is reasonably apparent from a reading of the disclosure that such disclosure is applicable
to such other sections and subsections.
2.1.
Organization and Qualification; Charter Documents.
(a)
DMK is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with
requisite corporate power and authority to conduct its business as now being conducted and to own or use its properties and assets. DMK
is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in
which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such
qualification, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect on DMK.
(b)
DMK has made available to Adamis accurate and complete copies of: (i) the certificate of incorporation, bylaws and other charter
and organizational documents of DMK, including all amendments thereto; (ii) the stock records of DMK; and (iii) the minutes
and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting)
of the stockholders of DMK and the board of directors or any committee thereof of DMK. The stock records, minute books and other records
of DMK are accurate, up-to-date and complete in all material respects.
2.2.
Subsidiaries. DMK does not have any direct or indirect Subsidiaries. Except as set
forth in the DMK Disclosure Schedule, DMK does not otherwise own any shares in the capital of or any interest in, or control, directly
or indirectly, any corporation, partnership, limited liability company, association, joint venture or other business entity (each an “Entity”).
The DMK Disclosure Schedule sets forth the name and share ownership of any parent entity that owns more than 50% of the outstanding shares
of DMK and, for such entity, the names of the shareholders, members, managers, or other equity owners of such entity.
2.3.
Authority; Vote Required.
(a)
DMK has all requisite corporate power and authority to enter into this Agreement and the other agreements to which it is a party that
this Agreement requires to be entered into in connection with the transactions contemplated hereby (collectively, the “Ancillary
Agreements”), to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action on the part of DMK, subject only to the approval of this
Agreement by the stockholders of DMK. The DMK Disclosure Schedule accurately sets forth (i) the names of the members of the board
of directors of DMK, and (ii) the names and titles of the officers of DMK. The Board of Directors of DMK has unanimously approved
this Agreement and the Merger. This Agreement has been (and the Ancillary Agreements will be at the Closing) duly executed and delivered
by DMK, and this Agreement constitutes (and the Ancillary Agreements will constitute at the Closing) the valid and binding obligation
of DMK enforceable against DMK in accordance with their terms, except that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to creditors’ rights generally, and is subject to general
principles of equity.
(b)
The affirmative vote (or written consent) of the holders of a majority of the shares of DMK Common Stock outstanding on the record date
for the DMK Stockholders Meeting (or, if the DMK Stockholders act by written consent, then the record date for such action by written
consent) and entitled to vote thereon (the “Required DMK Stockholder Vote”), is the only vote (or written consent)
of the holders of any class or series of DMK Capital Stock necessary to adopt and approve this Agreement and approve the Contemplated
Transactions.
2.4.
No Conflict. The execution and delivery by DMK of this Agreement and the Ancillary
Agreements to which DMK is a party, does not, and the consummation of the transactions contemplated hereby and thereby will not, (a) conflict
with, or result in any material violation of, any provision of the DMK Charter (in its current form and as it may be amended immediately
before the Effective Time) or the DMK Bylaws, (b) result in any material violation of or default under (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under,
any material mortgage, indenture, lease, contract, grant, funding arrangement, or other agreement or instrument, permit, concession, franchise
or license of DMK, (c) subject to obtaining the approval of DMK’s stockholders and, except as would not reasonably be expected to
have a Material Adverse Effect on DMK, conflict with, or result in any violation of any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to DMK or any of its properties or assets, or (d) conflict with, or result in a violation of any resolution
adopted by DMK’s stockholders, DMK’s board of directors or any committee of DMK’s board of directors.
2.5.
Non-Contravention; Consents.
(a)
Subject to compliance with obtaining the Required DMK Stockholder Vote and the filing of the Certificate of Merger with the Secretary
of State of Delaware pursuant to the DGCL and the Secretary of State of New Jersey pursuant to the NJBCA, neither (x) the execution,
delivery or performance of this Agreement by DMK, nor (y) the consummation of the Contemplated Transactions, will directly or indirectly
(with or without notice or lapse of time):
(i) contravene,
conflict with or result in a material violation of, or give any Governmental Entity or other Person the right to challenge the Contemplated
Transactions or to exercise any material remedy or obtain any material relief under, any Law or any Order by which DMK, or any of the
material assets owned or used by DMK, is subject;
(ii) contravene,
conflict with or result in a material violation of any of the terms or requirements of, or give any Governmental Entity the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by and material to DMK;
(iii) contravene,
conflict with or result in a violation or breach of, or result in a default under, any provision of any DMK Material Contract, or give
any Person the right to: (A) declare a default or exercise any remedy under any DMK Material Contract, (B) any material payment,
rebate, chargeback, penalty or change in delivery schedule under any DMK Material Contract, (C) accelerate the maturity or performance
of any DMK Material Contract, or (D) cancel, terminate or modify any term of any DMK Material Contract, except in each of the above cases
as would not reasonably be expected to have a Material Adverse Effect on DMK; or
(iv) result
in the imposition or creation of any material Encumbrance upon or with respect to any asset owned or used by DMK (except for Permitted
Encumbrances) that is material to its business.
(b)
Except for (i) the Required DMK Stockholder Vote, (ii) the filing of the Certificate of Merger with the Secretary of State of
Delaware pursuant to the DGCL and the Secretary of State of the State of Delaware pursuant to the NJBCA, (iii) such filings as may be
required under applicable securities laws, and (iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations
and filings which, if not obtained or made, would not have a Material Adverse Effect on DMK, DMK is not and will not be required to make
any filing with or give any notice to, or to obtain any waiver or Consent from, any Governmental Entity or Person in connection with (x) the
execution, delivery or performance of this Agreement, or (y) the consummation of the Contemplated Transactions.
2.6.
Governmental Authorizations.
(a)
DMK has obtained each material federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization
of a Governmental Entity (i) pursuant to which DMK currently operates or holds any interest in any of its properties, or (ii) that
is required for the operation of DMK’s business or the holding of any such interest, and all of such authorizations are in full
force and effect, except for such consents, licenses, permits, grants or other authorizations, which if not obtained would not have a
Material Adverse Effect on DMK.
(b)
To DMK’s Knowledge, neither it nor any of its officers or employees are: (i) a party to any material action, suit, proceeding, investigation
or lawsuit (“Action”) involving DMK’s activities in the healthcare industry; (ii) subject to any Actions
or sanctions by any payor (including Medicare or Medicaid); and (iii) listed by a federal agency as excluded, disbarred, suspended, or
otherwise ineligible to participate in federal programs, including Medicare or Medicaid, or listed on the General Service Administration
list of parties excluded from Federal Procurement and Non-Procurement Programs.
2.7.
Capitalization.
(a)
The authorized capital stock of DMK consists of 60,000 shares of DMK Common Stock, $0.001 par value, and no shares of DMK Preferred Stock,
of which there were issued and outstanding, as of the date of this Agreement, 38,837 shares of DMK Common Stock. The names and record
and beneficial owners of DMK Capital Stock, which constitute all of the outstanding capital stock of the Company, and the number of shares
held by each owner, are set forth in Section 2.7 of the DMK Disclosure Schedule. With respect to any such owner that is an entity, the
DMK Disclosure Schedule sets forth the shareholders, members or other equity owners of such entity as well as the board of directors,
officers, or managers of such entity. Except as set forth in Section 2.7 of the DMK Disclosure Schedule, (i) each owner of DMK Capital
Stock, and each holder of a DMK Convertible Note, is an “accredited investor” as defined in Rule 501 of Regulation D promulgated
under the Securities Act. All of the outstanding shares of DMK Capital Stock (i) have been duly authorized and validly issued, and
are fully paid and non-assessable, (ii) except for rights of first refusal, exchange, repurchase, forfeiture and/or cancellation
rights in favor of DMK, are not subject to preemptive rights or rights of first refusal created by statute, the DMK Charter, the DMK Bylaws
or any agreement to which DMK is a party or by which it is bound, and (iii) to the Knowledge of DMK, have been issued in compliance in
all material respects with federal and state securities laws. There are no declared or unpaid dividends with respect to any shares of
DMK Capital Stock. Except as set forth in the DMK Disclosure Schedule, there are no issued or outstanding DMK Options, convertible securities
(whether debt or equity), or other rights of any kind entitling any person to purchase or acquire shares of DMK Capital Stock, and DMK
has not adopted any stock option plan or similar employee benefit plan pursuant to which equity securities of DMK may be issued.
(b)
Except for DMK’s 2016 Stock Plan, as amended (the “DMK Plan”), DMK does not have any stock option plan
or any other plan, program, agreement or arrangement providing for any equity-based compensation for any Person. As of the date of this
Agreement, DMK has reserved 4,850 shares of DMK Common Stock for issuance under DMK Plan, none of which have been issued or are currently
outstanding, 4,500 shares have been reserved for issuance upon exercise of DMK Options granted under DMK Plan, and 350 shares of DMK Common
Stock remain available for future issuance pursuant to DMK Plan. The DMK Disclosure Schedule sets forth the following information with
respect to each DMK Option outstanding as of the date of this Agreement: (i) the name of the optionee; (ii) the number of shares
of DMK Common Stock subject to such DMK Option at the time of grant; (iii) the number of shares of DMK Common Stock subject to such
DMK Option as of the date of this Agreement; (iv) the per share exercise price of such DMK Option; (v) the date on which such
DMK Option was granted; (vi) the applicable vesting schedule, including any acceleration provisions, and the number of vested and
unvested options as of the date of this Agreement; (vii) the expiration date of such DMK Option, and (viii) whether such DMK
Option is intended to be an “incentive stock option” (as defined in the Code) or a non-qualified stock option. DMK has not
granted or awarded, and as of the date of this Agreement there are not outstanding, any shares of restricted stock, any stock appreciation
right or restricted stock unit, or any other derivative security or security exercisable or exchangeable for or convertible into shares
of DMK Common Stock (a “DMK Other Award”). DMK has made available to Adamis an accurate and complete copy of
DMK Plan, forms of all award agreements evidencing outstanding equity awards thereunder, any equity award agreements that differ in any
material respect from such forms of award agreements and evidence of Board and stockholder approval of DMK Plan and any amendments thereto.
Except as disclosed in the DMK Disclosure Schedule, no vesting of DMK Options will accelerate in connection with the closing of the Contemplated
Transactions.
(c)
The DMK Disclosure Schedule sets forth the following information with respect to each outstanding convertible promissory note or other
convertible debt of DMK (collectively, the “DMK Convertible Notes”): (i) the name of each holder of a DMK
Convertible Note; (ii) the outstanding balance, accrued interest as of the end of the month preceding the month of the Agreement
Date, and interest rate applicable to each DMK Convertible Note; (iii) a brief description of the conversion terms applicable to each
DMK Convertible Note; (iv) stated maturity date of each DMK Convertible Note; and (v) any other material terms of such DMK Convertible
Note.
(d)
Except for the outstanding DMK Options and DMK Convertible Notes set forth in the DMK Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other
securities of DMK, (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for
any shares of the capital stock or other securities of DMK, (iii) stockholder rights plan (or similar plan commonly referred to as
a “poison pill”) or Contract under which DMK is or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities, or (iv) condition or circumstance that may give rise to or provide a basis for the assertion of a
claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of
DMK. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect
to DMK. No consent of the holders of DMK Options is required in connection with the actions contemplated by this Agreement.
(e)
All outstanding shares of DMK Common Stock, DMK Options, DMK Convertible Notes, and other securities of DMK have been issued and granted
in material compliance with (i) all applicable securities laws and other applicable Law, and (ii) all requirements set forth
in applicable Contracts.
(f)
With respect to DMK Options, (i) each grant was duly authorized no later than the date on which the grant of such DMK Option was
by its terms to be effective (the “Grant Date”) by all necessary corporate action, (ii) each grant purported
to be made under the DMK Plan was made in all material respects in accordance with the terms of DMK Plan, and (iii) the per share
exercise price of each DMK Option was not less than the fair market value of a share of DMK Common Stock on the applicable Grant Date
determined in a manner consistent with Section 409A of the Code, has not otherwise been subject to “modification” or “extension”
within the meaning of Section 409A of the Code, and does not have any feature for the deferral of compensation other than the deferral
of recognition of income until the later of exercise or disposition of such option or SAR.
2.8.
Title to Assets.
(a)
DMK owns, and has good, valid and marketable title to, all material assets purported to be owned by it, including all assets reflected
on the Current Balance Sheet and all other material assets reflected in DMK’s books and records as being owned by DMK. All of said
assets are owned by DMK free and clear of any liens or other Encumbrances, except for (x) any lien for current taxes not yet due and payable,
and (y) minor liens that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations of DMK.
Except
as disclosed on the DMK Disclosure Schedule, DMK does not own any real property and DMK is not party to any material lease for real property
either as a lessee or lessor.
2.9.
DMK Financial Statements.
(a)
DMK has furnished to Adamis copies of (i) unaudited combined balance sheets of DMK as of December 31, 2021 and 2020, and the related
combined statement of operations, statement of changes in stockholders’ equity and statement of cash flows for the 12-months ended
December 31, 2021 and 2020 (the “DMK Annual Financial Statements”), and (ii) unaudited combined balance
sheets of DMK as of September 30, 2022, and the related combined statement of operations, statement of changes in stockholders’
equity and statement of cash flows for the nine months ended September 30, 2022 (the “DMK Interim Financial Statements”)
(the financial statements in clauses (i) through (ii) above, together with the DMK Audited Financial Statements, referred to collectively
as the “DMK Financial Statements”). The DMK Annual Financial Statements, DMK Interim Financial Statements and
DMK Audited Financial Statements are and will be accurate and complete in all material respects, have been prepared in accordance with
GAAP consistently applied and present fairly the financial position of DMK as of the dates thereof, and the results of its operations
for the respective periods then ended, subject to normal and recurring year-end adjustments and the absence of notes and, in the case
of the DMK Interim Financial Statements, none of which are material individually or in the aggregate. The unaudited balance sheet of DMK
as of September 30, 2022 that is included in the DMK Interim Financial Statements is referred to herein as the “Current
Balance Sheet.”
(b)
DMK maintains a system of internal accounting controls designed to provide reasonable assurance that: (i) transactions are executed
in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation
of the financial statements of DMK in conformity with GAAP and to maintain accountability of DMK’s assets; (iii) access to
DMK’s assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded
accountability for DMK’s assets is compared with the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. DMK maintains internal control over financial reporting that provides reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
(c)
The DMK Disclosure Schedule lists, and DMK has delivered to Adamis, accurate and complete copies of the documentation creating or governing,
all securitization transactions and “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K under the
Exchange Act) effected by DMK since January 1, 2020.
(d)
Neither DMK nor its independent auditors have identified (i) any significant deficiency or material weakness in the design or operation
of the system of internal accounting controls utilized by DMK, (ii) any fraud, whether or not material, that involves DMK, DMK’s
management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized
by DMK, or (iii) any claim or allegation regarding any of the foregoing, in each case since January 1, 2020.
2.10.
Absence of Certain Changes. Since September 30, 2022 (the “Base Date”),
except as set forth in the DMK Disclosure Schedule, DMK has conducted its business only in the Ordinary Course of Business (except for
matters relating to the execution and performance of this Agreement and the discussions, negotiations and transactions related thereto)
and there has not occurred any change, event or condition (whether or not covered by insurance) that has resulted in, or would reasonably
be expected to result in, a Material Adverse Effect on DMK.
2.11.
Interested Party Transactions. DMK is not indebted to any director, officer or employee
of DMK (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses and as set forth in the DMK disclosure
schedule with regards to convertible notes), and no such person is indebted to DMK. DMK is not a party to any transaction involving over
$120,000 in which any director, officer or 5% stockholder of DMK (or a member of such person’s immediate family) had a direct or
indirect material interest, except where such person’s interest arises solely from his or her ownership of DMK Capital Stock or
convertible note. The DMK Disclosure Schedule describes any material transactions or relationships, since January 1, 2019, between,
on one hand, DMK and, on the other hand, any (a) executive officer or director of DMK or any of its Subsidiaries or any of such executive
officer’s or director’s immediate family members, (b) owner of more than five percent (5%) of the voting power of the outstanding
DMK Capital Stock or (c) to the Knowledge of DMK, any “related person” (within the meaning of Item 404 of Regulation S-K under
the Securities Act) of any such officer, director or owner (other than DMK) in the case of each of (a), (b) or (c) that is of the type
that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act.
2.12.
Intellectual Property.
(a)
DMK owns or possesses the right to use the Intellectual Property utilized in connection with the conduct of its business and intended
business, all of which is owned by or licensed to DMK (the “DMK Patent and Proprietary Rights”), except where
the failure to own or possess such rights would not have a Material Adverse Effect on DMK. Such DMK Patent and Proprietary Rights are
sufficient in all material respects for the conduct of DMK’s business and proposed business. Concurrently with the execution hereof,
DMK has provided to Adamis an accurate, true and complete listing of all DMK Registered IP and other DMK Patent and Proprietary Rights.
Each Person who is or was an employee or contractor of DMK and who is or was involved in the creation or development of any material DMK
Patent and Proprietary Rights purported to be owned by DMK has signed a valid, enforceable agreement containing a present assignment of
such Intellectual Property to DMK and confidentiality provisions protecting trade secrets and confidential information of DMK. DMK has
taken all reasonable measures to protect and maintain the confidentiality of the trade secrets included in the DMK Patent and Proprietary
Rights.
(b)
Since January 1, 2020, except as disclosed in the DMK Disclosure Schedule, DMK has not received any written notice of any asserted rights
with respect to any of DMK Patent and Proprietary Rights which, if determined unfavorably with respect to the interests of DMK would have
a Material Adverse Effect on DMK. DMK is not bound by, and no DMK Patent and Proprietary Rights are subject to, any Contract containing
any covenant or other provision that in any material respect limits or restricts the ability of DMK to use, exploit, assert, defend, or
enforce any DMK Patent and Proprietary Rights.
(c)
To DMK’s Knowledge, DMK has never infringed (directly, contributorily, by inducement, or otherwise), misappropriated, or otherwise
violated or made unlawful use of any right to Intellectual Property of any other Person or engaged in unfair competition, which infringement,
misappropriation, violation or use (if the subject of any unfavorable decision, ruling or finding), individually or in the aggregate,
would result in a Material Adverse Effect on DMK. No material infringement, misappropriation, or similar claim or Legal Proceeding is
pending or, to DMK’s Knowledge, threatened against DMK, or any other Person who is or may be entitled to be indemnified, defended,
held harmless, or reimbursed by DMK with respect to such claim or Legal Proceeding, which claim or Legal Proceeding (if the subject of
any unfavorable decision, ruling or finding), individually or in the aggregate, would result in a Material Adverse Effect on DMK.
(d)
To DMK’s Knowledge, DMK has not engaged in patent or copyright misuse or any fraud or inequitable conduct in connection with any
DMK Patent and Proprietary Rights, and no trademark or trade name owned, used, or applied for by DMK conflicts or interferes in any material
respect with any trademark or trade name owned, used, or applied for by any other Person.
(e)
DMK is in compliance in all material respects with the terms of all representations, warranties, covenants and other obligations contained
in any funding grant, funding agreement, funding program or other funding arrangement with or from any Governmental Entity, non-governmental
organization, foundation or other similar entity the proceeds of which were used, directly or indirectly, to develop or create, in whole
or in part, any DMK Patent and Proprietary Rights, DMK Registered IP or other DMK Intellectual Property rights, and is in compliance in
all material respect with the terms of all applicable Laws relating to any such grant, agreement, program or arrangement.
2.13.
Taxes.
(a)
DMK has prepared and timely filed all material Tax Returns relating to any and all Taxes concerning or attributable to DMK, and such Tax
Returns are true and correct in all material respects and have been completed in accordance with applicable law in all material respects.
DMK has delivered or made available to Adamis correct and complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by DMK filed or received since January 1, 2020 or, if more recent, since inception.
(b)
DMK (i) is not delinquent in any material respects in the payment of any Taxes due and owing by DMK, and (ii) has withheld and timely
paid all Taxes required to have been withheld and paid with respect to any amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(c)
There is no material Tax deficiency outstanding or assessed or, to DMK’s Knowledge, proposed against DMK that is not reflected as
a liability on the Current Balance Sheet, nor has DMK executed any agreements or waivers extending any statute of limitations on or extending
the period for the assessment or collection of any Tax (other than extensions which have expired). No claim (other than claims that have
been resolved) has ever been made by an authority in a jurisdiction where DMK does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of DMK.
(d)
To the Knowledge of DMK, DMK has no material liabilities for unpaid Taxes that have not been accrued for or reserved on the Current Balance
Sheet, whether asserted or unasserted, contingent or otherwise.
(e)
DMK has not received from any Governmental Entity any (i) written notice indicating an intent to open an audit or other review, (ii) request
for information related to Tax matters, or (iii) written notice of deficiency or proposed adjustment of or any amount of Tax proposed,
asserted, or assessed by any Governmental Entity against DMK, in each case other than such as have been resolved before the date of this
Agreement.
(f)
DMK is not a party to any tax-sharing agreement or similar arrangement with any other party, and DMK has not assumed any obligation to
pay any Tax obligations of, or with respect to any transaction relating to, any other person or agreed to indemnify any other person with
respect to any Tax.
(g)
DMK has not been a member of an affiliated group of corporations filing a consolidated federal income tax return other than a group of
which DMK was the parent.
(h)
DMK has not been at any time a United States Real Property Holding Corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
(i)
DMK is not aware of any facts, and has not knowingly taken or agreed to take or refrain from taking any action, in each case, that would
reasonably be expected to prevent or impede the Merger from qualifying as a “reorganization” within the meaning of Section 368(a)
of the Code.
(j)
DMK has not filed a consent under Section 341(f) of the Code concerning collapsible corporations. DMK is not a party to any contract,
agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee
of DMK that, individually or collectively, could give rise to the payment of (i) any “excess parachute payment” within the
meaning of Section 280G of the Code (or any corresponding provisions of state, local or foreign Tax law) and (ii) any amount that will
not be fully deductible as a result of Section 162(m) of the Code (or any corresponding provisions of state, local or foreign Tax law).
(k)
DMK will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period
(or portion there) ending after the Closing Date as a result of any: (A) change in method of accounting for taxable period ending on or
prior to the Closing Date; (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (C) intercompany transactions or any excess
loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provisions of state, local
or foreign income Tax law); (D) installment sale or open transaction disposition made on or prior to the Closing Date; or (E) prepaid
amount received on or prior to the Closing Date.
(l)
DMK has not distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported
or intended to be governed in whole or in part by Section 355 of the Code.
(m)
DMK has not entered into any transaction identified as a “listed transaction” for purposes of Treasury Regulations Sections
1.6011-4(b)(2) or 301.6111-2(b)(2) or any analogous provision of state or local Law.
2.14.
Employee Benefit Plans.
(a)
DMK Employee Plans. The DMK Disclosure Schedule contains a complete and accurate list
of each material plan, program, policy, practice, contract, agreement or other arrangement providing for retirement, deferred compensation,
severance, separation, termination pay, performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock,
stock appreciation right, restricted stock unit, supplemental retirement, fringe benefits, cafeteria benefits or other benefits, including,
without limitation, each “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), which is sponsored, maintained, contributed to, or required to be
contributed to by DMK and, with respect to any such plans which are subject to Code Section 401(a), any trade or business (whether
or not incorporated) that is or at any relevant time was treated as a single employer with DMK within the meaning of Section 414(b), (c),
(m) or (o) of the Code, (an “ERISA Affiliate”) for the benefit of any person who performs or who has performed
services for DMK as an employee or with respect to which DMK or any ERISA Affiliate has or may have any liability (including, without
limitation, contingent liability) or obligation (collectively, the “DMK Employee Plans”).
(b)
Compliance. Each DMK Employee Plan has been administered in material compliance with its
terms and with the requirements of applicable law; and DMK and each ERISA Affiliate have performed all material obligations required to
be performed by them under, and are not in any material respect in default under or violation of, any of DMK Employee Plans. No DMK Employee
Plan is intended to be qualified under Section 401(a) of the Code. To DMK’s Knowledge, no “prohibited transaction,”
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA,
has occurred with respect to any DMK Employee Plan.
(c)
Future Commitments. No DMK Employee Plan provides (except at no cost to DMK), or reflects
or represents any liability of DMK to provide, retiree life insurance, retiree health benefits or other retiree employee welfare benefits
to any Person for any reason, except as may be required by COBRA or other applicable Law. Other than commitments made that involve no
future costs to DMK, DMK has never represented, promised or contracted (whether in oral or written form) to any current or former employee
of DMK or any other Person that such employee or other Person would be provided with retiree life insurance, retiree health benefit or
other retiree employee welfare benefits, except to the extent required by applicable Law.
(d)
Effect of Transaction. The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider of DMK or any ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden parachute, bonus or benefits under any DMK Employee Plan),
except as expressly provided in this Agreement; or (ii) accelerate the time of payment or vesting of any such benefits or increase
the amount of compensation due any such employee or service provider.
2.15.
Employee Matters. The employment of each of DMK’s employees is terminable by
DMK at will, subject to any notice provisions of applicable employment agreements. DMK is in material compliance with all currently applicable
laws and regulations respecting terms and conditions of employment. There are no proceedings pending or, to DMK’s Knowledge, threatened,
between DMK, on the one hand, and any or all of its current or former employees, on the other hand, which would reasonably be expected
to have a Material Adverse Effect on DMK. DMK has provided all employees with all wages, benefits, relocation benefits, stock options,
bonuses and incentives, and all other compensation that became due and payable through the date of this Agreement.
2.16.
Insurance. The DMK Disclosure Schedule sets forth all policies of insurance maintained
by, at the expense of or for the benefit of DMK. All premiums due and payable under all such policies have been paid and, to DMK’s
Knowledge, DMK is otherwise in compliance with the terms of such policies. To DMK’s Knowledge, there is no threatened termination
of, or material premium increase with respect to, any of such policies. No officer or director is a party to or is subject to any decree,
order, judgment, or agreement that would prevent such person from serving as a director or officer of a public company under any applicable
Law.
2.17.
Compliance with Law.
(a)
For all periods of time during which the respective applicable statute of limitations periods have not expired, (i) to its Knowledge,
DMK has complied in all material respects with, is not in material violation of, and has not received any written or, to DMK’s Knowledge,
other notices of material violation with respect to, any applicable Law or regulation with respect to the conduct of its business, or
the ownership or operation of its business; and (ii) DMK has not received any written notices from any Governmental Entity regarding
(A) any actual, alleged, possible, or potential violation of, or failure to comply with, any applicable Law, or (B) any actual, alleged,
possible, or potential obligation on the part of DMK to undertake, or to bear all or any portion of the cost of, any remedial action related
to compliance or non-compliance with any applicable Law, in each of the above cases which if determined adversely to DMK would reasonably
be expected to have a Material Adverse Effect on DMK.
(b)
To the knowledge of DMK, DMK and Persons acting in concert with and on behalf of DMK:
(i) have
not used in any capacity the services of any individual or entity debarred, excluded, or disqualified under 21 U.S.C. Section 335a,
42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules or regulations; and
(ii) have
not been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment,
exclusion, or disqualification under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any
similar laws, rules regulations.
(c)
All pre-clinical and clinical studies relating to product or product candidates, conducted by or on behalf of DMK have been, or are being,
conducted in all material respects in compliance with the applicable requirements of the FDA’s Good Laboratory Practice and Good
Clinical Practice requirements, including regulations under 21 C.F.R. Parts 50, 54, 56, 58, 312 and applicable guidance documents, as
amended from time to time, the Animal Welfare Act, and all applicable similar requirements in other jurisdictions, including all requirements
relating to protection of human subjects participating in any such clinical studies; provided, however, that the foregoing representation
and warranty is made only to DMK’s knowledge with respect to clinical and pre-clinical studies conducted by any third party on behalf
of DMK. DMK has filed with the FDA, any other Governmental Body, and any institutional review board or comparable body, all required notices,
supplemental applications, and annual or other reports, including adverse experience reports, with respect to each investigational new
drug application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its products
or product candidates, as applicable.
(d)
To DMK’s Knowledge, DMK has implemented and maintains reasonable written policies and procedures, satisfying the requirements of
applicable Laws, concerning the privacy security, collection and use of information about identified or identifiable individuals.
2.18.
Environmental Matters. To the Knowledge of DMK, DMK is, and at all times has been,
in compliance in all material respects with all Environmental Laws and is not subject to any material liability under any Environmental
Law. DMK has not received, nor to DMK’s Knowledge has any other Person for whose conduct it is or may be held responsible, received,
any order, written notice, or other written communication from (a) any Governmental Entity or private citizen acting in the public interest,
or (b) the current or prior owner or operator of any Facilities, asserting or alleging any actual or potential violation of or failure
to comply with any Environmental Law, or any obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities.
2.19.
Legal Proceedings. There is no pending Legal Proceeding that has been commenced by
or against DMK. There is no judgment, decree or order against DMK, or, to DMK’s Knowledge, any of its directors or officers (in
their capacities as such), that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement,
or any Ancillary Agreement, or that would reasonably be expected to have a Material Adverse Effect on DMK. To DMK’s Knowledge, no
event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that would reasonably be expected to,
give rise to or serve as a basis for the commencement of any such Legal Proceeding.
2.20.
Contracts; No Defaults.
(a)
The DMK Disclosure Schedule sets forth a list of all DMK Material Contracts. Each Material Contract of DMK is enforceable against DMK
in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors,
and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. There are no DMK Material Contracts
that are not in written form.
(b)
DMK has not violated or breached, or committed any material default under, any Material Contract to which DMK is a party or by which its
assets are bound, in each of the above cases where such violation, beach or default would have a Material Adverse Effect on DMK. Except
as disclosed or reflected in the DMK Disclosure Schedule, DMK has not received any written notice or other written or, to DMK’s
Knowledge, oral communication regarding any actual or possible material violation or breach of, or default under, any Material Contract
of DMK.
(c)
The DMK Disclosure Schedule sets forth a list of all material consents or waivers of, or notifications to, any Governmental Entity or
any third party that are required or provided for under any Material Contract of DMK in connection with the execution and delivery of
this Agreement and the Ancillary Agreements by DMK and the consummation of the transactions contemplated hereby and thereby.
2.21.
Labor Matters. DMK is not a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor organization. DMK is not the subject of any Legal Proceeding
asserting that DMK has committed an unfair labor practice or seeking to compel it to bargain with any labor organization as to wages or
conditions of employment. There is no strike, work stoppage or other labor dispute involving DMK pending or, to DMK’s Knowledge,
threatened against DMK.
2.22.
Regulatory Compliance.
