Exhibit 10.27

 

September 30, 2011

 

Emmaus Life Sciences, Inc.

20725 S. Western Avenue

Ste. 136

Torrance, CA 90501

 

Attn: Dr. Yutaka Niihara, Chairman of the Board, Chief Executive Officer and
President

 

Dear Dr. Niihara,

 

We are pleased to submit this amended and restated Letter of Intent (“LOI”)
between AFH Holding & Advisory LLC and Emmaus Life Sciences, Inc. with respect
to the transactions described below.  On May 3, 2011, pursuant to an Agreement
and Plan of Merger dated April 21, 2011 by and among AFH Acquisition IV, a
Delaware corporation (the “AFH Acquisition IV”), AFH Merger Sub, Inc., a
wholly-owned subsidiary of AFH Acquisition IV, AFH Holding and Advisory, LLC
(“AFH Advisory”) and Emmaus Medical, Inc., a Delaware corporation, (“Emmaus
Medical”), Emmaus Medical merged with and into AFH Merger Sub with Emmaus
Medical as the surviving entity (the “Merger”).  Subsequent to the Merger, AFH
Acquisition IV changed its name to Emmaus Life Sciences, Inc., which is referred
to herein as the “Company”.  References to AFH Acquisition IV and Emmaus Medical
mean the respective entities as each existed prior to the Merger. This LOI is
intended to replace and supersede the letters of intent between the parties
dated November 10, 2010 and April 21, 2011, and this LOI is intended to be a
binding agreement between the parties.

 

Item

 

Description

Business Combination and Consideration:

 

(i) Upon the consummation (the “Closing”) of the Merger, (ii) after giving
effect to the issuance of any securities by AFH Acquisition IV in connection
with the Merger (the “Business Combination Shares”), (iii) after giving effect
to the issuance of any securities by AFH Acquisition IV in connection with the
Private Financing (as defined herein) (the “Private Financing Shares”) and (iv)
after giving effect to the issuance of any securities by the Company in
connection with the Offering (as defined herein) (the “Offering Shares”), the
stockholders of AFH Acquisition IV immediately prior to the Merger, Amir F.
Heshmatpour and his relatives, assignees and affiliates (“AFH Group”) own Ten
Percent (10%) of the issued and outstanding common shares of the Company (the
“Advisor Shares”). The Advisor Shares shall be issued as follows: (1) If the
Advisor Shares represent an amount greater than 10% of the interest in issued
and outstanding common stock post Offering, then AFH

 

 

 

 

 

Group will cause to be cancelled an amount of shares necessary to arrive at 10%
interest in issued and outstanding common stock post Offering. (2) If the
Advisor Shares represent an amount less than 10% of the interest in issued and
outstanding common stock post Offering, then the Company will cause to be issued
an amount of shares necessary to cause AFH Group to have ownership equal to 10%
of the interest in issued and outstanding common stock post Offering.

 

 

 

 

 

Upon the Closing of the Merger, each then-outstanding share of Emmaus Medical
common stock and each option, warrant and note exercisable for or convertible
into, as applicable, shares of Emmaus Medical common stock was exchanged for
29.48548924976 shares of AFH Acquisition IV common stock and options, warrants
and notes exercisable for or convertible into, as applicable, 29.48548924976
shares of AFH Acquisition IV common stock.  Immediately after the Closing of the
Merger, the Company had 24,378,305 shares of common stock (excluding 47,178
shares held by stockholders who exercised dissenters’

 

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rights), no shares of preferred stock, options to purchase 23,590 shares of
common stock, warrants to purchase 302,918 shares of common stock and
convertible notes exercisable for 271,305 shares of common stock issued and
outstanding. Based on the above, prior to the Closing of the Merger, AFH
Advisory canceled an aggregate of 1,827,750 shares of Acquisition IV common
stock pursuant to a Share Cancellation Agreement dated May 3, 2011.  The
aggregate shares held by the AFH Group and the Private Financing Shares is
3,750,000 shares, which consists of 2,372,250 shares held by AFH Advisory,
272,000 shares held by Griffin Ventures, 500,000 shares held by Tim Brasel,
577,750 Private Financing Shares.

