As filed with the Securities and Exchange Commission on February 9, 2016.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Sensus Healthcare, Inc.
(Exact name of Registrant as specified in its charter)
|
|
|
|
|
|
Delaware
|
|
3841
|
|
27-1647271
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
851 Broken Sound Pkwy. NW #215
Boca Raton, Florida 33487
(561) 922-5808
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Joseph C. Sardano
President and Chief Executive Officer
Sensus Healthcare, Inc.
851 Broken Sound Pkwy. NW #215
Boca Raton, Florida 33487
(561) 922-5808
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with copies to:
|
|
|
|
|
|
David C. Scileppi, Esq.
Robert B. Lamm, Esq.
Gustav L. Schmidt, Esq.
Gunster, Yoakley & Stewart, P.A.
450 E. Las Olas Blvd., Suite 1400
Fort Lauderdale, Florida 33301
(954) 462-2000
|
|
Arthur Levine
Chief Financial Officer
Sensus Healthcare, Inc.
851 Broken Sound Pkwy. NW #215
Boca Raton, Florida 33487
(561) 922-5808
|
|
Ivan Blumenthal, Esq.
Merav Gershtenman, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
666 Third Avenue
New York, New York 10017
(212) 935-3000
|
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:
o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
(do not check if a smaller reporting company)
|
|
Smaller reporting company
x
|
TABLE OF CONTENTS
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
Title of Each Class of
Securities to be Registered
|
|
Proposed
Maximum
Aggregate
Offering
Price
(1)
|
|
Amount of
Registration
Fee
(2)
|
|
Common Stock, par value $0.01 per share
|
|
$
|
23,000,000
|
|
|
$
|
2,316
|
|
|
Representatives’ Warrant to Purchase Common Stock
(3)
|
|
|
—
|
|
|
|
—
|
|
|
Common Stock Underlying Representatives’ Warrant
(4)
|
|
|
1,437,500
|
|
|
|
145
|
|
|
Total
|
|
$
|
24,437,500
|
|
|
$
|
2,461
|
|
|
|
(1)
|
Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares of common stock registered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.
|
|
|
(2)
|
Calculated pursuant to Rule 457(o) under the Securities Act based on an estimate of the proposed maximum aggregate offering price.
|
|
|
(3)
|
No registration fee pursuant to Rule 457(g) under the Securities Act.
|
|
|
(4)
|
Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share exercise price equal to 125% of the public offering price.
|
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF CONTENTS
EXPLANATORY NOTE
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc. As a result of the corporate conversion, the holders of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options to purchase units of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively. Except as disclosed in the prospectus, the financial statements and selected historical financial data and other financial information
included in this prospectus give retroactive effect to the corporate conversion.
TABLE OF CONTENTS
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
|
|
|
|
|
|
|
PRELIMINARY PROSPECTUS
|
|
SUBJECT TO COMPLETION
|
|
DATED
|
|
|
|
|
Shares of
|
|
![[GRAPHIC MISSING]](https://content.edgar-online.com/edgar_conv_img/2016/02/10/0001144204-16-080141_LOGO_SENSUS.JPG)
|
|
Common Stock
|
|
Sensus Healthcare, Inc.
|
This is a firm commitment initial public offering of shares of common stock of Sensus Healthcare, Inc. No public market currently exists for our shares. We anticipate that the initial public offering price of our shares of common stock will be between $ and $ per share.
We have applied to list our shares of common stock for trading on the NYSE MKT under the symbol “SRTS.” No assurance can be given that our application will be approved. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page
12
of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
Underwriting discounts and commissions
(1)
|
|
$
|
|
|
|
$
|
|
|
|
Proceeds to Sensus Healthcare, Inc., before expenses
|
|
$
|
|
|
|
$
|
|
|
|
|
(1)
|
Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to the representatives of the underwriters. See “Underwriting” on page
94
for a description of additional compensation payable to the underwriters.
|
We have granted a 45-day option to the representatives of the underwriters to purchase up to additional shares of common stock solely to cover over-allotments, if any.
The underwriters expect to deliver our shares to purchasers in the offering on or about , 2016.
|
|
|
|
|
Joseph Gunnar & Co.
|
|
Neidiger, Tucker, Bruner, Inc.
|
The date of this prospectus is , 2016
TABLE OF CONTENTS
The
SRT-100
TM
and
SRT-100 Vision
TM
products are photon x-ray low energy superficial radiotherapy systems that provide patients an alternative to surgery for treating non-melanoma skin cancers, including basal cell and squamous cell carcinoma.
We have received 510(k) marketing clearance from the FDA, European CE marking certification, CFDA (the Chinese FDA equivalent) and Health Canada approval, and recently received regulatory clearance for Russia. Our SRT-100 system is currently installed in over 200 locations across 11 different countries.
TABLE OF CONTENTS
TABLE OF CONTENTS
Neither we nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. The underwriters and we take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is
complete and accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.
For investors outside the United States:
We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the U.S.
TABLE OF CONTENTS
MARKET DATA AND FORECASTS
Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research. Our estimates are derived from industry and general publications, studies and surveys conducted by third-parties, as well as data from our own internal research. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable.
FINANCIAL STATEMENT PRESENTATION
The financial statements as of December 31, 2014 and 2015, and for the years ended December 31, 2013, 2014 and 2015, are those of Sensus Healthcare, Inc. On January 1, 2016, we completed a corporate conversion pursuant to which Sensus Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC, and the unit holders of Sensus Healthcare, LLC became stockholders of Sensus Healthcare, Inc., as described under the heading “Corporate Conversion.” In this prospectus, we refer to this transaction as the “corporate conversion.” The corporate conversion has been reflected retroactively for all periods
presented. Effective January 1, 2016, we will be subject to corporate income taxes.
TRADEMARKS AND TRADENAMES
This prospectus includes our trademarks such as SRT-100
TM
, SRT-100 Vision
TM
, SRT-100 Lynx
TM
, SRT University
TM
, and Sentinel
TM
which are each protected under applicable intellectual property laws and are the property of Sensus Healthcare, Inc. Solely for convenience, trademarks, service marks and tradenames referred to in this prospectus may appear without the®,
TM
or
SM
symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the
applicable licensor to these trademarks, service marks and tradenames. This prospectus may also contain trademarks, service marks, tradenames and copyrights of other companies, which are the property of their respective owners.
ABOUT THIS PROSPECTUS
Except where the context otherwise requires or where otherwise indicated, the terms “Sensus,” “Sensus Healthcare,” “we,” “us,” “our,” “our company” and “our business” refer to Sensus Healthcare, Inc.
TABLE OF CONTENTS
PROSPECTUS SUMMARY
This summary highlights certain information about us and this offering contained elsewhere in this prospectus. Because it is only a summary, it does not contain all the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including “Risk Factors” beginning on page
12
and our financial statements and the accompanying notes
included in this prospectus.
Company Overview
We are a medical device company, headquartered in Boca Raton, Florida, specializing in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy. Superficial radiation therapy is based on a technology with decades of successful clinical use treating various benign and malignant skin conditions. Prior to the introduction of Mohs surgery and linear accelerators in the late 1960s and early 1970s, the predecessor of superficial radiation therapy, orthovoltage, was the standard of care in treating several skin conditions, including skin cancer. When Mohs surgery was
developed and linear accelerators, or LINACS, were introduced to treat cancer, the manufacturers of the orthovoltage devices abandoned manufacturing these products believing that Mohs surgery and linear accelerators would ultimately become the standard of care in treating skin cancer. We believe that orthovoltage device manufacturers may have perceived these newer procedures and technology as being superior to orthovoltage for a number of reasons, including (i) the fact that Mohs surgery did not require significant capital investment, other than specialized medical training, (ii) that higher-powered LINACS offered the ability to treat a wider variety of conditions because of its deeper x-ray penetration, and (iii) the perceived impracticalities of orthovoltage machines due to their large size. As a result, the orthovoltage technology became largely dormant.
Recently, healthcare providers have been recognizing the benefits of superficial radiation therapy and there has been a resurgence of this technology. Based on a retrospective analysis published in
the Journal of the American Academy of Dermatology
in 2012, recurrence rates for all tumors at two and five years were 1.9% and 5.0%, respectively, for cases of cutaneous basal cell carcinoma and squamous cell carcinoma treated with superficial radiation therapy, matching the non-recurrence rates for Mohs surgery. We believe this study illustrates the effectiveness of superficial radiation therapy in the treatment of
non-melanoma skin cancer. Superficial radiation therapy is also an effective treatment modality for keloids, which are firm, rubbery lesions or shiny, fibrous nodules, that can vary from pink to the color of the patient’s flesh or red to dark brown in color, in conjunction with surgical removal. One recent study has indicated that surgical excision combined with platelet rich plasma and post-operative in-office superficial radiation therapy can achieve a non-recurrence rate of 100% at the fourth to eleventh month follow-up. No other treatment modality known to us leads to a greater non-recurrence rate.
We believe that modern superficial radiation therapy technology has improved over its orthovoltage predecessor. With modern technology, such as that found in the SRT-100, an equipment system manufactured by us, there is very low radiation scatter, which is significantly below the threshold defined by the American Association of Physicists in Medicine and the Conference of Radiation Control Program Directors, Inc. Our products preserve healthy tissue while attacking only the cancer cells because, unlike LINACS, the SRT-100 uses low energy photon x-rays, which are only capable of penetrating skin up to approximately five
millimeters. Further, while orthovoltage devices were very large (requiring a dedicated room), the SRT-100 is a mobile unit with a 30" x 30" footprint. Additionally, with a shift in the demographics of skin cancer patients due to an aging population, we believe superficial radiation therapy offers certain benefits that may not have been relevant decades ago when skin cancer patients were generally younger. For example, patients with certain health conditions or who have been prescribed certain medications may not be good candidates for surgical procedures, such as Mohs surgery, due to the additional health risks these procedures present.
Although Mohs surgery, a procedure involving the progressive removal of microscopic layers of cancer-containing skin until all cancer cells are removed, is one of the leading methods to treat non-melanoma skin cancer, there are significant downsides to this procedure. For example, patients often experience some degree of pain following the procedure. In addition to the inconvenience and pain involved with undergoing Mohs surgery, there are several other potential unpleasant aspects that may affect the surgical area, such as
TABLE OF CONTENTS
temporary or permanent numbness, temporary or permanent weakness, itching, enlarged scarring, and other post-surgical complications. Although superficial radiation therapy treatments typically take less than one minute, this treatment frequently requires multiple visits. Often, patients undergoing superficial radiation therapy treatment will need three to four treatments per week for up to four consecutive weeks to achieve the desired results. Additionally, superficial radiation therapy is typically limited to the treatment of surface-based skin cancers. Due to the limited penetrating ability of the radiation used, superficial
radiation therapy typically is ineffective in treating skin cancer in advanced stages.
We believe that our products provide patients with a safe and virtually pain-free alternative to surgery for treating non-melanoma skin cancers, including basal cell and squamous cell carcinoma, and other skin conditions, including keloids. Our products also allow dermatologists to retain non-melanoma skin cancer patients, rather than referring them to other specialists, while offering radiation oncologists an alternative to costly linear accelerator-based treatments with a process that is less invasive, more time-efficient, and which improves practice economics.
We offer the SRT-100 product family, which we anticipate will be complemented by additional models and options in the future. With over 200 installations in 11 countries, we believe our SRT-100 product family to be a global leader in the superficial radiation therapy space.
We own two patents in the U.S. (U.S. Patent Nos. 7372940 and 7263170) related to the SRT-100 system and a third patent application pending in the U.S., China and Russia. We have received 510(k) marketing clearance from the U.S. Food and Drug Administration, or FDA, European CE marking certification, CFDA (the Chinese equivalent of the FDA), and Health Canada approval. We also received regulatory clearance for Russia in the fourth quarter of 2015. These governmental clearances and approvals are required to market and sell medical devices to customers located in the countries or areas covered by these agencies. We are currently
marketing our SRT-100 in both the U.S. and abroad to private dermatology practices and private and hospital-based radiation oncology practices. We have been active in bringing this system to the global marketplace since the fourth quarter of 2010 and have a growing distribution network to sell the SRT-100 to healthcare providers in the U.S. and internationally.
Market Opportunity
According to the Skin Cancer Foundation, over the past three decades, more people have had skin cancer than all other forms of cancer combined. According to the U.S. Surgeon General, approximately five million new skin cancer cases are diagnosed annually in the U.S., with an estimated annual treatment cost of over $8 billion. Skin cancer categories include melanoma, basal or squamous cell carcinomas (i.e., non-melanoma skin cancer), mycosis fungoides, Kaposi’s sarcoma, Paget’s disease and apocrine carcinoma. According to the U.S. Cancer Statistics Working Group, the annual death rate from skin cancer in the U.S.
exceeds 9,000. According to the Skin Cancer Foundation, one out of five Americans is at risk for developing some form of skin cancer during their lifetime. Increased exposure to the sun without skin protection, a decreasing natural ozone layer, and the increase in the aging population demographic are often cited as the chief causes of this increase. Furthermore, MD Anderson Cancer Institute estimates that approximately half of all Americans will have skin cancer at least once by the time they are 65. The over 65 age segment is expected to double by 2025. Over the last three decades, the number of people experiencing skin cancer has grown at a higher rate than that of all other cancers combined. The primary treatment options, each of which provides high non-recurrence rates and low recurrence, include surgery and less invasive superficial radiation therapy.
As a result of the anticipated growth in both skin cancer incidence and treatment costs, we believe that we are well positioned to provide treatment options that are mutually beneficial to healthcare providers and patients. Because the SRT-100 is uniquely capable of effectively treating skin cancers located in the sensitive head and neck regions, where over 80% of skin cancers occur, we anticipate a growing demand in the healthcare market for our product line.
In addition to the skin cancer market, we believe there is a significant market for our products in the treatment of other skin conditions, such as keloids. We estimate that the incidence rates of keloids to be three to four times greater than non-melanoma skin cancer, and expect this market will continue to grow as the population increases. In addition to keloids, we are exploring the use of superficial radiation therapy for other indications, including psoriasis, eczema, and systemic scleroderma.