(a)
Each DMK Product has been and is being manufactured, tested, distributed and/or marketed in compliance in all material respects with all
applicable requirements under FDCA and similar Law, including those relating to investigational use, good manufacturing practices, labeling,
advertising, record keeping, and filing of report, except where failure to be in such compliance would not have any Material Adverse Effect
on DMK.
(b)
No DMK Product has been recalled, withdrawn, suspended or discontinued by DMK in the United States or outside the United States (whether
voluntarily or otherwise) (other than as a result of decisions made in the ordinary course of business for business or economic reasons
not to pursue research or development of one or more DMK Products). There are no proceedings in the United States or outside the United
States (whether completed or pending) seeking the recall, withdrawal, suspension or seizure of any DMK Product pending, nor have any such
proceedings been pending at any time.
(c)
As to each DMK Product for which a human biological license application, human establishment license application, human product license
application, new human drug application, investigational new human drug application, abbreviated or supplemental new human drug application,
or abbreviated or supplemental new animal drug application, new animal drug application, or similar state or foreign regulatory application
has been approved, DMK and each licensee of any such biological or drug (a “Product Licensee”) have not been
determined to be in violation of 21 U.S.C. sec. 355, 360b, 42 U.S.C. sec. 351, and 21 U.S.C. sec. 822, and 21 C.F.R. Parts 312, 314, 511,
514, 601, and 1301 et seq.
(d)
All manufacturing, warehousing, distributing, and testing operations conducted on DMK Products for human use by or for the benefit of
DMK or each Product Licensee are not in violation of and have been and are being conducted in material compliance with the good manufacturing
practice regulations set forth in 21 C.F.R. Parts 210 and 211 and similar applicable Law.
(e)
Neither DMK, nor to the Knowledge of DMK, any officer, employee or agent of DMK, has been convicted of any crime or engaged in any conduct
for which debarment is mandated by 21 U.S.C. Section 335a(a) or any similar applicable Law, or authorized by 21 U.S.C. Section 335a(b)
or any similar applicable Law.
(f)
There are no Legal Proceedings pending or, to the Knowledge of DMK, threatened with respect to an alleged material violation by DMK of
the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, the U.S. Food and Drug Administration regulations adopted thereunder,
the Controlled Substances Act or any other similar Law promulgated by any Governmental Entity responsible for regulation of the development,
testing, manufacturing, processing, storage, labeling, sale, marketing, advertising, distribution and importation or exportation of drug
products.
2.23.
Unlawful Payments. To DMK’s Knowledge, none of DMK, or any officer, director,
employee, agent or representative of DMK has made, directly or indirectly, any bribe or kickback, illegal political contribution, payment
from corporate funds which was incorrectly recorded on the books and records of DMK, or unlawful payment from corporate funds, to governmental
or municipal officials in their individual capacities for the purpose of affecting their action or the actions of the jurisdiction which
they represent to obtain favorable treatment in securing business or licenses or to obtain special concessions of any kind whatsoever,
or illegal payment from corporate funds to obtain or retain any business.
2.24.
Financial Advisor. No broker, finder or investment banker is entitled to any commission
or brokerage or finder’s fee in connection with the Merger or any of the other transactions contemplated by this Agreement based
upon arrangements made by or on behalf of DMK.
2.25.
Takeover Statutes; No Rights Plan; Appraisal Rights. DMK is not subject to the prohibition
on certain business combinations set forth in Section 14A:10A-4, -5 and -6 of the NJBCA and, to DMK’s Knowledge, any similar “moratorium,”
“control share,” “fair price,” “takeover” or “interested shareholder” Law (any such Laws,
a “Takeover Statute”) applicable to DMK. There is no shareholder rights plan, “poison pill”, antitakeover
plan or other similar agreement or plan in effect to which DMK is a party or is otherwise bound.
2.26.
No Other Representations. Except for the representations and warranties contained
in this Article II (including the related portions of the DMK Disclosure Schedule), neither DMK nor any other Person has made or makes
any other express or implied representation or warranty, either written or oral, on behalf of DMK. Without limiting the generality of
the foregoing, neither DMK nor any other Person has made or makes any representation or warranty with respect to any projections, estimates,
or budgets of future revenues, future results of operations, future cash flows, or future financial condition (or any component of any
of the foregoing) of DMK, including any information made available in the electronic data room maintained by DMK for purposes of the transactions
contemplated by this Agreement, teasers, marketing materials, consulting reports or materials, confidential information memoranda, management
presentations, functional “break-out” discussions, responses to questions submitted on behalf of Adamis, Merger Sub, or any
of their respective Representatives, or in any other form in connection with the transactions contemplated by this Agreement.
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF ADAMIS AND MERGER SUB
Adamis, and Merger Sub (with respect to the representations,
warranties and covenants of Merger Sub), represent and warrant to DMK that the statements contained in this Article III are true and correct
as set forth herein and as qualified by the disclosure schedules separately delivered to DMK concurrently herewith (collectively, the
“Adamis Disclosure Schedule”). The disclosures set forth in Adamis Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in this Article III. The disclosures in any section or subsection
of the Adamis Disclosure Schedule shall qualify other sections and subsections in this Article III to the extent it is reasonably apparent
from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.
3.1.
Organization and Qualification; Charter Documents.
(a)
Each of Adamis and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction
of its incorporation, with requisite corporate power and authority to conduct its business as now being conducted and to own or use its
properties and assets. Adamis is duly qualified to do business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure to be so qualified or in good standing would not have a Material
Adverse Effect on Adamis.
(b)
The copies of the restated certificate of incorporation and bylaws of Adamis which are incorporated by reference as exhibits to
the Adamis Annual Report on Form 10-K for the year ended December 31, 2021, together with any subsequent amendments thereto or certificates
of designation of preferences, rights and limitations that have been filed as exhibits to the Adamis SEC Reports, are complete and correct
copies of such documents.
3.2.
Subsidiaries. The Adamis SEC Reports set forth all direct and indirect significant
Subsidiaries of Adamis. Adamis owns all of the equity of each such Subsidiary. Except as set forth in the Adamis SEC Reports, Adamis does
not have any significant Subsidiaries and, other than Merger Sub, does not otherwise own any shares in the capital of or any interest
in, or control, directly or indirectly, any Entity. Merger Sub and each significant Subsidiary of Adamis: (a) is a corporation duly organized
and validly existing under the laws of its jurisdiction of incorporation, (b) has all requisite corporate power and authority to own,
operate or lease the properties and assets owned, operated or leased by such Subsidiary and to carry on its business as it has been and
is currently conducted by such Subsidiary, and (c) is duly qualified to do business and is in good standing in each jurisdiction in which
the properties owned or leased by it or the operation of its business makes such license and qualification necessary, except, in each
of clauses (a), (b) and (c), for such failures which, when taken together with all other such failures, would not have a Material Adverse
Effect on Adamis and its Subsidiaries, when considered together.
3.3.
Authority. Each of Adamis and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on
the part of Adamis and Merger Sub, subject only to the approval of this Agreement by the stockholders of Adamis and Merger Sub. The Board
of Directors of Adamis and Merger Sub have unanimously approved this Agreement and the Merger. This Agreement has been (and the Ancillary
Agreements will be at the Closing) duly executed and delivered by Adamis and Merger Sub, and this Agreement constitutes (and the Ancillary
Agreements will constitute at the Closing) the valid and binding obligations of Adamis and Merger Sub enforceable against each of Adamis
and Merger Sub in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to creditors’ rights generally, and subject to general principles of equity. Merger Sub has been
formed solely for the purpose of executing and delivering this Agreement and consummating the transactions contemplated hereby. Since
the date of its incorporation, Merger Sub has neither engaged in nor transacted any business or activity of any nature whatsoever other
than activities related to its corporate organization and the execution and delivery of this Agreement and the related documents and instruments.
Merger Sub has no assets or properties or debts, liabilities or obligations of any kind whatsoever, and with the exception of this Agreement
and the related documents and instruments, is not a party to any contract, agreement or undertaking of any nature.
3.4.
No Conflict. The execution and delivery by Adamis of this Agreement and the
Ancillary Agreements to which Adamis is a party, does not, and the consummation of the transactions contemplated hereby and thereby will
not, (a) conflict with, or result in any material violation of, any provision of the Adamis Restated Certificate, as it may be amended
immediately before the Effective Time, or the Adamis Bylaws, (b) result in any material violation of or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any
benefit under, any material mortgage, indenture, lease, contract, grant, funding arrangement, or other agreement or instrument, permit,
concession, franchise or license of Adamis, (c) subject to obtaining the approval of Adamis’ stockholders and, except as would not
reasonably be expected to have a Material Adverse Effect on Adamis, conflict with, or result in any violation of any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Adamis or any of its properties or assets, or (d) conflict with,
or result in a violation of any resolution adopted by Adamis’ stockholders, Adamis’ board of directors or any committee of
Adamis’ board of directors.
3.5.
Non-Contravention; Consents.
(a)
Subject to compliance with obtaining the required approvals of the stockholders of Adamis and the filing of the Certificate of
Merger with the Secretary of State of Delaware pursuant to the DGCL and the Secretary of State of the State of New Jersey pursuant to
the NJBCA, neither (x) the execution, delivery or performance of this Agreement by Adamis, nor (y) the consummation of the Contemplated
Transactions, will directly or indirectly (with or without notice or lapse of time):
(i)
contravene, conflict with or result in a material violation of, or give any Governmental Entity or other Person the right to challenge
the Contemplated Transactions or to exercise any material remedy or obtain any material relief under, any Law or any Order by which Adamis,
or any of the material assets owned or used by Adamis, is subject;
(ii)
contravene, conflict with or result in a material violation of any of the terms or requirements of, or give any Governmental Entity
the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by and material to Adamis;
(iii)
contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Adamis Material
Contract, or give any Person the right to: (A) declare a default or exercise any remedy under any Adamis Material Contract, (B) any
material payment, rebate, chargeback, penalty or change in delivery schedule under any Adamis Material Contract, (C) accelerate the maturity
or performance of any Adamis Material Contract, or (D) cancel, terminate or modify any term of any Adamis Material Contract, except in
each of the above cases as would not reasonably be expected to have a Material Adverse Effect on Adamis; or
(iv)
result in the imposition or creation of any material Encumbrance upon or with respect to any asset owned or used by Adamis (except
for Permitted Encumbrances) that is material to its business.
(b)
Except for (i) the Required Adamis Stockholder Vote, (ii) the filing of the Certificate of Merger with the Secretary
of State of Delaware pursuant to the DGCL and the Secretary of State of the State of New Jersey pursuant to the NJBCA, (iii) such filings
as may be required under applicable securities laws, and (iv) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not have a Material Adverse Effect on Adamis, Adamis is not and will not
be required to make any filing with or give any notice to, or to obtain any waiver or Consent from, any Governmental Entity or Person
in connection with (x) the execution, delivery or performance of this Agreement, or (y) the consummation of the Contemplated Transactions.
3.6.
Governmental Authorizations.
(a)
Adamis and its Subsidiaries have obtained each material federal, state, county, local or foreign governmental consent, license,
permit, grant, or other authorization of a Governmental Entity (i) pursuant to which Adamis or its Subsidiaries currently operates
or holds any interest in any of its properties, or (ii) that is required for the operation of Adamis and its Subsidiaries’
business or the holding of any such interest, and all of such authorizations are in full force and effect, except for such consents, licenses,
permits, grants or other authorizations, which if not obtained would not have a Material Adverse Effect on Adamis.
(b)
Neither Adamis, its Subsidiaries nor any of its or their officers or employees are: (i) a party to any material Action involving
Adamis’ activities in the healthcare industry; (ii) subject to any Actions or sanctions by any payor (including Medicare or
Medicaid); and (iii) listed by a federal agency as excluded, disbarred, suspended, or otherwise ineligible to participate in federal
programs, including Medicare or Medicaid, or listed on the General Service Administration list of parties excluded from Federal Procurement
and Non-Procurement Programs.
3.7.
Capitalization.
(a)
The authorized capital stock of Adamis consists of 200,000,000 shares of Common Stock, $.0001 par value, and 10,000,000 shares
of Preferred Stock, $.0001 par value, of which there were issued and outstanding as of September 30, 2022, 149,983,265 shares of Common
Stock and 3,000 shares of Series C Convertible Preferred Stock. The shares of Adamis Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, and non-assessable, free of any liens or encumbrances other than any liens or encumbrances
created by or imposed by the holders thereof, and shall be issued in material compliance with all applicable federal and state securities
laws. All of the outstanding shares of Adamis Common Stock (i) have been duly authorized and validly issued, and are fully paid and
non-assessable, (ii) are not subject to preemptive rights or rights of first refusal created by statute, Adamis Restated Certificate,
Adamis Bylaws or any agreement to which Adamis is party or by which it is bound, and (iii) have been issued in compliance in all
material respects with federal and state securities laws. There are no declared or unpaid dividends with respect to any shares of Adamis
Common Stock.
(b)
The information in the Adamis SEC Reports concerning the Adamis Stock Plans, and outstanding options and warrants to purchase shares
of Adamis Common Stock, and outstanding restricted stock units or other rights to acquire shares of Adamis Common Stock, is accurate in
all material respects as of the dates of such Adamis SEC Reports.
3.8.
Title to Assets.
(a)
Except as disclosed or reflected in the Adamis SEC Reports, Adamis owns, and has good, valid and marketable title to, all material
assets purported to be owned by it, including all assets reflected on its balance sheet as of September 30, 2022; and all other material
assets reflected in Adamis’ books and records as being owned by Adamis. All of said assets are owned by Adamis free and clear of
any liens or other Encumbrances, except for (x) any lien for current taxes not yet due and payable, and (y) minor liens that have arisen
in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of Adamis.
(b)
Except as disclosed or reflected in the Adamis SEC Reports, Adamis does not own any real property and Adamis is not party to any
material lease for real property either as a lessee or lessor.
3.9.
SEC Reports; Financial Statements; Listing and Maintenance Requirements.
(a)
As of their respective filing dates, all annual, quarterly or current reports, filed by Adamis with the SEC since January 1, 2022
(including those that Adamis may file subsequent to the date hereof) (such reports, as amended “Adamis SEC Reports”),
(i) were prepared in accordance in all material respects with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations thereunder, except as may be reflected in any amendments to such reports that Adamis has filed with
the SEC, and (ii) as the same may have been amended, did not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
(b)
The consolidated financial statements (including any related notes thereto) contained in the Adamis SEC Reports (in the form, as
applicable, in any amendments to such Adamis SEC Reports) (the “Adamis Financial Statements”): (i) complied
as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year-end audit adjustments; and (iii) fairly present in all material respects the consolidated
financial position of Adamis as of the respective dates thereof and the consolidated results of operations and cash flows of Adamis for
the periods covered thereby.
(c)
Adamis maintains a system of internal accounting controls and disclosure controls and procedures sufficient, in the judgment of
Adamis’ board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity
with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
3.10.
Absence of Certain Changes. Since September 30, 2022, and except as set forth
in the Adamis Disclosure Schedule or as disclosed or reflected in the Adamis SEC Reports (and except for matters relating to the execution
and performance of this Agreement and the discussions, negotiations and transactions related thereto), there has not occurred any change,
event or condition (whether or not covered by insurance) that has resulted in, or would reasonably be expected to result in, a Material
Adverse Effect on Adamis.
3.11.
Interested Party Transactions. Except as disclosed or reflected in the Adamis
SEC Reports, Adamis is not indebted to any director, officer or employee of Adamis (except for amounts due as normal compensation and
bonuses and in reimbursement of ordinary expenses), and no such person is indebted to Adamis, for amounts that would be required to be
disclosed in the Adamis SEC Reports. Except as disclosed or reflected in the Adamis SEC Reports, Adamis is not a party to any transaction
involving more than $120,000 in which any director, officer or stockholder known to Adamis to be a greater than 5% stockholder of Adamis
(or a member of such person’s immediate family) had a direct or indirect material interest, except for transactions not required
to be disclosed in response to Item 404(a) of Regulation S-K, or where such person’s interest arises solely from his or her ownership
of Adamis Capital Stock.
3.12.
Intellectual Property.
(a)
Except as disclosed or reflected in the Adamis SEC Reports, Adamis owns or possesses the right to use the Intellectual Property
utilized in connection with the conduct of its business and intended business, all of which is owned by or licensed to Adamis (the “Adamis
Patent and Proprietary Rights”), except where the failure to own or possess such rights would not have a Material Adverse
Effect on Adamis. Such Adamis Patent and Proprietary Rights are sufficient in all material respects for the conduct of Adamis’ business
and proposed business. Adamis has taken all reasonable measures to protect and maintain the confidentiality of the trade secrets included
in the Adamis Patent and Proprietary Rights.
(b)
Since January 1, 2021, except as described or reflected in the Adamis SEC Reports or as set forth in the Adamis Disclosure Schedule,
Adamis has not received any notice of any asserted rights with respect to any of Adamis Patent and Proprietary Rights which, if determined
unfavorably with respect to the interests of Adamis, would have a Material Adverse Effect on Adamis. Except as described or reflected
in the SEC Reports, Adamis is not bound by, and no Adamis Patent and Proprietary Rights are subject to, any Contract containing any covenant
or other provision that in any material respect limits or restricts the ability of Adamis to use, exploit, assert, defend, or enforce
any Adamis Patent and Proprietary Rights.
(c)
To Adamis’ Knowledge, Adamis has never infringed (directly, contributorily, by inducement, or otherwise), misappropriated,
or otherwise violated or made unlawful use of any right to Intellectual Property of any other Person or engaged in unfair competition,
which infringement, misappropriation, violation or use (if the subject of any unfavorable decision, ruling or finding), individually or
in the aggregate, would result in a Material Adverse Effect on Adamis. No material infringement, misappropriation, or similar claim or
Legal Proceeding is pending or, to Adamis’ Knowledge, threatened against Adamis or any other Person who is or may be entitled to
be indemnified, defended, held harmless, or reimbursed by Adamis with respect to such claim or Legal Proceeding, which claim or Legal
Proceeding (if the subject of any unfavorable decision, ruling or finding), individually or in the aggregate, would result in a Material
Adverse Effect on Adamis.
(d)
To Adamis’ Knowledge, Adamis has not engaged in patent or copyright misuse or any fraud or inequitable conduct in connection
with any Adamis Patent and Proprietary Rights, and no trademark or trade name owned, used, or applied for by Adamis conflicts or interferes
in any material respect with any trademark or trade name owned, used, or applied for by any other Person.
3.13.
Taxes.
(a)
Adamis has prepared and timely filed all material Tax Returns relating to any and all material Taxes concerning or attributable
to Adamis and such Tax Returns are true and correct in all material respects and have been completed in accordance with applicable law
in all material respects. Adamis has delivered or made available to DMK correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed to by Adamis filed or received since January 1, 2019.
(b)
Adamis (i) is not delinquent in any material respects in the payment of any Taxes due and owing by Adamis, and (ii) has withheld
and timely paid all material Taxes required to have been withheld and paid with respect to any amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c)
There is no material Tax deficiency outstanding or assessed or, to Adamis’ Knowledge, proposed against Adamis that is not
reflected as a liability on the Adamis Financial Statements, nor has Adamis executed any agreements or waivers extending any statute of
limitations on or extending the period for the assessment or collection of any Tax (other than extensions which have expired). No claim
(other than claims that have been resolved) has ever been made by an authority in a jurisdiction where Adamis does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no liens for Taxes (other than Taxes not yet due and payable)
upon any of the assets of Adamis.
(d)
To Adamis’ Knowledge, Adamis has no material liabilities for unpaid Taxes that have not been accrued for or reserved on the
Adamis Financial Statements, whether asserted or unasserted, contingent or otherwise.
(e)
Adamis has not received from any Governmental Entity any (i) notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment of or any amount of Tax proposed,
asserted, or assessed by any Governmental Entity against Adamis, in each case other than such as have been resolved before the date of
this Agreement.
(f)
Adamis is not a party to any tax-sharing agreement or similar arrangement with any other party, and Adamis has not assumed any
obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or agreed to indemnify any
other person with respect to any Tax.
(g)
Adamis has not been a member of an affiliated group of corporations filing a consolidated federal income tax return other than
a group of which Adamis was the parent.
(h)
Adamis has not been at any time a United States Real Property Holding Corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
(i)
Adamis is not aware of any facts, and has not knowingly taken or agreed to take or refrain from taking any action, in each case,
that would reasonably be expected to prevent or impede the Merger from qualifying as a “reorganization” within the meaning
of Section 368(a) of the Code.
(j)
Adamis has not filed a consent under Section 341(f) of the Code concerning collapsible corporations. Except as disclosed or
reflected in the Adamis SEC Reports, is not a party to any contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of Adamis that, individually or collectively, could give rise to
the payment of (i) any “excess parachute payment” within the meaning of Section 280G of the Code (or any corresponding provisions
of state, local or foreign Tax law) and (ii) any amount that will not be fully deductible as a result of Section 162(m) of the Code
(or any corresponding provisions of state, local or foreign Tax law).
(k)
Adamis will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion there) ending after the Closing Date as a result of any: (A) change in method of accounting for taxable period ending
on or prior to the Closing Date; (B) “closing agreement” as described in Section 7121 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (C) intercompany transactions or
any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provisions of
state, local or foreign income Tax law); (D) installment sale or open transaction disposition made on or prior to the Closing Date; or
(E) prepaid amount received on or prior to the Closing Date.
(l)
Adamis has not distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was
purported or intended to be governed in whole or in part by Section 355 of the Code.
(m)
Adamis has not entered into any transaction identified as a “listed transaction” for purposes of Treasury Regulations
Sections 1.6011-4(b)(2) or 301.6111-2(b)(2) or any analogous provision of state or local Law.
3.14.
Employee Benefit Plans.
(a)
Employee Plans. The Adamis SEC Reports describe or reflect, or Adamis has otherwise
made available to DMK descriptions or copies of, each Adamis Employee Agreement and each material plan, program, policy, practice, contract,
agreement or other arrangement providing for retirement, deferred compensation, severance, separation, termination pay, performance awards,
bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, fringe
benefits, cafeteria benefits or other benefits, without limitation, each “employee benefit plan” within the meaning of Section 3(3)
of ERISA, which is sponsored, maintained, contributed to, or required to be contributed to by Adamis and, with respect to any such plans
which are subject to Code Section 401(a), any ERISA Affiliate for the benefit of any person who performs or who has performed services
for Adamis as an employee or with respect to which Adamis or any ERISA Affiliate has or may have any liability (including, without limitation,
contingent liability) or obligation (collectively, the “Adamis Employee Plans”).
(b)
Compliance. Each Adamis Employee Plan has been administered in material compliance
with its terms and with the requirements of applicable law; and Adamis and each ERISA Affiliate have performed all material obligations
required to be performed by them under, and are not in any material respect in default under or violation of, any of the Adamis Employee
Plans.
(c)
Future Commitments. Except as disclosed or reflected in the Adamis SEC Reports,
the Adamis Employee Agreements or in the Adamis Proxy Statement, no Adamis Employee Plan provides (except at no cost to Adamis), or reflects
or represents any liability of Adamis to provide, retiree life insurance, retiree health benefits or other retiree employee welfare benefits
to any Person for any reason, except as may be required by COBRA or other applicable Law. Except as disclosed or reflected in the Adamis
SEC Reports or in the Adamis Proxy Statement, other than commitments made that involve no future costs to Adamis, Adamis has never represented,
promised or contracted (whether in oral or written form) to any current or former employee of Adamis or any other Person that such employee
or other Person would be provided with retiree life insurance, retiree health benefit or other retiree employee welfare benefits, except
to the extent required by applicable Law.
(d)
Effect of Transaction. Except as disclosed in the SEC Reports, the Adamis Proxy
Statement or in the Adamis Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not (i) entitle
any current or former employee or other service provider of Adamis or any ERISA Affiliate to severance benefits or any other payment (including,
without limitation, unemployment compensation, golden parachute, bonus or benefits under any Adamis Employee Plan), except as expressly
provided in this Agreement; or (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation
due any such employee or service provider.
3.15.
Employee Matters. The employment of each of Adamis’ employees is terminable
by Adamis at will, subject to any notice provisions of applicable employment agreements. Adamis is in material compliance with all currently
applicable laws and regulations respecting terms and conditions of employment. There are no material proceedings pending or, to Adamis’
Knowledge, threatened, between Adamis, on the one hand, and any or all of its current or former employees, on the other hand, which would
reasonably be expected to have a Material Adverse Effect on Adamis. Adamis has provided all employees with all material wages, benefits,
relocation benefits, stock options, bonuses and incentives, and all other compensation that became due and payable through the date of
this Agreement.
3.16.
Insurance. The Adamis Disclosure Schedule sets forth all policies of insurance
maintained by, at the expense of or for the benefit of Adamis. All premiums due and payable under all such policies have been paid and,
to Adamis’ Knowledge, Adamis is otherwise in compliance with the terms of such policies.
3.17.
Compliance with Law.
(a)
For all periods of time during which the respective applicable statute of limitations periods have not expired, and except as disclosed
or reflected in the Adamis SEC Reports or the Adamis Disclosure Schedule, (i) to its Knowledge, Adamis has complied in all material respects
with, is not in material violation of, and has not received any written or, to Adamis’ Knowledge, other notices of material violation
with respect to, any applicable Law or regulation with respect to the conduct of its business, or the ownership or operation of its business,
and (ii) Adamis has not received any written notices from any Governmental Entity regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any applicable Law, or (B) any actual, alleged, possible, or potential obligation on the part
of Adamis to undertake, or to bear all or any portion of the cost of, any remedial action related to compliance or non-compliance with
any applicable Law, in each of the above cases which if determined adversely to Adamis would reasonably be expected to have a Material
Adverse Effect on Adamis.
(b)
To the knowledge of Adamis, Adamis and Persons acting in concert with and on behalf of Adamis:
(i)
have not used in any capacity the services of any individual or entity debarred, excluded, or disqualified under 21 U.S.C. Section 335a,
42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules or regulations; and
(ii)
have not been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in
debarment, exclusion, or disqualification under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70,
or any similar laws, rules regulations.
(c)
All pre-clinical and clinical studies relating to product or product candidates, conducted by or on behalf of Adamis have been,
or are being, conducted in all material respects in compliance with the applicable requirements of the FDA’s Good Laboratory Practice
and Good Clinical Practice requirements, including regulations under 21 C.F.R. Parts 50, 54, 56, 58, 312 and applicable guidance documents,
as amended from time to time, the Animal Welfare Act, and all applicable similar requirements in other jurisdictions, including all requirements
relating to protection of human subjects participating in any such clinical studies; provided, however, that the foregoing representation
and warranty is made only to Adamis’ knowledge with respect to clinical and pre-clinical studies conducted by any third party on
behalf of Adamis. Adamis has filed with the FDA, any other Governmental Body, and any institutional review board or comparable body, all
required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect to each investigational
new drug application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its
products or product candidates, as applicable.
(d)
To Adamis’ Knowledge, Adamis has implemented and maintains reasonable written policies and procedures, satisfying the requirements
of applicable Laws, concerning the privacy security, collection and use of information about identified or identifiable individuals.
3.18.
Environmental Matters. To Adamis’ Knowledge, Adamis is, and at all times
has been, in compliance in all material respects with all Environmental Laws and is not subject to any material liability under any Environmental
Law. Adamis has not received, nor to Adamis’ Knowledge has any other Person for whose conduct it is or may be held responsible,
received, any order, written notice, or other written communication from (i) any Governmental Entity or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any Facilities, asserting or alleging any actual or potential violation
of or failure to comply with any Environmental Law, or any obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities.
3.19.
Legal Proceedings. Except as disclosed in the Adamis SEC Reports, there is
no pending Legal Proceeding that has been commenced by or against Adamis that is required to be disclosed in such SEC Reports. There is
no judgment, decree or order against Adamis or, to Adamis’ Knowledge, any of its directors or officers (in their capacities as such),
that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement, or any Ancillary Agreement,
or that would reasonably be expected to have a Material Adverse Effect on Adamis.
3.20.
Contracts; No Defaults.
(a)
Each Adamis Material Contract is enforceable against Adamis in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
(b)
Adamis has not violated or breached, or committed any material default under, any Adamis Material Contract, in each of the above
cases where such violation, beach or default would have a Material Adverse Effect on Adamis. Except as disclosed or reflected in the Adamis
SEC Reports, Adamis has not received any notice or other written or, to Adamis’ Knowledge, oral communication regarding any actual
or possible material violation or breach of, or default under, any Material Contract of Adamis that was required to be disclosed in the
Adamis SEC Reports.
(c)
The Adamis Disclosure Schedule sets forth a list of all material consents or waivers of, or notifications to, any Governmental
Entity or any third party that are required under any Adamis Material Contract in connection with the execution and delivery of this Agreement
and the Ancillary Agreements by Adamis and the consummation of the transactions contemplated hereby and thereby.
3.21.
Labor Matters. Adamis is not a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or labor organization. Adamis is not the subject of any material
Legal Proceeding asserting that Adamis has committed an unfair labor practice or seeking to compel it to bargain with any labor organization
as to wages or conditions of employment. There is no strike, work stoppage or other labor dispute involving Adamis pending or, to Adamis’
Knowledge, threatened against Adamis.
3.22.
Regulatory Compliance.
(a)
Except as disclosed or reflected in the Adamis SEC Reports, each current Adamis Product has been and is being manufactured, tested,
distributed and/or marketed in compliance in all material respects with all applicable requirements under FDCA and similar Law, including
those relating to investigational use, good manufacturing practices, labeling, advertising, record keeping, and filing of report, except
where failure to be in such compliance would not have any Material Adverse Effect on Adamis.
(b)
Except as disclosed or reflected in the Adamis SEC Reports, no Adamis Product has been recalled, withdrawn, suspended or discontinued
by Adamis in the United States or outside the United States (whether voluntarily or otherwise) (other than as a result of decisions made
in the ordinary course of business for business or economic reasons not to pursue research or development of one or more Adamis Products).
Except as disclosed or reflected in the Adamis SEC Reports, there are no proceedings in the United States or outside the United States
(whether completed or pending) seeking the recall, withdrawal, suspension or seizure of any Adamis Product pending.
(c)
As to each Adamis Product for which a human biological license application, human establishment license application, human product
license application, new human drug application, investigational new human drug application, abbreviated or supplemental new human drug
application, or abbreviated or supplemental new animal drug application, new animal drug application, or similar state or foreign regulatory
application has been approved, Adamis and each licensee of any such biological or drug (a “Product Licensee”)
have not been determined to be in violation of 21 U.S.C. sec. 355, 360b, 42 U.S.C. sec. 351, and 21 U.S.C. sec. 822, and 21 C.F.R. Parts
312, 314, 511, 514, 601, and 1301 et seq.