 

 

 

 

 

The Advisor Shares held by the AFH Group shall be decreased, at the rate of 1%
of post-Offering outstanding common shares, for each $1 million or fraction
thereof that the gross proceeds to the Company from the Offering are less than
$10 million. In the event of such reduction, AFH Advisory agrees to reduce the
number of Advisor Shares by appropriate percentage. If the Offering cannot be
consummated to provide for minimum gross proceeds to the Company of at least $5
million, and the Company exercises its right to terminate the Offering, then all
Advisor Shares shall be canceled.

 

 

 

 

 

AFH Advisory shall provide appropriate representations and warranties that it
has complied with all laws and regulations regarding receipt of compensation in
connection with the capital raising transactions contemplated in this LOI.

 

 

 

Private Financing:

 

In March 2011, Emmaus Medical completed a private placement of its shares of
common stock for gross proceeds of approximately $1.2 million (the “Private
Financing”).  The shares issued in the Private Financing shall not be considered
Advisor Shares.

 

 

 

Offering:

 

Following the Closing, AFH Advisory shall assist the Company in conducting a
sale of the Offering Shares, through either a private or public financing,
resulting in gross proceeds in the amount of between $25 million and $50
million, at a minimum estimated pre-money valuation of $90 million and a maximum
estimated pre-money valuation of $155 million, to be mutually agreed upon (the
“Offering Price”) and other terms and conditions to be based upon market
conditions (the “Offering”). Sunrise Securities is expected to act as
underwriter for the Offering. The Company also agrees to a 20% over allotment at
AFH Advisory and/or the underwriter’s discretion.

 

 

 

 

 

If the Offering cannot be consummated to provide for minimum gross proceeds to
the Company of at least $5 million, the Company shall have the right to
terminate the Offering at its sole and absolute discretion.

 

 

 

Listing Standards Contingency:

 

Upon completion of the Offering, AFH Acquisition IV shall satisfy the Public
shareholders/Public float listing standards for original listing of the
Company’s securities on the NYSE, AMEX or NASDAQ.

 

 

 

Company Milestone Representations:

 

The Company will use commercially reasonable efforts to achieve the following
Milestone (the “Milestones Targets”)  

 

(i)         NutreStore launch in Hong Kong by the second quarter of 2012.  

 

(ii)        Taiwan sales of AminoPure by first quarter 2011.  

 

(iii)       At least 15 sites will be signed up for Phase III testing by end of
the first quarter of 2011.  

 

(iv)       Recruitment for the study patients will be completed by the end of
the first quarter of 2012.  

 

 

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(v)        First Phase III Trial will be completed by the end of the first
quarter of 2013.  

 

(vi)       Sign Licensing Agreement with CellSeed prior to Closing

 

Failure of the Company to meet any Milestone Targets shall not be deemed to
constitute a breach of this LOI.

 

 

 

Right to Future Financings:

 

Subject to and conditioned upon the completion of the Merger and Offering, AFH
Advisory shall have the exclusive rights to act as advisor to the Company on all
financings and mergers and acquisitions for a period of 2 years from November
10, 2010 on commercially reasonable terms. The terms of each such engagement
shall be applicable industry standards. In addition, in the event of any merger,
stock purchase, asset purchase or similar transaction occurring within one year
of the closing of the Offering, AFH Advisory may receive a warrant to purchase
shares in an amount to increase the AFH Group’s total holdings to 10% of the
outstanding fully diluted equity of AFH Acquisition IV only to the extent the
Company issues securities in connection with such merger, stock purchase, asset
purchase or similar transaction.

 

 

 

Right to Approve Management

 

The Company’s Chief Financial Officer shall be acceptable to AFH Advisory which
acceptance shall not be unreasonably withheld.

 

 

 

Management Agreements

 

Subject to corporate governance and national exchange listing requirements, the
Company will enter into employment agreements with key employees and approve a
stock plan in connection with the Business Combination.

 

 

 

Right to Appoint Directors; Right to Approve Independent Directors

 

Prior to the consummation of the Offering, AFH Advisory shall have a right to
appoint 2 members of the Company’s Board of Directors with up to a 9 member
Board of Directors. Prior to consummation of the Offering, AFH Advisory shall
also have a right to provide non-binding advice regarding the election of the
remaining independent members of the Company’s Board of Directors.

 

Subject to corporate governance, national exchange listing requirements and
shareholder voting standards, board members designated by AFH Advisory shall
remain on the board of the Company or any successor company, or entity for a
period of at least two (2) years post- Business Combination if the members so
decide and as may be approved by shareholders.