TABLE OF CONTENTS
Our Products and Services
The SRT-100 is a mobile superficial radiation therapy system designed primarily for the non-invasive treatment of non-melanoma skin cancer. We believe the SRT-100 provides a cost-effective alternative to surgery and high dose radiation therapy. It is also an effective treatment modality for keloids, in conjunction with surgical removal. The SRT-100 provides photon x-ray low energy radiation therapy to treat patients through a safe, virtually painless, and substantially non-scarring treatment that is particularly useful for the treatment of non-melanoma skin cancer and keloids occurring on the head and neck regions, which are
generally more delicate areas that can be difficult to otherwise treat. We believe that the SRT-100 enhances practice economics by allowing dermatologists to retain non-melanoma skin cancer patients, rather than refer them to other specialists for treatment. Moreover, the SRT-100 can provide radiation oncologists with an efficient, less costly and minimally invasive alternative to linear accelerator–based treatments, thereby improving the patient experience and practice economics.
The innovative SRT-100 system is designed for effectiveness and ease of use. The current features include specific x-ray and automatic filtering technique factors for accurate skin cancer treatment, visual verification of the treated area, a compact design for device mobility, connectivity to digital systems, reduced space requirements, and integrated safety controls for both the patient and the clinician. In addition to the SRT-100, we also offer the SRT-100 Vision and SRT-100 Lynx models. The SRT-100 Vision provides users with a unique superficial radiation therapy-tailored treatment planning application that integrates an
embedded high frequency ultrasound imaging module, volumetric tumor analysis, beam margins planning and comprehensive dosimetry parameters that allows for more accurate and precise treatment and which enhances patient outcomes and workflow efficiency. The SRT-100 Lynx incorporates hardware and software enhancements that allow for integration of the SRT-100 system with electronic medical records and similar systems.
We plan to continue conducting research and development for product line expansions to address a broader and more diversified market and provide additional solutions to the existing and future customer base. We anticipate that the next generation of the SRT-100 will be a more modular platform that will include some of the technologies developed for the SRT-100 Vision, and at the same time can be competitively configured to compete in other global value markets.
We anticipate that we will continue developing our technology with the goal of optimizing workflow for users and positively impacting patients’ quality of life and outcomes. We believe our focus will allow us to provide an advanced and seamless data portability in enterprise and cloud environments to make data readily available and interchangeable for practitioners, payors, and patients, while delivering products with very high levels of reliability and efficacy. As a result, we expect our products and services will achieve commercial and clinical success worldwide and bolster our financial viability. As new features and
capabilities are added to our product portfolio, we believe our users will gain access to a broader patient population, expanded reimbursement potential, and directly address the requirements and needs of accountable care organizations and the trend toward bundling of payments. We believe that this will allow us to increase list prices as our product line is enhanced and improved, which should positively impact our future results of operations and margins.
In addition to our products, we offer the Sentinel service program, which provides our customers comprehensive protection for their SRT-100 and SRT-100 Vision systems.
Our Strengths
Cost effective products for a global market.
Our products offer a solution for today’s cost conscious healthcare market. Our products rely on superficial radiation therapy, which we believe is an effective and less expensive procedure for the treatment of non-melanoma skin cancer and other skin conditions than existing treatment options. The productivity and reliability associated with our products, along with our related service offerings, allow our customers to quickly and easily install and deploy our products in their respective practices while reducing downtime. Our products offer reduced
treatment times, yet provide similar, or better, outcomes when compared with other treatment modalities for non-melanoma skin cancer and keloids. We believe that we are ideally positioned to meet the demands of the reforming healthcare systems by providing higher quality care at a lower cost with a better patient experience.
TABLE OF CONTENTS
Exclusive focus on a large, growing market.
The U.S. Surgeon General estimates that the worldwide skin cancer market for our products represents an over $8 billion opportunity in the U.S. alone that we expect will continue to grow. This growth is being driven by increased incidence of skin cancer and other skin conditions among the general population. We also estimate that the potential market for the treatment of keloids is even larger than the skin cancer
market. Because our products offer an effective alternative treatment option, we believe that we are positioned as one of a limited number of companies exclusively focused on the use of superficial radiation therapy for the treatment of non-melanoma skin cancer and other skin conditions, such as keloids.
Highly experienced management and medical advisory team.
We have assembled a senior management team and medical advisory board with significant experience in the healthcare industry. Our leadership team has a long track record in introducing numerous disruptive technologies and products to the healthcare market in the field of radiology, oncology and interventional medicine. Members of our management team also have experience in product development, launching new products into the healthcare market and selling medical devices and technology to hospitals and private healthcare practices through direct
sales organizations, distributors and manufacturers. We also collaborate with a network of leading medical advisors in the design and use of our products.
Extensive product support network.
In addition to the SRT-100 product line, we offer a unique and dedicated superficial radiation therapy support network for clinicians and therapists, which includes site planning and preparation, system deployment and installation, a national and global network of medical physicists for system commissioning and calibration, a dedicated service network, a dedicated clinical applications and education network and service, SRT University, and online and live customer support. We believe that by offering these dedicated and tailored services we have enhanced our brand and
gained market presence.
Relationships with the medical community.
We are actively involved in scientific, medical, and commercial organizations and communities. We are a member of the American Cutaneous Oncology Society (ACOS), which is a dedicated superficial radiation therapy scientific and medical society that promotes the betterment and further education on all superficial radiation therapy-related subject matter and topics, across multi-disciplinary fields, such as radiation oncology, dermatology, medical physics, plastic surgery, physician assistants, and radiation therapy technologists. We anticipate that we will be
able to leverage our involvement in these organizations to increase awareness of the benefits of radiation therapy and increase sales of our products.
Our Strategy
Our goal is to be a leading medical device company providing innovative, noninvasive solutions for the treatment of non-melanoma skin cancer and other skin conditions. The key elements of our strategy include:
Increase acceptance of superficial radiation therapy as the standard of care for non-melanoma skin cancer, keloids and other skin conditions.
We believe a great opportunity exists in creating an awareness of our treatment options for consumers. We believe dermatologists are now recognizing that surgery is not the only solution, or necessarily the best solution, for treating skin cancer or other skin conditions, such as keloids, and superficial radiation therapy can now be recognized as a valuable modality in their toolbox. The 95% non-melanoma skin cancer non-recurrence rate at the five-year follow-up
(according to one study with 95% confidence intervals) achieved with superficial radiation therapy, combined with the benefit of a better cosmetic outcome and what we believe to be a more certain reimbursement environment compared to the reimbursement environment when we began selling our products, creates a significant opportunity for us to expand our market share. Focused consumer and practitioner educational awareness of the benefits of superficial radiation therapy is a key for our success. We are seeking to leverage our relationships with medical and other organizations to increase public awareness of superficial radiation therapy treatment options.
Drive adoption and awareness of SRT-100 among specialists, physicians, administrators and patients
.
We intend to educate specialists, physicians, administrators and patients on the compelling case for the treatment of non-melanoma skin cancer with the SRT-100. We believe that increased awareness of the benefits of superficial radiation therapy will favorably impact sales of the SRT-100. Additionally, we believe that our products will allow dermatologists to treat patients without having to refer them to specialists for
TABLE OF CONTENTS
treatment and will free-up larger, higher power equipment, such as linear accelerators, for oncologists to treat other patients whose treatment requires the use of these other devices.
Develop new technology products and services.
Since acquiring the SRT-100 technology, we have developed optional add-on technology products and service options which have enhanced the operational capabilities of our SRT-100, including the SRT-100 Vision and SRT-100 Lynx. We believe continued research and development of both new and existing technology will be critical to our success.
Pursue opportunities to enhance our product offerings.
We intend to continue to expand applications of our superficial radiation therapy technology and vigorously protect those innovations through patent applications. We may also opportunistically pursue the licensing or acquisition of complementary products and technologies to strengthen our market position or improve product margins.
Expand our sales organization to support growth.
We intend to expand our highly-trained direct sales organization and broaden our relationships with distributor partners to increase sales and drive revenues.
Lessen our dependency on third party manufacturers.
We are exploring the possibility of reducing our reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of a manufacturing facility.
Risk Factors
Investing in our common stock involves substantial risk, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with our industry. Any of the risks set forth in this prospectus under the heading “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all the information set forth in this prospectus and, in particular, should evaluate the specific risks set forth in this prospectus under the heading “Risk Factors” in deciding whether to invest in our common stock. The following
is a summary of some of the principal risks we face:
|
|
•
|
market acceptance of the SRT-100;
|
|
|
•
|
our ability to successfully commercialize our products, including SRT-100;
|
|
|
•
|
our ability to compete effectively in selling our products and services;
|
|
|
•
|
our ability to expand, manage and maintain our direct sales and marketing organizations;
|
|
|
•
|
the fact that we have a history of net losses and may not achieve the scale of operation we expect or consistently achieve profitability in the future;
|
|
|
•
|
our actual financial results may vary significantly from forecasts and from period to period;
|
|
|
•
|
our ability to successfully develop new products, improve or enhance our existing products or acquire complementary products, technologies, services or businesses;
|
|
|
•
|
our ability to obtain and maintain intellectual property of sufficient scope to adequately protect our products, including SRT-100, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties;
|
|
|
•
|
market risks regarding consolidation in the healthcare industry;
|
|
|
•
|
the willingness of healthcare providers to purchase our products generally, and in particular if coverage by, and reimbursement from, third party payors for procedures using our products significantly declines;
|
|
|
•
|
the level and availability of government and third party payor reimbursement for clinical procedures using our products;
|
|
|
•
|
our ability to effectively manage our anticipated growth;
|
|
|
•
|
changing regulatory requirements applicable to us and our competitors, and our ability to comply;
|
TABLE OF CONTENTS
|
|
•
|
our reliance on third party manufacturers and sole- or single-source suppliers;
|
|
|
•
|
our ability to reduce the per unit manufacturing cost of the SRT-100;
|
|
|
•
|
our ability to efficiently manage our manufacturing processes, including our ability to manufacture our products to meet demand;
|
|
|
•
|
regional and global economic recessions;
|
|
|
•
|
our need to obtain additional funds in the future, as well as our ability to comply with covenants resulting from financing transactions;
|
|
|
•
|
the regulatory and legal risks, and certain operating risks, that our international operations subject us to;
|
|
|
•
|
the fact that product quality issues or product defects may harm our business; and
|
|
|
•
|
our failure to effectively manage any of the foregoing.
|
Corporate Conversion
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc. As a result of the corporate conversion, the holders of the different classes of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options, respectively, to purchase units of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively. Each unit converted to one share of common stock. Prior to the commencement of this offering, we
expect to effect a forward stock split of -for-one. Following the forward stock split, we expect that our existing stockholders will hold approximately 7.1 million shares of our common stock, on a fully diluted basis.
The purpose of the corporate conversion was to reorganize our corporate structure so that the operating company is a corporation rather than a limited liability company and so that our existing investors own shares of our common stock rather than equity interests in a limited liability company. For further information regarding the corporate conversion, see “Corporate Conversion.” References in this prospectus to our capitalization and other matters pertaining to our equity and shares prior to the corporate conversion relate to the capitalization and equity and shares of Sensus Healthcare, LLC, and after the
corporate conversion, to Sensus Healthcare, Inc.
Except as disclosed in this prospectus, the financial statements and selected historical financial data and other information included in this prospectus give retroactive effect to the corporate conversion. We expect that our conversion from a Delaware limited liability company to a Delaware corporation will not have a material effect on our financial statements, except for the effects of income taxes.
Emerging Growth Company Status
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which permits us to elect not to be subject to certain disclosure and other requirements that otherwise would have been applicable to us had we not been an “emerging growth company.” These provisions include:
|
|
•
|
reduced disclosure about our executive compensation arrangements;
|
|
|
•
|
no non-binding advisory votes on executive compensation or golden parachute arrangements; and
|
|
|
•
|
exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
|
We may take advantage of these exemptions for up to five years or such earlier time as we are no longer an “emerging growth company.” We will qualify as an “emerging growth company” until the earliest of (1) the last day of our fiscal year following the fifth anniversary of the date of completion of this offering, (2) the last day of our fiscal year in which we have annual gross revenue of $1.0 billion or more, (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible
TABLE OF CONTENTS
debt and (4) the last day of the fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under this definition, we will be an “emerging growth company” upon completion of this offering and could remain an “emerging growth company” until as late as December 31, 2021.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Corporate Information
Sensus Healthcare, LLC, a Delaware limited liability company, was formed on May 7, 2010, to design, manufacture and market proprietary medical devices specializing in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy. In June 2010, Sensus Healthcare, LLC, a Florida limited liability company (“Sensus (FL)”), acquired all the assets associated with our primary product, the SRT-100, from Topex, Inc. for $1.3 million. Following this acquisition, we relaunched the SRT-100 under the Sensus Healthcare brand. In December 2011, we merged with Sensus (FL),
with the Delaware limited liability company surviving the merger for the purpose of changing our domicile from Florida to Delaware. On January 1, 2016, we completed a corporate conversion pursuant to which Sensus Healthcare, Inc. succeeded to the business of Sensus Healthcare, LLC, and the equity holders of Sensus Healthcare, LLC became stockholders of Sensus Healthcare, Inc. See “Corporate Conversion.” Our principal executive offices are located at 851 Broken Sound Pkwy. NW #215, Boca Raton, Florida and our telephone number at that address is (561) 922-5808. Our website is located at
www.sensushealthcare.com
. Our website, and the information on our website, is neither part of this prospectus nor incorporated by reference herein.