(d)
Except as disclosed or reflected in the Adamis SEC Reports, all manufacturing, warehousing, distributing, and testing operations
conducted on Adamis Products for human use by or for the benefit of Adamis or each Product Licensee are not in violation of and have been
and are being conducted in material compliance with the good manufacturing practice regulations set forth in 21 C.F.R. Parts 210 and 211
and similar applicable Law.
(e)
Neither Adamis, nor to the Knowledge of Adamis, any officer, employee or agent of Adamis, has been convicted of any crime or engaged
in any conduct for which debarment is mandated by 21 U.S.C. Section 335a(a) or any similar applicable Law, or authorized by 21 U.S.C.
Section 335a(b) or any similar applicable Law.
3.23.
Unlawful Payments. To Adamis’ Knowledge, except as disclosed or reflected
in the SEC Reports, none of Adamis, or any officer, director, employee, agent or representative of Adamis has made, directly or indirectly,
any bribe or kickback, illegal political contribution, payment from corporate funds which was incorrectly recorded on the books and records
of Adamis, or unlawful payment from corporate funds, to governmental or municipal officials in their individual capacities for the purpose
of affecting their action or the actions of the jurisdiction which they represent to obtain favorable treatment in securing business or
licenses or to obtain special concessions of any kind whatsoever, or illegal payment from corporate funds to obtain or retain any business.
3.24.
Representations Complete. This Agreement (as limited and qualified by the Adamis
Disclosure Schedule) does not contain any representation, warranty or information that (i) contains an untrue statement of a material
fact, or (ii) omits to state any material fact necessary in order to make the statements herein (in the light of the circumstances under
which such statements have been made) not misleading.
3.25.
Financial Advisor. Except as disclosed in the Adamis SEC Reports or otherwise
disclosed to DMK, no broker, finder or investment banker is entitled to any commission or brokerage or finder’s fee in connection
with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of Adamis.
3.26.
Disclaimer of Reliance. Notwithstanding anything contained in this Agreement
to the contrary, Adamis and Merger Sub acknowledge and agree that neither DMK nor any other Person has made or is making, and Adamis and
Merger Sub expressly disclaim reliance upon, any representations, warranties, or statements relating to DMK whatsoever, express or implied,
beyond those expressly given by DMK in Article II, including any implied representation or warranty as to the accuracy or completeness
of any information regarding DMK furnished or made available to Adamis, Merger Sub, or any of their respective Representatives. Without
limiting the generality of the foregoing, Adamis and Merger Sub acknowledge that no representations or warranties are made with respect
to any projections, forecasts, estimates, budgets, or prospects information that may have been made available to Adamis, Merger Sub, or
any of their respective Representatives (including in certain “data rooms,” “electronic data rooms,” management
presentations, or in any other form in expectation of, or in connection with, the Merger or the other transactions contemplated by this
Agreement).
ARTICLE
IV
CONDUCT BEFORE THE EFFECTIVE TIME
4.1.
Access and Investigation. Subject to the terms of the Confidentiality Agreement
which the Parties agree will continue in full force following the date of this Agreement, during the period commencing on the date of
this Agreement and ending at the Effective Time, unless this Agreement is earlier terminated pursuant to the terms hereof (the “Pre-Closing
Period”), upon reasonable written notice each Party shall, and shall use commercially reasonable efforts to cause such Party’s
Representatives to: (a) provide the other Party and such other Party’s Representatives with reasonable access during normal
business hours to such Party’s Representatives, personnel and assets and to all existing books, records, Tax Returns, work papers
and other documents and information relating to such Party; (b) provide the other Party and such other Party’s Representatives with
such copies of the existing books, records, Tax Returns, work papers, product data, and other documents and information relating to such
Party, and with such additional financial, operating and other data and information regarding such Party as the other Party may reasonably
request; and (c) permit the other Party’s officers and other employees to meet, upon reasonable notice and during normal business
hours, with the chief financial officer and other officers and managers of such Party responsible for such Party’s financial statements
and the internal controls of such Party to discuss such matters as the other Party may deem necessary or appropriate. Notwithstanding
the foregoing, any Party may restrict the foregoing access to the extent that any Law applicable to such party requires such Party to
restrict or prohibit access to any such properties or information or if such restriction is needed to protect attorney-client privilege
or other applicable privilege. No information or knowledge obtained in any investigation pursuant to this Section shall affect or be deemed
to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the Merger.
4.2.
Operation of Adamis’ Business.
(a)
Except as contemplated or permitted by this Agreement, or as disclosed or reflected in the Adamis SEC Reports, or with the prior
written consent of DMK, during the Pre-Closing Period, Adamis shall: (i) use its commercially reasonable efforts to conduct its business
and operations in the Ordinary Course of Business in compliance in material respects with all applicable Law and the requirements of all
Contracts that constitute Material Contracts of Adamis; (ii) use its commercially reasonable efforts to preserve intact its current business
organization, use commercially reasonable efforts to keep available the services of its current employees, officers and consultants and
maintain its relations and goodwill with all material suppliers, customers, landlords, creditors, licensors, licensees, employees and
other Persons having material business relationships with Adamis; (iii) not acquire, lease or license any material right or other material
asset from any other Person; (iv) not change any of its methods of accounting or accounting practices in any material respect, except
as may be required by GAAP; (v) not make any Tax election that would be material to Adamis; or (vi) not agree or commit to take any of
the actions described in clauses (iii) through (v) above. Notwithstanding the foregoing, without the prior written consent of DMK, Adamis
may (i) continue to have discussions with third parties, and may enter into agreements or arrangements and may consummate one or more
transactions regarding, its assets, business or securities as long as such agreement, arrangements or transactions do not constitute an
Alternative Transaction. In addition, for purposes of clarification and without limitation, during the Pre-Closing Period Adamis may have
discussions regarding, and enter into agreements or consummate transactions regarding or with respect to: (i) sales or other dispositions
of assets of Adamis relating to the compounding pharmaceuticals business formerly conducted by Adamis or its Subsidiaries and (ii) commercial,
license or other agreements relating to the sale, license or distribution of one or more of Adamis’ FDA approved commercial drug
products.
(b)
Adamis shall promptly notify DMK of: (i) any notice or other communication from any Person alleging that the Consent of such Person
is or may be required in connection with any of the Contemplated Transactions; (ii) any material notice or other communication that Adamis
receives from any Governmental Body in connection with the Merger or other transactions contemplated by this Agreement; (iii) any material
litigation relating to or involving or otherwise affecting DMK or Adamis that relates to the Merger or other transactions contemplated
by this Agreement; and (iv) any event of which it becomes aware that would be considered reasonably likely to have a Material Adverse
Effect on Adamis or the Surviving Corporation.
4.3.
Operation of DMK’s Business.
(a)
Except as contemplated by this Agreement, during the Pre-Closing Period, DMK shall: (i) use commercially reasonable efforts to
conduct its business and operations in compliance with all applicable Law and the requirements of all Contracts that constitute Material
Contracts of DMK; and (ii) use its commercially reasonable efforts to preserve intact its current business organization, use commercially
reasonable efforts to keep available the services of its current Key Employees, officers and other employees and maintain its relations
and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, employees and other Persons having business relationships
with DMK.
(b)
DMK shall promptly notify Adamis of: (i) any notice or other communication from any Person alleging that the Consent of such Person
is or may be required in connection with any of the Contemplated Transactions; (ii) any material notice or other communication that it
receives from any Governmental Body in connection with the Merger or other transactions contemplated by this Agreement; (iii) any material
litigation relating to or involving or otherwise affecting DMK or Adamis that relates to the Merger or other transactions contemplated
by this Agreement; and (iv) any event of which it becomes aware that would be considered reasonably likely to have a Material Adverse
Effect on DMK or the Surviving Corporation.
4.4.
Notification of Certain Matters. During the Pre-Closing Period, DMK on the
one hand, and Adamis on the other, shall promptly notify the other Party (and, if in writing, furnish copies of) if any of the following
occurs: (a) any notice or other communication is received from any Person alleging that the Consent of such Person is or may be required
in connection with any of the Contemplated Transactions; (b) any Legal Proceeding against or involving or otherwise affecting such Party
is commenced or, to the Knowledge of such Party, threatened against such Party or, to the Knowledge of such Party, any director or officer
of such Party, relating to the Contemplated Transactions; (c) such Party becomes aware of any material inaccuracy in any representation
or warranty made by such Party in this Agreement; or (d) the failure of such Party to comply with any covenant or obligation of such Party;
in each of the above cases that could reasonably be expected to make the timely satisfaction of any of the closing conditions set forth
in Articles VI, VII or VIII, as applicable, not possible. No notification given pursuant to this Section shall change, limit or otherwise
affect any of the representations, warranties, covenants or obligations of the notifying Party contained in this Agreement or its Disclosure
Schedule for purposes of Section 7.1 or 7.2 in the case of DMK, or Section 8.1 or 8.2 in the case of Adamis; and provided further, that
the failure to give such notice will not be treated as a breach of covenant for the purposes of Articles VI, VII or VIII, unless
the failure to give such notice results in material prejudice to the other party.
4.5.
No Solicitation.
(a)
Each Party agrees that during the Pre-Closing Period, it shall not, and shall not authorize and shall use its reasonable best efforts
to cause its Representatives not to, directly or indirectly, (i) solicit, initiate, knowingly encourage, induce or facilitate the communication,
making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry or take any action that could reasonably be expected
to lead to an Acquisition Proposal or Acquisition Inquiry; (ii) furnish any information regarding such Party to any Person in connection
with or in response to an Acquisition Proposal or Acquisition Inquiry; (iii) engage in discussions or negotiations with any Person other
than the other Party hereto and its Representatives regarding any Acquisition Proposal or Acquisition Inquiry; (iv) approve, endorse or
recommend any Acquisition Proposal or, with respect to Adamis effect any Change in the Adamis Board Recommendation or, with respect to
DMK, effect any change in the DMK Board Recommendation; or (v) enter into any letter of intent or similar document or any agreement contemplating
or otherwise relating to any Acquisition Proposal (other than a confidentiality agreement containing terms similar in material respects
to the Confidentiality Agreement) or enter into any agreement in principle requiring such Party to abandon, terminate or fail to consummate
the Merger or breach its obligations hereunder or propose or agree to do any of the foregoing. For purposes of clarification, during the
Pre-Closing Period, Adamis may continue to have discussions with third parties, and may enter into agreements or arrangements and may
consummate one or more transactions regarding, its assets, business or securities as long as such agreements, arrangements or transactions
do not constitute an Acquisition Proposal, Acquisition Inquiry or Alternative Transaction. If any Party or any Representative of such
Party receives an Acquisition Proposal or Acquisition Inquiry at any time during the Pre-Closing Period, then such Party shall promptly
(and in no event later than one business day after such Party becomes aware of such Acquisition Proposal or Acquisition Inquiry) advise
the other Party orally and in writing of such Acquisition Proposal or Acquisition Inquiry (including the identity of the Person making
or submitting such Acquisition Proposal or Acquisition Inquiry, and the terms thereof). Each Party shall immediately cease and cause to
be terminated any existing discussions with any Person that relate to any Acquisition Proposal or Acquisition Inquiry as of the date of
this Agreement, and shall instruct its Representatives accordingly. Each Party shall not terminate, release or permit the release of any
Person from, or waive or permit the waiver of any provision of or right under, any confidentiality, non-solicitation, no hire, “standstill”
or similar agreement (whether entered into before or after the date of this Agreement) to which such Party is a party or under which such
Party has any rights, and shall enforce or cause to be enforced each such agreement to the fullest extent possible.
(b)
Notwithstanding anything contained in this Section:
(i)
before obtaining the Required Adamis Stockholder Vote, Adamis may furnish nonpublic information regarding Adamis to, and enter
into discussions or negotiations with, any Person in response to an unsolicited, bona fide written Acquisition Proposal made or received
after the date of this Agreement, which the Adamis Board determines in good faith constitutes, or is reasonably likely to result in, a
Superior Proposal (and is not withdrawn) if: (A) neither Adamis nor any Representative of Adamis shall have failed to comply with this
Section; (B) the Adamis Board concludes in good faith, after consultation with outside counsel, that there is a reasonable risk that the
failure to take such action would result in a breach of the fiduciary duties of the Adamis Board under applicable law; (C) within
one business day following the furnishing of any such nonpublic information to, or entering into discussions with, such Person, Adamis
gives DMK written notice of the identity of such Person and that Adamis intends to furnish nonpublic information to, or enter into discussions
with, such Person or has furnished, or entered into discussions with, such Person; (D) Adamis receives from such Person an executed
confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions, no
hire provisions and “standstill” provisions) at least as favorable to Adamis as those contained in the Confidentiality Agreement;
and (E) within one business day following the furnishing of any such nonpublic information to such Person, Adamis furnishes such nonpublic
information to DMK (to the extent such nonpublic information has not been previously furnished by Adamis to DMK). Without limiting the
generality of the foregoing, Adamis acknowledges and agrees that in the event any Representative of Adamis takes any action that, if take
by Adamis, would constitutes a failure to comply with this Section by Adamis, the taking of such action by such Representative shall be
deemed to constitute a failure to comply with this Section by Adamis for purposes of this Agreement; and
(ii)
Notwithstanding anything to the contrary set forth in this Agreement, if at any time before obtaining the Required Adamis Stockholder
Vote, Adamis receives an unsolicited bona fide written Acquisition Proposal that did not relate to a breach of this Section and which
the Adamis Board determines in good faith constitutes a Superior Proposal, and Adamis and its Representatives have otherwise complied
in all material respects with its obligations under this Section 4.5, the Adamis Board may on four (4) Business Days’ prior written
Notice of Superior Proposal to DMK (“Notice of Superior Proposal”) (which notice shall include the forms of
agreements pursuant to which the Superior Proposal would be implemented or, if no such agreements have been proposed, a written summary
of the material terms and conditions of such Superior Proposal) (it being understood that Adamis must deliver a new Notice of Superior
Proposal and thereafter negotiate as provided herein in the event of any modification to an Acquisition Proposal if such modification
results in the determination that such Acquisition Proposal is a Superior Proposal), take any action otherwise prohibited by Section 4.5(a)
and cause Adamis to terminate this Agreement pursuant to Section 9.1(i) if (A) the Adamis Board shall have first determined in good faith,
after consultation with outside counsel, that there is a reasonable risk that the failure to take such action would result in a breach
of its fiduciary duties under the DGCL, and (B) Adamis shall have notified DMK of such determination and offered to discuss in good faith
with DMK (and, if DMK accepts, thereafter negotiates in good faith), for a period of no less than four (4) Business Days, any adjustments
in the terms and conditions of this Agreement proposed by DMK, and the Adamis Board shall have resolved, after taking into account the
results of such discussions and proposals by DMK, if any, that the Acquisition Proposal remains a Superior Proposal.
(c)
Nothing contained in this Section or in Section 5.3 shall prohibit Adamis from taking and disclosing to its stockholders a position
with respect to a tender offer contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or from making any disclosure
to Adamis’ stockholders if, in the good faith judgment of the Adamis Board, after consultation with outside counsel, that there
is a reasonable risk that the failure to so disclose would result in a breach of its fiduciary duties under the DGCL; provided that disclosure
to stockholders pursuant to Rule 14e-2 relating to an Acquisition Proposal or Acquisition Inquiry shall be deemed to be a Change in the
Adamis Board Recommendation unless the Adamis Board expressly, and without qualification, concurrently with such disclosure reaffirms
the Adamis Board Recommendation.
(d)
For purposes of clarification, during the Pre-Closing Period and thereafter, Adamis may continue to have discussions with third
parties, and may enter into agreements or arrangements and may consummate one or more transactions regarding, its assets, business or
securities as long as such agreement, arrangements or transactions do not constitute an Acquisition Transaction.
ARTICLE
V
ADDITIONAL AGREEMENTS
5.1.
Proxy Statement.
(a)
As promptly as reasonably practicable after the execution of this Agreement, Adamis, in cooperation with DMK, shall prepare and
file with the SEC the Proxy Statement. The Proxy Statement shall, among other things, include the Adamis Board Recommendation and (i)
solicit the approval of and include the recommendation of the Adamis Board to Adamis’ stockholders that they vote in favor of the
Adamis Proposals and the Other Adamis Proposals. DMK shall deliver to Adamis audited financial statements as of and for the years ended
December 31, 2020 and 2021 (and, if determined to be required in Adamis’ reports and filings with the SEC under applicable
securities laws and SEC rules and regulations, 2022), with a report thereon from DMK’s independent accounting firm (the “DMK
Audited Financial Statements”), together with updated and reviewed DMK Interim Financial Statements. DMK shall promptly
furnish to Adamis all other information concerning DMK, and shall use its commercially reasonable efforts to cause to be finished all
information with respect to its stockholders, that is required to be disclosed in the Proxy Statement, or in subsequent filings that Adamis
may make with the SEC.
(b)
Adamis shall use all reasonable efforts to cause the Proxy Statement to comply with the applicable rules and regulations promulgated
by the SEC, and shall respond promptly to any comments of the SEC or its staff and shall use all reasonable efforts to resolve any comments
of SEC on the Proxy Statement as promptly as reasonably practicable. Adamis shall use its commercially reasonable efforts to cause the
definitive Proxy Statement to be mailed to Adamis’ stockholders after review by the SEC has been completed. Adamis shall notify
DMK promptly upon the receipt of any comments from the SEC or its staff or any other government officials and of any request by the SEC
or its staff or any other government officials for amendments or supplements to the Proxy Statement and shall supply DMK with copies of
all substantive correspondence between Adamis or any of its Representatives, on the one hand, and the SEC, or its staff or any other government
officials, on the other hand, with respect to the Proxy Statement. Whenever any event occurs which is required to be set forth in an amendment
or supplement to the Proxy Statement, DMK or Adamis, as the case may be, shall use commercially reasonable efforts to promptly inform
the other of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders
of Adamis or DMK, such amendment or supplement. If Adamis becomes aware that any information in the Proxy Statement is or has become false
or misleading in any material respect, Adamis shall take all reasonable steps to make such corrections as are required by applicable law
or otherwise deemed appropriate by Adamis.
5.2.
DMK Stockholder Approval.
(a)
DMK shall take all action necessary under all applicable Law to call, give notice of and hold a meeting of the holders of DMK Capital
Stock to vote on the approval of the Merger, adoption of this Agreement and the related plan of merger, and related matters (in either
case, the “DMK Stockholders Meeting”). The DMK Stockholders Meeting shall be held reasonably after the date
of this Agreement and after the DMK Information Statement is available. DMK shall use commercially reasonable efforts to ensure that all
proxies and consents solicited in connection with the DMK Stockholders Meeting are solicited in compliance with all applicable Law. The
Parties agree that the holders of DMK Capital Stock may take all action required under this Agreement by means of action by written consent
as permitted by the NJBCA in lieu of an actual meeting of the holders of DMK Capital Stock.
(b)
DMK agrees that: (i) the Board of Directors of DMK shall recommend that the holders of DMK Capital Stock vote to approve the Merger
and adopt this Agreement and the related plan of merger, and such other matters as are contemplated by this Agreement, and shall use commercially
reasonable efforts to solicit such approval (the recommendation of the board of directors of DMK that the stockholders of DMK vote to
approve and adopt the Merger, this Agreement and the related plan of merger, and such other matters contemplated by this Agreement being
referred to as the “DMK Board Recommendation”); and (ii) the Board of Directors of DMK shall not make or effect
any change, withdrawal, qualification or modification of the DMK Board Recommendation in any manner that would reasonably be expected
to prevent, delay or materially impair the consummation of the Merger or any of the other Contemplated Transactions.
5.3.
Adamis Stockholders Meeting; Change in the Adamis Board Recommendation; Adoption of Agreement
by Adamis as Sole Stockholder of Merger Sub.
(a)
Adamis shall take all action necessary under applicable Law to call, give notice of and hold a meeting of the stockholders of Adamis
to vote on the Adamis Proposals (such meeting, the “Adamis Stockholders Meeting”). Adamis shall use its commercially
reasonable efforts to ensure that all proxies solicited in connection with the Adamis Stockholders Meeting are solicited in compliance
with all applicable Law.
(b)
Adamis agrees that, subject to Sections 4.5 and 5.6(c): (i) the Adamis Board shall recommend that the stockholders of Adamis vote
to approve and adopt (as the case may be), (A) the Adamis Share Issuance Proposal, and (B) the Adamis Reverse Stock Split Amendment
(proposals (A) and (B) being referred to as the “Adamis Proposals”), and the Adamis Board may also approve and
recommend that the stockholders approve additional proposals, and such other matters as the Adamis Board may determine are reasonably
necessary or appropriate to effect the Merger and the other Contemplated Transactions (the “Other Adamis Proposals”),
and shall use commercially reasonable efforts to solicit such approval or adoption, as the case may be; (ii) the Proxy Statement shall
include a statement to the effect that the Board of Directors of Adamis recommends that the stockholders of Adamis vote to approve and
adopt (as the case may be) the Adamis Proposals (such recommendation being referred to herein as the “Adamis Board Recommendation”);
and (iii) except as expressly permitted by this Agreement, the Board of Directors of Adamis shall not make or effect any Change in the
Adamis Board Recommendation.
(c)
Subject to Sections 4.5 and 5.6(c), Adamis shall take all action that is both reasonable and lawful to solicit the approval of
its stockholders of the Adamis Proposals and shall take all other action reasonably necessary or advisable to secure the vote or consent
of the stockholders of Adamis required by the DGCL to obtain such approvals. If, on the date of Adamis Stockholders Meeting or any subsequent
adjournment thereof pursuant to this Section, a quorum for the conduct of business does not exist or Adamis has not received proxies representing
a sufficient number of shares of Adamis voting stock to approve the Adamis Proposals, Adamis may adjourn the Adamis Stockholders Meeting
to solicit additional proxies for such proposals, and shall continue to use its commercially reasonable efforts, together with its proxy
solicitor, to assist in the solicitation of proxies from stockholders relating to the Adamis Proposals.
(d)
Adamis, as sole stockholder of Merger Sub, shall adopt this Agreement and the related plan of merger as soon as practicable following
the Execution Date, including by means of action by written consent, as permitted by the NJBCA in lieu of an actual meeting of the stockholders
of Merger Sub.
5.4.
Registration Statement.
Within sixty (60) days following the Closing Date, or as soon thereafter as is reasonably practicable including, without limitation,
(a) taking into account any restrictions, limitations or prohibitions on the filing of registration statements by Adamis that may be contained
in any agreement entered into by Adamis in connection with any financing transaction completed after the Agreement Date, and (b) applicable
financial statement, audit and auditor requirements concerning the auditor reports and financial statements that are required to be included
in the Registration Statement, Adamis will prepare and file with the SEC (x) a registration statement on Form S-3 (or if Form S-3 is not
available, such other form as may provide for a resale of the Merger Consideration shares, but with such registration obligations otherwise
consistent with the requirements of this Section) (such a new registration statement, together with all amendments and supplements thereto,
including post-effective amendments, all exhibits thereto and all material incorporated by reference therein, the “Registration
Statement”), or (y) a prospectus supplement pursuant to an existing effective registration statement of Adamis, covering
the resale of the Merger Consideration shares of Adamis Common Stock (including the Series E Preferred Conversion Shares) issued pursuant
to Section 1.6. If Adamis files such a Registration Statement, Adamis will use commercially reasonable efforts to cause the Registration
Statement to be declared effective as soon as reasonably possible following the filing of the Registration Statement and be maintained
(or, if applicable, the prospectus supplement maintained) until, with respect to an individual former DMK stockholder, the earlier to
occur of (i) the date that all such Merger Consideration shares held by such stockholder may be publicly resold without restrictions
pursuant to the provisions of Rule 144, or (ii) the date that all of such Merger Consideration shares have actually been resold; provided,
however, that Adamis will have no obligation to file the Registration Statement or prospectus supplement, or have the Registration Statement
declared effective or maintain such prospectus supplement, unless and until any required Form 8-K Amendment relating to the Contemplated
Transactions, if required by applicable law, is filed with the SEC (and Adamis shall use its reasonable efforts to timely file the Form
8-K Amendment, if required). Notwithstanding the registration obligations set forth in this Section, in the event the SEC informs Adamis
that all of the shares requested to be included in the registration cannot, as a result of the application of Rule 415, be registered
for resale on such registration statement, Adamis agrees to promptly inform the holders of such shares and use its commercially reasonable
efforts to file amendments to the Registration Statement as required by the SEC covering the maximum number of Registrable Securities
that are permitted to be registered by the SEC, and the limitation on the number of such Merger Consideration shares included in the Registration
Statement as a result of the application of Rule 415 shall not be deemed to be a breach of any provision of this Agreement. For not more
than sixty (60) consecutive days or for a total of not more than ninety (90) days in any twelve (12) month period, Adamis
may suspend the use of any prospectus included in the Registration Statement (or the use of the applicable prospectus supplement) if Adamis
determines in good faith that such suspension is necessary to (x) delay the disclosure of material non-public information concerning
Adamis, the disclosure of which at the time is not, in the good faith opinion of Adamis, in the best interests of Adamis and its stockholders,
or (y) amend or supplement the Registration Statement or the related prospectus or prospectus supplement so that the Registration
Statement, prospectus or prospectus supplement will not include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in the case of the prospectus in light of the circumstances
under which they were made, not misleading.
5.5.
Information Statement; DMK Written Consent.
(a)
As promptly as reasonably practicable after the date of this Agreement, DMK will prepare, with the cooperation of Adamis, and cause
to be delivered to its stockholders an information statement for the holders of DMK Capital Stock (the “Information Statement”)
to solicit the written consent of its stockholders in lieu of a meeting pursuant to the NJBCA (the “DMK Written Consent”)
for purposes of (i) adopting this Agreement and the relating plan of merger and approving the Merger, and all other transactions
contemplated by this Agreement, (ii) acknowledging that the approval given thereby is irrevocable, that such DMK Stockholder is aware
of its rights to demand appraisal for its shares pursuant to Section 14A:11 of the NJBCA, and that by its approval of the Merger
it is not entitled to appraisal rights with respect to its shares in connection with the Merger and thereby waives any rights to receive
payment of the fair value of its DMK Capital Stock under the NJBCA, and (iii) acknowledging the conversion of all outstanding DMK
Convertible Notes into DMK Common Stock prior to the Effective Time (collectively, the “DMK Stockholder Matters”).
DMK shall use commercially reasonable efforts to cause the Information Statement to comply with applicable federal and state securities
laws requirements. Each of Adamis and DMK agree to provide promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion
in the Information Statement, or in any amendments or supplements thereto. DMK shall not include in the Information Statement any information
with respect to Adamis or its affiliates, the form and content of which information has not been approved by Adamis prior to such inclusion.
(b)
(i) The board of directors of DMK will recommend that its stockholders vote to approve the DMK Stockholder Matters (such recommendation
the “DMK Board Recommendation”); (ii) the Information Statement will include the DMK Board Recommendation;
and (iii) the DMK Board Recommendation will not be withdrawn or modified in a manner adverse to Adamis, and no resolution by the
board of directors of DMK or any committee thereof to withdraw or modify the DMK Board Recommendation in a manner adverse to Adamis will
be adopted or proposed.
5.6.
Adamis Stockholders Meeting.
(a)
Adamis will take all action necessary under applicable Law to call, give notice of and hold the Adamis Stockholders Meeting to
vote on (i) the Adamis Proposals, and (ii) the Other Adamis Proposals. The Adamis Stockholders Meeting will be held on a date
selected by Adamis, following the date on which the definitive Proxy Statement may be mailed to the Adamis stockholders; provided, however,
notwithstanding anything to the contrary contained herein, Adamis will have the absolute discretion to adjourn the Adamis Stockholders
Meeting for a period of up to sixty (60) days after the initial date of the Adamis Stockholders Meeting is scheduled or convened
if Adamis determines it necessary or appropriate to solicit additional proxies in favor of the Adamis Proposals.
(b)
Subject to Section 5.6(c): (i) the board of directors of Adamis will recommend that its stockholders vote to approve the Adamis
Proposals (such recommendation, the “Adamis Board Recommendation”); (ii) the Proxy Statement will include
the Adamis Board Recommendation; and (iii) the Adamis Board Recommendation will not be withdrawn or modified in a manner adverse
to DMK.
(c)
Notwithstanding anything to the contrary contained in this Agreement, at any time before the approval and adoption of the Adamis
Proposals by the Required Adamis Stockholder Vote, the Board of Directors of Adamis may effect a Change in the Adamis Board Recommendation
in accordance with the provisions of Section 4.5(b), provided that DMK must receive not less than four (4) Business Days prior written
notice from Adamis confirming that Adamis’ Board of Directors has determined to make a Change in the Adamis Board Recommendation.
For purposes of this Agreement, “Change in the Adamis Board Recommendation” means any: (i) withholding,
withdrawal, qualification or modification of (or any proposal or resolution to withhold, withdraw, qualify or modify) the Adamis Board
Recommendation in any manner adverse to DMK; (ii) action or statement by Adamis in connection with Adamis Stockholders Meeting contrary
to the Adamis Board Recommendation; (iii) taking any position other than opposition (including making no recommendation), by the Adamis
Board with respect to an Acquisition Proposal that has been publicly disclosed or otherwise become publicly known to any Person other
than Adamis, DMK and their respective Representatives after a reasonable amount of time has elapsed for the Adamis Board to review and
make a recommendation with respect thereto (and in no event more than ten (10) Business Days after being so publicly disclosed or otherwise
become public known); (iv) failure of the Adamis Board to (A) if a tender offer, take-over bid or exchange offer that constitutes or would
constitute an Acquisition Proposal (other than by DMK) is commenced, recommend that the Adamis stockholders not accept such tender offer,
take-over bid or exchange offer after a reasonable amount of time has elapsed for the Adamis Board to review and make a recommendation
with respect thereto (and in no event more than ten Business Days following commencement of such tender offer, take-over bid or exchange
offer), or (B) reaffirm in writing the Adamis Board Recommendation in connection with a disclosure pursuant to Section 4.5(c) or otherwise
within two (2) Business Days of a request by DMK to do so; or (v) approval, adoption or recommendation, or publicly disclosed proposal
to approve, adopt or recommend, an Acquisition Proposal.
(d)
Nothing contained in this Agreement will prohibit Adamis or its board of directors from complying with Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act; provided, however, that any disclosure made by Adamis or its board of directors pursuant to Rules
14d-9 and 14e-2(a) will be limited to a statement that Adamis is unable to take a position with respect to the bidder’s tender offer
unless the board of directors of Adamis determines in good faith, after consultation with its outside legal counsel, that there is a reasonable
risk that the failure to make such a statement would result in a breach of its fiduciary duties under applicable Law.