 

 

 

Right to Approve Professionals

 

AFH Advisory shall have the right to reject the attorneys and auditors who will
be responsible for facilitating the Business Combination and preparing and
filing the Registration Statement (including any amendments thereto) in
connection with the Offering.

 

 

 

Due Diligence:

 

Prior to the execution of the Merger agreement (the “Merger Agreement”), AFH
Advisory shall have the right to conduct a customary business, accounting,
financial and legal due diligence investigation of the business and operations
of the Company to its satisfaction, including receipt of a favorable independent
third party due diligence report (the “Third-Party DD Report”). The fees for the
Third Party DD Report shall not exceed $15,000.  The Company shall have the
right to approve the third party preparing the Third- Party DD Report. The
Third-Party DD Report and all related work product, shall be Proprietary
Information of the Company, as defined in the Mutual Nondisclosure Agreement
dated as of October 11, 2010 between AFH Advisory and the Company. Additionally,
prior to the execution of the Business Combination Agreement, the Company shall
have the right to conduct a due diligence investigation of the business and
operations of AFH Acquisition IV.

 

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Conditions to Closing:

 

(1) Immediately after the Closing, AFH Acquisition IV will have approximately 40
million shares of Common Stock issued and outstanding.

 

(2) All necessary consents of third parties will be obtained prior to Closing
including, without limitation, all required consents from any governmental
authorities.

 

(3) To the extent that a majority of the board of directors of AFH Acquisition
IV will be replaced after the Closing, a Schedule 14F-l Information Statement
shall have been filed with the United States Securities and Exchange Commission
(“SEC”) and mailed to the stockholders or AFH Acquisition IV at least 10 days
prior to Closing.

 

(4) On or prior to Closing, the Company shall have provided audited and/or
un-audited financial statements of the Company as may be required for the
Current Report on Form 8-K required to be filed with the SEC within four
business days after the Closing.

 

(5) AFH Acquisition IV shall be current and compliant in filing all periodic
reports under the Securities Exchange Act of 1934.

 

 

 

Registration Rights:

 

The Advisor Shares and any pre-Merger shareholders of the Company who
beneficially own less than 10% of AFH Acquisition IV (excluding any Affiliates)
following the Closing shall be provided with normal and customary piggyback
registration rights.

 

 

 

Lock-Up Agreement

 

Unless otherwise agreed by the investment bank who is engaged for the Offering,
shares owned by directors, officers and any 10% shareholder (and their
affiliates) will be locked-up until 12 months after the Registration Statement
associated with the Offering is declared effective.

 

 

 

Investor Relations Firm

 

The Company will use its best efforts to hire and maintain a reputable investor
relations firm acceptable to AFH Advisory within 30 days prior to the Closing of
the Business Combination, which acceptance shall not be unreasonably withheld.

 

 

 

No Material Change in Business:

 

From and after the date of this LOI until the earliest to occur of:  (i) the
termination of this LOI as provided below or (ii) the execution of the Merger
Agreement the Company will use commercially reasonable efforts to maintain its
business in accordance with its customary practices and otherwise to conduct its
business in the ordinary course in the manner in which it has heretofore been
conducted and to preserve its business relationships with its customers and
suppliers, to the extent applicable.

 

 

 

Covenants of the Company and Management:

 

To include normal and customary covenants (in respect of the Company and its
subsidiaries) in any firm commitment underwriting agreement regarding:

 

· Limitation on issue or sale of common stock and other securities convertible
or exchangeable into or exercisable for common stock (excluding securities
issued pursuant to any equity incentive plan).

 

 

 

Closing:

 

The parties agree to use commercially reasonable efforts to consummate the
Closing of the Merger on or before the date that is 120 days after an audit of
the Company’s financial statements in accordance with U.S. GAAP for two years
and reviewed for 2010 is issued.

 

 

 

Exclusive Dealing:

 

From the date of this LOI until the earlier of the date of (i) termination of
this LOI as provided below or (ii) the execution of the Merger Agreement,
neither the Company, nor any of its officers, employees, directors, managers,
stockholders, other equity holders, advisors, representatives or affiliates will
enter into or continue any negotiations or discussions with

 

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other parties relating to any transaction similar to the Merger. AFH Advisory
may pursue any and all remedies in law or in equity in the event of a material
breach of this provision by the Company, including an action for specific
performance without the posting of any bond.