TABLE OF CONTENTS
The Offering
|
Common stock offered by us
|
|
|
|
Common stock to be outstanding after this offering
|
|
|
|
|
|
shares (or shares if the underwriters’ option to purchase additional shares is exercised in full).
|
|
Underwriters’ option to purchase additional shares of common stock from us
|
|
|
|
|
|
We have granted the underwriters a 45-day option to purchase additional shares.
|
|
|
|
We estimate we will receive proceeds from the offering of approximately $ million (or $ million if the underwriters’ option to purchase additional shares is exercised in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the proceeds from this offering for:
|
|
|
|
•
the expansion of our sales and marketing activities, including hiring new sales representatives;
|
|
|
|
•
research and development for new products and improvements to existing products;
|
|
|
|
•
to pay a dividend owed to former holders of units with a preferred return prior to our corporate conversion, in each case who have not elected to convert such dividend into shares of our common stock at the initial public offering price within 30 days following the closing of this offering; and
|
|
|
|
•
the remainder for working capital and other general corporate purposes. See “Use of Proceeds.”
|
|
|
|
We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business and repayment of debt; therefore, we do not anticipate paying cash dividends on our common stock in the foreseeable future. See “Dividend Policy.”
|
|
|
|
You should carefully read and consider the information set forth under the heading “Risk Factors” beginning on page
12
of this prospectus and all other information set forth in this prospectus before investing in our common stock.
|
The common stock to be outstanding after this offering is based on 42,852 shares outstanding as of January 1, 2016, and excludes the following as of such date:
|
|
•
|
as of January 1, 2016, 60 shares issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $1,000 per share;
|
|
|
•
|
as of January 1, 2016, 2,607 shares issuable upon the exercise of warrants at a weighted-average exercise price of $585 per share;
|
|
|
•
|
shares reserved for future issuance under our 2013 Option Plan;
|
|
|
•
|
shares issuable upon the election of former holders of units with a preferred return, within 30 days of the closing of this offering to convert all or a portion of the cumulative preferred dividend into shares of common stock at the initial public offering price;
|
TABLE OF CONTENTS
|
|
•
|
shares of common stock issuable upon exercise of warrants to be issued to the representatives of the underwriters in connection with this offering, at an exercise price per share equal to 125% of the public offering price, as described in the “Underwriting — Representatives’ Warrants” section of this prospectus; and
|
|
|
•
|
shares of common stock issuable in connection with our anticipated -for-one forward stock split, as described in the “Corporate Conversion” section of this prospectus.
|
Unless otherwise indicated, this prospectus assumes:
|
|
•
|
an initial public offering price of $ per share, the midpoint of the estimated initial public offering price range, set forth on the cover page of this prospectus;
|
|
|
•
|
no exercise of the representatives’ warrants to purchase shares of our common stock at an exercise price of 125% of the initial offering price to the public to be issued to the representatives of the underwriters described above;
|
|
|
•
|
no exercise of the underwriters’ option to purchase up to an additional shares of our common stock; and
|
|
|
•
|
none of the former holders of units with a preferred return elect to convert any portion of their cumulative preferred dividend into shares of common stock at the initial public offering price.
|
TABLE OF CONTENTS
Summary historical financial data
The tables below summarize our financial information for the periods indicated. We derived the financial information for the years ended December 31, 2013, 2014 and 2015 from our audited financial statements included elsewhere in this prospectus. You should read the following information together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the accompanying notes. Our historical results are not necessarily indicative of the results to be expected in any future period.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
Revenues
|
|
$
|
10,478,920
|
|
|
$
|
5,810,205
|
|
|
$
|
10,273,094
|
|
|
Cost of Sales
|
|
|
3,600,348
|
|
|
|
2,054,798
|
|
|
|
3,698,687
|
|
|
Gross Profit
|
|
|
6,878,572
|
|
|
|
3,755,407
|
|
|
|
6,574,407
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
3,965,276
|
|
|
|
4,208,241
|
|
|
|
3,742,535
|
|
|
General and administrative
|
|
|
1,453,344
|
|
|
|
1,650,651
|
|
|
|
1,586,401
|
|
|
Research and development
|
|
|
1,333,111
|
|
|
|
1,576,775
|
|
|
|
1,466,728
|
|
|
Total Operating Expenses
|
|
|
6,751,731
|
|
|
|
7,435,667
|
|
|
|
6,795,664
|
|
|
Income (Loss) From Operations
|
|
|
126,841
|
|
|
|
(3,680,260
|
)
|
|
|
(221,257
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(20,467
|
)
|
|
|
(20,030
|
)
|
|
|
(17,786
|
)
|
|
Interest income
|
|
|
1,253
|
|
|
|
820
|
|
|
|
1,776
|
|
|
Total Other Income (Expense)
|
|
|
(19,214
|
)
|
|
|
(19,210
|
)
|
|
|
(16,010
|
)
|
|
Net Income (Loss)
|
|
$
|
107,627
|
|
|
$
|
(3,699,470
|
)
|
|
$
|
(237,267
|
)
|
|
Preferential distribution
|
|
|
(513,332
|
)
|
|
|
(537,693
|
)
|
|
|
(513,332
|
)
|
|
Net Loss Attributable to Common Stockholders
|
|
$
|
(405,705
|
)
|
|
$
|
(4,237,163
|
)
|
|
$
|
(750,599
|
)
|
Net Loss Attributable to Common Stockholders
per share – basic and diluted
|
|
$
|
(10.02
|
)
|
|
$
|
(103.76
|
)
|
|
$
|
(18.37
|
)
|
|
Weighted average number of shares used in computing net loss per share – basic and diluted
|
|
|
40,482
|
|
|
|
40,835
|
|
|
|
40,857
|
|
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
Actual
|
|
Pro forma
(1)
(2)
|
|
Pro forma as adjusted
(2)
(3)
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,065,068
|
|
|
$
|
5,065,068
|
|
|
$
|
|
|
|
Working capital
(4)
|
|
|
4,899,524
|
|
|
|
4,899,524
|
|
|
|
|
|
|
Total assets
|
|
|
9,636,154
|
|
|
|
9,636,154
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,714,550
|
|
|
|
6,388,747
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
5,921,604
|
|
|
|
3,247,407
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
|
9,636,154
|
|
|
|
9,636,154
|
|
|
|
|
|
|
|
(1)
|
Pro forma to reflect the accrual of the dividend payable to the former holders of units with a preferred return that was declared upon our conversion from a Delaware limited liability company to a Delaware corporation, effective January 1, 2016.
|
|
|
(2)
|
Pro forma and pro forma as adjusted information discussed above are unaudited and illustrative only.
|
|
|
(3)
|
Pro forma as adjusted gives effect to (1) the accrual of the dividend payable to the former holders of units with a preferred return that was declared upon our conversion from a Delaware limited liability company to a Delaware corporation and (2) the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the proceeds therefrom.
|
|
|
(4)
|
Represents current assets less current liabilities.
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may
also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
TABLE OF CONTENTS
RISK FACTORS
Investing in our common stock involves risks. In addition to the other information contained in this prospectus, you should carefully consider the following risks before deciding to purchase shares of our common stock in this offering. The occurrence of any of the following risks might cause you to lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to “Cautionary Note Regarding Forward-Looking Statements” for more information regarding forward-looking statements.
Risks Related to our Financial Position and Operations
We have a history of net losses. If we do not consistently achieve profitability, our financial condition and the value of our common stock could suffer.
We have a history of net losses. Our historical losses from inception through December 31, 2015 totaled approximately $7.4 million. If our revenue grows more slowly than currently anticipated, or if operating expenses are higher than expected, we may be unable to consistently achieve profitability, our financial condition will suffer and the value of our common stock could decline. Even if we are successful increasing our sales, we may incur losses in the foreseeable future as we continue to research and develop and seek regulatory approvals for our products.
If sales revenue from any of our currently cleared products or any additional products that receive marketing clearance from the FDA or approval from other regulatory authorities in the future is insufficient, or if our product development is delayed, we may be unable to achieve profitability. Furthermore, even if we are able to achieve profitability, we may be unable to sustain or increase such profitability on a quarterly or annual basis, which would significantly reduce the value of our common stock.
If third-party payors do not provide coverage and adequate reimbursement for the use of our products, it is unlikely that our products will be widely used and our revenue will be negatively impacted.
In the U.S., the commercial success of our existing products and any future products will depend, in part, on the extent to which governmental payors at the federal and state levels, including Medicare and Medicaid, private health insurers and other third-party payors provide coverage for and establish adequate reimbursement levels for procedures using our products. The existence of coverage and adequate reimbursement for our products and related procedures by government and private payors is critical to market acceptance of our existing and future products. Neither hospitals nor physicians are likely to use our products if
they do not receive adequate reimbursement payments for the procedures using our products.
Some private payors in the U.S. may base their reimbursement policies on the coverage decisions determined by the Centers for Medicare and Medicaid Services, which administers the Medicare program. Others may adopt different coverage or reimbursement policies for procedures performed using our products, while some governmental programs, such as Medicaid, have reimbursement policies that vary from state to state, some of which may not pay for our products in an amount that supports our selling price, if at all. A Medicare national or local coverage decision denying coverage for any of the procedures performed with our products
could result in private and other third-party payors also denying coverage. Medicare (part B) and a number of private insurers in the U.S. currently cover and pay for both non-melanoma skin cancer and keloid treatments using the SRT-100. A withdrawal, or even contemplation of a withdrawal, by Centers for Medicare and Medicaid Services, or CMS, Medicaid or private payors of reimbursements, or any other unfavorable coverage or reimbursement decisions by government programs or private payors, could have a material adverse effect on our business.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before it can be cleared for sale in that country. Further, many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets there are private insurance systems as well as government-managed systems. Our products may not be considered cost-effective by international third-party payors or
governments managing healthcare systems. Furthermore, reimbursement may not be available or, if available, third-party payors’ reimbursement policies may adversely affect our ability to sell our products
TABLE OF CONTENTS
profitably. If sufficient coverage and reimbursement are not available for our current or future products, in either the U.S. or internationally, the demand for our products and, consequently, our revenues will be adversely affected.
Substantially all of our revenue is generated from the sale of our SRT-100 and related products, and any decline in the sales of these products or failure to gain market acceptance of these products will negatively impact our business, financial condition and results of operations.
We have focused heavily on the development and commercialization of a limited number of products for the treatment of non-melanoma skin cancer and other skin conditions with superficial radiotherapy. From our inception in 2010 through the date of this prospectus, substantially all of our revenue has been derived from sales of our SRT-100 product line and related services and ancillary products. We expect substantially all of our revenue to be derived from or related to sales of our SRT-100 product line for the foreseeable future. Besides differentiated or enhanced versions of the SRT-100 and ancillary products, we are not
currently developing or otherwise investing in any other product. If we are unable to achieve and maintain significantly greater market acceptance of superficial radiotherapy for treatment of non-melanoma skin cancer and other skin conditions, or if we do not achieve sustained positive cash flow, then we will be severely constrained in our ability to fund our operations. In addition, if we are unable to market our SRT-100 product line and ancillary products as a result of a quality problem, shortage of components required to for assembly, failure to maintain or obtain regulatory approvals, unexpected or serious complications or other unforeseen negative effects related to the SRT-100 product line and ancillary products, we would lose our only source of revenue, and our business, financial condition and results of operations will be adversely affected.
We may be unable to manufacture our products in quantities sufficient to meet existing demand levels, which would hinder our ability to effectively commercialize our products and increase revenues.
The manufacture of medical devices requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls, from us and our key suppliers, to scale up the production process to manufacture sufficient quantities at high volume and with satisfactory production yields. Manufacturers of medical devices often encounter difficulties in production, particularly when scaling up initial production. These problems include difficulties with production costs and yields, quality control and assurance, and shortages of qualified personnel, as well as compliance with strictly
enforced federal, state and foreign regulations.
In July 2010, we entered into a manufacturing agreement with an unrelated third party for manufacturing and production of the SRT-100 in accordance with our specifications. We continue to do business with the manufacturer pursuant to this agreement, although we or the manufacturer may terminate the agreement with 90 days’ written notice or upon at least 60 days’ notice prior to the end of each additional one-year renewal period. As discussed elsewhere in this prospectus, we are exploring the possibility of using a portion of the proceeds of this offering to begin reducing our reliance on third party manufacturers by
bringing certain manufacturing capabilities in-house. However, if eventually implemented, our plan to bring the manufacturing function in-house may not be successful and we may be unable to maintain a relationship with our current manufacturer or establish a relationship with another manufacturer on favorable terms, if at all.
Consequently, we may not, with our third party suppliers, be able to continue to efficiently manufacture our products in sufficient quantities to meet projected demand or to establish sufficient worldwide inventory to fully support our distribution network. Any of these results could cause us to be unable to effectively commercialize our products or increase revenue, adversely affecting our business, financial condition, results of operations and the value of our common stock.
We are dependent on third-party suppliers, and the loss of these third party suppliers would hinder our ability to effectively produce our products to meet existing demand levels, adversely affecting our ability to commercialize our products and increase our revenues.
We are dependent on various third-party suppliers for key raw materials used in our manufacturing processes. The loss of these third-party suppliers, or their inability to supply us or the third party manufacturer with adequate components would hinder our ability to effectively produce our products to meet existing demand levels, adversely affecting our ability to commercialize our products and increase our revenues.
TABLE OF CONTENTS
We may be unable to retain and develop our U.S. sales force and non-U.S. distributors, which would adversely affect our ability to meet our revenue targets and other goals.
As we launch products, increase current sales efforts and expand into new geographies, we will need to retain, grow and develop our direct sales personnel, distributors and agents. There is significant competition for sales personnel experienced in relevant medical device sales. In addition, the training process is lengthy because it requires significant education for new sales representatives to achieve an acceptable level of clinical competency with our products. Upon completion of training, sales representatives typically require lead time in the field to develop or expand their network of accounts and achieve the
productivity levels we expect them to reach in any individual territory. If we are unable to attract, motivate, develop, and retain a sufficient number of qualified sales personnel, or if the sales representatives do not achieve the productivity levels expected, our revenue will not grow as expected, and our financial performance will suffer.
In addition, we may not succeed in entering into and maintaining productive arrangements with an adequate number of distributors outside of the U.S. that are sufficiently committed to selling our products in international markets. The establishment and maintenance of a distribution network is expensive and time consuming. Even if we engage and maintain suitable relationships with an adequate number of distributors, they may not generate revenue as quickly as we expect them to, commit the necessary resources to effectively market and sell our products, or ultimately succeed in selling our products. Moreover, if our sales force
and distributors are unable to attract and retain new customers, we may be unable to achieve our expected growth, and our business could suffer.
Furthermore, some of our distributors may market or sell the products of our competitors. In these cases, the competitors may have the ability to influence the products that our distributors choose to market and sell, for example, by offering higher commission payments, or by convincing the distributors to terminate their relationships with us, carry fewer of our products or reduce their sales and marketing efforts for our products. Any of the foregoing would hinder our ability to meet our revenue targets and other goals.
The future worldwide demand for our current products and our future products is uncertain. Our current products and our future products may not be accepted by hospitals, physicians or patients, and may not become commercially successful.