5.7.
Regulatory Approvals. Each Party shall use commercially reasonable efforts
to file or otherwise submit, as soon as practicable after the date of this Agreement, all applications, notices, reports and other documents
reasonably required to be filed or otherwise submitted by such Party with or to any Governmental Entity with respect to the Merger and
the other Contemplated Transactions, and to submit promptly any additional information requested by any such Governmental Entity.
5.8.
Indemnification of Officers and Directors.
(a)
From and after the Effective Time through the third anniversary of the date the Effective Time occurs, Adamis shall and shall cause
the Surviving Corporation to, fulfill and honor in all respects the obligations of Adamis and DMK pursuant to any indemnification provisions
under their respective certificates of incorporation and bylaws regarding indemnification of directors and officers that are in effect
on the date of this Agreement (the persons entitled to be indemnified pursuant to such provisions being referred to collectively as the
“D&O Indemnified Parties”); provided, however, that after the Closing and the Effective Time of the Merger,
the DMK directors and officers who become directors and officers of Adamis will enter into the Adamis standard indemnification agreement
which will supersede any other contractual rights to indemnification by the Surviving Corporation.
(b)
The certificate of incorporation and bylaws of Adamis and the Surviving Corporation, as the case may be, shall contain provisions
no less favorable with respect to indemnification and elimination of liability for monetary damages of present and former directors and
officers than are presently set forth in the certificate of incorporation and bylaws of DMK, which provisions shall not be amended, modified
or repealed for a period of six (6) years from the Effective Time in a manner that would adversely affect the rights thereunder of the
D&O Indemnified Parties.
(c)
Adamis, at its election, may purchase a “tail” policy on DMK’s existing directors and officers liability insurance
policy (if any) for a period of six (6) years after the Closing. Adamis will maintain either a directors and officers liability insurance
policy or a “tail” policy on Adamis’ existing directors and officers.
(d)
The provisions of this Section are intended to be in addition to the rights otherwise available to the D&O Indemnified Parties
by law, charter, statute, by-law or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the D&O
Indemnified Parties, their heirs and their representatives.
(e)
Adamis shall cause the Surviving Corporation to perform all of the obligations of the Surviving Corporation under this Section.
5.9.
Additional Agreements.
(a)
Subject to Sections 4.5, 5.2, 5.3, 5.5 and 5.6, the Parties shall use commercially reasonable efforts to cause to be taken all
actions necessary to consummate the Merger and make effective the other Contemplated Transactions. Without limiting the generality of
the foregoing, but subject to paragraph (b) below, each Party to this Agreement: (i) shall make all filings and other submissions (if
any) and give all notices (if any) reasonably required to be made and given by such Party in connection with the Merger and the other
Contemplated Transactions; (ii) shall use commercially reasonable efforts to obtain each Consent (if any) reasonably required to be obtained
(pursuant to any applicable Law or Material Contract) by such Party in connection with the Merger or any of the other Contemplated Transactions
or for such Contract to remain in full force and effect; (iii) shall use commercially reasonable efforts to lift any injunction prohibiting,
or any other legal bar to, the Merger or any of the other Contemplated Transactions; and (iv) shall use commercially reasonable efforts
to satisfy the conditions precedent to the consummation of this Agreement. Each Party shall provide to the other Party a copy of each
proposed filing with or other submission to any Governmental Entity relating to any of the Contemplated Transactions, and shall (if reasonably
practicable) give the other Party a reasonable time before making such filing or other submission in which to review and comment on such
proposed filing or other submission. Each Party shall promptly deliver to the other Party a copy of each such filing or other submission
made, each notice given and each Consent obtained by such Party during the Pre-Closing Period.
(b)
Notwithstanding anything to the contrary contained in this Agreement, no Party shall have any obligation under this Agreement:
(i) to dispose of or transfer any assets; (ii) to discontinue offering any product or service; (iii) to license or otherwise make
available to any Person any Intellectual Property; (iv) to hold separate any assets or operations (either before or after the Closing
Date); (v) to make any commitment (to any Governmental Entity or otherwise) regarding its future operations; or (vi) to contest any Legal
Proceeding or any order, writ, injunction or decree relating to the Merger or any of the other Contemplated Transactions if such Party
determines in good faith that contesting such Legal Proceeding or order, writ, injunction or decree might not be advisable.
(c)
Prior to the Closing, Adamis shall have the right to control the defense and settlement of any stockholder litigation against Adamis
or any of its directors or officers relating to this Agreement or the Contemplated Transactions, and shall, subject to applicable considerations
of privilege and confidentiality, keep DMK reasonably apprised of any material developments in connection with any such litigation.
5.10.
Disclosure; Public Announcements. The Parties shall use their commercially
reasonable efforts to agree on a mutually acceptable joint initial press release and Adamis Form 8-K announcing the execution and
delivery of this Agreement. Without limiting any of either Party’s obligations under the Confidentiality Agreement, each Party shall
not issue any press release or make any public disclosure regarding the Merger or any of the other Contemplated Transactions unless: (a) the
other Party shall have approved such press release or disclosure (which approval shall not be unreasonably withheld or delayed); or (b) such
Party shall have determined in good faith, upon the advice of outside legal counsel, that such disclosure is required by applicable Law.
Notwithstanding the foregoing, without consulting with the other Party, Adamis and its officers may make public statements, including
in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference
calls, so long as any such statements are consistent in material respects with previous press releases, public disclosures or public statements
made by DMK or Adamis in compliance with this Section.
5.11.
Directors; Officers. Prior to the Effective Time, and subject to the receipt
of any required stockholder vote, Adamis shall use its best efforts to take all actions necessary (i) to cause the authorized number
of members of the Board of Directors of Adamis to remain at five (5) or to be such other number as Adamis and DMK may mutually agree,
effective at the Effective Time; (ii) to obtain the resignations, effective at the Effective Time, of the directors of Adamis who
will not continue as directors after the Effective Time as contemplated by this Agreement, and (iii) so that the Persons listed in
Annex 5.11 are elected or appointed, as applicable, to the positions of officers
and directors of Adamis, as set forth therein, to serve in such positions effective as of the Effective Time. If during the Pre-Closing
period any Person listed in Annex 5.11 indicates that he or she is unable or unwilling
to serve as officer or director of Adamis or the Surviving Corporation, then Adamis and DMK will use their best efforts to agree on a
successor. Notwithstanding the foregoing, the Parties acknowledge that so long as Adamis remains a public reporting company, Adamis and
DMK will use their best efforts such that the board of directors of Adamis will continue to satisfy applicable securities laws and listing
requirements of any exchange or market on which the Adamis Common Stock is then listed or traded, including, without limitation, maintaining
an independent audit committee and having an audit committee financial expert serve on such committee, and the actions taken by Adamis
and DMK hereunder regarding the composition of the Board of Directors of Adamis immediately after the Effective Time will be taken so
as to allow Adamis to comply with such applicable Law.
5.12.
Tax Matters.
(a)
Adamis, Merger Sub and DMK shall use their respective commercially reasonable efforts to cause the Merger to qualify, and shall
use their respective commercially reasonable efforts not to, and not to permit or cause any affiliate to, take any actions or cause any
action to be taken which would prevent the Merger from qualifying, as a “reorganization” under Section 368(a) of the Code.
(b)
This Agreement is intended to constitute, and the Parties hereto hereby adopt this Agreement as, a “plan of reorganization”
within the meaning Treasury Regulation Sections 1.368-2(g) and 1.368-3(a). Adamis, Merger Sub and DMK shall report the Merger as reorganization
within the meaning of Section 368(a) of the Code, unless otherwise required pursuant to a “determination” within the meaning
of Section 1313(a) of the Code.
(c)
DMK shall (and shall cause its Affiliates to) provide any information reasonably requested to allow Adamis to comply with any information
reporting or withholding requirements contained in the Code or other applicable Laws with respect to the transactions contemplated by,
or any payment made in connection with, this Agreement.
(d)
All transfer, documentary, sales, use, value added, goods and services, stamp, registration, notarial fees and other similar Taxes
and fees (collectively, “Transfer Taxes”), shall be paid by the Surviving Corporation. After the Closing Date,
the Surviving Corporation will prepare and file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes
that are required to be filed after the Closing Date, and, if required by applicable Law, Adamis will, and will cause its Affiliates to,
cooperate and join in the execution of any such Tax Returns and other documentation, as applicable. Each Party shall (and shall cause
its Affiliates to) provide certificates or forms, and timely execute any Tax Returns, that are necessary or appropriate to establish an
exemption for (or reduction in) any Transfer Tax.
(e)
Each of the Parties shall (and shall cause their respective Affiliates to) cooperate fully, as and to the extent reasonably requested
by another Party, in connection with the filing of relevant Tax Returns, and any audit or tax proceeding. Such cooperation shall include
the retention and (upon the other Party’s request) the provision (with the right to make copies) of records and information reasonably
relevant to any tax proceeding or audit, making employees available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder.
5.13.
Adamis Amendments. Subject to Section 5.6(c), Adamis agrees to recommend to
its stockholders that the Adamis Restated Certificate be amended by means of the Adamis Reverse Stock Split Amendment to effect a reverse
stock split of the Adamis Common Stock by a ratio determined by the Adamis Board (the “Adamis Reverse Stock Split Proposal”).
5.14.
DMK’s Auditors. DMK will use its commercially reasonable efforts to cause
its management and its independent auditors to facilitate on a timely basis (a) the preparation of financial statements (including audited
and pro forma financial statements if required) as required by Adamis to comply with Law, (b) the review of DMK’s audit work papers
for up to the past two years or such lesser period of which DMK has been in existence, including the examination of selected interim financial
statements and data, and (c) such auditor reports and consents relating to the including to the inclusion of the DMK Financial Statements
in the Proxy Statement, reports that Adamis files with the SEC, and such other documents and filings as Adamis or DMK may be determine
are necessary or appropriate.
5.15.
Legends. Adamis shall be entitled to place such appropriate legends on the
certificates evidencing any shares of Adamis Common Stock to be received in the Merger by equity holders of DMK Capital Stock, including,
without limitation, persons who may after the Effective Time be considered “affiliates” of Adamis for purposes of Rules 144
and 145 under the Securities Act, as Adamis reasonably determines is required or appropriate under applicable laws, and to issue appropriate
stop transfer instructions to the transfer agent for such shares of Adamis Common Stock.
5.16.
Confidentiality. Each of Adamis and DMK hereby agrees that the information
obtained in any investigation pursuant to this Agreement, or pursuant to the negotiation and execution of this Agreement or the effectuation
of the transaction contemplated hereby shall be governed by the terms of the Confidentiality Agreement dated as of April 29, 2022, previously
executed by and between DMK and Adamis (the “Confidentiality Agreement”).
5.17.
Section 16 Matters. Subject to the following sentence, prior to the Effective
Time, Adamis and DMK will take all such steps as may be required (to the extent permitted under applicable Law and no-action letters issued
by the SEC) to cause any acquisition of Adamis Common Stock (including derivative securities with respect to Adamis Common Stock) by each
officer or director of DMK (in their capacity as officer or director) who is or will become subject to the reporting requirements of Section
16(a) of the Exchange Act with respect to Adamis, to be exempt under Rule 16b-3 under the Exchange Act. Prior to the Closing Date, DMK
will furnish the following information to Adamis for each director, officer or securityholder of DMK who, immediately after the Effective
Time, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Adamis: (a) the
number of shares of DMK Capital Stock held by such individual and expected to be exchanged for shares of Adamis Common Stock pursuant
to the Merger; (b) the number of other derivative securities (if any) with respect to DMK Capital Stock held by such individual and
expected to be converted into shares of Adamis Common Stock or derivative securities with respect to Adamis Common Stock in connection
with the Merger; and (c) such other information as may be reasonably required in connection with compliance with Section 16(a) of
the Exchange Act.
5.18.
Listing. If the Adamis Common Stock is then listed on the Nasdaq Capital Market
(“Nasdaq”), Adamis will (a) to the extent required by the rules and regulations of Nasdaq, prepare and
submit to Nasdaq a notification form for the listing of the shares of Adamis Common Stock to be issued and issuable pursuant to the Merger
and use all reasonable efforts to cause such shares to be approved for listing (subject to notice of issuance), and (b) to the extent
required by Nasdaq Marketplace Rules, file an initial listing for the Adamis Common Stock (the “Nasdaq Listing Application”)
and use its reasonable best efforts to cause such Nasdaq Listing Application to be conditionally approved prior to the Effective Time.
DMK will cooperate with Adamis as reasonably requested by Adamis with respect to such Nasdaq Listing Application and will promptly furnish
to Adamis all information concerning DMK and its stockholders that may be required or reasonably requested in connection with any action
contemplated by this Section, or in any appeal by Adamis to Nasdaq or a Nasdaq hearings panel concerning any de-listing determination
that Nasdaq may make.
5.19.
Private Placement. In connection with the solicitation of the DMK Stockholder
Approval, DMK shall deliver to each holder of DMK Capital Stock and each holder of a DMK Convertible Note a customary form of investor
questionnaire reasonably satisfactory to Adamis. In reliance on such investor questionnaires, Adamis and DMK shall take such action as
may be necessary or appropriate so that the issuance of shares of Adamis Common Stock and Series E Preferred as Merger Consideration in
the Merger shall validly qualify for an exemption from the registration and prospectus delivery requirements of the Securities Act and
the equivalent state “blue-sky” laws.
5.20.
Termination of Certain DMK Agreements. Prior to the Closing Date, DMK will
obtain the necessary written consent or agreement of its stockholders or other counterparties, as applicable, to, effective upon the Closing
Date, terminate the agreements to which DMK is a party or by which DMK is bound, if any, that are set forth on Schedule 5.20.
5.21.
DMK Options.
(a)
(a) At the Effective Time, each DMK Option that is outstanding and unexercised
immediately prior to the Effective Time under the DMK Stock Plan, whether or not vested, will be converted into and become an option to
purchase Adamis Common Stock, in a manner consistent with the requirements of Section 409A and, for DMK Options qualified under Section
422 of the Code, Section 424 of the Code, and Adamis shall assume the DMK Stock Plan. All rights with respect to DMK Common Stock under
DMK Options assumed by Adamis will thereupon be converted into rights with respect to Adamis Common Stock. Accordingly, from and after
the Effective Time: (i) each DMK Option assumed by Adamis may be exercised solely for shares of Adamis Common Stock; (ii) the number of
shares of Adamis Common Stock subject to each DMK Option assumed by Adamis will be determined by multiplying (x) the number of shares
of DMK Common Stock that were subject to such DMK Option, as in effect immediately prior to the Effective Time by (y) the Exchange Ratio
and rounding the resulting number down to the nearest whole number of shares of Adamis Common Stock; (iii) the per share exercise price
for the Adamis Common Stock issuable upon exercise of each DMK Option assumed by Adamis will be determined by dividing (x) the per share
exercise price of DMK Common Stock subject to such DMK Option, as in effect immediately prior to the Effective Time, by (y) the Exchange
Ratio and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any DMK Option
assumed by Adamis will continue in full force and effect and the term, exercisability, vesting schedule, status as an “incentive
stock option” under Section 422 of the Code, if applicable, and other provisions of such DMK Option will otherwise remain unchanged;
provided, however, that: (1) to the extent provided under the terms of a DMK Option, such DMK Option assumed by Adamis in accordance with
this Section will, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division
or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar
transaction with respect to Adamis Common Stock subsequent to the Effective Time; and (2) Adamis’ board of directors or a committee
thereof will succeed to the authority and responsibility of DMK’s board of directors or any committee thereof with respect to each
DMK Option assumed by Adamis. Notwithstanding anything to the contrary in this Section, the conversion of each DMK Option (regardless
of whether such option qualifies as an “incentive stock option” within the meaning of Section 422 of the Code) into an option
to purchase shares of Adamis Common Stock will be made in a manner consistent with Treasury Regulation Section 1.424-1, such that to the
maximum extent possible, the conversion of a DMK Option will not constitute a “modification” of such DMK Option for purposes
of Section 409A or Section 424 of the Code. It is the intention of the Parties that each DMK Option so assumed by Adamis shall qualify
following the Effective Time as an incentive stock option as defined in Section 422 of the Code to the extent permitted under Section
422 of the Code and to the extent such DMK Option qualified as an incentive stock option prior to the Effective Time.
(b)
After the Effective Time, Adamis will file with the SEC a registration statement on Form S-8, or a post-effective amendment to
an existing Form S-8 registration statement, relating to the DMK Stock Plan and the shares of Adamis Common Stock issuable with respect
to DMK Options assumed by Adamis in accordance with Section, to the extent permitted by federal securities laws, and Adamis shall use
its commercially reasonable efforts to maintain the effectiveness of such registration statement or registration statements (and maintain
the current status of the prospectus or prospectuses delivered with respect to such shares) for so long as such options remain outstanding.
(c)
After the Effective Time, Adamis will use all reasonable efforts to enter into an assumption agreement or other agreement reasonably
satisfactory to Adamis with each person who, immediately prior to the Effective Time, was a holder of a DMK Option, evidencing the foregoing
assumption of such DMK Options by Adamis.
5.22.
Allocation Certificate. DMK will prepare and deliver to Adamis at least two
(2) Business Days (if practicable) prior to the Closing Date a certificate signed by the Chief Financial Officer and Secretary of DMK
in a form reasonably acceptable to Adamis which sets forth (a) a true and complete list of the DMK Stockholders immediately prior
to the Effective Time (including holders of DMK Convertible Notes that will convert into shares of DMK Common Stock) and the number and
type of shares of DMK Capital Stock owned by each such DMK Stockholder, and (b) the allocation of the Merger Consideration among
the DMK Stockholders pursuant to the Merger (the “Allocation Certificate”).
5.23.
Employee Benefit Matters. All employees of DMK shall continue in their existing
benefit plans until such time as, in Adamis’ discretion, an orderly transition can be accomplished to employee benefit plans and
programs maintained by or on behalf of Adamis for its employees. Adamis shall take such reasonable actions, to the extent permitted by
Adamis’ benefits programs, as are necessary to allow eligible employees of DMK to participate in the health, welfare and other benefit
programs of Adamis or alternative benefits programs in the aggregate that are substantially similar to those applicable to employees of
Adamis in similar functions and positions on similar terms (it being understood that equity incentive plans are not considered employee
benefits). Pending such action, Adamis and DMK shall cooperate to maintain the effectiveness of the DMK’s benefit plans. To the
extent permitted by and consistent with Adamis’ benefit plans, employees of DMK shall be given credit for all service with DMK for
purposes of eligibility and vesting (but not for purposes of benefit accrual) under all employee benefit plans, programs, policies and
arrangements and employment policies maintained by Adamis in which they become participants. In connection with such transition, if DMK
maintains any Code Section 401(k) arrangements or plans (each a “DMK 401(k) Plan”), then at Adamis’ request,
Adamis and DMK will cooperate with respect to the termination of the DMK 401(k) Plan.
5.24.
Takeover Statutes. If any takeover statute is or may become applicable to the
Contemplated Transactions, each of DMK, the DMK Board, Adamis and the Adamis Board, as applicable, shall grant such approvals and take
such actions as are necessary so that the Contemplated Transactions may be consummated as promptly as practicable on the terms contemplated
by this Agreement and otherwise act to eliminate or minimize the effects of such statute or regulation on the Contemplated Transactions.
5.25.
Merger Sub. Adamis will take all action that are necessary to cause Merger
Sub to perform its obligations under this Agreement and to consummate the Merger, subject to the terms and conditions set forth in this
Agreement.
5.26.
Supplement to Disclosure Schedules. (i) From time to time prior to the Closing,
DMK shall have the right (but not the obligation) to supplement or amend the DMK Disclosure Schedule hereto with respect to any matter
hereafter arising or of which it becomes aware after the date hereof (each a “Schedule Supplement”). Any
disclosure in any such Schedule Supplement shall not be deemed to have cured any inaccuracy in or breach of any representation or warranty
contained in this Agreement, including for purposes of the termination rights contained in this Agreement or of determining whether or
not the conditions set forth in Article VII have been satisfied; provided, however, that if as a result of matters disclosed in such Schedule
Supplement, Adamis has the right to, but does not elect to, terminate this Agreement within ten (10) Business Days of its receipt of such
Schedule Supplement, then Adamis shall be deemed to have irrevocably waived any right to terminate this Agreement with respect to such
matter. (ii) From time to time prior to the Closing, Adamis shall have the right (but not the obligation) to supplement or amend the Adamis
Disclosure Schedule hereto with respect to any matter hereafter arising or of which it becomes aware after the date hereof (each a “Schedule
Supplement”). Any disclosure in any such Schedule Supplement shall not be deemed to have cured any inaccuracy in or breach
of any representation or warranty contained in this Agreement, including for purposes of the termination rights contained in this Agreement
or of determining whether or not the conditions set forth in Article VIII have been satisfied; provided, however, that if as a result
of matters disclosed in such Schedule Supplement, DMK has the right to, but does not elect to, terminate this Agreement within ten (10)
Business Days of its receipt of such Schedule Supplement, then DMK shall be deemed to have irrevocably waived any right to terminate this
Agreement with respect to such matter.
5.27.
Series E Preferred Certificate of Designation. The Series E Preferred Certificate
of Designation shall be substantially in the form attached hereto as Exhibit C, with such
changes thereto as Adamis and DMK may mutually agree.
ARTICLE
VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each Party to effect the Merger
and otherwise consummate the transactions to be consummated at the Closing are subject to the satisfaction or, to the extent permitted
by applicable law, the written waiver by each of the Parties, at or before the Closing, of each of the following conditions:
6.1.
Stockholder Approval. This Agreement and the Merger shall have been duly adopted
by the Required DMK Stockholder Vote; the board of directors and shareholders of Merger Sub shall have approved and adopted this Agreement
and the Merger; and the Adamis Proposals shall have been duly approved or adopted, as the case may be, by the Required Adamis Stockholder
Vote.
6.2.
No Restraints. No temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction or other Governmental
Entity and remain in effect, and there shall not be any Law which has the effect of making the consummation of the Merger illegal.
6.3.
Governmental Authorization. Any Governmental Authorization or other Consent
required to be obtained by any of the Parties under any applicable antitrust or competition law or regulation or other Law shall have
been obtained and shall remain in full force and effect.
6.4.
No Governmental Proceedings Relating to Contemplated Transactions or Right to Operate
Business. There shall not be any Legal Proceeding pending, or overtly threatened in writing by an official of a Governmental
Entity in which such Governmental Entity indicates that it intends to conduct any Legal Proceeding or taking any other action: (a) challenging
or seeking to restrain or prohibit the consummation of the Merger or any of the other Contemplated Transactions; (b) relating to the Merger
and seeking to obtain from Adamis, Merger Sub or DMK any damages or other relief that would have a Material Adverse Effect on the Combined
Company; (c) seeking to prohibit or limit in any material and adverse respect a Party’s ability to vote, transfer, receive dividends
with respect to or otherwise exercise ownership rights with respect to the stock of Adamis; (d) that could have a Material Adverse Effect
on the right or ability of the Combined Company to own the assets or operate the business of the Combined Company; or (e) seeking to compel
DMK or Adamis to dispose of or hold separate any assets that are material to the Combined Company as a result of or following the Merger
or any of the Contemplated Transactions.
6.5.
Series E Preferred Certificate of Designation. The Series E Preferred Certificate
of Designation shall have been filed with the Secretary of State of Delaware, which shall continue to be in full force and effect as of
the Closing.
ARTICLE
VII
ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS
OF Adamis AND MERGER SUB
The obligations of Adamis and Merger Sub to effect
the Merger and otherwise consummate the transactions to be consummated at the Closing are subject to the satisfaction or the written waiver
by Adamis, at or before the Closing, of each of the following conditions:
7.1.
Accuracy of Representations. The representations and warranties of DMK contained
in this Agreement shall have been true and correct as of the date of this Agreement and shall be true and correct on and as of the Closing
Date with the same force and effect as if made on the Closing Date, except (A) in each case, or in the aggregate, where the failure to
be true and correct would not reasonably be expected to have a Material Adverse Effect on the Combined Company, or (B) for those representations
and warranties which address matters only as of a particular date (which representations shall have been true and correct, subject to
the qualifications as set forth in the preceding clause (A), as of such particular date).
7.2.
Performance of Covenants. Each of the covenants and obligations in this Agreement
that DMK is required to comply with or to perform at or before the Closing shall have been complied with and performed by DMK in all material
respects, except where the failure to perform such covenants or obligations would not have a Material Adverse Effect on the Combined Company.
7.3.
No Material Adverse Effect. From the Execution Date through the Effective Time,
there shall not have occurred any Material Adverse Effect on DMK that shall be continuing as of the Effective Time and that would have
a Material Adverse Effect on the Combined Company.
7.4.
Agreements and Other Documents. Adamis shall have received the following agreements
and other documents, each of which shall be in full force and effect:
(a)
a certificate of DMK executed on its behalf by the Chief Executive Officer and Chief Financial Officer of DMK confirming that the
conditions set forth in Sections 7.1, 7.2, and 7.3 have been duly satisfied; and
(b)
certificates of good standing (or equivalent documentation) of DMK in its jurisdiction of incorporation and the various foreign
jurisdictions in which it is qualified (except where the failure to have obtained such certificates would not result in a Material Adverse
Effect on the Combined Company), certified charter documents, a certificate as to the incumbency of officers and the adoption of resolutions
of the Board of Directors of DMK authorizing the execution of this Agreement and the consummation of the Contemplated Transactions to
be performed by DMK hereunder.
7.5.
Conversion of DMK Convertible Notes. DMK shall have taken all required actions
such that all DMK Convertible Notes that are outstanding immediately prior to the Closing that are being converted into shares of DMK
Common Stock in connection with the Closing shall convert into shares of DMK Common Stock before the Effective Date and Closing, and no
DMK Convertible Notes or other convertible securities shall be outstanding as of the Closing.
7.6.
FIRPTA Certificate. On or no more than thirty (30) days prior to the Closing
Date (or such other date as Adamis and DMK may mutually agree), DMK shall deliver to Adamis a properly executed certification, in form
and substance reasonably satisfactory to Adamis, that shares of DMK are not “U.S. real property interests” in accordance with
the Treasury Regulations under Sections 897 and 1445 of the Code, together with a notice to the IRS (which shall be filed by Adamis with
the IRS following the Closing within the time period specified in Treasury Regulations Section 1.897-2(h)(2)) in accordance with the provisions
of Treasury Regulations Section 1.897-2(h)(2).
7.7.
Third Party Consents. DMK shall have obtained and delivered to Adamis all
consents and approvals of third parties listed in Schedule 7.7.
7.8.
Securities Law Matters. The issuance of the Merger Consideration Shares to
the DMK Stockholders pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act.
7.9.
Dissenting Shares. The holders of no more than three percent (3.0)% of the
outstanding shares of DMK Common Stock, including shares into which the DMK Convertible Notes are convertible, will have demanded and
not lost or withdrawn, or will be eligible to demand, appraisal rights.
7.10.
DMK License Agreements. All of the patents and related intellectual property
rights and other rights held by the licensor party relating to the intellectual property license agreements set forth on Section
2.12(a) of the DMK Disclosure Schedules (the “DMK License Agreements”) shall have been transferred, assigned
and conveyed, effective as of the Closing to DMK pursuant to instruments of conveyance reasonably satisfactory to Adamis, and the DMK
License Agreements shall have been terminated effective upon such transfer, assignment and conveyance.
ARTICLE
VIII
ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATION OF DMK
The obligations of DMK to effect the Merger and
otherwise consummate the transactions to be consummated at the Closing are subject to the satisfaction or the written waiver by DMK, at
or before the Closing, of each of the following conditions:
8.1.
Accuracy of Representations. The representations and warranties of Adamis and
Merger Sub contained in this Agreement shall have been true and correct as of the date of this Agreement and shall be true and correct
on and as of the Closing Date with the same force and effect as if made on the Closing Date, except (A) in each case, or in the aggregate,
where the failure to be true and correct would not reasonably be expected to have a Material Adverse Effect on the Combined Company, or
(B) for those representations and warranties which address matters only as of a particular date (which representations shall have
been true and correct, subject to the qualifications as set forth in the preceding clause (A), as of such particular date).
8.2.
Performance of Covenants. All of the covenants and obligations in this Agreement
that Adamis or Merger Sub is required to comply with or to perform at or before the Closing shall have been complied with and performed
in all material respects, except where the failure to perform such covenants or obligations would not have a Material Adverse Effect on
the Combined Company.
8.3.
No Material Adverse Effect. From the Execution Date through the Effective Time,
there shall not have occurred any Material Adverse Effect on Adamis that continues as of the Effective Time and that would have a Material
Adverse Effect on the Combined Company.
8.4.
Documents. DMK shall have received the following documents:
(a)
a certificate of Adamis executed on its behalf by the Chief Executive Officer and Chief Financial Officer of Adamis confirming
that the conditions set forth in Sections 8.1, 8.2 and 8.3 have been duly satisfied;
(b)
certificates of good standing (or equivalent documentation) of each of Adamis and Merger Sub in Delaware, and the various foreign
jurisdictions in which it is qualified (except where the failure to have obtained such certificates would not result in a Material Adverse
Effect on the Combined Company), certified charter documents, a certificate as to the incumbency of officers and the adoption of resolutions
of the Boards of Directors of Adamis and Merger Sub authorizing the execution of this Agreement and the consummation of the Contemplated
Transactions to be performed by Adamis and Merger Sub hereunder; and
(c)
Written resignations in forms reasonably satisfactory to DMK, dated on or before the Closing Date and effective as of the Closing,
executed by the directors and officers of Adamis whose names are set forth on Annex 5.11.
8.5.
Sarbanes-Oxley Certifications. Neither the principal executive officer nor
the principal financial officer of Adamis shall have failed to provide, with respect to any Adamis SEC Document filed (or required to
be filed) with the SEC on or after the date of this Agreement, any necessary certification in the form required under Rule 13a-14 under
the Exchange Act and 18 U.S.C. §1350.
8.6.
Board of Directors. Adamis shall have caused the Board of Directors of Adamis
to be constituted as set forth on Annex 5.1 of this Agreement.
8.7.
Officers. Each of the individuals identified on Annex 5.11
shall have been appointed officers of Adamis as of the Effective Time.
8.8.
Adamis Reverse Stock Split Certificate of Amendment. The Reverse Stock Split
Amendment shall have become effective under the DGCL.
8.9.
SEC Reports. Adamis shall have filed with the SEC all reports required to be
filed under the Securities Act or Exchange Act.