 

 

 

 

 

In the event of a material breach of this “Exclusive Dealing” Section by the
Company, in lieu of any damages or an action for specific performance, AFH
Advisory shall be entitled to liquidated damages of: (i) 5% of any securities
received by the Company or the Company’s shareholders upon consummation of any
merger, securities exchange or other business combination (a “Business
Combination”) or other similar transaction; or (ii) upon a sale of the Company
(or a sale of all or substantially all of its assets) cash or any other
consideration it would have received as if it had a 5% ownership interest in the
Company immediately prior to the closing of any such transaction. Other than
such liquidated damages, the Company shall have no further liability for breach
of this Exclusive Dealing Section.

 

The Merger Agreement was executed on April 21, 2011.

 

 

 

Confidentiality:

 

Each party agrees to keep confidential any information obtained by it from the
other party in connection with its investigators or otherwise in connection with
these transactions and, if such transactions are not consummated, to return to
the other party any documents and copies thereof received or obtained by it in
connection with the proposed transactions.  Further, except as and to the extent
required by law, without the prior written consent of the other party, AFH
Advisory and the Company shall not make any public comment, statement or
communication with respect to, or otherwise disclose or permit the disclosure of
the existence of discussions regarding, a possible transaction among the parties
or any of the terms, conditions or other aspects of the transaction proposed in
this LOI.  If a party is required by law to make any such disclosure, it must
first provide to the other party the content of the proposed disclosure, the
reasons that such disclosure is required by law, and the time and place that the
disclosure will be made.

 

 

 

Shell Price and Transaction Expenses:

 

AFH Advisory shall be entitled to the following from the Company:

 

(i) $500,000 (the “Shell Cost”) for the identification of AFH Acquisition IV and
providing consulting services related to coordinating the Merger, assisting with
the Offering and managing the interrelationship of legal and accounting
activities (the “Services”), and

 

(ii) reimbursement of advancement of expenses on behalf of the Company incurred
in connection with the Services, the Merger and the Offering, including, without
limitation, reasonable expenses of AFH Advisory, preparation of the Third-Party
DD Report (not to exceed $15,000), preparation and negotiation of the Merger
Agreement and any ancillary agreements, the Offering documents, as well as fees
of attorneys (including the attorneys’ fees incurred by AFH Acquisition IV in
connection with the Merger), financial advisors,  brokerage or finder’s fees and
other fees and expenses (collectively, all such costs and expenses, the
“Transaction Expenses”).

 

All Transaction Expenses will be approved by both AFH Advisory and the Company
prior to engagement or agreement to fee agreements. Such approval shall not be
unreasonably withheld.

 

AFH Advisory agrees to be paid the Shell Cost and Transaction Expenses at the
time of the closing of the Offering or, at AFH Advisory’s option, upon
consummation of any other financing undertaken by the Company following
consummation of the Merger.

 

Instead of receiving cash as payment for the Shell Cost and Transaction
Expenses, AFH Advisory may, in its sole discretion, convert such amount (or any
portion thereof) at the Closing of the Offering into additional shares of the
common stock of the Company at a valuation equal to 75% of the Offering Post
Money Value (the “Conversion Price”).

 

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Payment of Shell Cost and Transaction Expenses upon Termination

 

If Termination occurs as provided in clause (i) or (v) (termination occurs as a
result of breach by the Company), of the “Termination” section below, AFH
Advisory will receive reimbursement for Transaction Expenses actually incurred
to the date of such Termination.

 

If Termination occurs as provided in clauses (ii), (iii), (iv) or (v)
(termination occurs as a result of breach by AFH Advisory), of the “Termination”
section below, AFH Advisory will receive reimbursement for fifty percent (50%)
of Transaction Expenses actually incurred to the date of such Termination.

 

If the Offering cannot be consummated to provide for minimum gross proceeds to
the Company of at least $5 million, and the Company exercises its right to
terminate the Offering, then, to equitably allocate the risk of the inability to
consummate the Offering, the Company will pay to AFH Advisory (i) fifty percent
(50%) of the Shell Cost and (ii) fifty percent (50%) of the Transaction Expenses
actually incurred to the date the Company exercises its right to terminate the
Offering. AFH Advisory, in its discretion, has the option to be reimbursed by
the Company in cash or to convert such amounts (or any portion thereof) into
common stock at a conversion price equal to 75% of the per share price of the
shares of common stock sold in the Company’s most recently completed private
offering of common stock.