Physicians and hospitals may not perceive the benefits of our products and may be reluctant or unwilling to adopt our products as a treatment option, particularly in light of existing treatment options, such as Mohs surgery or high dose rate brachytherapy. Additionally, physicians and hospitals may not be aware of the significant advances in technology associated with superficial radiation therapy compared to older technology that was previously used with orthovoltage. While we believe that our products are an efficient and less invasive alternative to other treatments of non-melanoma skin cancer and other skin conditions,
physicians who are accustomed to using other modalities to treat patients with either non-melanoma skin cancer, keloids or other skin conditions may be reluctant to adopt broad use of our superficial radiotherapy products.
We must grow markets for our products through physician education and awareness programs. Publication in peer-reviewed medical journals of results from studies using our products will be an important consideration in their adoption by physicians and in reimbursement decisions of third-party payors. The process of publication in leading medical journals is subject to a peer-review process. Peer reviewers may not consider the results of studies of our products and any future products sufficiently novel or worthy of publication. Failure to have studies of our products published in peer reviewed journals may adversely affect
adoption of our products.
Educating physicians and hospitals on the benefits of our products and advancements in superficial radiation technology requires a significant commitment by our marketing team and sales organization. Our products may not become widely accepted by physicians and hospitals. If we are unable to educate physicians and hospitals about the advantages of our products, do not achieve significantly greater market acceptance of our products, do not gain momentum in our sales activities, or fail to significantly grow our market share, we will be unable to grow our revenue, and our business and financial condition will be adversely
affected.
TABLE OF CONTENTS
We are in a highly competitive market segment, which is subject to rapid technological change. If our competitors are able to develop and market products that are more effective, less costly, easier to use or otherwise more attractive than any of our products, our business will be adversely impacted.
The medical device industry is highly competitive and subject to technological change. In the arena for technology and products for use in the treatment of non-melanoma skin cancer and other skin conditions, we have three primary competitors, one of which operates in the superficial radiotherapy space largely in the European market, and the other two of which operate in the brachytherapy space in both the U.S. and internationally. While we believe our SRT-100 and related products currently have certain competitive advantages over the products offered by these competitors, our success depends, in part, upon our ability to
maintain this competitive position. If these competitors improve their existing products, develop new products, or expand their operations, we may be unable to maintain our competitive advantages over these competitors.
Furthermore, new competitors, including companies larger than us, may enter the market in the future and may offer products with similar or alternative functionalities. These companies may enjoy several advantages relative to us, including:
|
|
•
|
greater financial and human resources for product development, sales and marketing;
|
|
|
•
|
greater name recognition;
|
|
|
•
|
long-established relationships with physicians and hospitals;
|
|
|
•
|
the ability to offer rebates or bundle multiple product offerings to offer greater discounts or incentives;
|
|
|
•
|
more established distribution channels and sales and marketing capabilities; and
|
|
|
•
|
greater experience in and resources for conducting research and development, clinical studies, manufacturing, preparing regulatory submissions, obtaining regulatory clearance or approval for products and marketing cleared products.
|
Hospitals, physicians and investors may not view our products as competitive with other products that are marketed and sold by new competitors, including much larger and more established companies. Our competitors may develop and patent processes or products earlier than we do, obtain regulatory clearance or approvals for competing products more rapidly than us or develop more effective, more convenient or less expensive products or technologies that render our technology or products obsolete or less competitive. If our existing or new competitors are more successful than us in any of these matters, our business may be harmed.
Our customers are concentrated in the U.S. and China, and economic difficulties or changes in the purchasing policies or patterns of our customers in these countries could have a significant impact on our business and operating results.
Substantially all of our 2014 and 2015 sales were made to customers located in the U.S. and China. For the year ended December 31, 2015, approximately 14% of our product sales were to Chinese customers, with substantially the remainder of our sales to customers in the U.S. Because of our geographic concentrations, our revenue could fluctuate significantly due to changes in economic conditions, the use of competitive products, or the loss of, reduction of business with, or less favorable terms within, these countries. A reduction or delay in orders for our products from these countries could materially harm our business and
results of operations.
Our future success depends on our ability to develop, receive regulatory approval for, and introduce new products or product enhancements that will be accepted by the market in a timely manner, and if we do not do so, our results of operations will suffer.
It is important to our business that we continue to build a pipeline of product offerings for the treatment of non-melanoma skin cancer and other skin conditions to remain competitive. Consequently, our success will depend in part on our ability to develop and introduce new products. However, we may be unable to successfully maintain our regulatory clearance for existing products, or develop, obtain and maintain
TABLE OF CONTENTS
regulatory clearance or approval for product enhancements, or new products, or these products may not be accepted by physicians or the payors who financially support many of the procedures performed with our products.
The success of any new product offering or enhancement to an existing product will depend on several factors, including our ability to:
|
|
•
|
identify and anticipate physician and patient needs properly;
|
|
|
•
|
develop and introduce new products or product enhancements in a timely manner;
|
|
|
•
|
avoid infringing the intellectual property rights of third parties;
|
|
|
•
|
demonstrate the safety and efficacy of new products with data;
|
|
|
•
|
obtain the necessary regulatory approvals for new products or product enhancements;
|
|
|
•
|
comply fully with U.S. Food and Drug Administration and applicable foreign government agencies’ regulations on marketing of new devices or modified products;
|
|
|
•
|
provide adequate training to potential users of our products; and
|
|
|
•
|
receive coverage and adequate reimbursement for procedures performed with our products.
|
If we do not develop new products or product enhancements in time to meet market demand, if there is insufficient demand for these products or enhancements, or if competitors introduce new products with enhanced functionalities that are superior to those of ours, then our results of operations will suffer.
Our products may become obsolete prior to the end of their anticipated useful lives, and we may be required to dispose of existing inventory or write off the value or accelerate the depreciation of the these assets, each which would materially and adversely impact our results of operations.
We focus on continual product innovation and product improvement. While we believe this provides a competitive edge, it also results in the risk that our products will become obsolete prior to the end of their anticipated useful lives. If we introduce new products or next-generation products prior to the end of the useful life of a prior generation, we may be required to dispose of existing inventory, or write off the value of the these assets, each which would materially and adversely impact our results of operations.
Our success is dependent in large part on our being an early re-entrant into the market for our proprietary superficial radiotherapy systems, and if one or more competitors join us in the market, our marketing efforts and ability to compete would be materially and adversely affected.
Our success is dependent in large part on our being an early re-entrant into the market for our proprietary superficial radiotherapy systems. If one or more competitors join us in the market, the increased competition would require us to devote substantial additional resources to our marketing efforts, and our ability to compete may be severely impaired.
Our international operations subject us to certain operating risks, which could adversely impact our results of operations and financial condition.
The sale and shipment of our products across international borders, as well as the purchase of components from international sources, subjects us to U.S. and foreign governmental trade, import and export, and customs regulations and laws. Compliance with these regulations and laws is costly and exposes us to penalties for non-compliance. Other laws and regulations that can significantly impact us include various anti-bribery laws, including the U.S. Foreign Corrupt Practices Act and anti-boycott laws, as well as export control laws. Any failure to comply with applicable legal and regulatory obligations could impact us in a
variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities and exclusion or debarment from government contracting. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping and sales activities. Any of the foregoing would adversely impact our results of operations and financial condition.
TABLE OF CONTENTS
Our international operations and our international distributors expose us to risks inherent in operating in foreign jurisdictions. These risks include, without limitation:
|
|
•
|
difficulties in enforcing or defending intellectual property rights;
|
|
|
•
|
pricing pressure that we may experience internationally;
|
|
|
•
|
a shortage of high-quality sales people and distributors;
|
|
|
•
|
third-party reimbursement policies that may require some of the patients who are treated with our products to directly absorb medical costs or that may necessitate the reduction of the selling prices of our products;
|
|
|
•
|
disadvantage to competition with established business and customer relationships;
|
|
|
•
|
the imposition of additional U.S. and foreign governmental controls or regulations;
|
|
|
•
|
changes in duties and tariffs, license obligations and other non-tariff barriers to trade;
|
|
|
•
|
the imposition of restrictions on the activities of foreign agents, representatives and distributors;
|
|
|
•
|
potentially adverse tax consequences;
|
|
|
•
|
laws and business practices favoring local companies;
|
|
|
•
|
difficulties in maintaining consistency with our internal guidelines;
|
|
|
•
|
the imposition of costly and lengthy new export licensing requirements;
|
|
|
•
|
the imposition of U.S. or international sanctions against a country, company, person or entity with whom we do business that would restrict or prohibit continued business with the sanctioned country, company, person or entity; and
|
|
|
•
|
the imposition of new trade restrictions.
|
If any of these events or circumstances were to occur, our sales in foreign countries would be harmed and our results of operations would suffer.
Our operating results may vary significantly from quarter to quarter, which may negatively impact the value of our common stock.
Our quarterly revenues and results of operations may fluctuate due to the following reasons, among others:
|
|
•
|
physician and hospital acceptance of our products;
|
|
|
•
|
the timing, expense and results of research and development activities, and obtaining future regulatory approvals;
|
|
|
•
|
fluctuations in expenses associated with expanding operations;
|
|
|
•
|
the introduction of new products and technologies by competitors;
|
|
|
•
|
sales representatives’ productivity;
|
|
|
•
|
supplier, manufacturing or quality problems with products;
|
|
|
•
|
the timing of stocking orders from distributors;
|
|
|
•
|
changes in our pricing policies or in the pricing policies of competitors or suppliers; and
|
|
|
•
|
changes in third-party payors’ reimbursement policies.
|
Because of these and other related or similar factors, it is likely that in some future period our operating results will not meet your expectations.
TABLE OF CONTENTS
We may be unable to attract and retain highly qualified personnel, which could adversely and materially affect our competitive position.
Our future success depends on our ability to attract and retain our executive officers and other key employees. We may be unable to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among companies in the medical device business and related industries, particularly in the South Florida area where we are headquartered. The medical device industry has experienced a high rate of turnover of management personnel in recent years. Consequently, we could have difficulty attracting or retaining experienced personnel and may be required to spend
significant time and expend significant financial resources in our employee recruitment and retention efforts. Many of the other medical device companies with which we compete for qualified personnel have greater financial and other resources and risk profiles different from ours. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than that which we may offer. If we are unable to attract and retain the necessary personnel to accomplish our business objectives, we may have difficulty implementing our business strategy and achieving our business objectives.
If we acquire other companies or businesses, we will be subject to risks that could hurt our operations in the future.
We may in the future acquire complementary businesses, products or technologies. Any acquisition may not produce the revenues, earnings or business synergies anticipated, and any acquired business, product or technology might not perform as expected. Our management could spend a significant amount of time, effort and money in identifying, pursuing and completing acquisitions. If we complete an acquisition, we may encounter significant difficulties and incur substantial expenses in integrating the operations and personnel of the acquired company into our operations. In particular, we may lose the services of key employees of
the acquired company, and we may make changes in management that impair the acquired company’s relationships with employees, vendors and customers. Additionally, we may acquire development-stage companies that are not yet profitable and require continued investment, which could decrease our future earnings or increase our futures losses. Any of these outcomes could prevent us from realizing the anticipated benefits of an acquisition.
To pay for an acquisition, we might use equity or cash. Alternatively, we might borrow money from a bank or other lender. If we use equity, our stockholders would experience dilution of their ownership interests. If we use cash or debt financing, our financial liquidity would be reduced.
Any acquisition could result in recording significant amounts of goodwill or other intangible assets, some of which could result in significant quarterly amortization expense. Moreover, if we determine during annual reviews or otherwise that an intangible asset has been impaired, we may need to write off some or all of its carrying value, resulting in large charges to expense. Amortization charges and write-downs or write-offs of intangibles would decrease our future earnings or increase our future losses.
Product liability claims could damage our reputation and adversely affect our business.
The design, manufacture and marketing of medical devices each carry an inherent risk of product liability claims and other damage claims. In addition to the exposure we may have for defective products, physicians may misuse our products or use improper techniques, regardless of how well trained, potentially leading to injury and an increased risk of product liability. A product liability or other damages claim, product recall or product misuse could require us to spend significant time and money in litigation, regardless of the ultimate outcome, or to pay significant damages and could seriously harm our business.
We maintain liability insurance coverage that management believes to be reasonable based on our business and operations; however, our insurance may not be sufficient to cover all claims made against us. Our insurance policies generally must be renewed on an annual basis. We may be unable to maintain or increase insurance on acceptable terms or at reasonable costs. A successful claim brought against us in excess, or outside of, our insurance coverage could seriously harm our financial condition or results of operations.
TABLE OF CONTENTS
We may be required to obtain additional funds in the future, and these funds may not be available on acceptable terms or at all.
Our operations have consumed substantial amounts of cash since inception, and we anticipate that our expenses will increase as we continue to grow our business. We may need to seek additional capital in the future. Our growth will depend, in part, on our ability to develop variations of the SRT-100 and other products, and related technology complementary to our products. Our existing financial resources, including our existing revolving line of credit, may not allow us to conduct all of the activities that we believe would be beneficial for our future growth.
We may need to seek funds in the future. Our existing revolving line of credit restricts our ability to incur certain indebtedness or permit certain encumbrances on our assets without the prior written consent of the lender. If we are unable to raise funds on favorable terms, or at all, we may not be able to support our commercialization efforts or increase our research and development activities or meet our debt and other contractual obligations, and the growth of our business may be negatively impacted. As a result, we may be unable to compete effectively.
Our cash requirements in the future may be significantly different from our current estimates and depend on many factors, including:
|
|
•
|
the results of commercialization efforts for products;
|
|
|
•
|
the need for additional capital to fund development programs;
|
|
|
•
|
the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property;
|
|
|
•
|
the establishment of high-volume manufacturing and increased sales, marketing and distribution capabilities; and
|
|
|
•
|
success in entering into collaborative relationships with other parties.
|
We may be unable to raise funds on favorable terms, or at all, and either case would materially and adversely affect our ability to implement our strategy and meet our goals.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect common stockholders’ rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring distributions or dividends. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to
relinquish valuable rights to our technologies or products or grant licenses on terms that are not favorable to us. Any of these events could adversely affect our ability to declare dividends on our common stock and to achieve our product development and commercialization goals and have a material adverse effect on our business, financial condition and results of operations.
Our revolving credit facility imposes substantial restrictions on us, some of which could hinder our ability to conduct our operations effectively or otherwise in accordance with our business plan.