8.10.
Nasdaq Listing. Adamis shall have (a) conducted a hearing before the Hearings
Panel of the Listing Qualifications Department of Nasdaq (the “Nasdaq Panel”), including the submission of a
plan of compliance (the “Plan of Compliance”) setting forth Adamis’ plan to regain compliance with the
minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Rule”), (b) the Nasdaq Panel
shall have issued a ruling approving the Plan of Compliance, (c) the Adamis Common Stock shall have maintained its listing on Nasdaq as
of the Closing Date and (d) since the effectiveness of the Reverse Stock Split, the Adamis Common Stock shall have maintained the minimum
bid price required under the Rule.
ARTICLE
IX
TERMINATION
9.1.
Termination. This Agreement may be terminated before the Effective Time (whether
before or after receipt of the Required DMK Stockholder Vote or Required Adamis Stockholder Vote, unless otherwise specified below):
(a)
by mutual written consent duly authorized by the Boards of Directors of Adamis and DMK;
(b)
by either Adamis or DMK if the Merger shall not have been consummated by (i) June 30, 2023 (the “Outside Date”);
provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to any Party whose failure
to fulfill or diligently pursue fulfillment of any material obligation under this Agreement has been a principal cause of or resulted
in the failure of the Merger to occur on or before the Outside Date;
(c)
by either Adamis or DMK if a court of competent jurisdiction or other Governmental Entity shall have issued a nonappealable final
order, decree or ruling or taken any other nonappealable final action, in each case having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger; provided, however, that neither Party may terminate this Agreement pursuant to this Section 9.1(c)
unless that party first shall have used its reasonable best efforts to procure the removal, reversal, dissolution, setting aside or invalidation
of any such order, decree, ruling or action;
(d)
by either Adamis or DMK if (i) the Adamis Stockholders Meeting (including any adjournments and postponements thereof) shall have
been held and completed and Adamis’ stockholders shall have taken a final vote on the Adamis Proposals, and (ii) any of the Adamis
Share Issuance Proposal or the Adamis Reverse Stock Split Proposal shall not have been approved or adopted at Adamis Stockholders Meeting
(and shall not have been approved or adopted at any adjournment or postponement thereof) by the Required Adamis Stockholder Vote; provided,
however, that the right to terminate this Agreement under this Section 9.1(d) shall not be available to Adamis where the failure to obtain
the Required Adamis Stockholder Vote shall have been caused by the action or failure to act of Adamis and such action or failure to act
constitutes a breach by Adamis of this Agreement;
(e)
by DMK (at any time before the receipt of the Required Adamis Stockholder Vote) if an Adamis Triggering Event shall have occurred;
(f)
by Adamis (at any time before the receipt of the Required Adamis Stockholder Vote) if a DMK Triggering Event shall have occurred;
(g)
by DMK, upon a material breach of any representation, warranty, covenant or agreement on the part of Adamis or Merger Sub set forth
in this Agreement, or if any representation or warranty of Adamis or Merger Sub shall have become inaccurate, in either case such that
the conditions set forth in Section 8.1 or Section 8.2 would not be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become inaccurate, provided that if such inaccuracy in Adamis’ or Merger Sub’s representations and
warranties or breach by Adamis or Merger Sub is curable by Adamis or Merger Sub, then this Agreement shall not terminate pursuant to this
Section 9.1(g) as a result of such particular breach or inaccuracy until the earliest of (i) the Outside Date; (ii) the expiration of
a thirty (30) day period commencing upon delivery of written notice from DMK to Adamis or Merger Sub of such breach or inaccuracy; and
(iii) Adamis or Merger Sub (as applicable) ceasing to exercise commercially reasonable efforts to cure such breach (it being understood
that this Agreement shall not terminate pursuant to this Section 9.1(g) as a result of such particular breach or inaccuracy if such breach
by Adamis or Merger Sub is cured before such termination becoming effective);
(h)
by Adamis, upon a material breach of any representation, warranty, covenant or agreement on the part of DMK set forth in this Agreement,
or if any representation or warranty of DMK shall have become inaccurate, in either case such that the conditions set forth in Section
7.1 or Section 7.2 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become
inaccurate, provided that if such inaccuracy in DMK’s representations and warranties or breach by DMK is curable by DMK then this
Agreement shall not terminate pursuant to this Section 9.1(h) as a result of such particular breach or inaccuracy until the earlier of
(i) the Outside Date; (ii) the expiration of a thirty (30) day period commencing upon delivery of written notice from Adamis to DMK
of such breach or inaccuracy; and (iii) DMK ceasing to exercise commercially reasonable efforts to cure such breach (it being understood
that this Agreement shall not terminate pursuant to this Section 9.1(h) as a result of such particular breach or inaccuracy if such
breach by DMK is cured before such termination becoming effective); or
(i)
by Adamis in accordance with the terms and subject to the conditions of Section 4.5(b)(ii).
9.2.
Effect of Termination. In the event of the termination of this Agreement as
provided in Section 9.1, this Agreement shall be of no further force or effect; provided, however, that (i) this Section 9.2, Section
9.3, and Section 10 and the Confidentiality Agreement shall survive the termination of this Agreement and shall remain in full force and
effect, and (ii) the termination of this Agreement shall not relieve any Party from any liability for any breach of any representation,
warranty, covenant, obligation or other provision contained in this Agreement.
9.3.
Expenses.
(a)
Except as set forth in this Section 9.3, all fees and expenses incurred in connection with this Agreement and the Contemplated
Transactions shall be paid by the Party incurring such expenses, whether or not the Merger is consummated.
(b)
Notwithstanding the above, Adamis agrees to pay or reimburse DMK for the amount of the actual out-of-pocket legal and accounting
expenses incurred by DMK in connection with the negotiation and entering into of this Agreement and the Contemplated Transactions (and
the DMK financial statements required to be included in the Adamis Proxy Statement) and the consummation of the transactions contemplated
by this Agreement (the “Expense Payment Amount”). DMK will provide, or arrange for its counsel and independent
accounting firm to provide, to Adamis copies of invoices or other customary documentation relating to such expenses. Adamis shall make
such payments and reimbursements promptly upon receipt of such invoices or other customary documentation and, in any case, no later than
fifteen (15) days after receipt thereof.
ARTICLE
X
MISCELLANEOUS PROVISIONS
10.1.
Non-Survival of Representations and Warranties. The representations and warranties
of DMK, Merger Sub and Adamis contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time and this Article X shall survive
the Effective Time.
10.2.
Amendment. This Agreement may be amended with the approval of the respective
Boards of Directors of DMK and Adamis at any time (whether before or after the receipt of the Required DMK Stockholder Vote or Required
Adamis Stockholder Vote); provided, however, that after any such adoption and approval of this Agreement by a Party’s stockholders,
no amendment shall be made which by law requires further approval of the stockholders of such Party without the further approval of such
stockholders. This Agreement may not be amended, except by an instrument in writing signed on behalf of each of DMK and Adamis.
10.3.
Waiver.
(a)
No failure on the part of any Party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the
part of any Party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy.
(b)
No Party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of such Party; and any such waiver shall not be applicable or have any effect, except in the specific
instance in which it is given.
10.4.
Entire Agreement; Counterparts; Exchanges by Facsimile. This Agreement and
the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings,
both written and oral, among or between any of the Parties with respect to the subject matter hereof and thereof; provided, however, that
the Confidentiality Agreement shall not be superseded and shall remain in full force and effect in accordance with its terms. This Agreement
may be executed by means of electronic signatures and electronic transmission, and in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts
or otherwise) by all Parties by facsimile shall be sufficient to bind the Parties to the terms and conditions of this Agreement.
10.5.
Applicable Law; Jurisdiction. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, except to the extent that the NJBCA mandatorily applies to matters relating to
the Merger, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws. In any action or suit
between any of the Parties arising out of or relating to this Agreement or any of the Contemplated Transactions: (a) each of the
Parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located
in the State of Delaware; (b) if any such action or suit is commenced in a state court, then, subject to applicable Law, no Party shall
object to the removal of such action or suit to any federal court located in Delaware, and (c) the Parties agree that service of progress
may be made in the manner provided for in this Agreement for delivery of notices.
10.6.
Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER VOLUNTARILY, AND (D) IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.6.
10.7.
Notices. Any notice or other communication required or permitted to be delivered
to any party under this Agreement shall be in writing and shall be given by means of hand delivery, registered mail, courier or express
delivery service, or facsimile. Notices shall be deemed delivered and received (i) upon delivery by hand, (ii) three (3) Business Days
after deposit in the U.S. mails, certified or registered mail, (iii) one (1) Business Day after delivery to a reputable overnight courier
service for next business-day delivery (with confirmation of delivery), or (iv) one (1) Business Day after transmission by email,
or other electronic transmission, to the number set forth beneath the name of such party below (or to such other address or facsimile
telephone number as such party shall have specified in written notice given to the other Parties here), with confirmation of successful
transmission:
if to Adamis:
Adamis Pharmaceuticals Corporation
11682
El Camino Real, Suite 300
San
Diego, CA 92130
Attention:
Chief Executive Officer
Telephone No.: (858)
997-2400
with a copy to:
C. Kevin Kelso, Esq.
Weintraub Tobin
400 Capitol Mall, 11th
Floor
Sacramento,
CA 95814
Telephone
No.: (916) 558-6000
Facsimile
No. (916) 446-1611
Email: kkelso@weintraub.com
if to DMK:
DMK Pharmaceuticals Corporation
50 Division Street, Suite
501
Somerville, NJ 08876
Attention: Chief Executive
Officer
Telephone No.: (908)
470-2914
Email: eversi@DMKPharma.com
with a copy to:
Nelson Mullins
Glenlake One, Suite 200
4140 Parklake Avenue
Raleigh, NC 27612
Attention: David Mannheim, Esq
Telephone No.: (919)
329-3804
Facsimile No.: (919)
329-3799
Email: david.mannheim@nelsonmullins.com
10.8.
Cooperation. Each Party agrees to cooperate fully with the other Party and
to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably
requested by the other Party to evidence or reflect the Contemplated Transactions and to carry out the intent and purposes of this Agreement.
10.9.
Severability. Any term or provision of this Agreement that is invalid or unenforceable
in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement
or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If a final judgment
of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the Parties hereto
agree that the court making such determination.
10.10.
Other Remedies; Specific Performance. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other
remedy. The Parties hereto agree that irreparable damage would occur in the event that any of the material provisions of the Confidentiality
Agreement, as modified by Section 5.10 of this Agreement, were not performed in material respects or were otherwise breached in material
respects (a “Confidentiality Action”). It is accordingly agreed that the Parties shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court
of the United States or any state having jurisdiction, this being the addition to any other remedy to which they are entitled at law or
in equity, without, solely with respect to a Confidentiality Action, the necessity of proving actual damages and without posting bond
or other security.
10.11.
Conflict Waiver; Attorney-Client Privilege.
(a)
Each of the Parties hereto acknowledges and agrees, on its own behalf and on behalf of its directors, managers, members, shareholders,
partners, officers, employees, and Affiliates, that (i) Nelson Mullins Riley & Scarborough LLP has acted as counsel to the DMK Stockholders
and DMK, in connection with the negotiation, preparation, execution, and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby. Adamis agrees, and shall cause the Surviving Corporation to agree, that,
following consummation of the transactions contemplated hereby, such representation and any prior representation of the Company by Nelson
Mullins Riley & Scarborough LLP (or any successor) (the “DMK Law Firm”) shall not preclude DMK Law Firm
from serving as counsel to the DMK Stockholders or any director, manager, member, shareholder, partner, officer, or employee of DMK and
the DMK Stockholders, in connection with any litigation, claim, or obligation arising out of or relating to this Agreement or the transactions
contemplated hereby and (ii) Adamis shall not, and shall cause the Surviving Corporation not to, seek or have DMK Law Firm disqualified
from any such representation based on the prior representation of DMK by DMK Law Firm. Each of the Parties hereto hereby consents thereto
and waives any conflict of interest arising from such prior representation, and each of such Parties shall cause any of its Affiliates
to consent to waive any conflict of interest arising from such representation. Each of the Parties acknowledges that such consent and
waiver is voluntary, that it has been carefully considered, and that the Parties have consulted with counsel or have been advised they
should do so in connection herewith. The covenants, consent, and waiver contained in this Section 10.11(a) shall not be deemed exclusive
of any other rights to which DMK Law Firm is entitled whether pursuant to law, contract, or otherwise.
(b)
All communications prior to the Closing between or among any of DMK Stockholders and DMK, on the one hand, and DMK Law Firm, on
the other hand, relating to the negotiation, preparation, execution, and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby (the “Privileged Communications”) shall be
deemed to be attorney-client privileged and the expectation of client confidence relating thereto shall survive Closing, and from and
after Closing shall belong solely to the DMK Stockholders and shall not pass to or be claimed by Adamis or the Surviving Corporation.
Accordingly, Adamis and the Surviving Corporation shall not have access to any Privileged Communications or to the files of DMK Law Firm
relating to such engagement from and after Closing. Without limiting the generality of the foregoing, from and after the Closing, (i)
the DMK Stockholders (and not Adamis or the Surviving Corporation) shall be the sole holders of the attorney-client privilege with respect
to such engagement, and none of Adamis nor the Surviving Corporation shall be a holder thereof, (ii) to the extent that files of DMK Law
Firm in respect of such engagement constitute property of the client, only the DMK Stockholders (and not Adamis nor the Surviving Corporation)
shall hold such property rights and (iii) DMK Law Firm shall have no duty whatsoever to reveal or disclose any such attorney-client communications
or files to Adamis or the Surviving Corporation by reason of any attorney-client relationship between DMK Law Firm and the Surviving Corporation
or otherwise. Notwithstanding the foregoing, in the event that after Closing a dispute arises between Adamis or its Affiliates (including
the Surviving Corporation), on the one hand, and a third party other than any of the DMK Stockholders, on the other hand, Adamis and its
Affiliates (including the Surviving Corporation) may assert the attorney-client privilege to prevent disclosure of confidential communications
to such third party; provided, however, that neither Adamis nor any of its Affiliates (including the Surviving Corporation) may waive
such privilege without the prior written consent of the DMK Stockholders representing the Required DMK Stockholder Vote. In the event
that Adamis or any of its Affiliates (including the Surviving Corporation) is legally required by Governmental Order or otherwise legally
required to access or obtain a copy of all or a portion of the Privileged Communications, to the extent (x) permitted by applicable Law,
and (y) advisable in the opinion of Adamis’ counsel, then Adamis shall immediately (and, in any event, within ten (10) days) notify
the DMK Stockholders in writing so that the DMK Stockholders can seek a protective order. In furtherance of the foregoing, each of the
Parties agrees that (i) no waiver is intended by failing to remove all Privileged Communications from the Surviving Corporation’s
files and computer systems, and (ii) after Closing the Parties hereto will use commercially reasonable efforts to take the steps necessary
to ensure the Privileged Communications are held and controlled by the DMK Stockholders. Adamis agrees that after Closing none of Adamis,
the Surviving Corporation, nor their Affiliates will (i) access or review the Privileged Communications in connection with any action,
litigation, claim, or dispute against or involving any of the DMK Stockholders or any of their Affiliates or (ii) use or assert the Privileged
Communications against any member of the DMK Stockholders or any of their Affiliates in any action, litigation, claim, or dispute against
or involving any of the DMK Stockholders or any of their Affiliates.
(c)
This Section 10.11 is intended for the benefit of, and shall be enforceable by,
DMK Law Firm. This Section 10.11 shall be irrevocable, and no term of this Section
10.11 may be amended, waived, or modified, without the prior written consent of DMK Law Firm.
(d)
By virtue of the approval and adoption of this Agreement by the requisite vote of the DMK Stockholders, each DMK Stockholder (other
than a Dissenting Stockholder) agrees to the provisions of this section:
(i)
Each DMK Stockholder (other than a Dissenting Stockholder) hereby appoints Dr. Ebrahim Versi as the Stockholder’s representative
(the “Stockholders’ Representative”) to act as the authorized representative of the Stockholders with
respect to all matters relating to this Section 10.11 under or in connection with this Section 10.11 requiring any action or decision
by any of the Stockholders. The Stockholders’ Representative shall thereupon be authorized to serve as agent and attorney-in-fact
for and on behalf of each Stockholder to (i) execute and deliver for and on behalf of any or all Stockholders all agreements, instruments
and documents necessary or desirable to carry out the intent of this Section and any other documents, instruments and/or agreements contemplated
hereby and thereby, (ii) make any claim following the Closing against Adamis on behalf of the Stockholders (or any of them) relating to
this Section, (iii) act as the Stockholders’ exclusive agent for the receipt of any notice of claim by Adamis, pursuant to this
Section, (iv) undertake the defense or settlement of any claim relating to this Section, (v) give and receive on behalf of the Stockholders,
or any of them, any and all other notices from or to any other Stockholder under this Section, and (vi) and to take all other actions
that are necessary or appropriate in the reasonable judgment of the Stockholders’ Representative for the accomplishment of the foregoing.
The Stockholders’ Representative may, from time to time, be replaced by the Stockholders upon the written approval of the holders
representing a majority in interest of the Stockholders based on their respective ownership of DMK Capital Stock prior to the Closing.
The Stockholders’ Representative may resign at any time by providing written notice of intent to resign to the Stockholders, which
resignation shall be effective upon the earlier of (A) thirty (30) days following delivery of such written notice, or (B) the
appointment of a successor by the holders of a majority in interest of the Stockholders based on their respective ownership of DMK Capital
Stock prior the Closing.
(ii)
The Stockholders’ Representative shall not be liable for any act done or omitted hereunder as Stockholders’ Representative
except in the case of gross negligence, bad faith or willful misconduct by the Stockholders’ Representative. The Stockholders’
Representative may in good faith rely conclusively upon information, reports, statements and opinions prepared or presented by professionals,
and any action taken by the Stockholders’ Representative based on such reliance shall be deemed conclusively to have been taken
in good faith and in the exercise of reasonable judgment. A decision, act, consent, instruction or agreement of the Stockholders’
Representative, including an amendment, extension or waiver of this Section, act (or election not to act), agreement or deemed agreement
of the Stockholders’ Representative shall constitute a decision, act, consent, instruction or agreement of the Stockholders and
shall be final, binding and conclusive upon the Stockholders.
(iii)
Each party hereto and each DMK Stockholder shall be entitled to rely exclusively upon any communication or instruction given or
other action taken by the Stockholders’ Representative on behalf of the Stockholders pursuant to this Section, and shall not be
liable for any action taken or not taken in good faith reliance on a communication or other instruction from the Stockholders’ Representative
on behalf of the Stockholders (or any of them). The Stockholders Representative shall promptly notify Adamis of any replacement of the
Stockholders’ Representative. Adamis shall be entitled to assume that any such notice received by them is valid and correct, without
any duty or obligation to investigate whether such replacement Stockholders’ Representative was properly appointed.
10.12.
Construction.
(a)
For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and
the neuter gender shall include masculine and feminine genders.
(b)
The Parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party
shall not be applied in the construction or interpretation of this Agreement.
(c)
As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed
to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”
(d)
Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits” and “Schedules”
are intended to refer to Sections of this Agreement and Exhibits and Schedules to this Agreement.
(e)
The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of
this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties have caused this
Agreement and Plan of Merger and Reorganization to be executed as of the date first above written.
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ADAMIS PHARMACEUTICALS CORPORATION |
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By: |
/s/ David J. Marguglio |
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Name: |
David J. Marguglio |
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Title: |
Chief Executive Officer |
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AARDVARK MERGER SUB, INC. |
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By: |
/s/ David J. Marguglio |
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Name: |
David J. Marguglio |
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Title: |
Chief Executive Officer |
[Signature Page to Agreement and Plan of
Merger and Reorganization]
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DMK PHARMACEUTICALS CORPORATION |
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By: |
/s/ Ebrahim Versi |
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Name: |
Ebrahim Versi, M.D., Ph.D. |
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Title: |
Chief Executive Officer |
[Signature Page to Agreement and Plan of
Merger and Reorganization]
EXHIBIT
A
CERTAIN DEFINITIONS
For purposes of this Agreement:
“Acquisition Inquiry” shall
mean, with respect to a Party, an inquiry, indication of interest or request for information (other than an inquiry, indication of interest
or request for information made or submitted by DMK or its Representatives, on the one hand or Adamis or its Representatives, on the other
hand, to the other Party) that would reasonably be expected to lead to an Acquisition Proposal from such Party.
“Acquisition Proposal”
shall mean any offer or proposal (other than an offer or proposal made or submitted by DMK, on the one hand or Adamis, on the other hand
to the other Party) contemplating or otherwise relating to any Acquisition Transaction with such Party.
“Acquisition Transaction”
shall mean any transaction or series of transactions (except for the Contemplated Transactions) involving:
(a) any
direct or indirect acquisition of assets of a Party (including any voting equity interests of a Party’s subsidiaries) equal to 50%
or more of the fair market value of such Party’s consolidated assets or to which 50% or more of a Party’s net revenues or
net income on a consolidated basis are attributable;
(b) direct
or indirect acquisition of 50% or more of the shares of Adamis common stock other than in a transaction primarily for purposes of financing;
(c) tender
offer or exchange offer that if consummated would result in any person beneficially owning 50% or more of the shares of a Party’s
common stock; or
(d) merger,
consolidation, other business combination or similar transaction involving a Party or any of its Subsidiaries, pursuant to which the other
party to the transaction or its affiliates or shareholders would own 51% or more of the consolidated assets, net revenues or net income
of the Party and its Subsidiaries, taken as a whole; in all such cases where such transaction is to be entered into with any person or
group of persons other than a Party or its affiliates.
(e) Notwithstanding
the foregoing, with respect to Adamis, “Acquisition Transaction” shall not include discussions or agreements regarding or
with respect to, or consummation of, one or more transactions regarding or with respect to: (i) sales or other dispositions of assets
of Adamis relating to the compounding pharmaceuticals business formerly conducted by Adamis or its Subsidiaries, (ii) commercial, license
or other agreements relating to the sale, license or distribution of one or more of Adamis’ FDA approved commercial drug products;
(iii) modifications to existing outstanding securities, (iv) issuance of equity or debt securities or agreements in transactions primarily
for purposes of financing; or (iv) bankruptcy, dissolution or liquidation proceedings, and no such agreement or transaction shall
be deemed to be an “Acquisition Transaction.”
“Agreement” shall mean the Agreement and
Plan of Merger and Reorganization to which this Exhibit A is attached, as it may
be amended from time to time.
“Adamis Bylaws” shall mean the bylaws of
Adamis as currently in effect.
“Adamis Employee Agreement”
shall mean each management, employment, severance, consulting, relocation, repatriation or expatriation agreement or other contract between
Adamis and any current employee thereof, other than any such management, employment, severance, consulting, relocation, repatriation or
expatriation agreement or other contract with such employee which is terminable “at will” without any obligation on the part
of Adamis to make any payments or provide any benefits in connection with such termination.
“Adamis’ Knowledge” shall mean (a)
the actual knowledge, after reasonable diligence, of Adamis’ officers and directors, and (b) such facts and circumstances each of
the officers and directors of Adamis should have known given his involvement in Adamis and the information available to him.
“Adamis Material Contract” means a Material
Contract to which Adamis or any of its Subsidiaries is a party that as of the date of this Agreement is a material contract as defined
in Item 601(b)(10) of Regulation S-K as promulgated under the Securities Act.
“Adamis Options” shall mean options or other
rights to purchase or acquire shares of Adamis Common Stock issued by Adamis.
“Adamis Preferred Stock” shall mean shares
of preferred stock, par value $0.0001 per share, of Adamis.
“Adamis Product” shall mean those products,
compounds, proteins or other biological materials that are under research or development, manufactured, tested, the subject of trials
or studies, distributed and/or marketed by or on behalf of Adamis (and for purposes of clarification shall not include any product or
compound formerly manufactured, marketed or sold by Adamis’ U.S. Compounding, Inc. subsidiary.
“Adamis Share Issuance Proposal” means the
Proposal that Adamis will include in its Proxy Statement relating to the Adamis Stockholders Meeting to approve the issuance of shares
of Adamis Common Stock and Series E Preferred to the securityholders of DMK pursuant to the Merger Agreement and the Merger.
“Adamis Stock Plan” shall mean the Adamis
2020 Equity Incentive Plan.
“Adamis Stock Plans” shall mean the Adamis
2009 Equity Incentive Plan and the 2020 Equity Incentive Plan, considered together.
“Adamis Triggering Event” shall be deemed
to have occurred if: (i) there shall have occurred a Change in the Adamis Board Recommendation; (ii) Adamis shall have failed to convene
the Adamis Stockholders Meeting within sixty (60) days after the definitive Proxy Statement is filed with the SEC (other than to the extent
that Adamis determines, in good faith, that the Required Adamis Stockholder Vote will not be obtained at a meeting held within such time,
in such case the sixty (60) day period shall be tolled until such time as Adamis determines, in good faith, that the Required Adamis
Stockholder Vote can be obtained at a meeting, in each case in accordance with Section 5.3), (iii) Adamis or any of its Representatives
shall have failed to comply with the provisions set forth in Section 4.5 of the Agreement in any material respect, or (iv) Adamis shall
have delivered a Notice of Superior Proposal under Section 4.5(b).
“Alternative Transaction” means any (a) direct
or indirect acquisition of assets of a Party or any of its subsidiaries (including any voting equity interests of a Party’s subsidiaries)
equal to 50% or more of the fair market value of such Party’s consolidated assets or to which 50% or more of a Party’s net
revenues or net income on a consolidated basis are attributable, (b) direct or indirect acquisition of 50% or more of the shares of Adamis
common stock other than in a transaction primarily for purposes of financing, (c) tender offer or exchange offer that if consummated
would result in any person beneficially owning 50% or more of the shares of a Party’s common stock, or (d) merger, consolidation,
other business combination or similar transaction involving a Party or any of its subsidiaries, pursuant to which the other party to the
transaction or its affiliates or shareholders would own 51% or more of the consolidated assets, net revenues or net income of the Party
and its Subsidiaries, taken as a whole; in all such cases where such transaction is to be entered into with any person or group of persons
other than a Party or its affiliates. Notwithstanding the foregoing, with respect to Adamis, “Alternative Transaction” shall
not include discussions or agreements regarding or with respect to, or consummation of one or more transactions regarding or with respect
to: (i) sales or other dispositions of assets of Adamis relating to the compounding pharmaceuticals business formerly conducted by Adamis
or its Subsidiaries, (ii) commercial, license or other agreements relating to the sale, license or distribution of one or more of Adamis’
FDA approved commercial drug products; (iii) modifications to existing outstanding securities, (iv) issuance of equity or debt securities
or agreements in transactions primarily for purposes of financing; or (iv) bankruptcy, dissolution or liquidation proceedings, and
no such agreement or transaction shall be deemed to be an “Alternative Transaction.”
“Business” shall mean the business and operations
of a party.
“Business Day” shall mean any day other than
a day on which banks in the State of California are authorized or obligated to be closed.
“Code” shall mean the Internal Revenue Code
of 1986, as amended.
“Combined Company” shall mean Adamis and
DMK and their respective Subsidiaries (and, after the Closing, the Surviving Corporation), taken together as a whole.
“Consent” shall mean any approval, consent,
ratification, permission, waiver or authorization (including any necessary Governmental Authorization).
“Contemplated Transactions” shall mean the
Merger and the other transactions and actions expressly contemplated by the Agreement.
“Contract” shall, with respect to any Person,
mean any written, oral or other agreement, contract, subcontract, lease (whether real or personal property), mortgage, understanding,
arrangement, instrument, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature to which such Person is a party or by which such Person or any of its assets are bound or affected
under applicable law.
“Convertible Securities” shall mean and include
options, warrants and other rights for the purchase of common stock or any stock or security convertible into or exchangeable for common
stock.
“DGCL” shall mean the General Corporation
Law of the State of Delaware.
“DMK” shall have the meaning set forth in
the Background section.
“DMK Board” shall have the meaning set forth
in the Background section.
“DMK Bylaws” shall mean the bylaws of DMK
as currently in effect.
“DMK Capital Stock” shall mean shares of
DMK Common Stock and, if any, DMK Preferred Stock.
“DMK Charter” shall mean the certificate
of incorporation of DMK, as in effect on the date of this Agreement.
“DMK’s Knowledge” shall mean (a) the
actual knowledge, after reasonable diligence, of Ebrahim Versi, and (b) such facts and circumstances Ebrahim Versi should have known given
his involvement in DMK and the information available to him.
“DMK Options” shall mean all options, warrants
or other rights, if any, that may be outstanding to purchase, acquire or otherwise receive shares of DMK Capital Stock (whether or not
vested) held by current or former employees or directors of or consultants to DMK.
“DMK Product” shall mean those products,
compounds, proteins or other biological materials that are under research or development, manufactured, tested, the subject of trials
or studies, distributed and/or marketed by or on behalf of DMK.
“DMK Preferred Stock” shall mean shares of
preferred stock of DMK.
“DMK Registered IP” means all DMK Patent
and Proprietary rights or other intellectual property rights that are owned by or exclusively licensed to DMK that are registered, filed
or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights and registered trademarks
and all applications for any of the foregoing.
“DMK Stock Plan” means the DMK 2016 Stock
Plan.
“DMK Stockholder” shall mean each holder
of any DMK Capital Stock immediately before the Effective Time.
“DMK Triggering Event” shall be deemed to
have occurred if (a) DMK or any of its Representatives shall have failed to comply with the provisions set forth in Section 4.5 of the
Agreement in any material respect, or (b) DMK or any of its Representatives shall change the DMK Board Recommendation or not convene the
DMK Stockholders Meeting (or obtain the Required DMK Stockholder Vote by written consent).
“Encumbrances” shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive
right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on
the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).
“Environment” shall mean soil, land surface
or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), ground
waters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental
medium or natural resource.
“Environmental, Health, and Safety Liabilities”
shall mean any cost, damages, expense, liability, obligation, or other responsibility arising out of any Environmental Law or Occupational
Safety and Health Law and consisting of or relating to:
(a) any
fines, penalties, judgments, awards, settlements, legal or administrative Legal Proceedings, damages, losses, claims, demands and response,
investigative, remedial, compliance, corrective or inspection costs and expenses arising under Environmental Law or Occupational Safety
and Health Law (including on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or
products); or
(b) financial
responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions (“Cleanup”) required by applicable Environmental
Law or Occupational Safety and Health Law (whether or not such Cleanup has been required or requested by any Governmental Entity or any
other Person) and for any natural resource damages. The terms “removal,” “remedial,” and “response action,”
include the types of activities covered by the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq., as amended (“CERCLA”).