 

Notwithstanding the above, the Company will bear responsibility for all Auditor
and Audit costs even in the event of a Termination.

 

 

 

Warrants

 

If the Offering is consummated, AFH Advisory shall also be entitled to receive
warrants (the “Warrants”). The Warrants will have a 5 year term, an exercise
price equal to the Conversion Price and a cashless exercise provision.  The
number of shares underlying the Warrants will be calculated by dividing $788,893
by the Conversion Price.

 

 

 

Termination:

 

After the execution of this LOI by the parties, this LOI may be terminated
upon:  (i) the mutual written agreement of AFH Advisory and the Company, (ii)
written election of either party if that party or its counsel identifies any
information, item or other matter in the course of its due diligence
investigation of the other party that it deems unsatisfactory, provided that the
other party shall be entitled to cure any such item or other matter if such item
or other matter is capable of being cured within 30 days after written notice of
such item or other matter from the terminating party, (iii) written election of
AFH Advisory or the Company if the parties are unable to agree to a valuation,
as set forth by an investment bank mutually agreed to by AFH Advisory and the
Company and retained by the Company (the “Investment Bank”) within 45 days
following completion of satisfactory Due Diligence by the Investment Bank, (iv)
written election of the Company if AFH Advisory does not deliver firm
underwriting commitments for at least $10 million Offering on or prior to the
date provided for in the “Offering” section, or (v) upon written election of
either party upon a material breach of any material binding terms or conditions
of this LOI and failure to cure such breach within 30 days of receipt of written
notice by the terminating party.

 

In the event of termination of this LOI by AFH Advisory as a result of the
breach by the Company of the Exclusive Dealing provision or pursuant to
subsection (iv) of the Termination provision of this LOI, if the Company enters
into any transaction or a sale of all or substantially all of its assets within
twelve months of such termination, AFH Advisory shall be entitled as liquidated
damages to: (i) 50% of the percentage of the Advisor Shares (i.e. 5%) of any
securities received by the Company or the Company’s shareholders upon
consummation of any business combination or other similar transaction; or (ii)
cash or any other consideration it would have received as if it had a 5%
ownership interest in the Company immediately prior to the closing of any such
transaction.

 

 

 

Binding Provisions:

 

The provisions set forth in this LOI are intended to and do constitute a binding
and legally enforceable agreement.

 

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Miscellaneous Provisions:

 

(1)  Governing Law, Dispute Resolution, and Jurisdiction.  This LOI shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the conflicts of laws principles thereof.  All
disputes, controversies or claims arising out of or relating to this LOI shall
be brought in Federal Court of the Central District of Delaware or in a Superior
Court located in Delaware. The parties hereby irrevocably waive any objection to
jurisdiction and venue or any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens. The parties agree to submit to the in personam jurisdiction of such
courts.  The prevailing party in any such dispute shall be entitled to recover
from the other party its reasonable attorneys’ fees, costs and expenses.

 

(2)  Counterparts.  This LOI may be signed in two or more counterparts, each of
which shall constitute an original, and all of which together shall constitute
one and the same agreement.  The exchange of copies of this LOI and of signature
pages by facsimile transmission or by email transmission in portable digital
format, or similar format, shall constitute effective execution and delivery of
such instrument(s) as to the parties and may be used in lieu of the original for
all purposes.  Signatures of the parties transmitted by facsimile or by email
transmission in portable digital format, or similar format, shall be deemed to
be their original signatures.

 

If you agree to the foregoing, please return a signed copy of this LOI to the
undersigned.

 

 

 

 

Very truly yours,

 

 

 

 

 

AFH HOLDING AND ADVISORY, LLC

 

 

 

 

 

By:

/s/ Amir Heshmatpour

 

 

 

Amir F. Heshmatpour

 

 

 

Managing Director

 

 

 

EMMAUS LIFE SCIENCES, INC.

 

 

 

 

 

By:

/s/ Yutaka Niihara

 

 

Dr. Yutaka Niihara

 

 

Chief Executive Officer and President

 

 

 

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