In March 2013, we entered into a $3.0 million revolving credit facility, which was amended in March 2015 to extend the facility and to reduce the facility to $1.5 million. The maximum borrowing is limited by our Eligible Borrowing Base, equal to 80% of eligible accounts receivable as defined in the facility agreement. Under the facility agreement, we must pay monthly interest a rate of the Prime Rate plus 1.75%, and must pay any outstanding principal and interest on or before May 12, 2017, the maturity date. The facility is secured by all of our assets and requires the maintenance of an Adjusted Quick Ratio and Minimum
Quarterly EBITDA, as those terms are defined in the facility agreement. We were not in compliance with certain of these financial covenants as of October 31, 2015 and November 30, 2015, but we received a waiver from the bank in January 2016 for our noncompliance. We were in compliance with all financial covenants as of December 31, 2015. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness.”
TABLE OF CONTENTS
Additionally, the facility agreement contains a number of negative covenants that require us to seek the lender’s prior written consent in order to conduct certain activities. For example, we may not, without the prior written consent of the lender:
|
|
•
|
Sell or otherwise transfer all or any part of our business or property, except for transfers in the ordinary course of business or as otherwise permitted by the facility agreement;
|
|
|
•
|
Change the nature of our business, liquidate or dissolve, undergo a change in management;
|
|
|
•
|
Add any new offices or business locations, including warehouses;
|
|
|
•
|
Change our jurisdiction of organization, our organizational structure or type, our legal name or any organizational number assigned to us;
|
|
|
•
|
Merge or consolidate with any other person or entity or acquire all or substantially all of the capital stock or property of another person or entity;
|
|
|
•
|
Create, incur or be liable for any indebtedness other than as permitted by the facility agreement;
|
|
|
•
|
Create, incur, or suffer any lien on any of our property (including receivables) other than as permitted by the facility agreement;
|
|
|
•
|
Maintain any operating or deposit or security accounts other than with the lender or any of its affiliates;
|
|
|
•
|
Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; except that we may pay dividends solely in common stock; or
|
|
|
•
|
Directly or indirectly make any investment, including, without limitation, by the formation of any subsidiary, other than as permitted by the facility agreement.
|
In the event we wish to conduct any of the foregoing activities and the lender refuses to provide its prior written consent, our ability to conduct our operations effectively and in accordance with our business plan could be materially and adversely affected.
Approximately $423,000 was outstanding under the revolving credit facility as of December 31, 2015.
If we are unable to make scheduled interest or principal payments on our present or future debt obligations, our operations could be adversely affected.
Our ability to make scheduled payments on our debt obligations (including the credit facility discussed above) depends on numerous factors, including the amount of cash balances and actual and projected financial and operating performance. These amounts and performance are subject to certain financial and business factors, as well as prevailing economic and competitive conditions, some of which may be beyond our control. We may be unable to maintain a level of cash balances or cash flows from operating activities sufficient to permit ourselves to pay the principal and interest on existing or future indebtedness. If cash flows
and capital resources are insufficient to fund debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may be unable to take any of these actions, and even if able, these actions may be insufficient to permit us to meet scheduled debt service obligations. In addition, in the event of our breach of any credit agreements, we may be unable to draw additional amounts under the agreements, and we may be required to repay any outstanding amounts earlier than anticipated.
If an event of default occurs under any debt obligation, the lender may declare the outstanding principal balance and accrued but unpaid interest owed to it immediately due and payable, which would have a material adverse effect on our financial position. We may not have sufficient cash to satisfy this obligation. Also, if a default occurs under a secured loan (such as the credit facility described above), and we are unable to repay the lender, the lender could seek to enforce its rights under its security interests in our assets. In this event, we may lose or be forced to sell some or all of our assets to satisfy the debt,
which could cause the business to fail.
TABLE OF CONTENTS
Our debt and other contractual obligations could have significant additional negative consequences, including, without limitation:
|
|
•
|
increasing vulnerability to general adverse economic conditions;
|
|
|
•
|
limiting ability to obtain additional funds; and
|
|
|
•
|
Placing us or our business at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.
|
If we fail to properly manage our anticipated growth, our business could suffer.
Our strategy involves substantial growth. If we experience periods of rapid growth and expansion, our limited personnel, operational infrastructure and other resources could be significantly strained. In particular, the possible internalization of manufacturing, and anticipated expansion of our direct sales force in the U.S. will require significant management, financial and other supporting resources. In addition, in order to manage expanding operations, we will need to continue to improve our operational and management controls, reporting and information technology systems and financial internal control procedures. If we are
unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our goals.
To achieve our revenue goals, we must successfully increase production output to meet projected customer demand. We may be unable to increase output on the timeline anticipated, if at all. Also, we may in the future experience difficulties with production yields and quality control, component supply, and shortages of qualified personnel, among other problems. These problems could result in delays in product availability and increases in expenses. Any delay or increased expense could adversely affect our ability to increase revenues.
Cost-containment efforts of our customers, purchasing groups and governmental organizations could have a material adverse effect on our sales and profitability.
In an effort to reduce costs, many hospitals or physicians within the U.S. and abroad are members of group purchasing organizations and integrated delivery networks. Group purchasing organizations and integrated delivery networks negotiate pricing arrangements with medical device companies and distributors and offer the negotiated prices to affiliated hospitals, physicians and other members. Group purchasing organizations and integrated delivery networks typically award contracts on a category-by-category basis through a competitive bidding process. Bids are generally solicited from multiple providers with the intention of
driving down pricing or reducing the number of vendors. Due to the highly competitive nature of the group purchasing organizations and integrated delivery networks contracting processes, we may be unable to obtain or maintain contract positions with major group purchasing organizations and integrated delivery networks. Furthermore, the increasing leverage of organized buying groups may reduce market prices for our products, thereby reducing our profitability.
While having a contract with a group purchasing organizations or integrated delivery networks for a given product category can facilitate sales to members of that group purchasing organizations or integrated delivery networks, expected sales levels may not be achieved, as sales are typically made pursuant to purchase orders. Even when a provider is the sole contracted supplier of a group purchasing organization or integrated delivery network for a certain product category, members of the group purchasing organization or integrated delivery network generally are free to purchase from other suppliers. Furthermore, group
purchasing organizations and integrated delivery networks contracts typically are terminable without cause by the group purchasing organizations or integrated delivery networks upon 60 to 90 days’ notice. Accordingly, even if we obtain contracts with any group purchasing organizations or integrated delivery networks, the members of these groups may choose to purchase from our competitors due to the price or quality offered by competitors, which could result in a decline in our sales and profitability.
TABLE OF CONTENTS
We depend on information technology systems to operate our business and a cyber-attack or other breach of these systems could have a material adverse effect on our business.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. Our information technology systems could be vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption. Any successful attacks could result in the theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information or disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be the target of malware and other
cyber-attacks. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats.
However, these measures and efforts may not prevent interruptions or breakdowns, and we may otherwise fail to maintain or protect our information technology systems and data integrity effectively. Furthermore, we may fail to anticipate, plan for or manage significant disruptions to our systems. If any of the foregoing were to occur, our competitive position could be harmed, we could lose existing customers, have difficulty preventing, detecting and controlling fraud, have disputes with customers, specialist physicians and other healthcare professionals, have regulatory sanctions or penalties imposed, incur expenses or lose
revenues as a result of a data breach or theft of intellectual property or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition or cash flows.
Risks Related to our Regulatory Environment
We are subject to various federal, state and foreign healthcare laws and regulations, and a finding of failure to comply with these laws and regulations could have a material adverse effect on our business.
Our operations are, and will continue to be, directly and indirectly affected by various federal, state and foreign healthcare laws, including, but not limited to, those described below.
|
|
•
|
Federal Anti-Kickback Statute (42 U.S. Code §1320a-7b), which prohibits any person or entity from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, in cash or in kind, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending the referring, ordering, purchasing or leasing of any good, facility, item or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as the Medicare and Medicaid programs.
|
|
|
•
|
Federal “Sunshine” (42 U.S. Code §1320a-7h) law, which requires us to track and report annually to Centers for Medicare and Medicaid Services information related to certain payments and other “transfers of value” provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and to report annually to Centers for Medicare and Medicaid Services ownership and investment interests held by physicians, and their immediate family members. We are also subject to similar foreign “sunshine” laws or codes of conduct, which vary country by country.
|
|
|
•
|
Federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, persons or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim to, or the knowing use of false records or statements to obtain payment from, or approval by, the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the False Claims Act (31 U.S. Code §3729-3733), it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim.
|
|
|
•
|
Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, statute, which, among other things, created federal criminal laws that prohibit knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of or payment for healthcare
|
TABLE OF CONTENTS
|
|
|
benefits, items or services. Additionally, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and applicable implementing regulations, impose certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization on entities subject to the law, such as health plans, clearinghouses, and healthcare providers and their business associates. Internationally, substantially every jurisdiction in which we operate has established its own data security and privacy legal framework with which we must comply, including the Data Protection Directive 95/46/EC and national implementation of the Directive in the member states of the European Union.
|
Many states have also adopted laws similar to each of the above federal laws, such as anti-kickback and false claims laws, which may be broader in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers, as well as laws that restrict our marketing activities with healthcare professionals and entities, and require us to track and report payments and other transfers of value, including consulting fees, provided to healthcare professionals and entities. Some states mandate implementation of compliance programs to ensure compliance with these laws. Additionally, certain states
require a certificate of need prior to the installation of a radiation device, such as the SRT-100. We are also subject to foreign fraud and abuse laws, which vary by country.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us now or in the future, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, individual imprisonment, contractual damages, reputational harm, exclusion from governmental healthcare programs, and the curtailment or restructuring of our operations. Any of the foregoing could adversely affect our ability to operate our business and our financial results.
Our products are subject to extensive governmental regulation that could make it more expensive and time consuming for us to introduce new or improved products.
Our products must comply with regulatory requirements imposed by the U.S. Food and Drug Administration, the U.S. Department of Health and Human Services and other governmental agencies in the U.S., and similar agencies in foreign jurisdictions. These requirements involve lengthy and detailed laboratory and clinical testing procedures, sampling activities, an extensive agency review process, and other costly and time-consuming procedures. It often takes several years to satisfy these requirements, depending on the complexity and novelty of the product. If we execute on our plans to move our manufacturing function in-house, we
will also be subject to additional licensing and regulatory requirements relating to safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potential hazardous substances. Some of the most important requirements applicable or potentially applicable to us include:
|
|
•
|
U.S. Food and Drug Administration Regulations (Title 21 CFR, Parts 801, 803, 806, 807 and 820);
|
|
|
•
|
EU CE marking of conformity requirements depicted within the MDD (Directive 90/425/EEC);
|
|
|
•
|
Health Canada requirements (SOR/98-282);
|
|
|
•
|
Medical Device Quality Management System requirements (ISO 13485:2003);
|
|
|
•
|
Occupational Safety and Health Administration requirements;
|
|
|
•
|
China CFDA requirements; and
|
|
|
•
|
Other similar quality, regulatory and statutory requirements in foreign jurisdictions in which we currently market or plan to market our products in the future.
|
Government regulation may impede our ability to the manufacture our existing and future products. Government regulation also could delay the marketing of new products for a considerable period of time and impose costly procedures on activities. The U.S. Food and Drug Administration and other regulatory agencies may not clear or approve any future products on a timely basis, if at all. Any delay in obtaining, or failure to obtain, these approvals could negatively impact the marketing of any future products and reduce our product revenues. Regulatory bodies may review products once they are on the market and determine that they
do not
TABLE OF CONTENTS
satisfy applicable regulatory requirements. Failure to comply with requisite requirements may lead to European Economic Area regulatory bodies ordering the suspension or withdrawal of products from the European Economic Area market or, as discussed below, notified bodies withdrawing certificates of conformity for devices or the underlying quality systems.
Further, regulations may change, and any additional regulation could limit or restrict our ability to use any of our technologies, which could harm our business. We could also be subject to new international, federal, state or local regulations that could affect our research and development programs and harm our business in unforeseen ways.
Product deficiencies could result in field actions, recalls, substantial costs or write-downs; these could lead to the delay or termination of ongoing trials, if any, and harm our reputation, business or financial results.
Our products are subject to various regulatory guidelines and involve complex technologies. The U.S. Food and Drug Administration and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture that could affect patient safety. Manufacturers may, under their own initiative, conduct a product notification or recall to inform physicians of changes to instructions for use or if a deficiency in a device is found or suspected.
Identified quality problems, such as failure of critical components, or the failure of third parties to supply us with sufficient conforming quantities of these products or components, could impact the availability of our products in the marketplace or lead to adverse clinical events. In addition, product improvements or product redundancies could result in scrapping or expensive rework of products, and our business, financial condition or results of operations could suffer as a result. Product complaints, quality issues and necessary corrective and preventative actions could result in communications to customers or patients,
field actions, require the scrapping, rework, recall or replacement of products, result in substantial costs or write-offs, or harm our business reputation and financial results. Further, these events could adversely affect our relationships with our customers or affect our reputation, which could materially adversely affect our earnings, results and financial viability.
A future field action or recall announcement could harm our reputation with customers, negatively affect our sales, and subject us to U.S. Food and Drug Administration (or similar governmental authority) enforcement actions. Moreover, depending on the corrective action we take to redress a product’s deficiencies or defects, the U.S. Food and Drug Administration (or similar governmental authority) may require, or we may decide, that we will need to obtain new approvals or clearances for the product before we market or distributes the corrected product. Seeking these approvals or clearances may delay our ability to replace
the recalled products in a timely manner. If we do not adequately address problems associated with our products, we may face additional regulatory enforcement action, including U.S. Food and Drug Administration (or similar governmental authority) warning letters, product seizures, injunctions, administrative penalties, or civil or criminal fines.
Any identified quality issue can both harm our business reputation and result in substantial costs and write-offs, which in either case could materially harm our business and financial results.
The off-label use or misuse of our products may harm our image in the marketplace, result in injuries that lead to costly product liability suits, or result in costly investigations and regulatory agency sanctions under certain circumstances.
The products we currently market in the U.S. have been cleared by the U.S. Food and Drug Administration for specific indications. Our clinical support staff and marketing and sales force have been trained not to promote our products for uses outside of the cleared indications for use, known as “off-label uses.” However, if a physician uses our products outside the scope of the cleared indications, there may be increased risk of injury to patients. Furthermore, the use of our products for indications other than those cleared by the U.S. Food and Drug Administration may not effectively treat the conditions associated
with the off-label use, which could harm our reputation in the marketplace among physicians and patients, adversely affecting our operations.