“Environmental Law” shall mean all federal,
state and local laws, statutes, regulations, ordinances, codes, rules and other governmental restrictions and requirements relating to
the discharge of air pollutants, water pollutants or processed waste water or otherwise relating in any manner to the environment, pollutants
or hazardous substances or materials, including but not limited to the Federal Solid Waste Disposal Act; the Federal Clean Air Act including,
without limitation, the Clean Air Act Amendments of 1990; the Federal Water Pollution Control Act; the Hazardous Materials Transportation
Act; the Federal Toxic Substances Control Act; the Federal Resource Conservation and Recovery Act of 1976; the National Environmental
Policy Act; CERCLA; all amendments to any of the foregoing statutes, and all regulations promulgated by any federal or state agencies,
including the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, and regulations of any state department of
natural resources or state environmental protection agency previously, now or at any time hereafter in effect.
“Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.
“Facilities” shall mean any real property,
leaseholds, or other interests currently or formerly owned or operated by a Party and any buildings, plants, structures, or equipment
(including motor vehicles, tank cars, and rolling stock) currently or formerly owned or operated by any Party.
“FDA” shall mean the U.S. Food and Drug Administration.
“FDCA” shall mean the Federal Food, Drug
and Cosmetic Act and the regulations thereunder.
“Form 8-K
Amendment” means the amendment to the Form 8-K that Adamis will be required to file with the SEC after the Closing
and the Effective Time pursuant to Items 2.01 and 9.01 of Form 8-K, including in order to file certain financial information.
“GAAP” shall mean United States generally
accepted accounting principles.
“Governmental Authorization” shall mean any:
(a) permit, license, certificate, franchise, grant, funding arrangement, permission, variance, clearance, registration, qualification,
approval or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or pursuant
to any applicable Law; or (b) right under any Contract with any Governmental Entity.
“Governmental Entity” shall mean any: (a)
nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental
division, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity
and any court or other tribunal, and for the avoidance of doubt, any Taxing authority).
“Hazardous Materials” shall mean any pollutant,
chemical, substance and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical, or chemical compound,
or hazardous substance, material or waste, whether solid, liquid or gas, that is subject to regulation, control or remediation under any
Environmental Law Requirement, including, without limitation, crude oil or any fraction thereof, and petroleum products or by-products.
“Intellectual Property” shall mean all domestic
and foreign intellectual property and proprietary rights, including but not limited to all (a) inventions (whether or not patentable and
whether or not reduced to practice), all improvements thereto, and all patents and patent applications, (b) trademarks, service marks,
trade names, domain names, trade dress, logos, corporate names and brand names, together will all goodwill associated therewith, and all
applications and registrations in connection therewith, (c) all works of authorship (whether or not published), copyrights and designs,
and all applications and registrations in connection therewith, (d) source code and object code versions of computer software (including
data and related documentation) and website content, and (e) trade secrets and confidential business information (including ideas, know-how,
formulas, compositions, processes and techniques, research and development information, technical data, designs, drawings, specifications,
research records, records of inventions, test information, financial, marketing and business data, pricing and cost information, business
and marketing plans and proposals and customer and supplier lists and information, including all membership lists and databases and related
information and profiles).
“IRS” shall mean the United States Internal
Revenue Service.
“Law” means any
federal, state, national, supra-national, foreign, local or municipal or other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Entity (including under the authority of Nasdaq or the Financial Industry
Regulatory Authority).
“Legal Proceeding” shall mean any action,
suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing,
inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or
other Governmental Entity or any arbitrator or arbitration panel.
“Material Adverse Effect” shall mean any
fact, change, event, factor, condition, circumstance, development or effect that, individually or in the aggregate, has, or would reasonably
be expected to have, a material adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of
operations of a Party (including, following the Merger, the Surviving Corporation and its Subsidiaries), taken as a whole, other than
to the extent such effects are due to: (i) the announcement of the transactions contemplated by this Agreement; (ii) economic factors
affecting the national, regional or world economy; (iii) any act or threat of terrorism or war anywhere in the world, any armed hostilities
or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist activities anywhere in the world
or any governmental or other response or reaction to any of the foregoing; (iv) factors generally affecting the industry or market in
which a Party operates; (v) changes in law, rules or regulations applicable to a Party; (vi) changes in GAAP or the interpretation thereof,
in each case to the extent required by GAAP; (vii) the Reverse Stock Split; (viii) any change in the stock price or trading volume of
Adamis Common Stock (it being understood that the facts and circumstances giving rise to such change may be deemed to constitute, and
may be taken into account in determining whether there has been, a Material Adverse Effect if such facts and circumstances are not otherwise
excluded by clauses (i) – (vii) of this definition); or (ix) any failure of DMK to obtain additional financing or commitments for
additional financing before the closing date.
“Material Contract” shall mean, with respect
to DMK, any agreement, instrument or document now in effect (including any amendment to any of the foregoing) to which DMK is a party
or by which such Party’s assets are bound:
(a) with
any director, or executive officer of DMK, including any Contract that would give rise to or otherwise result in proxy statement disclosure
pursuant to Item 404 of Regulation S-K (assuming that DMK was subject to the requirements of the Exchange Act);
(b) evidencing,
governing or relating to indebtedness for borrowed money or which provides for the imposition of any material lien on any of DMK’s
assets;
(c) that
involves expenditures or receipts in excess of $50,000 per annum;
(d) that
in any material way purports to restrict the business activity of DMK or limit the freedom of DMK to engage in any line of business or
to compete with any Person;
(e) other
than customary employee offer letters, relating to the employment of, or the performance of services by, any employee or consultant; or
pursuant to which a party is or may become obligated to make any severance, termination or similar payment to any employee or director;
or pursuant to which a party is or may become obligated to make any bonus or similar payment (other than payments constituting base salary)
to any employee or director;
(f) (i)
relating to the acquisition, issuance, voting, registration, sale or transfer of any securities of a party, (ii) providing any Person
with any preemptive right, right of participation, right of maintenance or any similar right with respect to any securities of DMK, or
(C) providing a Person with any right of first refusal with respect to, or right to repurchase or redeem, any securities, except for Contracts
pursuant to the DMK Stock Plan and Contracts between DMK and any Person that provide a right of first refusal, right of repurchase or
cancellation or similar right in favor of DMK;
(g) relating
to any DMK guaranty or any indemnity or similar obligation;
(h) (i)
imposing any confidentiality obligation on DMK, or (ii) containing “standstill” provisions, in each case other than under
agreements entered into in the Ordinary Course of Business that are not material to DMK;
(i) (i)
to which any Governmental Entity is a party or under which any Governmental Entity has any rights or obligations, or (ii) directly or
indirectly benefiting any Governmental Entity (including any subcontract or other Contract between DMK and any contractor or subcontractor
to any Governmental Entity), or (iii) relating to any funding, grant or similar agreement, proposal or commitment relating to product
or product candidate of DMK, or pursuant to which any funding, grant or similar funding is or has been provided to DMK, whether or not
from a Governmental Entity or from a different third party;
(j) relating
to any equity or convertible debt funding of DMK;
(k) relating
to the license to DMK of any intellectual property rights other than with respect to “off-the-shelf” or “shrink-wrap”
licenses used by DMK; and
(l) that
if terminated or breached would reasonably be expected to have a Material Adverse Effect on DMK or on any of the transactions contemplated
by this Agreement or any of the Ancillary Agreements.
“Ordinary Course of Business” shall mean,
in the case of each of DMK and Adamis, such actions taken in the ordinary course of its normal operations and consistent with its past
practices.
“Party” or “Parties”
shall mean DMK, Merger Sub and Adamis.
“Person” shall mean any individual, Entity
or Governmental Entity.
“Pre-Reverse Stock Split Adamis Shares” shall
mean shares of Adamis Common Stock before the effective time of the Reverse Stock Split.
“Proxy Statement” shall mean the Proxy Statement
to be filed with the SEC by Adamis in connection with the Merger, as said statement may be amended, and mailed to the Adamis stockholders
in connection with Adamis Stockholders Meeting.
“Representatives” shall mean officers, directors,
employees, attorneys, accountants, investment bankers, advisors and representatives.
“Required Adamis Stockholder Vote” shall
mean the vote of the Adamis stockholders that is required under the DGCL or other applicable law to approve the Adamis Proposals.
“Required DMK Stockholder Vote” shall mean
the vote or written consent of the DMK Stockholders that is required under applicable law to approve the Merger and the transactions contemplated
by this Agreement.
“Reverse Stock Split Ratio” shall mean the
number of shares of Pre-Reverse Stock Split Adamis Shares that are combined and converted into one share of New Adamis Common Stock in
the Reverse Stock Split, as determined by the Adamis Board and specified in the Adamis Reverse Stock Split Amendment.
“Sarbanes-Oxley Act” shall mean the Sarbanes-Oxley
Act of 2002, as it may be amended from time to time.
“SEC” shall mean the United States Securities
and Exchange Commission.
“Subsidiary” An Entity shall be deemed to
be a “Subsidiary” of another Person if such Person directly or indirectly owns, beneficially or of record, (a) an amount of
voting securities of other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members
of such Entity’s board of directors or other governing body, or (b) at least 50% of the outstanding equity, voting, beneficial or
financial interests in such Entity.
“Superior Proposal” means an Acquisition
Proposal that the board of directors of a Party determines, in its reasonable judgment, to be more favorable to such Party’s stockholders
than the terms of the transactions contemplated by this Agreement.
“Tax” or “Taxes”
shall mean any and all federal, state, local or foreign taxes of any country, assessments and other similar governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, stamp transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with
all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for taxes of a predecessor Entity.
“Tax Return” shall mean any return (including
any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other
document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Entity in connection
with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement
of or compliance with any Law relating to any Tax.
“Treasury Regulations” shall mean the official
interpretations of the Code promulgated by the United States Department of the Treasury.
Additionally, the following terms have the meanings assigned to such
terms in the Sections of this Agreement set forth below opposite such term:
Defined Term |
Section
of Agreement |
Action |
2.6(b) |
Adamis |
Preamble |
Adamis
Average Closing Price |
1.7(b) |
Adamis
Board |
Background– Paragraph
A |
Adamis
Board Recommendation |
5.3(b) |
Adamis
Common Stock |
Background – Paragraph
B |
Adamis
Common Stock Consideration Cap |
1.6(a) |
Adamis
Disclosure Schedule |
First paragraph of Article
III |
Adamis
Employee Plans |
3.14(a) |
Adamis
Financial Statements |
3.9(b) |
Adamis
Patent and Proprietary Rights |
3.12(a) |
Adamis
Percentage Threshold |
1.7 |
Adamis
Proposals |
5.3(b) |
Adamis
Restated Certificate |
1.4(b) |
Adamis
Reverse Stock Split Amendment |
1.5(a) |
Adamis
Reverse Stock Split Proposal |
5.13 |
Adamis
SEC Reports |
3.9(a) |
Adamis
Stockholders Meeting |
5.3(a) |
Agreement
Date |
Preamble |
Allocation
Certificate |
5.22 |
Ancillary
Agreements |
2.3(a) |
Base
Date |
2.10 |
Certificate
of Merger |
1.3 |
Change
in the Adamis Board Recommendation |
5.6(c) |
Closing |
1.3 |
Closing
Date |
1.3 |
Closing
Price |
1.7(c) |
Confidentiality
Action |
10.10 |
Confidentiality
Agreement |
5.16 |
Current
Balance Sheet |
2.9(a) |
D&O
Indemnified Parties |
5.8(a) |
DGCL |
1.3 |
Dissenting
Shares |
1.8 |
Dissenting
Stockholder |
1.8 |
DMK |
Preamble |
Defined Term |
Section
of Agreement |
DMK
Audited Financial Statements |
5.1(a) |
DMK
Board |
Background – Paragraph
A |
DMK
Board Recommendation |
5.2(b) |
DMK
Common Stock |
Background – Paragraph
B |
DMK
Convertible Notes |
2.7(c) |
DMK
Disclosure Schedule |
Article II, first paragraph |
DMK
Employee Plans |
2.14(a) |
DMK
Financial Statements |
2.9(a) |
DMK
Interim Financial Statements |
2.9(a) |
DMK
Law Firm |
10.11(a) |
DMK
License Agreements |
7.10 |
DMK
Outstanding Shares |
1.7(d) |
DMK
Patent and Proprietary Rights |
2.12(a) |
DMK
Plan |
2.7(b) |
DMK
Restricted Stock |
1.6(c) |
DMK
Stock Certificate |
1.6(e) |
DMK
Stockholder Matters |
5.5(a) |
DMK
Stockholders Meeting |
5.2(a) |
DMK
Support Agreement |
Background – Paragraph
G |
DMK
Valuation |
1.7(a) |
DMK
Written Consent |
5.5(a) |
DMK
401(k) Plan |
5.23 |
Effective
Time |
1.3 |
Entity |
2.2 |
ERISA |
2.14(a) |
ERISA
Affiliate |
2.14(a) |
Excess
Cap Shares |
1.6(a) |
Exchange
Agent |
1.10(a) |
Expense
Payment Amount |
9.3(b) |
Exchange
Ratio |
1.7 |
Exchange
Shares |
1.10(b) |
Grant
Date |
2.7(f) |
Information
Statement |
5.5(a) |
Merger |
Background – Paragraph
A |
Merger
Consideration |
1.6(a) |
Merger
Consideration Preferred Shares |
1.6(a) |
Merger
Sub |
Preamble |
Nasdaq |
5.18 |
Nasdaq
Listing Application |
5.18 |
New
Adamis Common Stock |
1.5(a)(i) |
NJBCA |
Background – Paragraph
D |
Notice
of Superior Proposal |
4.5(b)(ii) |
Other
Adamis Proposals |
5.3(b) |
Outside
Date |
9.1(b) |
Defined Term |
Section
of Agreement |
Plan
of Merger |
Background – Paragraph
D |
Pre-Closing
Period |
4.1 |
Privileged
Communications |
10.11(b) |
Product
Licensee |
2.22(c) |
Registration
Statement |
5.4 |
Required
DMK Stockholder Vote |
2.3(b) |
Reverse
Stock Split |
1.5(a)(i) |
Schedule
Supplement |
5.26 |
Securities
Act |
1.6(f) |
Series
E Preferred |
Background – Paragraph
B |
Series
E Preferred Certificate of Designation |
Background – Paragraph
B |
Series
E Preferred Conversion Shares |
1.6(a) |
Specified
DMK Stockholder |
1.6(a) |
Stockholders’
Representative |
10.11(d)(i) |
Surviving
Corporation |
1.1 |
Takeover
Statute |
2.25 |
Transfer
Taxes |
5.12(d) |
U.S.
Tax Treatment |
1.12 |
EXHIBIT
B
FORM OF SUPPORT AGREEMENT
THIS
SUPPORT AGREEMENT (this “Support Agreement”) is made and entered into as of February 24, 2023, by and between (i)
each of the undersigned identified on the signature page hereof as a “Securityholder” (each, a “Securityholder”);
(ii) DMK Pharmaceuticals Corporation, a New Jersey corporation (“DMK”); (iii) Adamis Pharmaceuticals Corporation, a
Delaware corporation (“APC”); and (iv) Aardvark Merger Sub, Inc., a Delaware corporation (“Merger Sub,”
and together with APC, “Adamis”).
BACKGROUND
A. DMK,
APC and Merger Sub have entered into an Agreement and Plan of Merger and Reorganization of even date herewith (the “Merger Agreement”),
which provides for the merger of DMK with and into Merger Sub, a newly-created and wholly-owned subsidiary of APC, with Merger Sub as
the surviving corporation (the “Merger”). Capitalized terms used herein but not otherwise defined shall have the meaning
ascribed to them in the Merger Agreement.
B. Securityholder
is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
of such number of shares of the outstanding capital stock of DMK, as are indicated on Exhibit
A to this Support Agreement. Securityholder may also receive in the future shares of Common Stock of DMK upon the exercise of outstanding
options or warrants held by Securityholder, upon conversion or exchange of outstanding convertible promissory notes of DMK, or upon exercise
or conversion of such other security of DMK which may be directly or indirectly convertible into or exercisable or exchangeable for shares
of Common Stock of DMK.
C. In
consideration of the execution of the Merger Agreement by the parties thereto and to induce DMK and Adamis to enter into the Merger Agreement,
Securityholder (solely in Securityholder’s capacity as such) desires to enter into this Agreement and vote the Shares (as defined
below) and other such shares of capital stock of DMK over which Securityholder has voting power so as to facilitate consummation of the
Merger.
AGREEMENT
NOW,
THEREFORE, intending to be legally bound, the parties hereto agree as follows:
1. Certain
Definitions. Capitalized terms not defined herein shall have the meanings ascribed to them in the Merger Agreement. For purposes
of this Support Agreement:
(a) “Expiration
Date” shall mean the earlier to occur of (i) such date and time as the Merger Agreement shall have been terminated pursuant
to the terms thereof, or (ii) such date and time as the Merger has been consummated in accordance with the terms of the Merger Agreement.
(b) Securityholder
shall be deemed to “Own” or to have acquired “Ownership” of a security if Securityholder: (i) is
the record owner of such security; or (ii) is the “beneficial owner” (within the meaning of Rule 13d-3 under the Exchange
Act) of such security.
(c) “Person”
shall mean any (i) individual, (ii) corporation, limited liability company, partnership or other entity, or (iii) governmental
authority.
(d) “Shares”
shall mean: (i) all securities of DMK (including all shares of DMK Common Stock, and all shares of DMK Common Stock that are issuable
upon exercise, conversion or exchange of outstanding options, warrants, convertible notes and other rights to acquire shares of DMK Common
Stock) Owned by Securityholder as of the date of this Support Agreement or thereafter acquired by or issued to Securityholder; and (ii)
all additional securities of DMK of which Securityholder acquires Ownership during the period from the date of this Support Agreement
through the Expiration Date (including by way of stock dividend or distribution, split-up, recapitalization, combination, exchange of
shares and the like).
(e) “Transfer”.
A Person shall be deemed to have effected a “Transfer” of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, assigns, grants an option with respect to, transfers or disposes of such security or any interest in such security;
(ii) enters into an agreement or commitment providing for the sale of, pledge of, encumbrance of, assignment of, grant of an option with
respect to, transfer of or disposition of such security or any interest therein; or (iii) reduces such Person’s beneficial ownership
of, interest in or risk relating to such security.
2. Transfer
of Shares.
(a) Transfer
Restrictions. Securityholder agrees that, during the period from the date of this Support Agreement through the Expiration Date,
Securityholder shall not cause or permit any Transfer of any of the Shares to be effected; provided that, notwithstanding the foregoing,
Securityholder shall not be restricted from effecting a Transfer of any Shares to any member of Securityholder’s immediate family
or to a revocable trust of which the transferor Securityholder is the trustee for the benefit of Securityholder and/or any member of Securityholder’s
immediate family provided that (A) each such transferee shall be an “accredited investor” as defined in Regulation D promulgated
under the Securities Act of 1933, as amended, and have (i) executed a Support Agreement identical to this Agreement upon consummation
of the Transfer and if requested by Adamis, a proxy in the form attached hereto as Exhibit B
(with such modifications or in such other form as Adamis may reasonably request) and (ii) agreed in writing, for the benefit of Adamis,
to hold such Shares, or such interest therein, subject to all of the terms and conditions set forth in this Agreement and to execute all
instruments that the Merger Agreement contemplates will be executed by the DMK stockholders, and (B) the aggregate number of shares (whether
outstanding or underlying outstanding options and warrants or such other security which may be directly or indirectly convertible into
or exercisable or exchangeable for shares of capital stock of DMK) that may be so Transferred by Securityholder may not exceed one percent
(1%) of DMK’s outstanding Common Stock as of the date hereof. For purposes of this Agreement, “immediate family” means
Securityholder’s spouse, parents, siblings, children or grandchildren.
(b) Transfer
of Voting Rights. Securityholder agrees that, during the period from the date of this Support Agreement through the Expiration
Date, Securityholder shall not deposit (or permit the deposit of) any Shares in a voting trust or grant any proxy or enter into any voting
agreement or similar agreement in contravention of the obligations of Securityholder under this Support Agreement with respect to any
of the Shares.
3. Agreement
to Vote Shares. At every meeting of the stockholders of DMK called (and at every adjournment thereof), and with respect to every
requested action or approval by written consent of the stockholders of DMK, called or requested by DMK or its board of directors, to vote
on matters with respect to the Merger, the Merger Agreement (and related plan of merger) and the other matters contemplated thereby, Securityholder
(in his or her capacity as such) shall, or shall cause the holder of record on any applicable record date to, vote the Shares:
(a) in
favor of approval of the Merger and the adoption and approval of the Merger Agreement and any related plan of merger, and in favor of
each of the other actions contemplated by the Merger Agreement to be taken by DMK (including, without limitation, any amendments to the
DMK Charter), any action requested to be taken in any DMK Information Statement distributed to DMK stockholders in connection with the
Merger and the Merger Agreement, and any action required in furtherance thereof;
(b) in
favor of any matter recommended by the board of directors of DMK to the stockholders that could reasonably be expected to facilitate the
Merger;
(c) against
approval of any proposal made in opposition to, or in competition or inconsistent with, consummation of the Merger or the transactions
contemplated by the Merger Agreement (including, without limitation, any action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of DMK in the Merger Agreement); and
(d) in
favor of waiving any notice that may have been or may be required relating to any reorganization of DMK or any subsidiary of DMK, any
reclassification or recapitalization of the capital stock of DMK or any subsidiary of DMK, or any sale of assets, change of control, or
acquisition of DMK or any subsidiary of DMK by any other person except for the transactions contemplated by the Merger Agreement, or any
consolidation or merger of DMK or any subsidiary of DMK with or into any other person except pursuant to the Merger Agreement.
Securityholder
further agrees that if a meeting of DMK stockholders is held, Securityholder shall, or shall cause the holder of record on any applicable
record date to, appear at such meeting or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum.
Before the Expiration Date, the Securityholder shall not enter into any agreement or understanding with any person to vote or give instructions
in any manner inconsistent with the terms of this Section 3.
4. Agreement
Not to Exercise Appraisal Rights. Securityholder hereby irrevocably and unconditionally waives, and agrees not to exercise any
rights to demand appraisal of any Shares which may arise with respect to the Merger or any related transaction.
5. Directors
and Officers. Notwithstanding any provision of this Support Agreement to the contrary, nothing in this Support Agreement shall
limit or restrict Securityholder from acting in Securityholder’s capacity as a director or officer of DMK (it being understood that
this Support Agreement shall apply to Securityholder solely in Securityholder’s capacity as a stockholder of DMK) or voting in Securityholder’s
sole discretion on any matter other than those matters referred to in Section 3.
6. Irrevocable
Proxy. If requested by Adamis, (a) Securityholder agrees to deliver to Adamis a proxy in the form attached hereto as Exhibit B
or such other similar form and substance as Adamis may reasonably request (the “Proxy”), which shall be irrevocable
to the fullest extent permissible by law, with respect to the Shares, and (b) Securityholder shall cause to be delivered to Adamis, an
additional proxy (in the form attached hereto as Exhibit B) executed on behalf of the
record owner of any Shares that are owned beneficially (within the meaning of Rule 13d-3 under the Exchange Act), but not of record, by
Securityholder. Securityholder shall, at his, her or its own expense, perform such further acts and execute such further promises and
other documents and instruments as may reasonably be required to vest in Adamis the power to carry out and give effect to the provisions
of this Support Agreement.
7. No
Ownership Interest. Nothing contained in this Support Agreement shall be deemed to vest in Adamis any direct or indirect ownership
or incidence of ownership of or with respect to any Shares. All rights, ownership and economic benefits of and relating to the Shares
shall remain vested in and belong to Securityholder, and Adamis shall have no authority to manage, direct, superintend, restrict, regulate,
govern, or administer any of the policies or operations of DMK by virtue of this Support Agreement or exercise any power or authority
to direct Securityholder in the voting of any of the Shares, except as otherwise provided herein.
8. No
Solicitation. Securityholder agrees that, during the period from the date of this Agreement through the Expiration Date, Securityholder
shall comply with the provisions of Section 4.5 of the Merger Agreement as applicable
to DMK and its stockholders, agents, officers, directors, employees and representatives.
9. Representations
and Warranties of the Securityholder. Securityholder represents and warrants to Adamis as follows:
(a) Power;
Binding Agreement. Securityholder has full power, authority and capacity to execute and deliver this Support Agreement and the
Proxy, to perform Securityholder’s obligations hereunder and to consummate the transactions contemplated hereby and thereby. If
Securityholder is a corporation or other entity, the execution, delivery and performance by Securityholder of this Support Agreement and
the consummation by it of the transactions contemplated hereby have been duly and validly authorized by Securityholder and no other actions
or proceedings on the part of Securityholder are necessary to authorize the execution and delivery by it of this Support Agreement and
the consummation by it of the transactions contemplated hereby. This Support Agreement and the Proxy have been duly executed and delivered
by Securityholder, and constitute valid and binding obligations of Securityholder, enforceable against Securityholder in accordance with
their terms.
(b) No
Conflicts. Except for filings under the Exchange Act, no filing with, and no permit, authorization, consent, or approval of, any
state or federal public body or authority (“Governmental Entity”) is necessary for the execution of this Support Agreement
and Proxy by Securityholder and the consummation by Securityholder of the transactions contemplated by this Support Agreement and Proxy.
None of the execution and delivery of this Support Agreement or Proxy by Securityholder, the consummation by Securityholder of the transactions
contemplated by this Support Agreement and Proxy or compliance by Securityholder with any of the provisions of this Support Agreement
and Proxy shall (i) if Securityholder is a corporation or other entity, conflict with or result in any breach of any organizational documents
applicable to Securityholder, (ii) result in a violation or breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding,
agreement, or other instrument or obligation of any kind to which Securityholder is a party or by which Securityholder or any of its properties
or assets may be bound, or (iii) violate any order, writ, injunction, decree, judgment, order, statute, rule, or regulation applicable
to Securityholder or any of Securityholder’s properties or assets.
(c) Ownership
of Shares. Securityholder (i) is the beneficial owner of the shares of DMK Common Stock and the options, convertible notes and
warrants or such other security which may be directly or indirectly convertible into or exercisable or exchangeable for shares of capital
stock of DMK indicated on Exhibit A hereto, which are free and clear of any liens, adverse
claims, charges, security interests, pledges or options, proxies, voting trusts or agreements, understandings or agreements, or any other
rights or encumbrances whatsoever (“Encumbrances”) (except any Encumbrances arising under securities laws or arising
hereunder); and (ii) does not beneficially own any securities of DMK other than the shares of DMK Common Stock and options and warrants
or such other security which may be directly or indirectly convertible into or exercisable or exchangeable for shares of capital stock
of DMK indicated on Exhibit A hereto.
(d) Voting
Power. Securityholder has or will have sole voting power, sole power of disposition, sole power to issue instructions with respect
to the matters set forth herein, and sole power to agree to all of the matters set forth in this Support Agreement and Proxy, in each
case with respect to all of Securityholder’s Shares, with no limitations, qualifications or restrictions on such rights, subject
to applicable federal securities laws and the terms of this Support Agreement and, if executed by Securityholder, Proxy.
(e) No
Finder’s Fees. No broker, investment banker, financial advisor or other person is entitled to any broker’s, finder’s,
financial adviser’s or other similar fee or commission in connection with the transactions contemplated by this Support Agreement
and, if executed by Securityholder, Proxy based upon arrangements made by or on behalf of Securityholder.
(f) Reliance
by Adamis. Securityholder understands and acknowledges that Adamis is entering into the Merger Agreement in reliance upon Securityholder’s
execution and delivery of this Support Agreement and, if executed by Securityholder, Proxy.
10.
Certain Restrictions. Prior to the termination of this Support Agreement, Securityholder
agrees not to, directly or indirectly, take any other action that would make any representation or warranty of Securityholder contained
herein untrue or incorrect.
11. Disclosure.
Securityholder agrees to permit DMK and Adamis to publish and disclose in all documents and schedules filed with the Securities and Exchange
Commission or any applicable state authority or agency, and any press release or other disclosure document that DMK or Adamis, in their
sole discretion, determine to be necessary or desirable in connection with the Merger and any transactions related to the Merger, Securityholder’s
identity and ownership of Shares and the nature of Securityholder’s commitments, arrangements and understandings under this Support
Agreement and, if executed by Securityholder, the Proxy.
12. Consents
and Waivers. Securityholder hereby gives any consents or waivers that are reasonably required for the consummation of the Merger
under the terms of any agreements to which the Securityholder is a party or pursuant to any rights the Securityholder may have.
13. Legending
of Shares. If so requested by Adamis, Securityholder agrees that the Shares shall bear a legend stating that they are subject to
this Support Agreement and, if executed by Securityholder, the Proxy.
14. Termination.
This Support Agreement and, if executed by Securityholder, the Proxy delivered in connection herewith shall terminate and shall have no
further force or effect as of the Expiration Date. Nothing in this Section 14 shall relieve
or otherwise limit any party of liability for breach of this Support Agreement.
15. Miscellaneous.
(a) Validity.
The invalidity or unenforceability of any provision of this Support Agreement will not affect the validity or enforceability of the other
provisions of this Support Agreement, which will remain in full force and effect. In the event any governmental entity of competent jurisdiction
holds any provision of this Support Agreement to be null, void or unenforceable, the parties hereto will negotiate in good faith and will
execute and deliver an amendment to this Support Agreement in order, as nearly as possible, to effectuate, to the extent permitted by
law, the intent of the parties hereto with respect to such provision.
(b) Binding
Effect and Assignment. This Support Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, but, neither this Support Agreement nor any of the rights, interests
or obligations of the parties hereto may be assigned by either of the parties without prior written consent of the other.
(c) Amendments;
Waiver. This Support Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of
the party waiving compliance.
(d) Specific
Performance; Injunctive Relief. The parties hereto acknowledge that Adamis shall be irreparably harmed and that there shall be
no adequate remedy at law for a violation of any of the covenants or agreements of Securityholder set forth herein or, if executed by
Securityholder, in the Proxy. Securityholder agrees that, in the event of any breach or threatened breach by Securityholder of any covenant
or agreement contained in this Agreement or in the Proxy, Adamis shall be entitled, in addition to any other remedies that may be available
to Adamis upon any such breach or threatened breach, Adamis shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Adamis at law or in equity. Securityholder further agrees that Adamis
shall not be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any
remedy referred to in this Section, and Securityholder irrevocably waives any right he, she or it may have to require the obtaining, furnishing
or posting of any such bond or similar instrument.
(e) Non-Exclusivity.