TABLE OF CONTENTS
If the U.S. Food and Drug Administration determines that our promotional materials or training constitute promotion of an off-label or other improper use, it could request that we modify our training or promotional materials, or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might
take action if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, and the curtailment of our operations. Any of these events could significantly harm our business and results of operations.
The advertising and promotion of our products is subject to European Economic Area Member States governing the advertising and promotion of medical devices. In addition, voluntary European Union and national Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose limitations on promotional activities with healthcare professionals. These regulations or codes may limit our ability to affectively market our products, or we could run afoul of the requirements imposed by these regulations, causing reputational harm, imposing potentially substantial costs, and
adversely affecting our operations as a result.
We are required to comply with medical device reporting requirements and must report certain malfunctions, deaths, and serious injuries associated with our products, which can result in voluntary corrective actions or agency enforcement actions.
Under the U.S. Food and Drug Administration medical device reporting regulations (21 CFR 803), medical device manufacturers are required to submit information to the U.S. Food and Drug Administration when they receive a report or become aware that a device has or may have caused or contributed to a death or serious injury or has or may have a malfunction that would likely cause or contribute to death or serious injury if the malfunction were to recur. All manufacturers placing medical devices on the market in the European Economic Area are legally bound to report any serious or potentially serious incidents involving devices
they produce or sell (MEDDEV 2.12-1) to the Competent Authority in whose jurisdiction the incident occurred through the European Vigilance process.
If an event subject to medical device reporting requirements occurs, we will need to comply with the reporting requirements, which would adversely affect our reputation and subject us to actions by regulatory authorities, such as ordering recalls, imposing fines, or seizing the affected products. Furthermore, any corrective action, whether voluntary or involuntary, will require the dedication of time and capital and will distract management from operating our business. Any of the foregoing would further harm our reputation and financial results.
Healthcare policy changes, including recent federal legislation to reform the U.S. healthcare system, may have a material adverse effect on our business.
In March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. This Act includes, among other things, a deductible 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the U.S., with limited exceptions, effective January 1, 2013. This excise tax imposed a significant increase in the tax burden on the medical device industry, and if our efforts to offset the excise tax are unsuccessful, the increased tax burden could have an adverse effect on our results of operations and cash flows. However, this
excise tax has recently been suspended for 2016 and 2017. Other elements of this Act, including comparative effectiveness research, an independent payment advisory board, payment system reforms including shared savings pilots and other provisions, may significantly affect the payment for, and the availability of, healthcare services and may result in fundamental changes to federal healthcare reimbursement programs, any of which may materially affect numerous aspects of our business.
Other healthcare reform measures may result in more rigorous coverage criteria and in additional downward pressure on the reimbursement received for procedures utilizing our products. In addition, other legislative changes have been proposed and adopted since the Act discussed above was enacted that may adversely affect our revenues. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year effective April 2013 which, due to subsequent legislative amendments to the
TABLE OF CONTENTS
statute, will stay in effect through 2024 unless additional Congressional action is taken. Additionally, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our business and financial operations. Any reduction in reimbursement from Medicare or other
government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to increase revenue, attain profitability, or commercialize our devices. In addition, other legislative changes may be enacted or existing regulations, guidance or interpretations may be changed, each of which may adversely affect our operations.
Risks Related to our Intellectual Property
If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to competitors and be unable to operate our business profitably.
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on the patent protection of two U.S. patents which we have acquired, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. We also have one patent application currently pending. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. For example, some or all of our pending
patent applications or any future pending applications may be unsuccessful. The U.S. Patent and Trademark Office may deny or require significant narrowing of claims in our pending patent applications or future patent applications, and patents issued as a result of these patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the U.S. Patent and Trademark Office. These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in our issued patents. Third parties may successfully challenge our issued patents and those that may be issued in the future, which would render these patents invalidated or unenforceable, and which could limit our ability to stop competitors from marketing and selling related products. In addition, our pending patent applications include claims to aspects
of products and procedures that are not currently protected by issued patents, and third parties may successfully patent those aspects before us or otherwise challenge our rights to these aspects.
Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors may be able to design around our patents or develop products that provide outcomes that are comparable to our products. Although we have entered into confidentiality agreements and intellectual property assignment agreements with certain of our employees, consultants and advisors in order to protect our intellectual property and other proprietary technology, these agreements may not be enforceable or may not provide meaningful protection for trade secrets or other proprietary information in the event
of unauthorized use or disclosure or other breaches of the agreements. In addition, we have not sought patent protection in all countries where we sell our products. If we fail to timely file a patent application in any such country or major market, we may be precluded from doing so at a later date. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories in which we have patent protection that may not be sufficient to terminate infringing activities. Furthermore, the laws of some foreign countries may not protect intellectual property rights to the same extent as the laws of the U.S., if at all.
In the event a competitor infringes upon one of our patents or other intellectual property rights, enforcing those patents and rights may be difficult and time consuming. Even if successful, litigation to defend our patents against challenges or to enforce our intellectual property rights could be expensive and time consuming and could divert management’s attention from managing our business. Moreover, we may not have sufficient resources to defend our patents against challenges or to enforce our intellectual property rights, any of which would adversely affect our ability to compete and our business operations as a
result.
TABLE OF CONTENTS
If our trademarks or trade names are not adequately protected, then we may be unable to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to infringe other marks. We may be unable to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in markets of interest. If our trademarks are challenged, infringed upon, circumvented, or declared generic or infringing, or if we are unable to establish name recognition based on our trademarks and trade names, then we may be unable to compete effectively and our business may be adversely affected.
The medical device industry is characterized by extensive patent litigation, and if we become subject to litigation, it could be costly, result in the diversion of management’s attention, require us to pay significant damages or royalty payments, or prevent us from marketing and selling our existing or future products.
The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Determining whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Our competitors may assert that their products, the components of those products, the methods of using those products, or the methods we employ in processing those products are covered by U.S. or foreign patents held by them. In addition, they may claim that their patents have priority over us because their patents were issued first. Because
patent applications can take many years to issue, our products that currently do not infringe on existing issued patents may later infringe on patents that are pending now or in the future. Our products might also inadvertently infringe on currently issued patents. As the number of participants in the market for skin cancer and general oncology devices and treatments increases, the possibility of patent infringement claims against us increases. Any infringement claims, litigation or other proceedings would place a significant strain on our financial resources, divert the attention of management from the core business and harm our reputation.
A larger more established company could allege that we infringed its patent, and that we owe royalty payments on sales of certain products as a result. Any claim against us, even without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from the core business and harm our reputation. If the appropriate authority upholds the company’s patent as valid and enforceable and finds that we infringed on the patent, we could be required to pay substantial damages, including treble, or triple, damages and royalties if an infringement
is found to be willful, and we could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid infringement. A license may not be available on reasonable terms, if at all, and we may be unable to redesign products in a way that would not infringe those patents. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we may have to withdraw existing products from the market or may be unable to commercialize one or more of our products, either of which could have a significant adverse effect on our business, financial condition and results of operations.
Any potential intellectual property litigation also could force us to do one or more of the following:
|
|
•
|
stop selling, making, or using products that use the disputed intellectual property;
|
|
|
•
|
obtain a license from the intellectual property owner to continue selling, making, licensing, or using products, which license may require substantial royalty payments and may not be available on reasonable terms, or at all;
|
|
|
•
|
incur significant legal expenses;
|
|
|
•
|
pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;
|
|
|
•
|
pay the attorney fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; or
|
|
|
•
|
redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive or infeasible.
|
TABLE OF CONTENTS
Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.
We may indemnify our customers and international distributors with respect to infringement by our products of the proprietary rights of third parties. Third parties may assert infringement claims against customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of customers or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of customers or distributors or may be required to obtain licenses for the products they use, each which would adversely affect our operations. If we cannot obtain
all necessary licenses on commercially reasonable terms, customers may be forced to stop using our products, which would materially and adversely affect our business.
We may be subject to damages resulting from claims that we, our employees or independent distributors have wrongfully used or disclosed alleged trade secrets of competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Many of our employees were previously employed at other medical device companies, including our competitors or potential competitors. Many of our independent distributors sell, or in the past have sold, products of competitors. We may be subject to claims that we, our employees or independent distributors have inadvertently or otherwise used or disclosed the trade secrets or other proprietary information of our competitors. In addition, we have been and may in the future be subject to claims that we caused an employee or independent distributor to break the terms of his or her non-competition agreement or non-solicitation
agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending these claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize products, which could have an adverse effect on our business, financial condition and results of operations.
Adverse outcomes in litigation or similar proceedings could adversely impact our business.
We currently are, and may in the future be, named as a party to litigation or other similar legal proceedings. Adverse outcomes in any or all of these proceedings could result in monetary damages or injunctive relief that could adversely affect our ability to continue conducting our business. While our management does not believe any of the proceedings currently pending against us are material to our business such matters are subject to inherent uncertainties and management’s view of these matters may change in the future. If an unfavorable final outcome in any such matter becomes probable and reasonably estimable, our
financial condition could be materially and adversely affected.
Risks Related to this Offering and Ownership of our Common Stock
There has been no public market for our common stock prior to this offering, and an active trading market for our common stock may not develop after this offering. As a result, you may be unable to resell your common stock at or above the price paid under this offering, or at all.
Prior to this offering, there has been no public market for our common stock, and an active trading market for our common stock may not develop or be sustained after this offering. Also, the initial public offering price for our common stock will be determined by negotiations between us and the underwriter and may bear no relationship to the market price for our common stock after the offering. Furthermore, the market price of our common stock may decline below the initial public offering price. As a result of any of the foregoing, you may be unable to resell your common stock at or above the price you paid under this
offering, or at all, and you may lose part or all of your investment in our common stock.
We have never declared or paid cash dividends on our common stock and do not anticipate paying dividends in the foreseeable future. As a result, you must rely on price appreciation of our common stock for a return on your investment in the foreseeable future.
Except for a required tax distribution to our members in 2014 in the aggregate amount of $45,421, we have never declared or paid cash dividends on our common stock. We currently expect to retain our funds and
TABLE OF CONTENTS
future earnings to support the operation, growth and development of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future, except for those related to the corporate conversion. As a result, a return on your investment in the near future will occur only if our share price appreciates. Our share price may not appreciate in value after this offering or maintain the price at which you purchased our common stock pursuant to this offering, and in either case, you would not realize a return on investment or could lose all or part of your investment in our common stock.
Furthermore, any future determination to declare cash dividends will be made at the discretion of our board of directors and will be subject to compliance with applicable laws and covenants under any future credit facilities, which may restrict or limit our ability to pay dividends. For example, our current revolving line of credit restricts our ability to pay dividends or make any distributions or payments or redeem, retire or purchase any capital stock without the prior written consent of the lender, provided that we may pay dividends solely in common stock. Also, the form, frequency and amount of dividends will depend upon
our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. See “Dividend policy” for more information. We may not pay dividends as a result of any of the foregoing, and in these cases, you will need to rely on price appreciation of our common stock for a return on your investment.
Investors in this offering will experience immediate and substantial dilution in the book value of their investment.
The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our outstanding common stock immediately prior to this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $ in net tangible book value per share from the price you paid, based on an assumed initial public offering price of $ per share (which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus). In addition, purchasers who bought shares from
us in this offering will have contributed % of the total consideration paid to us by our stockholders to purchase shares of our common stock, in exchange for acquiring approximately % of the outstanding shares of our capital stock as of after giving effect to this offering. The exercise of outstanding options and warrants and the issuance of additional securities by us will result in further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section titled “Dilution.”
The price of our common stock may be volatile, and you could lose all or part of your investment.
Stock markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, limited trading volume of our stock may contribute to its future volatility. Price declines in our common stock could result from general market and economic conditions, some of which are beyond our control, and a variety of other factors, including any of the risk factors described in this prospectus. These broad market and industry factors may harm the market price of our common stock,
regardless of our operating performance, and could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our common stock include the following:
|
|
•
|
price and volume fluctuations in the overall stock market from time to time;
|
|
|
•
|
volatility in the market prices and trading volumes of medical device company stocks;
|
|
|
•
|
changes in operating performance and stock market valuations of other medical device companies generally, or those in our industry in particular;
|
|
|
•
|
sales of shares of our common stock by us or our stockholders;
|
|
|
•
|
failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
|
|
|
•
|
the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
|
TABLE OF CONTENTS
|
|
•
|
rumors and market speculation involving us or other companies in our industry;
|
|
|
•
|
actual or anticipated changes in our results of operations or fluctuations in our results of operations;
|
|
|
•
|
actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
|
|
|
•
|
litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
|
|
|
•
|
developments or disputes concerning our intellectual property or other proprietary rights;
|
|
|
•
|
announced or completed acquisitions of businesses or technologies by us or our competitors;
|
|
|
•
|
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
|
|
|
•
|
changes in accounting standards, policies, guidelines, interpretations or principles;
|
|
|
•
|
any significant change in our management; and
|
|
|
•
|
general economic conditions and slow or negative growth of our markets.
|
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies but not to “emerging growth companies,” including, but not limited to:
|
|
•
|
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
|
|
|
•
|
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
|
|
|
•
|
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
|
|
|
•
|
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
|
|
|
•
|
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
|
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30
th
, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period. Investors may find our common stock less attractive if we choose to
rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
TABLE OF CONTENTS
Under the Jumpstart Our Business Startups Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Substantial future sales of our common stock in the public market, or the perception that these sales may occur, could cause the price of our common stock to decline, even if our business is doing well.
Sales of our common stock in the public market after this offering, or the perception that these sales may occur, could cause the market price of our common stock to decline, even if our business is doing well. All common stock sold in this offering, other than shares acquired by our affiliates, will be freely transferable without restriction or additional registration under the Securities Act of 1933. All of the remaining common stock outstanding after this offering will be available for sale upon the expiration of the 180-day lock-up period pursuant to Rule 144 and Rule 701 under the Securities Act. See “Shares eligible
for future sale” and “Underwriting” for a detailed description of the lock-up and Securities Act of 1933 restrictions. Any or all of our common stock may be released prior to expiration of the lock-up period at the discretion of the underwriter. To the extent this common stock is released before the expiration of the lock-up period and sold into the market, the market price of our common stock could decline.
Our executive officers, directors and principal stockholders may exert control over us and may exercise influence over matters subject to stockholder approval.
Our executive officers and directors, together with their respective affiliates, beneficially owned approximately 50.6% of our outstanding common stock as of February 9, 2016, and upon consummation of this offering, that same group will beneficially own approximately % of our outstanding common stock. Accordingly, these stockholders, if they act together, may exercise substantial influence over matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger. This concentration of ownership could have the effect of delaying or
preventing a change in control or otherwise discourage a potential acquirer from attempting to obtain control over us, which in turn could have a material adverse effect on the market value of our common stock. For information regarding the ownership of our common stock by our executive officers and directors and their affiliates, please see the section entitled “Security ownership of certain beneficial owners and management.”
Our management will have broad discretion over the use and investment of the net proceeds received in this offering and might not apply the proceeds in ways that increase the value of your investment in our common stock.
Our management will have broad discretion over the use and investment of the net proceeds received from this offering, and you will be relying on, and may not agree with, the judgment of management regarding the application of these net proceeds. Management intends to use the net proceeds received from this offering as described in the section entitled “Use of Proceeds.” The failure by management to apply these funds effectively may result in financial losses that could have a material adverse effect on our business and cause the price of our common stock to decline. Management may invest the net proceeds received
from this offering in a manner that does not produce income or increase value, which could have a material adverse effect on our business and cause the price of our common stock to decline.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our common stock share price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We may be unable to attract or sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number of securities or industry analysts cover us or our business, or if these securities or industry analysts are not widely respected within the general investment community, the trading price for our common stock would be materially and negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more
of the analysts who cover us or our business downgrade our common stock or publish inaccurate or unfavorable research about us or our business, the price of our common stock would likely decline. If one or more of these analysts cease
TABLE OF CONTENTS
coverage of us or our business, or fail to publish reports on us or our business regularly, demand for our common stock could decrease, which might cause the price of our common stock and trading volume to decline.
Public company requirements may strain our resources and divert management’s attention, which could adversely impact our ability to execute our strategy and harm operating results.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NYSE MKT and other applicable securities rules and regulations. Despite recent reforms made possible by the Jumpstart Our Business Startups Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The
Securities Exchange Act of 1934 requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.
While the members of our board of directors and our executive officers have substantial experience relevant to our business, they have limited experience with operations as a public company upon which you can base your prediction of our future success or failure in complying with public company requirements. Our management may fail to comply with public company requirements, or may fail to do so effectively and efficiently, each would materially and adversely harm our ability to execute our strategy, and consequently, our operating results.
Furthermore, as a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If these claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of management and adversely affect our business, brand and reputation and results of
operations.
Our new public company status and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of the board of directors, particularly to serve on the audit committee and compensation committee, and qualified executive officers.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.
Provisions of Delaware law (where we are incorporated), our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our board of directors. These provisions include:
|
|
•
|
authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
|
|
|
•
|
requiring supermajority stockholder voting to effect any merger or sale of all or substantially all of our stock our assets;
|
|
|
•
|
eliminating the ability of stockholders to call and bring business before special meetings of stockholders;
|
|
|
•
|
prohibiting stockholder action by written consent;
|
|
|
•
|
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;
|
TABLE OF CONTENTS
|
|
•
|
dividing our board of directors into three classes so that only one third of our directors will be up for election in any given year; and
|
|
|
•
|
providing that our directors may be removed only by the affirmative vote of at least 75% of our then-outstanding common stock and only for cause.
|
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that could have resulted in a premium over the market price for shares of our common stock.
These provisions will apply even if a takeover offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in our and our stockholders’ best interests and could also affect the price that some investors are willing to pay for our common stock. See the section titled “Description of Capital Stock.”
Our certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage these lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the action in other jurisdictions, which could harm our business and financial condition.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us or our business could be harmed, resulting in the decrease in value of our common stock.
As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in our internal controls. In addition, beginning with our annual report on Form 10-K for our fiscal year ending December 31, 2017 to be filed in 2018, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation, which process is
time-consuming, costly and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an emerging growth company, which may be up to five full years following the date of this offering. Our compliance with Section 404 of the Sarbanes-Oxley Act will require us to incur substantial accounting expense and expend significant management efforts. If we are unable to comply with the requirements of Section 404 in a timely manner, or we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to sanctions or investigations by the NYSE MKT, the SEC or other regulatory authorities, which would require additional
financial and management resources.
Our ability to implement our business plan successfully and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced
TABLE OF CONTENTS
systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors when required under Section 404 of the Sarbanes-Oxley Act. Moreover, we may not implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and, when required, our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of our inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements or omissions.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results, in contrast with statements that reflect historical facts. Many of these statements are contained under the headings “Prospectus Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” In some cases, we have identified such forward-looking statements with typical conditional words such as “anticipate,” “intend,” “believe,”
“estimate,” “plan,” “seek,” “project” or “expect,” “may,” “will,” “would,” “could” or “should,” the negative of these terms or other comparable terminology.
Important factors related to forward-looking statements may include, among others, assumptions regarding:
|
|
•
|
our ability to achieve and sustain profitability;
|
|
|
•
|
market acceptance of the SRT-100 product line;
|
|
|
•
|
our ability to successfully commercialize our products, including the SRT-100;
|
|
|
•
|
our ability to compete effectively in selling our products and services;
|
|
|
•
|
our ability to expand, manage and maintain our direct sales and marketing organizations;
|
|
|
•
|
our actual financial results may vary significantly from forecasts and from period to period;
|
|
|
•
|
our ability to successfully develop new products, improve or enhance existing products or acquire complementary products, technologies, services or businesses;
|
|
|
•
|
our ability to obtain and maintain intellectual property of sufficient scope to adequately protect our products, including the SRT-100, and our ability to avoid infringing or otherwise violating the intellectual property rights of third parties;
|
|
|
•
|
market risks regarding consolidation in the healthcare industry;
|
|
|
•
|
the willingness of healthcare providers to purchase our products if coverage, reimbursement and pricing from third party payors for procedures using our products significantly declines;
|
|
|
•
|
the level and availability of government and third party payor reimbursement for clinical procedures using our products;
|
|
|
•
|
our ability to effectively manage our anticipated growth;
|
|
|
•
|
the regulatory requirements applicable to us and our competitors;
|
|
|
•
|
our ability to manufacture our products to meet demand;
|
|
|
•
|
our reliance on third party manufacturers and sole- or single-source suppliers;
|
|
|
•
|
our ability to reduce the per unit manufacturing cost of the SRT-100;
|
|
|
•
|
our ability to efficiently manage our manufacturing processes;
|
|
|
•
|
the regulatory and legal risks, and certain operating risks, that our international operations subject us to;
|
|
|
•
|
the fact that product quality issues or product defects may harm our business; and
|
|
|
•
|
any product liability claims.
|
TABLE OF CONTENTS
Forward-looking statements are not a guarantee of performance, and you should not place undue reliance on such statements. We have based forward-looking statements largely on our current expectations and projections about future events. Forward-looking statements are subject to many uncertainties and other variable circumstances, including those discussed elsewhere in this prospectus under the headings “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” many of which are outside of our control, that could cause our actual results and experience to differ materially from any forward-looking statement. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this prospectus are made only as of the date hereof. We do not undertake, and specifically decline, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments, except as required by law.
TABLE OF CONTENTS
USE OF PROCEEDS
We estimate, based upon an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we will receive net proceeds from this offering of approximately $ million (or $ million if the underwriters exercise their option to purchase additional shares in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to obtain additional capital to support our operations, create a public market for our common stock and to facilitate future access to the public equity markets. We currently expect to use the net proceeds of this offering primarily to fund the commercialization and continued development of the SRT-100 product line and other products as follows:
|
|
•
|
approximately $3.0 million for the expansion of our sales and marketing activities, including hiring new sales representatives and a director of marketing;
|
|
|
•
|
approximately $3.0 million for research and development for new products and improvements to existing products;
|
|
|
•
|
up to $2.7 million to pay a dividend owed to former holders of units with a preferred return prior to our corporate conversion, in each case who have not elected to convert such dividend into shares of our common stock at the initial public offering price within 30 days following the closing of this offering; and
|
|
|
•
|
the remainder for working capital and other general corporate purposes.
|
In addition, we may also use a portion of our net proceeds to acquire and invest in complementary products, technologies, services or businesses. The Company is exploring the possibility of reducing its reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of a manufacturing facility. However, we currently have no agreements or commitments to complete any such transactions nor are we involved in negotiations to do so.
Our expected use of net proceeds from this offering represents our current intentions based upon our plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the factors described under the heading “Risk Factors” in this prospectus. As a result, management will have broad discretion in its
application of the net proceeds, and investors will be relying on our judgment in such application.
Pending use of the net proceeds from this offering, we may invest in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We
may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
TABLE OF CONTENTS
DIVIDEND POLICY
We currently expect to retain all future earnings, if any, for use in the operation and expansion of our business and repayment of debt. Except for a required tax distribution to our members in 2014 in the amount of $45,421, we have never declared nor paid any dividends or distributions to our securityholders and do not anticipate paying cash dividends to holders of our common stock in the foreseeable future. In addition, our secured credit facility restricts our ability to pay dividends. See “Risk Factors — We do not expect to pay any dividends on our common stock for the foreseeable future.” Any
determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and covenants in our existing financing arrangements and any future financing arrangements.
We expect to pay up to approximately $2.7 million to our former holders of units with a preferred return within 60 days following the closing of this offering. See “Corporate Conversion” for additional information.
TABLE OF CONTENTS
CORPORATE CONVERSION
Overview
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc. In order to consummate the corporate conversion, a certificate of conversion was filed with the Secretary of State of the State of Delaware. As part of the corporate conversion, all limited liability company interests of Sensus Healthcare, LLC, which are in the form of units, were converted, on a one-for-one basis, into an aggregate of 42,852 shares of our common stock as follows:
|
|
•
|
holders of our units without a preferred return received an aggregate of 30,101.99 shares of our common stock, par value $0.01 per share; and
|
|
|
•
|
holders of our units with a preferred return received an aggregate of 12,750.01 shares of our common stock, par value $0.01 per share and the right to receive payment of a dividend in cash or common stock, at the election of the holder thereof, upon a change in control in the amount of $209.74 per unit (see “Conversion of Cumulative Preferred Dividends into Common Stock” below); and
|
|
|
•
|
holders of options and warrants to purchase units of Sensus Healthcare, LLC received options and warrants to purchase an aggregate of 60 and 2,607 shares of our common stock with a weighted-average exercise price per share of $1,000 and $503, respectively, which we expect will remain outstanding following this offering except to the extent any such options or warrants are exercised prior to this offering.
|
Following our corporate conversion, Sensus Healthcare, Inc. continued to hold all property and assets of Sensus Healthcare, LLC and retained all of the debts and obligations of Sensus Healthcare, LLC. Sensus Healthcare, Inc. is governed by a certificate of incorporation, which was filed with the Secretary of State of the State of Delaware, and bylaws, the material provisions of which are described under the heading “Description of Capital Stock.” On the effective date of the corporate conversion, the members of the board of managers of Sensus Healthcare, LLC became the members of Sensus Healthcare, Inc.’s board
of directors and the officers of Sensus Healthcare, LLC became the officers of Sensus Healthcare, Inc.
Prior to the commencement of this offering, we expect to effect a forward stock split of -for-one. The number of shares of common stock that warrants or options will be exercisable to purchase, as well as the exercise prices, will be subject to further adjustment in connection with the foregoing stock split. Following the forward stock split, we expect that our existing stockholders will hold approximately 7.1 million shares of our common stock, on a fully diluted basis.
Except as otherwise noted herein, the financial statements included elsewhere in this prospectus give retroactive effect to our corporate conversion. We expect that our conversion from a Delaware limited liability company to a Delaware corporation will not have a material effect on our financial statements, except for the effects of income taxes.
Conversion of Cumulative Preferred Dividends into Common Stock
Pursuant to the Limited Liability Company Agreement of Sensus Healthcare, LLC, as amended (the “LLC Agreement”), holders of units with preferred returns were entitled to receive an 8% non-compounded preferred return. Following our corporate conversion, effective as of January 1, 2016 this preferred return ceased accumulating. Pursuant to the plan of conversion, in exchange for the termination of the preferred return, holders of units with a preferred return are entitled to a one-time payment of $209.74 per unit (“Dividend Payment”), or a total of $2,674,197 upon the closing of this initial public offering
or if a Change in Control occurs prior to the closing of this offering. “Change in Control” means (i) the sale of all or substantially all of the assets of the company or of more than 51% of the capital stock of the company; or (ii) a merger, consolidation, recapitalization or reorganization of the company that results in the inability of the then-existing stockholders to designate or elect a majority of the members of the company’s board of directors (or equivalent governing body) of the resulting entity or its parent company. Each holder of units with a preferred return has been given a one-time right, which must be exercised within 30 days after the closing of this offering, to elect to convert all or a portion of their Dividend Payment into shares of our common stock at the same price of our common stock in this offering. We will mail an election form to each
TABLE OF CONTENTS
holder of units with a preferred return to allow them to elect whether to receive all or a portion of their Dividend Payment in shares of our common stock. If a holder does not make an election before the expiration of the 30-day period following the closing of this offering, then the holder will receive his or her Dividend Payment solely in cash. We plan to pay each Dividend Payment, whether in cash, common stock or a combination of cash and common stock, within 60 days following the closing of this offering.