The rights and remedies of Adamis under this Support Agreement are not exclusive of or limited by any other rights or remedies which it
may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting
the generality of the foregoing, the rights and remedies of Adamis under this Agreement, and the obligations and liabilities of Securityholder
under this Agreement, are in addition to their respective rights, remedies, obligations and liabilities under common law requirements
and under all applicable statutes, rules and regulations.
(f) Notices.
All notices and other communications pursuant to this Support Agreement shall be in writing and deemed to be sufficient if contained in
a written instrument and shall be deemed given if delivered personally, sent by email or other electronic transmission, sent by nationally-recognized
overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following
address (or at such other address for a party as shall be specified by like notice):
If to Adamis: |
Adamis Pharmaceuticals Corporation |
|
11682 El Camino Real, Suite 300 |
|
San Diego, CA 92130 |
|
Attention: Chief Executive Officer |
|
Telephone No.: |
(858) 997-2400 |
|
|
If to Securityholder: |
|
|
|
|
At the address for
Securityholder that
is set forth in the books and records
of DMK |
(g) No
Waiver. The failure or delay of any party to exercise any right, power or remedy provided under this Support Agreement or otherwise
available in respect of this Support Agreement at law or in equity, or to insist upon compliance by any other party with its obligation
under this Support Agreement, and any custom or practice of the parties at variance with the terms of this Support Agreement, will not
constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. Neither
Adamis or DMK shall be deemed to have waived any claim available to it arising out of this Support Agreement, or any power, right, privilege
or remedy of Adamis or DMK under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth
in a written instrument duly executed and delivered on behalf of Adamis or DMK (as the case may be); and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is given.
(h) No
Third Party Beneficiaries. This Support Agreement is not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
(i) Governing
Law. This Support Agreement and the Proxy shall be governed by the laws of the State of Delaware, without reference to rules of
conflicts of law.
(j) Submission
to Jurisdiction. All actions and proceedings arising out of or relating to this Support Agreement or Proxy shall be heard and determined
exclusively in any state or federal court located in the State of Delaware. The parties hereto hereby (a) submit to the exclusive jurisdiction
of any state or federal court located in Delaware, for the purpose of any action arising out of or relating to this Support Agreement
or Proxy brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any
such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the action is brought in an inconvenient forum, that the venue of the action is improper, or
that this Support Agreement, the Proxy or the transactions contemplated hereby may not be enforced in or by any of the above-named courts.
STOCKHOLDER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS VOTING AGREEMENT OR
THE PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS VOTING AGREEMENT OR THE PROXY. The Parties agree that service of process in any
such action may be made in the manner provided for in this Agreement for delivery of notices.
(k) Rules
of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this
Support Agreement and Proxy and, therefore, waive the application of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
(l) Entire
Agreement. This Support Agreement and the Proxy contain the entire understanding of the parties in respect of the subject matter
hereof, and supersede all prior negotiations, agreements and understandings, both written and oral, between the parties hereto with respect
to the subject matter hereof.
(m) Severability.
If any term or other provision of this Support Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Support Agreement shall nevertheless remain in full force and effect. If the final
judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto
agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closes
to expressing the intention of the invalid or unenforceable term or provision, and this Support Agreement shall be enforceable as so modified.
In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto shall negotiate in good faith
to modify this Support Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner.
(n) Interpretation.
(i) Whenever
the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to
be followed by the words “without limitation.” As used in this Agreement, the term “affiliate” shall have the
meaning set forth in Rule 12b-2 promulgated under the Exchange Act.
(ii) The
article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the
parties hereto and shall not in any way affect the meaning or interpretation of this Agreement.
(o) Attorneys’
Fees. If any legal action or other legal proceeding relating to this Support Agreement or the enforcement of any provision of this
Support Agreement is brought against Securityholder, the prevailing party shall be entitled to recover reasonable attorneys’ fees,
costs and disbursements (in addition to any other relief to which the prevailing party may be entitled).
(p) Expenses.
All costs and expenses incurred in connection with this Support Agreement, the Proxy and the transactions contemplated hereby and thereby
shall be paid by the party incurring such costs and expenses.
(q) Further
Assurances. From time to time, at any other party’s request and without further consideration, Securityholder shall (at Securityholder’s
sole expense) execute and deliver any additional documents and take any further lawful action as may be necessary or desirable, in the
reasonable opinion of DMK, to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated
by this Support Agreement and to carry out the intent of this Support Agreement.
(r) Counterparts.
This Support Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute
one and the same agreement.
[Remainder
of page intentionally left blank]
IN
WITNESS WHEREOF, the parties have caused this Support Agreement to be duly executed on the day and year first above written.
|
ADAMIS PHARMACEUTICALS CORPORATION |
|
|
|
|
|
By: |
|
|
|
Name: |
David J. Marguglio |
|
|
Title: |
Chief Executive Officer |
|
|
|
|
|
|
AARDVARK MERGER SUB, INC. |
|
|
|
|
|
By: |
|
|
|
Name: |
David J. Marguglio |
|
|
Title: |
Chief Executive Officer |
|
[Signature Page to
Support Agreement]
|
DMK PHARMACEUTICALS CORPORATION |
|
|
|
|
|
By: |
|
|
|
Name: |
Eboo Versi, M.D., Ph.D. |
|
|
Title: |
Chief Executive Officer |
|
|
|
|
|
|
SECURITYHOLDER |
|
|
|
|
|
VERSI GROUP, LLC |
|
|
|
|
|
By: |
|
|
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Name: |
Eboo Versi, M.D., Ph.D. |
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Title: |
Manager |
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[Signature Page to
Support Agreement]
EXHIBIT
A
SHARES
BENEFICIALLY OWNED
Securityholder |
Number
of Shares of Common Stock |
Versi
Group, LLC |
|
Options,
Convertible Notes or Other Securities
Stock
Options
Option
Holder |
Number
of Shares of Common Stock Underlying Stock Options |
|
|
Convertible
Notes
EXHIBIT
B
IRREVOCABLE
PROXY
The
undersigned stockholder (“Securityholder”) of DMK Pharmaceuticals Corporation, a New Jersey corporation (“DMK”),
hereby irrevocably (to the fullest extent permitted by law) appoints David J. Marguglio and David C. Benedicto of Adamis Pharmaceuticals
Corporation, a Delaware corporation (“APC”), and APC, and each of them, as the sole and exclusive attorneys and proxies
of the undersigned, with full power of substitution and resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the shares of capital stock of DMK that now are or hereafter
may be beneficially owned by the undersigned, and any and all other shares or securities of DMK issued or issuable in respect thereof
on or after the date hereof (collectively, the “Shares”), in accordance with the terms of this Proxy until the Expiration
Date (as defined below). Upon the undersigned’s execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Shares that
are inconsistent with this Proxy until after the Expiration Date (as defined in that certain Support Agreement of even date herewith by
and among DMK, APC, and the undersigned stockholder, among others (the “Support Agreement”)).
This
Proxy is irrevocable (to the fullest extent permitted by law), is coupled with an interest and is granted pursuant to the Support Agreement,
and is granted in consideration of DMK and APC entering into that certain Agreement and Plan of Reorganization date as of February 24,
2023 (the “Merger Agreement”), by and among DMK, APC and Aardvark Merger Sub, Inc., a wholly-owned subsidiary of APC
(“Merger Sub”). The Merger Agreement provides for the acquisition by APC of DMK by means of DMK with and into Merger
Sub, with Merger Sub as the surviving corporation (the “Merger”).
The
attorneys and proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned’s attorney and proxy to vote the Shares, and to exercise all voting, consent and similar
rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver written consents)
at every annual, special or adjourned meeting of stockholders of DMK and in every written consent in lieu of such meeting (i) in favor
of approval of the Merger and the adoption and approval of the Merger Agreement (and any related plan of merger), and in favor of each
of the other actions contemplated by the Merger Agreement and the Proxy and any action required in furtherance thereof; (ii) in favor
of any matter that could reasonably be expected to facilitate the Merger; (iii) against approval of any proposal made in opposition to,
or in competition or inconsistent with, the consummation of the Merger or the transactions contemplated by the Merger Agreement (including,
without limitation, any action or agreement that would result in a breach of any representation, warranty, covenant or obligation of DMK
in the Merger Agreement); and (iv) in favor of waiving any notice that may have been or may be required relating to any reorganization
of DMK or any subsidiary of DMK, any reclassification or recapitalization of the capital stock of DMK or any subsidiary of DMK, or any
sale of assets, change of control, or acquisition of DMK or any subsidiary of DMK by any other person, or any consolidation or Merger
of DMK or any subsidiary of DMK with or into any other person.
The
attorneys and proxies named above may not exercise this Proxy on any other matter. The undersigned stockholder may vote the Shares on
all other matters.
Any
obligation of the undersigned hereunder shall be binding upon the heirs, estate, executors, personal representatives, successors and assigns
of the undersigned (including any transferee of the Shares).
If
any term or other provision of this Proxy is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Proxy shall nevertheless remain in full force and effect. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court
making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closes to expressing
the intention of the invalid or unenforceable term or provision, and this Proxy shall be enforceable as so modified. In the event such
court does not exercise the power granted to it in the prior sentence, the parties hereto shall negotiate in good faith to modify this
Proxy so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner.
[Signature
Page to Follow]
This
Proxy is irrevocable (to the fullest extent permitted by law). This Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date.
Dated:
February 24, 2023
|
VERSI GROUP, LLC |
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|
|
|
|
By: |
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|
|
Name: |
Ebrahim Versi, M.D., Ph.D. |
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|
Title: |
Manager |
|
[Signature Page to
Irrevocable Proxy]
EXHIBIT
C
ADAMIS PHARMACEUTICALS CORPORATION
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS OF
SERIES E CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, David J. Marguglio,
does hereby certify that:
1.
David J. Marguglio is the Chief Executive Officer of Adamis Pharmaceuticals Corporation, a Delaware corporation (the “Corporation”).
2.
The Corporation is authorized to issue 10,000,000 shares of preferred stock.
3.
The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”):
WHEREAS, the certificate of incorporation
of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of 10,000,000 shares, $0.0001 par
value per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors
is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof,
of any of them; and
WHEREAS, it is the desire of
the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating
to a series of the preferred stock, which shall consist of 15,000 shares of the preferred stock which the Corporation has the authority
to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED,
that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities,
rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of
preferred stock as follows:
TERMS OF PREFERRED STOCK
Section
1. Definitions. For the purposes hereof,
the following terms shall have the following meanings:
“Affiliate”
means, as to any Person (the “subject Person”), any other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly
or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent
(10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject Person. For the purposes
of this definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities,
through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.
“Beneficial Ownership
Limitation” shall have the meaning set forth in Section 6(c).
“Business Day”
means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking
institutions in the State of California are authorized or required by law or other governmental action to close.
“Commission”
means the United States Securities and Exchange Commission.
“Common Stock”
means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities into which such securities
may hereafter be reclassified or changed.
“Common Stock Equivalents”
means any securities of the Corporation which would entitle the holder thereof to acquire at any time Common Stock, including, without
limitation, any convertible debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into
or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Date”
shall have the meaning set forth in Section 6(a).
“Conversion Ratio”
shall initially be equal to one thousand (1,000) per whole share of Series E Preferred Stock, and shall be subject to adjustment as provided
herein.
“Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series E Preferred Stock in accordance with
the terms hereof.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Fair Value”
means the last reported closing stock price of a share of Common Stock on the principal Trading Market on which the Common Stock is listed
as of the Trading Day immediately prior to the date on which a Notice of Conversion is delivered to the Company.
“Holder” means
a holder of shares of Series E Preferred Stock.
“Merger Agreement”
means the Agreement and Plan of Merger and Reorganization, dated as of February 24, 2023, by and among the Corporation, Aardvark Merger
Sub Inc., a Delaware corporation, and DMK Pharmaceuticals Corporation, a New Jersey corporation, as amended, modified or supplemented
from time to time in accordance with its terms.
“Notice of Conversion”
shall have the meaning set forth in Section 6(a).
“Original Issue
Date” means the date of the first issuance of any shares of Series E Preferred Stock.
“Person” means
an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company,
joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series E Preferred Stock”
shall have the meaning set forth in Section 2.
“Share Delivery Date”
shall have the meaning set forth in Section 6(b).
“Trading Day”
means a day on which the principal Trading Market is open for business.
“Trading Market”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the
NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC
Bulletin Board (or any successors to any of the foregoing).
“Transfer Agent”
means American Stock Transfer & Trust Company, LLC or any successor entity appointed as the transfer agent of the Corporation.
Section
2. Designation, Amount and Par Value.
The series of preferred stock shall be designated as the Corporation’s Series E Convertible Preferred Stock (the “Series
E Preferred Stock”) and the number of shares so designated shall be 15,000. Each share of Series E Preferred Stock shall have
a par value of $0.0001 per share.
Section
3. Dividends. Except for stock dividends
or distributions for which adjustments are to be made pursuant to Section 7, Holders shall be entitled to receive, and the Corporation
shall pay, dividends on shares of Series E Preferred Stock equal (on an as-if-converted-to-Common-Stock basis, disregarding for such purpose
any conversion limitations hereunder) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if
such dividends are paid on shares of the Common Stock. No other dividends shall be paid on shares of Series E Preferred Stock.
Section
4. Voting Rights. Except as otherwise
provided herein or as otherwise required by law, the Holders shall be entitled to vote with the holders of outstanding shares of Common
Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Corporation for their
action or consideration (whether at a meeting of stockholders of the Corporation, by written action of stockholders in lieu of a meeting
or otherwise). In any such vote, each Holder shall be entitled to a number of votes equal to the number of shares of Common Stock into
which the Series E Preferred Stock held by such Holder is convertible pursuant to Section 6 herein (and after giving effect to and taking
into account the Beneficial Ownership Limitation set forth in
Section 6(c)) as of the record date for such vote or written consent or, if there is no specified record date, as of the date of such
vote or written consent. Each Holder of outstanding Series E Preferred Stock shall be entitled to notice of all stockholder meetings (or
requests for written consent) in accordance with the Corporation’s bylaws. In addition, as long as any shares of Series E Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote of Holders of a majority of the outstanding shares of Series
E Preferred Stock, directly or indirectly, by merger, consolidation, recapitalization or otherwise (a) alter or change adversely the powers,
preferences or rights given to the Series E Preferred Stock or alter or amend this Certificate of Designation or (b) increase the number
of authorized shares of Series E Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.
Section
5. Liquidation. Upon any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), subject to the rights
of the holders of any other outstanding series of Preferred Stock of the Corporation, the Holders shall be entitled to receive, pari passu
with the holders of Common Stock of the Corporation, out of the assets, whether capital or surplus, of the Corporation an amount equal
to such amount per share as would have been payable had all shares of Series E Preferred Stock been converted into Common Stock pursuant
to Section 6 herein (without giving effect to any limitation on conversion as a result of the Beneficial Ownership Limitation set forth
in Section 6(c)) immediately prior to such liquidation, dissolution or winding up.
Section
6. Conversion.
a) Conversions
at Option of Holder. Each share of Series E Preferred Stock (or fraction thereof) shall be convertible, at any time and from time
to time at the option of the Holder thereof, into the number of shares of Common Stock (subject to the limitations set forth in Section
6(c)) equal to the Conversion Ratio (and giving effect proportionately to any conversion of a fraction of a share of Series E Preferred
Stock). Holders shall effect conversions by providing the Corporation with a written notice of conversion (a “Notice of Conversion”)
substantially in the form attached hereto on the Trading Day on which such Holder wishes to effect such conversion (the “Conversion
Date”). Each Notice of Conversion shall specify the number of shares of Series E Preferred Stock to be converted, the applicable
Conversion Ratio, the number of shares of Common Stock to be issued, and the number of shares of Series E Preferred Stock owned subsequent
to the conversion at issue. The Conversion Shares shall be deemed to have been issued, and the Holder or any other person so designated
to be deemed to have become a holder of record of such shares for all purposes, as of the date of delivery to the Corporation of the Notice
of Conversion. To effect conversions of shares of Series E Preferred Stock, a Holder shall not be required to surrender the certificate(s)
representing the shares of Series E Preferred Stock to the Corporation unless all of the shares of Series E Preferred Stock represented
thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series E Preferred Stock
promptly following the Conversion Date at issue. Conversions of less than the total amount of shares of Series E Preferred Stock represented
by a certificate held by Holder will have the effect of lowering the outstanding number of Series E Preferred Stock held by such Holder
by an amount equal to the number so converted, as if the original stock certificate(s) were cancelled and one or more new stock certificates
evidencing the new number of shares of Series E Preferred Stock were issued; provided, however that in such cases the
Holder may request that the Corporation deliver to the Holder a certificate representing such non-converted shares of Series E Preferred
Stock; provided, further, that the failure of the Corporation to deliver such new certificate shall not affect the rights of the Holder
to submit a further Notice of Conversion with respect to such Series E Preferred Stock and, in any such case, the Holder shall be deemed
to have submitted the original of such new certificate at the time that it submits such further Notice of Conversion. In the case of a
dispute between the Corporation and a Holder as to the calculation of the Conversion Ratio or the number of Conversion Shares issuable
upon a conversion (including without limitation the calculation of any adjustment to the Conversion Ratio pursuant to Section 7 below),
the Corporation shall issue to such Holder the number of Conversion Shares that are not disputed within the time periods specified in
Section 6(b) below and shall submit the disputed calculations to a certified public accounting firm of national reputation (other than
the Corporation’s regularly retained accountants) within three (3) Trading Days following the Corporation’s receipt of such
Holder’s Notice of Conversion. The Corporation shall cause such accountant to calculate the Conversion Ratio as provided herein
and to notify the Corporation and such Holder of the results in writing no later than three (3) Trading Days following the day on which
such accountant received the disputed calculations. Such accountant’s calculation shall be deemed conclusive absent manifest error.
The fees of any such accountant shall be borne by the party whose calculations were most at variance with those of such accountant.
b) Mechanics
of Conversion
i. Delivery
of Conversion Shares Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery
Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being
acquired upon the conversion of the Series E Preferred Stock. If, in the case of any Notice of Conversion, such Conversion Shares are
not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written
notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the
Corporation shall promptly return to the Holder any original Series E Preferred Stock certificate delivered to the Corporation and the
Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
ii. Reservation
of Shares Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized and unissued
shares of Common Stock for the sole purpose of issuance upon conversion of the outstanding Series E Preferred Stock, free from preemptive
rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Series E Preferred
Stock), not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 7) upon the conversion of the then outstanding shares of Series E Preferred Stock (without
giving effect to any limitation on conversion as a result of the Beneficial Ownership Limitation set forth in Section 6(c)).
iii. Fractional
Shares. No fractional shares of Common Stock shall be issued upon the conversion of the Series E Preferred Stock. In lieu of any
fractional shares to which the Holder would otherwise be entitled upon such conversion, the Corporation shall at its election, either
pay a cash adjustment in respect of such fractional share of Common Stock in an amount equal to such fraction multiplied by the Fair Value
or round up to the next whole share (after aggregating all fractional shares).
iv. Transfer
Taxes and Expenses. The issuance of Conversion Shares on conversion of the Series E Preferred Stock shall be made without charge
to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares,
provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance
and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series E Preferred
Stock, and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting
the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
c) Beneficial
Ownership Limitation. The Corporation shall not effect any conversion of the Series E Preferred Stock, and a Holder shall not have
the right to convert any portion of the Series E Preferred Stock, to the extent that, after giving effect to the conversion set forth
on the applicable Notice of Conversion, such Holder would beneficially own in excess of the Holder Beneficial Ownership Limitation, or
such Holder together with such Holder’s Affiliates and any Persons acting as a group together with such Holder or Affiliates (such
Persons, “Attribution Parties”) would beneficially own in excess of the Affiliates Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and
its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series E Preferred Stock with respect
to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion
of the remaining, unconverted Series E Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties
and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including, without
limitation, any Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for
purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder, it being acknowledged by each Holder that the Corporation is not representing to such Holder that
such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required
to be filed in accordance therewith. To the extent that the limitation contained in this Section 6(c) applies, the determination of whether
the Series E Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution
Parties) and of how many shares of Series E Preferred Stock are convertible shall be in the reasonable judgment of such Holder, in each
case subject to the Holder Beneficial Ownership Limitation or the Affiliates Beneficial Ownership Limitation, and
the Corporation shall have no obligation to verify or confirm the accuracy of such determination. To ensure compliance with this restriction,
each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion
has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(c), in determining
the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the
most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case
may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer
Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall
within two (2) Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities
of the Corporation, including the Series E Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as
of which such number of outstanding shares of Common Stock was reported. The “Holder Beneficial Ownership Limitation”
shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of Series E Preferred Stock held by the applicable Holder. The “Affiliates Beneficial Ownership
Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance
of shares of Common Stock issuable upon conversion of Series E Preferred Stock held by the applicable Holder and its Affiliates. The Holder
Beneficial Ownership Limitation together with the Affiliates Beneficial Ownership Limitation is collectively known as the “Beneficial
Ownership Limitation.” The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 6(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent
with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to give effect
to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Series E Preferred Stock.
d) Nasdaq
Issuance Limitation. Notwithstanding anything herein to the contrary, the Corporation shall not be obligated to issue any shares
of Common Stock, and the Holders shall not have the right to receive, upon conversion of the Series E Preferred Stock, taken as a whole,
any shares of Common Stock to the extent such issuance of shares of Common Stock would exceed that number of shares of Common Stock which
the Corporation may issue in the aggregate pursuant to the transactions contemplated under the Merger Agreement (including pursuant to
this Certificate of Designation) without breaching the Corporation’s obligations under the rules and regulations of the Nasdaq Capital
Market (the “Exchange Cap”). In furtherance of the above, no holder of Series E Preferred Stock shall be issued, in
the aggregate pursuant to the terms of this Certificate of Designation, shares of Common Stock in an amount greater than the product of
the Exchange Cap multiplied by a fraction, the numerator of which is the number of shares of Series E Preferred Stock held by the Holder
and the denominator of which is the aggregate number of shares of Series E Preferred Stock issued on the Original Issue Date to all Holders
(with respect to each Holder, the “Exchange Cap Allocation”). In the event that the Holder shall sell or otherwise
transfer any of the Holder’s Series E Preferred Stock, the transferee shall be allocated a pro rata portion of the Holder’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any holder of Series E Preferred Stock shall convert all of such
holder’s Series E Preferred Stock into a number of shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of Series E Preferred
Stock on a pro rata basis in proportion to the shares of Series E Preferred Stock then held by each such Holder.
Section
7. Certain Adjustments.
a) Stock
Dividends and Stock Splits. If the Corporation, at any time while the Series E Preferred Stock is outstanding: (i) pays a stock
dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common
Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion
of, or payment of a dividend on, this Series E Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares,
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then
the Conversion Ratio shall be divided by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares
of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues
or sells any Common Stock Equivalents pro rata to all the record holders of any class of shares of Common Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon conversion of
the Series E Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership
Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no
such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would
result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase
Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result
in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro
Rata Distributions. Subject to Section 3, during such time as the Series E Preferred Stock is outstanding, if the Corporation declares
or makes any dividend or other distribution of its assets (or rights to acquire its assets) to all holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property
or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), at any time after the issuance of the Series E Preferred Stock, then, in each such case, the Holder
shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete Conversion of the Series E Preferred Stock (without regard to any
limitations on Conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which
a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the participation in such Distribution (provided, however,
to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership
of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance
for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership
Limitation).
d) Merger;
Sale of Assets. If at any time while the Series E Preferred Stock is outstanding: (i) the Corporation effects any merger or consolidation
of the Corporation with or into another Person pursuant to which the shares of capital stock of the Corporation outstanding immediately
prior to such merger or consolidation are converted into or exchanged for shares of another corporation or entity, or are converted into
or exchanged for equity securities that represent, less than a majority, by voting power, of the equity securities of (1) the surviving
or resulting party or (2) if the surviving or resulting party is a wholly owned subsidiary of another party immediately following such
merger or consolidation, the parent of such surviving or resulting party, immediately following such merger or consolidation; or (ii)
the Corporation sells all or substantially all of its assets in a single transaction or a series of related transactions (each, a “Merger
or Sale”), then each Holder of the Series E Preferred Stock shall be entitled to receive such number of shares of common stock
of the successor or acquiring corporation and/or such other or additional consideration as are receivable by virtue of such Merger or
Sale by a holder of the number of shares of Common Stock for which the Series E Preferred Stock held by the Holder is convertible immediately
prior to such Merger or Sale (without regard to any limitation in Section 6(c) on the conversion of this Series E Preferred Stock).
e) Calculations.
All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/1,000th of a share, as the case may be. For purposes
of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
f) Notice
of Adjustment. Whenever the Conversion Ratio is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly
deliver to each Holder a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
g) Adjustments.
In the event that at any time, as a result of an adjustment made pursuant to this Section 7, the Holder shall, upon conversion of such
Holder’s Series E Preferred Stock, become entitled to receive securities or assets (other than Common Stock) then, wherever appropriate,
all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner
and upon terms as nearly equivalent as practicable to the provisions of this Section 7.
Section
8. Miscellaneous.
a) Lost
or Mutilated Preferred Stock Certificate. If a Holder’s Series E Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate,
or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series E Preferred Stock
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and
of the ownership hereof reasonably satisfactory to the Corporation.
b) Severability.
If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation
shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to
all other Persons and circumstances.
c) Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
d) Headings.
The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed
to limit or affect any of the provisions hereof.
e) Status
of Converted Preferred Stock. Shares of Series E Preferred Stock may only be issued pursuant to the Merger Agreement. If any shares
of Series E Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized but
unissued shares of preferred stock and shall no longer be designated as Series E Convertible Preferred Stock.
f) Transfers.
Upon written notice to the Corporation, a Holder may sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Series E Preferred Stock to any person or entity as long as such transaction is the subject of an effective registration statement under
the Securities Act or is exempt from registration thereunder and otherwise is made in accordance with the terms of the Merger Agreement
and any letter of transmittal executed in connection with the issuance Series E Preferred Stock pursuant to the Merger Agreement. From
and after the date of any such sale or transfer, the transferee thereof shall be deemed to be a Holder. Upon any such sale or transfer,
the Corporation shall, promptly following the return of the certificate or certificates representing the Series E Preferred Stock that
are the subject of such sale or transfer, issue and deliver to such transferee a new certificate in the name of such transferee.
g) Notices.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice
of Conversion, shall be in writing and delivered personally, via email or sent by a nationally recognized overnight courier service, addressed
to the Corporation, at 11682 El Camino Real, Suite 300, San Diego, CA 92130, Attention: Corporate Secretary, or such other email address
or mailing address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section.
Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered
personally, by email at the email address of such Holder appearing on the books of the Corporation, or if no such email address appears
on the books of the Corporation, sent by a nationally recognized overnight courier service addressed to each Holder, at the principal
place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in
this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the date immediately following the date of transmission, if
such notice or communication is delivered via email at the email address specified in this Section between 5:30 p.m. and 11:59 p.m. (New
York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
RESOLVED, FURTHER, that the president and the secretary
of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences,
Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned
have executed this Certificate this _____________.
Name: David J. Marguglio
Title: Chief Executive Officer
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series E Preferred Stock
(the “Preferred Stock”), represented by stock certificate No(s) _________________, into shares of common stock (“Common
Stock”) of ADAMIS PHARMACEUTICALS CORPORATION, according to the terms and conditions of the Certificate of Designation relating
to the Preferred Stock (the “Certificate of Designation”), as of the date written below. Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the Certificate of Designation.
|
Preferred
Stock to be Converted: |
|
|
Applicable
Conversion Ratio: |
|
|
Number
of Shares of Common Stock to be Issued: |
|
|
Preferred
Stock Held Subsequent to Issuance: |
|
Name:
Title:
Holder Requests Delivery to be
made: (check one)
☐ |
By Delivery of Physical Certificates
to the Above Address |
☐ |
Through Depository Trust Corporation
|
(Account _________________)
ANNEX
5.11
DIRECTORS AND OFFICERS
Officers
In addition to the persons who are currently officers of Adamis on
the date of the Agreement, effective at the Effective Time, Ebrahim Versi, M.D., Ph.D., shall become Chief Executive Officer of Adamis.
Directors
Adamis shall have the right to designate three (3) persons who will
be directors of Adamis immediately after the Effective Time and DMK shall have the right to designate two (2) persons who will be directors
of Adamis immediately after the Effective Time.
|
1. |
David J. Marguglio and Richard Williams shall resign as directors and Howard C. Birndorf, Meera J. Desai, Ph.D. and Vickie Reed shall
continue as directors, as the designees of Adamis. |
|
2. |
Ebrahim Versi, M.D., Ph.D. and Jannine Versi shall be appointed as directors of Adamis, as the designees of DMK, with Dr. Versi serving
as Chairman of the Board. |
Annex
B
Certificate
of Amendment to the Restated Certificate of Incorporation
of Adamis Pharmaceuticals Corporation
Adamis
Pharmaceuticals Corporation, a corporation organized under and existing under the laws of the State of Delaware (the “Company”),
certifies that:
FIRST:
The name of the Company is Adamis Pharmaceuticals Corporation.
SECOND:
The Board of Directors of the Company, acting in accordance with the provisions of Sections 141 and 242 of the Delaware General Corporation
Law (the “DGCL”), duly approved and adopted resolutions to amend Article IV of the Restated Certificate of Incorporation of
the Company, which is hereby amended by inserting the following paragraph at the end of such Article:
“D.
Upon the filing of this Certificate of Amendment with the Secretary of State of the State of Delaware and the effectiveness of this Certificate
of Amendment (the “Effective Time”), each [ * ]1 shares of the Company’s Common Stock (the “Old Common
Stock”) issued and outstanding or held by the Company in treasury immediately prior to the Effective Time shall automatically, and
without any action by the holder thereof, be reclassified and combined into one validly issued, fully paid and nonassessable share of
Common Stock (“New Common Stock”), subject to the treatment of fractional share interests as described below (such reclassification
and combination of shares, the “Reverse Stock Split”). The par value of the Common Stock following the Reverse Stock Split
shall remain at $0.0001 per share. The Company shall not issue any fractional shares in the Reverse Stock Split. In lieu of such fractional
shares, any stockholder who would otherwise be entitled to a fractional share of New Common Stock as a result of the Reverse Stock Split,
following the Effective Time (after taking into account all fractional shares of New Common Stock otherwise issuable to such stockholder),
shall be entitled to receive a cash payment (without interest) equal to the fair market value of the fraction to which such holder would
otherwise be entitled multiplied by the fair market value of the Common Stock as determined by the Board of Directors. Notwithstanding
the foregoing, the Company shall not be obliged to issue certificates or book entry shares evidencing the shares of New Common Stock or
cash in lieu of fractional shares, if any, unless and until, where shares are held in certificated form, the certificates evidencing the
shares of Old Common Stock held by a holder prior to the Reverse Stock Split are either delivered to the Company or its transfer agent,
or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Each stock certificate
or book entry that, immediately prior to the Effective Time, represented shares of Old Common Stock that were issued and outstanding immediately
prior to the Effective Time shall, from and after the Effective Time, automatically and without the necessity of any action on the part
of the Company or the respective holders thereof, represent that number of whole shares of New Common Stock after the Effective Time into
which the shares formerly represented by such certificate or book entry have been reclassified and combined (as well as the right to receive
cash in lieu of fractional shares of New Common Stock after the Effective Time as set forth above; provided, however, that each holder
of record holding a certificate that represented shares of Old Common Stock that were issued and outstanding immediately prior to the
Effective Time shall receive, upon surrender of such certificate, a new certificate evidencing and representing the number of whole shares
of New Common Stock after the Effective Time into which the shares of Old Common Stock formerly represented by such certificate shall
have been reclassified and combined pursuant to the Reverse Stock Split (including the right to receive a cash payment in lieu of a fractional
share of New Common Stock to which such holder may be entitled as set forth above). The Reverse Stock Split shall be effected on a record
holder-by-record holder basis, such that any fractional shares of post-Reverse Stock Split Common Stock resulting from the Reverse Split
and held by a single record holder shall be aggregated. The Reverse Stock Split shall also apply to any outstanding securities or rights
convertible into, or exchangeable or exercisable for, Old Common Stock of the Company and all references to the Old Common Stock in agreements,
arrangements, documents and plans relating thereto or any option or right to purchase or acquire shares of Old Common Stock shall be deemed
to be references to the New Common Stock or options or rights to purchase or acquire shares of New Common Stock, as the case may be.
1 Shall
be a number equal to or greater than 2 and equal to or lesser than 100, as determined by the Board of Directors of the Company. By approving
the Reverse Stock Split, the stockholders of the Company are approving the Certificate of Amendment with each possible number within such
range, and authorizing the Board of Directors to file any such Certificate of Amendment as the Board of Directors deems advisable, with
any such certificate of amendment not filed being abandoned and of no further force and effect.
THIRD:
Thereafter, pursuant to a resolution of the Board, this Certificate of Amendment was submitted to the stockholders of the Company for
their approval, and was duly adopted by the required vote of stockholders in accordance with the provisions of Section 242 of the
DGCL.”
1
Shall be a number equal to or greater than 2 and equal to or lesser than 100, as determined by the Board of Directors of the Company.
IN
WITNESS WHEREOF, this Certificate of Amendment to the Restated Certificate of Incorporation has been duly executed by its authorized officer
on this _____ day of __________, 2023.
|
ADAMIS PHARMACEUTICALS
CORPORATION |
|
David J. Marguglio |
|
Chief Executive Officer |
Annex
C
Provisions of New Jersey Business Corporations
Act
14A:11-1 Right of shareholder to dissent.
14A:11-1. Right of shareholder to dissent.
(1) Any shareholder of a domestic corporation shall have the right
to dissent from any of the following corporate actions
(a) Any plan of merger or consolidation to which the corporation is
a party, provided that, unless the certificate of incorporation otherwise provides
(i) a shareholder shall not have the right to dissent from any plan
of merger or consolidation with respect to shares
(A) of a class or series which is listed on a national securities exchange
or is held of record by not less than 1,000 holders on the record date fixed to determine the shareholders entitled to vote upon the plan
of merger or consolidation; or
(B) for which, pursuant to the plan of merger or consolidation, he
will receive (x) cash, (y) shares, obligations or other securities which, upon consummation of the merger or consolidation, will either
be listed on a national securities exchange or held of record by not less than 1,000 holders, or (z) cash and such securities;
(ii) a shareholder of a surviving corporation shall not have the right
to dissent from a plan of merger, if the merger did not require for its approval the vote of such shareholders as provided in section
14A:10-5.1 or in subsection 14A:10-3(4), 14A:10-7(2) or 14A:10-7(4);
(iii) a shareholder of a corporation shall not have the right to dissent
from a plan of merger, if the merger did not require, for its approval, the vote of the shareholders as provided in subsection (6) of
N.J.S.14A:10-3; or
(b) Any sale, lease, exchange or other disposition of all or substantially
all of the assets of a corporation not in the usual or regular course of business as conducted by such corporation, other than a transfer
pursuant to subsection (4) of N.J.S.14A:10-11, provided that, unless the certificate of incorporation otherwise provides, the shareholder
shall not have the right to dissent
(i) with respect to shares of a class or series which, at the record
date fixed to determine the shareholders entitled to vote upon such transaction, is listed on a national securities exchange or is held
of record by not less than 1,000 holders; or
(ii) from a transaction pursuant to a plan of dissolution of the corporation
which provides for distribution of substantially all of its net assets to shareholders in accordance with their respective interests within
one year after the date of such transaction, where such transaction is wholly for
(A) cash; or
(B) shares, obligations or other securities which, upon consummation
of the plan of dissolution will either be listed on a national securities exchange or held of record by not less than 1,000 holders; or
(C) cash and such securities; or
(iii) from a sale pursuant to an order of a court having jurisdiction.
(2) Any shareholder of a domestic corporation shall have the right
to dissent with respect to any shares owned by him which are to be acquired pursuant to section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the shares
owned beneficially by him and with respect to which a right of dissent exists. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner with respect to which the right of dissent exists.
(4) A corporation may provide in its certificate of incorporation that
holders of all its shares, or of a particular class or series thereof, shall have the right to dissent from specified corporate actions
in addition to those enumerated in subsection 14A:11-1(1), in which case the exercise of such right of dissent shall be governed by the
provisions of this Chapter.
(5) A shareholder entitled to dissent from a corporate action as enumerated
in subsection 14A:11-1(1) or as specified pursuant to a corporation’s certificate of incorporation shall not have the right to challenge
a corporate action from which a shareholder has a right to dissent, regardless of whether the shareholder actually exercised the right
to dissent as to that action, except that a shareholder may challenge a corporate action that was:
(a) not effectuated in accordance with the applicable provisions of
this Chapter or the corporation’s certificate of incorporation; or
(b) procured as a result of fraud, material misrepresentation, or other
deceptive means.
14A:11-2. Notice of dissent; demand for payment; endorsement of
certificates
(1) Whenever a vote is to be taken, either at a meeting of shareholders
or upon written consents in lieu of a meeting pursuant to section 14A:5-6, upon a proposed corporate action from which a shareholder may
dissent under section 14A:11-1, any shareholder electing to dissent from such action shall file with the corporation before the taking
of the vote of the shareholders on such corporate action, or within the time specified in paragraph 14A:5-6(2)(b) or 14A:5-6(2)(c), as
the case may be, if no meeting of shareholders is to be held, a written notice of such dissent stating that he intends to demand payment
for his shares if the action is taken.
(2) Within 10 days after the date on which such corporate action takes
effect, the corporation, or, in the case of a merger or consolidation, the surviving or new corporation, shall give written notice of
the effective date of such corporate action, by certified mail to each shareholder who filed written notice of dissent pursuant to subsection
14A:11-2(1), except any who voted for or consented in writing to the proposed action.
(3) Within 20 days after the mailing of such notice, any shareholder
to whom the corporation was required to give such notice and who has filed a written notice of dissent pursuant to this section may make
written demand on the corporation, or, in the case of a merger or consolidation, on the surviving or new corporation, for the payment
of the fair value of his shares.
(4) Whenever a corporation is to be merged pursuant to section 14A:10-5.1
or subsection 14A:10-7(4) and shareholder approval is not required under subsections 14A:10-5.1(5) and 14A:10-5.1(6), a shareholder who
has the right to dissent pursuant to section 14A:11-1 may, not later than 20 days after a copy or summary of the plan of such merger and
the statement required by subsection 14A:10-5.1(2) is mailed to such shareholder, make written demand on the corporation or on the surviving
corporation, for the payment of the fair value of his shares.
(5) Whenever all the shares, or all the shares of a class or series,
are to be acquired by another corporation pursuant to section 14A:10-9, a shareholder of the corporation whose shares are to be acquired
may, not later than 20 days after the mailing of notice by the acquiring corporation pursuant to paragraph 14A:10-9(3)(b), make written
demand on the acquiring corporation for the payment of the fair value of his shares.
(6) Not later than 20 days after demanding payment for his shares pursuant
to this section, the shareholder shall submit the certificate or certificates representing his shares to the corporation upon which such
demand has been made for notation thereon that such demand has been made, whereupon such certificate or certificates shall be returned
to him. If shares represented by a certificate on which notation has been made shall be transferred, each new certificate issued therefor
shall bear similar notation, together with the name of the original dissenting holder of such shares, and a transferee of such shares
shall acquire by such transfer no rights in the corporation other than those which the original dissenting shareholder had after making
a demand for payment of the fair value thereof.
(7) Every notice or other communication required to be given or made
by a corporation to any shareholder pursuant to this Chapter shall inform such shareholder of all dates prior to which action must be
taken by such shareholder in order to perfect his rights as a dissenting shareholder under this Chapter.
14A:11-3. “Dissenting shareholder” defined; date for
determination of fair value
(1) A shareholder who has made demand for the payment of his shares
in the manner prescribed by subsection 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) is hereafter in this Chapter referred to as a “dissenting
shareholder.”
(2) Upon making such demand, the dissenting shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair value of his shares and any other rights of a dissenting
shareholder under this Chapter.
(3) “Fair value” as used in this Chapter shall be determined
(a) As of the day prior to the day of the meeting of shareholders at
which the proposed action was approved or as of the day prior to the day specified by the corporation for the tabulation of consents to
such action if no meeting of shareholders was held; or
(b) In the case of a merger pursuant to section 14A:10-5.1 or subsection
14A:10-7(4) in which shareholder approval is not required, as of the day prior to the day on which the board of directors approved the
plan of merger; or
(c) In the case of an acquisition of all the shares or all the shares
of a class or series by another corporation pursuant to section 14A:10-9, as of the day prior to the day on which the board of directors
of the acquiring corporation authorized the acquisition, or, if a shareholder vote was taken pursuant to section 14A:10-12, as of the
day provided in paragraph 14A:11-3(3)(a).
In all cases, “fair value” shall exclude any appreciation
or depreciation resulting from the proposed action.
14A:11-4. Termination of right of shareholder to be paid the fair
value of his shares
(1) The right of a dissenting shareholder to be paid the fair value
of his shares under this Chapter shall cease if
(a) he has failed to present his certificates for notation as provided
by subsection 14A:11-2(6), unless a court having jurisdiction, for good and sufficient cause shown, shall otherwise direct;
(b) his demand for payment is withdrawn with the written consent of
the corporation;
(c) the fair value of the shares is not agreed upon as provided in
this Chapter and no action for the determination of fair value by the Superior Court is commenced within the time provided in this Chapter;
(d) the Superior Court determines that the shareholder is not entitled
to payment for his shares;
(e) the proposed corporate action is abandoned or rescinded; or
(f) a court having jurisdiction permanently enjoins or sets aside the
corporate action.
(2) In any case provided for in subsection 14A:11-4(1), the rights
of the dissenting shareholder as a shareholder shall be reinstated as of the date of the making of a demand for payment pursuant to subsections
14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) without prejudice to any corporate action which has taken place during the interim period. In
such event, he shall be entitled to any intervening preemptive rights and the right to payment of any intervening dividend or other distribution,
or, if any such rights have expired or any such dividend or distribution other than in cash has been completed, in lieu thereof, at the
election of the board, the fair value thereof in cash as of the time of such expiration or completion.
14A:11-5. Rights of dissenting shareholder
(1) A dissenting shareholder may not withdraw his demand for payment
of the fair value of his shares without the written consent of the corporation.
(2) The enforcement by a dissenting shareholder of his right to receive
payment for his shares shall exclude the enforcement by such dissenting shareholder of any other right to which he might otherwise be
entitled by virtue of share ownership, except as provided in subsection 14A:11-4(2) and except that this subsection shall not exclude
the right of such dissenting shareholder to bring or maintain an appropriate action to obtain relief on the ground that such corporate
action will be or is ultra vires, unlawful or fraudulent as to such dissenting shareholder.
14A:11-6. Determination of fair value by agreement
(1) Not later than 10 days after the expiration of the period within
which shareholders may make written demand to be paid the fair value of their shares, the corporation upon which such demand has been
made pursuant to subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) shall mail to each dissenting shareholder the balance sheet and the
surplus statement of the corporation whose shares he holds, as of the latest available date which shall not be earlier than 12 months
prior to the making of such offer and a profit and loss statement or statements for not less than a 12-month period ended on the date
of such balance sheet or, if the corporation was not in existence for such 12-month period, for the portion thereof during which it was
in existence. The corporation may accompany such mailing with a written offer to pay each dissenting shareholder for his shares at a specified
price deemed by such corporation to be the fair value thereof. Such offer shall be made at the same price per share to all dissenting
shareholders of the same class, or, if divided into series, of the same series.
(2) If, not later than 30 days after the expiration of the 10-day period
limited by subsection 14A:11-6(1), the fair value of the shares is agreed upon between any dissenting shareholder and the corporation,
payment therefor shall be made upon surrender of the certificate or certificates representing such shares.
14A:11-7. Procedure on failure to agree upon fair value; commencement
of action to determine fair value
(1) If the fair value of the shares is not agreed upon within the 30-day
period limited by subsection 14A:11-6(2), the dissenting shareholder may serve upon the corporation upon which such demand has been made
pursuant to subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) a written demand that it commence an action in the Superior Court for
the determination of the fair value of the shares. Such demand shall be served not later than 30 days after the expiration of the 30-day
period so limited and such action shall be commenced by the corporation not later than 30 days after receipt by the corporation of such
demand, but nothing herein shall prevent the corporation from commencing such action at any earlier time.
(2) If a corporation fails to commence the action as provided in subsection
14A:11-7(1), a dissenting shareholder may do so in the name of the corporation, not later than 60 days after the expiration of the time
limited by subsection 14A:11-7(1) in which the corporation may commence such an action.
14A:11-8. Action to determine fair value; jurisdiction of court;
appointment of appraiser
In any action to determine the fair value of shares pursuant to this
Chapter:
(a) The Superior Court shall have jurisdiction and may proceed in the
action in a summary manner or otherwise;
(b) All dissenting shareholders, wherever residing, except those who
have agreed with the corporation upon the price to be paid for their shares, shall be made parties thereto as an action against their
shares quasi in rem;
(c) The court in its discretion may appoint an appraiser to receive
evidence and report to the court on the question of fair value, who shall have such power and authority as shall be specified in the order
of his appointment; and
(d) The court shall render judgment against the corporation and in
favor of each shareholder who is a party to the action for the amount of the fair value of his shares.
14A:11-9. Judgment in action to determine fair value
(1) A judgment for the payment of the fair value of shares shall be
payable upon surrender to the corporation of the certificate or certificates representing such shares.
(2) The judgment shall include an allowance for interest at such rate
as the court finds to be equitable, from the date of the dissenting shareholder’s demand for payment under subsections 14A:11-2(3),
14A:11-2(4) or 14A:11-2(5) to the day of payment. If the court finds that the refusal of any dissenting shareholder to accept any offer
of payment, made by the corporation under section 14A:11-6, was arbitrary, vexatious or otherwise not in good faith, no interest shall
be allowed to him.
14A:11-10. Costs and expenses of action
The costs and expenses of bringing an action pursuant to section 14A:11-8
shall be determined by the court and shall be apportioned and assessed as the court may find equitable upon the parties or any of them.
Such expenses shall include reasonable compensation for and reasonable expenses of the appraiser, if any, but shall exclude the fees and
expenses of counsel for and experts employed by any party; but if the court finds that the offer of payment made by the corporation under
section 14A:11-6 was not made in good faith, or if no such offer was made, the court in its discretion may award to any dissenting shareholder
who is a party to the action reasonable fees and expenses of his counsel and of any experts employed by the dissenting shareholder.
14A:11-11. Disposition of shares acquired by corporation
14A:11-11. Disposition of shares acquired by corporation.
(1) The shares of a dissenting shareholder in a transaction described
in subsection 14A:11-1(1) shall become reacquired by the corporation which issued them or by the surviving corporation, as the case may
be, upon the payment of the fair value of shares.
(2) (Deleted by amendment, P.L.1995, c.279.)
(3) In an acquisition of shares pursuant to section 14A:10-9 or section
14A:10-13, the shares of a dissenting shareholder shall become the property of the acquiring corporation upon the payment by the acquiring
corporation of the fair value of such shares. Such payment may be made, with the consent of the acquiring corporation, by the corporation
which issued the shares, in which case the shares so paid for shall become reacquired by the corporation which issued them and shall be
cancelled.
Annex
D
February 24, 2023
Board of Directors
Adamis
Pharmaceuticals Corporation
11682 El Camino Real, Suite 300
San Diego, CA 92130
Members of the Board of Directors
(in their capacities as such):
We
understand that Adamis Pharmaceuticals Corporation, a Delaware corporation (the “Company”), Aardvark Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and DMK Pharmaceuticals Corporation, a New Jersey corporation
(“DMK”), propose to enter into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), pursuant
to which, among other things, (a) DMK will merge with and into Merger Sub (the “Merger”) with Merger Sub being the surviving
company in the Merger and continuing as a wholly-owned subsidiary of the Company, and (b) subject to the terms of the Merger Agreement,
each share of common stock, $0.001 par value per share, of DMK (“DMK Common Stock”) issued and outstanding immediately before
the Merger (other than any DMK Common Stock held as treasury stock or held or owned by DMK, the Company or any direct or indirect wholly-owned
subsidiary of DMK or the Company immediately before the Merger, if any, and any Dissenting Shares (as defined in the Merger Agreement)),
will be converted automatically into the right to receive (i) that number of shares of common stock, $0.0001 par value per share, of the
Company (“Company Common Stock”) equal to the Exchange Ratio (as defined in the Merger Agreement), and (ii) any cash, without
interest, to be paid in lieu of any fractional share of DMK Common Stock in accordance with the Merger Agreement; provided that, in the
event that the aggregate number of shares of Company Common Stock that would be issuable to a particular holder of any DMK Common Stock
immediately before the Merger (a “Specified DMK Stockholder”) pursuant to the Merger Agreement would result in such Specified
DMK Stockholder beneficially owning shares of Company Common Stock in excess (or having voting power in excess) of 9.99% of the shares
of Company Common Stock outstanding immediately after the Merger (the “Company Common Stock Consideration Cap”), then, in
lieu of the issuance to the Specified DMK Stockholder of shares of Company Common Stock in excess of the Company Common Stock Consideration
Cap (such number of shares of Company Common Stock in excess of the Company Common Stock Consideration Cap referred to as the “Excess
Cap Shares”), such Specified DMK Stockholder shall instead receive a number of shares of Series E (or other series designated
by the Company) Convertible Preferred Stock, $0.0001 par value per share, of the Company (the “Company Series E Preferred Stock”),
which Company Series E Preferred Stock shall be convertible, subject to the beneficial ownership limitations and other provisions
set forth in the Series E Preferred Certificate of Designation (as defined in the Merger Agreement), into a number of shares of Company
Common Stock equal to the Excess Cap Shares, with such Company Series E Preferred Stock entitled to such voting rights, including
voting together with the Company Common Stock on an as-converted basis with the number of votes to which such Company Series E Preferred
Stock is entitled, as calculated as set forth in the Series E Preferred Certificate of Designation. The aggregate number of shares
of Company Common Stock and Company Series E Preferred Stock (including, upon conversion of shares of Company Series E Preferred
Stock, the shares of Company Common Stock issuable upon such conversion) that are issuable to the stockholders of DMK as a result of the
Merger are referred to herein as the “Merger Consideration.” The terms and conditions of the Merger are more completely described
in the Merger Agreement.
Board of Directors
Adamis Pharmaceuticals Corporation
February 24, 2023
Page 2
The
Board of Directors of the Company (the “Board”) has requested that Raymond James & Associates, Inc. (“Raymond James”)
provide an opinion (the “Opinion”) to the Board as to whether, as of the date hereof, the Exchange Ratio is fair, from a financial
point of view, to the Company.
In connection with
our review of the proposed Merger and the preparation of this Opinion, we have,
among other things:
|
1. |
reviewed the financial terms and conditions of the Merger as stated in the draft of the Merger Agreement,
dated as of February 22, 2023, such draft being the last draft of the Merger Agreement provided to us; |
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2. |
reviewed certain information related to the historical, current and future operations, financial condition
and prospects of the Company made available to us by the Company, including, but not limited to, financial projections prepared by the
management of the Company for the period ending 2023 through 2033, as approved for our use by the Company as of February 22, 2023
(the “Company Projections”); |
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3. |
reviewed certain information related to the historical, current and future operations of DMK made available
to us by the Company, including, but not limited to, financial projections prepared by the management of the Company for the period ending
2023 through 2040, as approved for our use by the Company as of February 22, 2023 (the “DMK Projections” and, together
with the Company Projections, the “Projections”); |
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4. |
reviewed the Company’s recent public filings and certain other publicly available information regarding
the Company and DMK; |
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5. |
reviewed certain other non-public financial, operating and other information regarding the Company and DMK
provided to us by the Company; |
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6. |
reviewed the financial and operating performance of selected public and private companies that we deemed to
be relevant; |
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7. |
considered the publicly available financial terms of certain transactions we deemed to be relevant; |
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8. |
performed a discounted cash flow analysis with respect to the Company based upon the Company Projections; |
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9. |
performed a discounted cash flow analysis with respect to DMK based upon the DMK Projections; |
Board of Directors
Adamis Pharmaceuticals Corporation
February 24, 2023
Page 3
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10. |
reviewed the current and historical market prices for the Company Common Stock and the current market prices
of the publicly traded securities of certain other companies that we deemed to be relevant; |
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11. |
considered certain discussions and negotiations between representatives of the Company and DMK in which we
participated; |
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12. |
received
a certificate addressed to Raymond James from the Chief Financial Officer of the Company regarding, among other things, the accuracy
of the information, data and other materials (financial or otherwise) provided to, or discussed with, Raymond James by or on behalf of
the Company; |
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13. |
conducted such other financial studies, analyses and inquiries and considered such other information and factors
as we deemed appropriate; and |
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14. |
discussed with members of the senior management of the Company certain information relating to the aforementioned
and any other matters which we have deemed relevant to our inquiry including, but not limited to, the past and current business operations
of DMK and the Company and the financial condition and future prospects and operations of DMK and the Company. |
With
your consent, we have assumed and relied upon the accuracy and completeness of all information supplied by or on behalf of the Company
or otherwise reviewed by or discussed with us, and we have undertaken no duty or responsibility to, nor did we, independently verify any
of such information. We have not made or obtained an independent appraisal of the assets or liabilities (contingent or otherwise) of the
Company or of DMK. With respect to the Projections and any other forward-looking information and data provided to or otherwise reviewed
by or discussed with us, we have, with your consent, assumed that the Projections and such other information and data have been reasonably
prepared in good faith on bases reflecting the best currently available estimates and judgments of management of the Company, and we have
relied upon the Company to advise us promptly if any information previously provided became inaccurate or was required to be updated during
the period of our review. We express no opinion with respect to the Projections or the assumptions on which they are based. We have assumed
that the final form of the Merger Agreement will be substantially similar to the draft reviewed by us, and that the Merger will be consummated
in accordance with the terms of the Merger Agreement without waiver or amendment of any conditions thereto. Furthermore, we have assumed,
in all respects material to our analysis, that the representations and warranties of each party contained in the Merger Agreement are
true and correct and that each such party will perform all of the covenants and agreements required to be performed by it under the Merger
Agreement without being waived. We have relied upon and assumed, without independent verification, that (i) the Merger will be consummated
in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii)
all governmental, regulatory and
other consents and approvals necessary for the consummation of the Merger will be obtained and that no delay, limitations, restrictions
or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the Merger, the Company or DMK
that would be material to our analyses or this Opinion.
Board of Directors
Adamis Pharmaceuticals Corporation
February 24, 2023
Page 4
Our
opinion is based upon market, economic, financial and other circumstances and conditions existing and disclosed to us as of February 23,
2023 and any material change in such circumstances and conditions would require a reevaluation of
this Opinion, which we are under no obligation to undertake. We have relied upon and assumed, without independent verification,
that there has been no change in
the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company or DMK since
the respective dates of the most recent financial statements and other information, financial or otherwise, provided to us that would
be material to our analyses or this Opinion, and that there is no information or any facts that would make any of the information reviewed
by us incomplete or misleading in any material respect.
We
express no opinion as to the underlying business decision to effect the Merger, the structure or tax consequences of the Merger or the
availability or advisability of any alternatives to the Merger. While we provided advice to the Company with respect to the proposed Merger,
we did not recommend any specific amount of consideration or that any specific consideration constituted the only appropriate consideration
for the Merger. In addition, we do not express any opinion as to the likely trading range of the Company Common Stock following the Merger,
which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of the Company
at that time.
Our
opinion is limited to the fairness, from a financial point of view, to the Company, of the Exchange Ratio. We express no opinion with
respect to any other reasons, legal, business or otherwise that may support the decision of the Board to approve or consummate the Merger.
Furthermore, no opinion, counsel or interpretation is intended by Raymond James on matters that require legal, accounting or tax advice.
It is assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources.
Furthermore, we have relied, with the consent of the Board, on the fact that the Company has been assisted by legal, accounting and tax
advisors, and we have, with the consent of the Board, relied upon and assumed the accuracy and completeness of the assessments by the
Company and its advisors as to all legal, accounting and tax matters with respect to the Company and the Merger.
In
formulating our opinion, we have considered only what we understand to be the Exchange Ratio as is described above, and we did not consider,
and we express no opinion on, the fairness of the amount or nature of any compensation to be paid or payable to any of the Company’s
or DMK’s officers, directors or employees, or class of such persons, whether relative to the compensation received by any such party
or otherwise. We have not been requested to opine as to, and this Opinion does not express an opinion as to or otherwise address, among
other things: (i) the fairness of the Merger to the holders of any class of securities, creditors or other constituencies of the Company,
or to any other party, or (ii) the fairness of the Merger to any one class or group of the Company’s or any other party’s
security holders or other constituencies vis-a-vis any other class or
group of the Company’s or such other party’s security holders or other constituencies (including, without
limitation, the allocation of any consideration to be received in the Merger amongst or within such classes or groups of security holders
or other constituencies or parties). We are not expressing any opinion as to the impact of the Merger on the solvency or viability of
the Company or DMK or the ability of the Company or DMK to pay their respective obligations when they come due.
Board of Directors
Adamis Pharmaceuticals Corporation
February 24, 2023
Page 5
The delivery of
this opinion was approved by an opinion committee of Raymond James. Raymond James has been engaged to render financial advisory services
to the Company in connection with the proposed Merger and will receive a fee for our services, which is contingent upon consummation of
the Merger.
Raymond James will
receive a fee upon the delivery of this Opinion, which is not contingent upon the successful completion of the Merger or on the conclusion
reached herein. In addition, the Company has agreed to reimburse certain of our expenses and to indemnify us against certain liabilities
arising out of our engagement.
In the ordinary
course of our business, Raymond James may trade in the securities of the Company for our own account or for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such securities. There are no material relationships that existed during
the two years prior to the date of this Opinion or that are mutually understood to be contemplated in which any compensation was received
or is intended to be received as a result of the relationship between Raymond James and any party to the Merger. Raymond James may seek
to provide investment banking, financial advisory and other financial services to the Company and its affiliates in the future, for which
Raymond James may receive compensation.
It is understood
that this letter is solely for the information of the Board (solely in each director’s capacity as such) in evaluating the proposed
Merger and does not constitute a recommendation to the Board or any stockholder of the Company regarding how the Board or any such stockholder
should act or vote on the proposed Merger. This Opinion may not be reproduced or used for any other purpose without our prior written
consent, except that this Opinion may be disclosed in any proxy statement or prospectus filed with any registration statement that is
required to be filed in connection with the Merger with the Securities and Exchange Commission, provided that this Opinion is quoted in
full in such proxy statement or prospectus.
Based upon and
subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the Company.
Very truly yours,
/s/ Stuart Barich
RAYMOND JAMES
& ASSOCIATES, INC.
ADAMIS
PHARMACEUTICALS CORPORATION
Special
Meeting of Stockholders
May
15, 2023; 10:00 a.m. Pacific Time
This
proxy is solicited by the Board of Directors
The
stockholder(s) hereby appoint(s) David J. Marguglio and David C. Benedicto, or either of them, as proxies, each of them acting
individually or in the absence of others, with the full power of substitution and re-substitution and hereby authorize(s) them to
represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock, par value $0.0001 of
ADAMIS PHARMACEUTICALS CORPORATION that the stockholder(s) is/are entitled to vote at the Special Meeting of Stockholders to be held
at 10:00 a.m., PDT on May 15, 2023, virtually at www.virtualshareholdermeeting.com/ADMP2023,
and any adjournment or postponement thereof.
In
their discretion, the proxy is authorized to vote upon any other matter that may properly come before the meeting or any adjournments
or postponements thereof to the extent authorized under Rule 14a-4(c) under the Securities Exchange Act of 1934.
This
proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in
accordance with the Board of Directors’ recommendations, FOR each of Proposals 1, 2, 3 and 4.
Continued
and to be signed on reverse side |
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ADAMIS PHARMACEUTICALS CORPORATION 11682
El Camino Real, Suite 300 San Diego, CA 92130 |
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SUBMIT
YOUR PROXY TO VOTE BY INTERNET:
Before
the Meeting - Go to www.proxyvote.com
Use
the Internet to submit your proxy to vote and for electronic delivery of information up until 11:59 PM, Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records
and to create an electronic voting instruction form. |
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During
the Meeting - Go to www.virtualshareholdermeeting.com/ADMP2023. |
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You
may attend the meeting via the internet and vote during the meeting. Have the information that is printed in the box marked
by the arrow available and following the instructions. |
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SUBMIT
YOUR PROXY TO VOTE BY PHONE - 1-800-690-6903
Use
any touch-tone telephone to submit your proxy to vote up until 11:59 PM, Eastern Time the day before the cut-off date or meeting date.
Have your proxy card in hand when you call and then follow the instructions. |
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VOTE
BY MAIL:
Mark,
sign and date your proxy card and return it in the postage-paid envelope we have provided, or return it to Vote Processing, c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE,
MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS |
|
DETACH AND RETURN THIS PORTION ONLY |