TABLE OF CONTENTS
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2015:
|
|
•
|
on a pro forma basis to give effect to the accrual of the dividend payable to the former holders of units with a preferred return that was declared upon our conversion from a Delaware limited liability company to a Delaware corporation, effective January 1, 2016; and
|
|
|
•
|
on a pro forma as adjusted basis to additionally give effect to the -for-one forward stock split and issuance of shares of our common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of our expected offering price range set forth on the cover of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
You should read the following information together with the information contained under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the accompanying notes appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
(in thousands, except share and per share data)
|
|
Actual
|
|
Pro forma
|
|
Pro forma
as adjusted
|
|
Cash and cash equivalents
|
|
$
|
5,065,068
|
|
|
$
|
5,065,068
|
|
|
$
|
|
|
|
Total debt
|
|
|
422,702
|
|
|
|
422,702
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share (no shares authorized, issued and outstanding, actual and pro forma; 5,000,000 shares authorized, none issued and outstanding, pro forma as adjusted)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Common stock, $0.01 par value per share (1,000,000 shares authorized, 42,852 shares issued and outstanding, actual; 1,000,000 shares authorized, 42,852 shares issued and outstanding, pro forma; 50,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted)
|
|
|
428
|
|
|
|
428
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
13,366,985
|
|
|
|
13,366,985
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(7,445,809
|
)
|
|
|
(10,120,006
|
)
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
5,921,604
|
|
|
|
3,247,407
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
6,344,306
|
|
|
$
|
3,670,109
|
|
|
$
|
|
|
The table set forth above is based on 42,852 shares of our common stock outstanding as of December 31, 2015. The table does not reflect as of such date:
|
|
•
|
as of December 31, 2015, 60 shares issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $1,000 per share; or
|
|
|
•
|
as of December 31, 2015, 2,607 shares issuable upon the exercise of warrants at a weighted-average exercise price of $585 per share following the corporate conversion.
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by
us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
TABLE OF CONTENTS
DILUTION
If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price in this offering per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after the consummation of this offering. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of common stock then issued and outstanding. As of December 31, 2015, our net tangible book value was $5,198,709, or $121.32 per share of common
stock, which represents the amount of our total tangible assets less total liabilities, divided by 42,852, the number of shares outstanding at December 31, 2015.
After giving effect to the corporate conversion, pro forma net tangible book value as of December 31, 2015 would have been $ , or $ per share based on the shares of common stock issued and outstanding after the corporate conversion. After giving effect to our sale of common stock in this offering at the initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses
payable by us, our pro forma as adjusted net tangible book deficit as of December 31, 2015 would have been $ million, or $ per share (assuming no exercise of the underwriters’ option to purchase additional shares of our common stock). This represents an immediate and substantial dilution of $ per share to new investors purchasing common stock in this offering. The following table illustrates this dilution per share:
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
|
Pro forma net tangible book value per share as of December 31, 2015
|
|
$
|
|
|
|
|
|
|
|
Decrease in net tangible book value per share attributable to this offering
|
|
$
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after giving effect to this offering
|
|
|
|
|
|
$
|
|
|
|
Dilution per share to new investors in this offering
|
|
|
|
|
|
$
|
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may
also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.
If the underwriters’ option to purchase additional shares in this offering is exercised in full, the pro forma as adjusted net tangible book value would be $ per share, and the dilution to new investors participating in this offering would be $ per share.
The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.
TABLE OF CONTENTS
The following table summarizes, on a pro forma as adjusted basis as of December 31, 2015, the differences between the number of shares of common stock purchased from us, the total price and the average price per share paid by existing stockholders and by the new investors in this offering, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $ per
share (the midpoint of the price range set forth on the cover page of this prospectus).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares purchased
|
|
Total consideration
|
|
Average
price per
share
|
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
(in millions)
|
|
Existing investors
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
New investors in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by existing stockholders will be reduced to % of the total number of shares of common stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to % of the total number of shares of common stock to be outstanding upon completion of the offering.
The discussion and tables above are based on 42,852 shares of our common stock outstanding as of December 31, 2015 and assume no exercise of stock options outstanding and no issuance of shares of our common stock reserved for issuance under our equity incentive plans. The tables do not reflect as of such date:
|
|
•
|
as of December 31, 2015, 60 shares issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $1,000 per share;
|
|
|
•
|
as of December 31, 2015, 2,607 shares issuable upon the exercise of warrants at a weighted-average exercise price of $585 per share following the corporate conversion;
|
|
|
•
|
shares reserved for future issuance under our 2013 Option Plan; and
|
|
|
•
|
shares issuable upon the election of former holders of units with a preferred return, within 30 days of the closing of this offering to convert all or a portion of the cumulative preferred dividend into shares of common stock at the initial public offering price.
|
If, after giving effect to the corporate conversion, all of our outstanding options and warrants were exercised, our pro forma as adjusted net tangible book value as of December 31, 2015 would have been $ per share and our pro forma as adjusted net tangible book value after giving effect to this offering would have been $ per share, causing dilution to new investors purchasing shares in this offering of $ per share. Shares purchased by new investors would then represent % of the shares purchased from us for % of the
total consideration.
To the extent that options are exercised or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the accompanying notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include, but are not limited to, those identified below and those described under the heading “Risk
Factors” appearing elsewhere in this prospectus.
Overview
Sensus Healthcare, LLC, a Delaware limited liability company, was formed on May 7, 2010, to design, manufacture and market proprietary medical devices specializing in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy. In June 2010, Sensus Healthcare, LLC, a Florida limited liability company (“Sensus (FL)”) acquired all the assets associated with our primary product, the SRT-100, from Topex, Inc. for $1.3 million. Following this acquisition, we relaunched the SRT-100 under the Sensus Healthcare brand. In December 2011, we merged with Sensus (FL),
with the Delaware limited liability company surviving the merger for the purpose of changing our domicile from Florida to Delaware.
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and we changed our name to Sensus Healthcare, Inc. As a result of the corporate conversion, all holders of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options to purchase units of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively.
The SRT-100 is a photon x-ray low energy superficial radiotherapy system that provides patients an alternative to surgery for treating non-melanoma skin cancers, including basal cell and squamous cell skin cancers and other skin conditions such as keloids. The SRT-100 is especially effective in treating primary lesions that would otherwise be difficult or require extensive surgery involving sensitive areas of the head and neck regions, such as the fold in the nose, eyelids, lips, corner of the mouth, and the lining of the ear, that would otherwise lead to a less than desirable cosmetic outcome. Superficial radiation therapy
treatment procedures do not require the use of anesthetics and eliminates the need for skin grafting. The SRT-100 provides healthcare providers and patients with a safe, virtually painless, and substantially non-scarring treatment option for non-melanoma skin cancer and other skin conditions, such as keloids. It allows dermatologists to retain non-melanoma skin cancer patients, rather than referring them to specialists, while offering radiation oncologists an alternative to costly linear accelerator–based treatments with a process that is less invasive, more time-efficient, and improves practice economics. Our revenue is primarily derived from sales of our SRT-100 product line.
Corporate conversion
The purpose of the corporate conversion was to reorganize our corporate structure so that we are a corporation rather than a limited liability company and so that our existing investors own our common stock rather than equity interests in a limited liability company. For further information regarding the corporate conversion, see “Corporate Conversion.” References elsewhere in this prospectus to our capitalization and other matters pertaining to our equity and shares prior to the corporate conversion relate to the capitalization and equity and shares of Sensus Healthcare, LLC, and after the corporate conversion, to
Sensus Healthcare, Inc.
The financial statements included elsewhere in this prospectus give retroactive effect to the corporate conversion. Effective January 1, 2016, we will be subject to corporate income taxes.
Components of our results of operations
We manage our business globally within one reportable segment, which is consistent with how our management reviews our business, prioritizes investment and resource allocation decisions and assesses operating performance.
TABLE OF CONTENTS
Revenue
Our sales primarily relate to sales of our devices. We recognize product revenue upon shipment provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable, and collection of the resulting receivable is reasonably assured. We do not provide a right of return related to product sales. Revenues for service contracts are recognized over the service contract period on a straight-line basis. Revenue for rentals of equipment is recognized over the lease term on a straight-line basis.
We sell products and services under multiple-element arrangements with separate units of accounting; in these situations, total consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then recognized for each unit based on its specific characteristics. A deliverable in an arrangement qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. The principal deliverables in our multiple deliverable arrangements that qualify as separate units of accounting consist of (i) sales of medical devices and accessories
and (ii) service contracts. Performance obligations, including installation and customer training, are considered inconsequential and are combined with the product as one unit of accounting. We operate in a highly regulatory environment and are continually entering into new markets in which state or foreign approval is sometimes required prior to the customer being able to use the product. In these cases, where regulatory approval is pending, revenue is deferred until such time regulatory approval is obtained and customer acceptance becomes certain.
Deferred revenue consists of payments from customers for separately priced service contracts, deposits on products and sales pending regulatory approval.
We provide warranties, generally one year, in conjunction with the sale of our product. These warranties are short term in nature and entitle the customer to repair, replacement, or modification of a defective product subject to the terms of the respective warranty. We record an estimate of future warranty claims at the time we recognize revenue from the sale of the product based upon management’s estimate of the future claims rate.
We expect revenue to increase in the future as we expand our sales, marketing and distribution capabilities to support growth in the U.S. and internationally as the SRT-100 becomes more widely adopted and new products are introduced. Revenue for the fiscal year 2015 significantly increased from 2014 levels due to the resolution of the CMS reimbursement uncertainty discussed below in “Significant trends and uncertainties impacting our business.”
Cost of sales
Since July 2010, we have used a third party manufacturer for the production and manufacture of our main products, the SRT-100 product line, in accordance with our product specifications. Cost of sales consist primarily of manufacturing, procurement and shipping, overhead costs, direct material costs, direct labor, depreciation and amortization. A significant portion of our cost of sales consists of costs paid to our third party manufacturer.
Gross profit
We calculate gross profit as net revenue less cost of sales. Our gross profit has been and will continue to be affected by a variety of factors, including production volumes, manufacturing costs, product reliability and the implementation over time of cost-reduction strategies. Our gross profit will likely continue to fluctuate from quarter to quarter.
Selling and marketing
We focus on two primary markets, private dermatology practices and radiation oncologists in both private and hospital settings. We currently employ a multi-tier sales strategy in an attempt to optimize geographic coverage and focus on what we perceive to be our key markets. This multi-tier sales model uses a direct sales force (currently nine people), international dealers and distributors, and, to a lesser degree, regional independent sales representatives compensated on a commission-only basis.
TABLE OF CONTENTS
General and administrative
General and administrative expense, or G&A, consists primarily of salaries, employee benefits, bonuses, and related costs for personnel who support our general operations such as executive management, information technology, finance, accounting and human resource functions, as well as legal and other professional fees. We expect the amount of G&A expenses to continue to increase for the foreseeable future as we employ additional personnel and incur additional legal, accounting, insurance and other professional service fees associated with being a public company. We expect G&A expenses to continue to decrease as a
percentage of net revenue if we are successful in growing the sales of our products.
Research and development
We expect the amount of our research and development, or R&D, expense to increase as we continue to innovate and introduce new products and technologies. However, we anticipate that our R&D costs will decrease as a percentage of net revenues over time if we are successful growing the sales of our products.
Other income (expense)
Other income (expense) primarily consists of interest payments made pursuant to our secured credit facility entered into on in March 2013 with Silicon Valley Bank, as amended in March 2015. Our interest expense will fluctuate in future periods to the extent we incur additional, or pay down, indebtedness.
Income taxes
Until December 31, 2015, the Company was a limited liability corporation (LLC) that had elected to be taxed as a pass-through entity and accordingly, we did not recognize a federal or state income tax provision for the years ended December 31, 2013, 2014 and 2015. Beginning in 2016, as a result of the conversion from an LLC to a Delaware corporation, income tax (benefit) expense will consist of income taxes in jurisdictions in which we conduct business. We will be taxed at the rates applicable within each jurisdiction in which we operate or generate revenue. The composite income tax rate, tax provisions, deferred tax assets
and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved.
Significant trends and uncertainties impacting our business
Many third-party payors follow coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid Services, or CMS, which administers the U.S. Medicare program, in setting their coverage and reimbursement policies. Beginning in 2013, the AMA CPT® Editorial Panel commenced a review of the reportable codes during an episode of superficial radiation therapy, including a recommendation to eliminate several reportable codes used for superficial radiation therapy. During this review, future reimbursement levels became uncertain. This uncertainty significantly impacted sales of our products as many of our
customers delayed purchasing decisions until the reimbursement review was completed. At the conclusion of the review at the end of 2014, the reimbursement rates using the alternative codes were substantially similar to the reimbursement rates prior to the review; however, the uncertainty during 2014 regarding the final rates for 2015 had a significant negative impact on our 2014 sales. As the uncertainty of the reimbursement has subsided, our sales in 2015 returned to 2013 levels. While a number of codes used for superficial radiation therapy were no longer reportable in 2015, the AMA indicated alternative codes could be reported for some, but not all, of our products and services provided during a common episode of care. In 2015, CMS reviewed the value of the superficial radiation therapy treatment delivery code value for 2016 and made no additional revisions.
TABLE OF CONTENTS
Results of operations
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
Revenues
|
|
$
|
10,478,920
|
|
|
$
|
5,810,205
|
|
|
$
|
10,273,094
|
|
|
Cost of Sales
|
|
|
3,600,348
|
|
|
|
2,054,798
|
|
|
|
3,698,687
|
|
|
Gross Profit
|
|
|
6,878,572
|
|
|
|
3,755,407
|
|
|
|
6,574,407
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
3,965,276
|
|
|
|
4,208,241
|
|
|
|
3,742,535
|
|
|
General and administrative
|
|
|
1,453,344
|
|
|
|
1,650,651
|
|
|
|
1,586,401
|
|
|
Research and development
|
|
|
1,333,111
|
|
|
|
1,576,775
|
|
|
|
1,466,728
|
|
|
Total Operating Expenses
|
|
|
6,751,731
|
|
|
|
7,435,667
|
|
|
|
6,795,664
|
|
|
Income (Loss) From Operations
|
|
|
126,841
|
|
|
|
(3,680,260
|
)
|
|
|
(221,257
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(20,467
|
)
|
|
|
(20,030
|
)
|
|
|
(17,786
|
)
|
|
Interest income
|
|
|
1,253
|
|
|
|
820
|
|
|
|
1,776
|
|
|
Total Other Income (Expense)
|
|
|
(19,214
|
)
|
|
|
(19,210
|
)
|
|
|
(16,010
|
)
|
|
Net Income (Loss)
|
|
$
|
107,627
|
|
|
$
|
(3,699,470
|
)
|
|
$
|
(237,267
|
)
|
|
Preferential distribution
|
|
|
(513,332
|
)
|
|
|
(537,693
|
)
|
|
|
(513,332
|
)
|
|
Net Loss Attributable to Common Stockholders
|
|
$
|
(405,705
|
)
|
|
$
|
(4,237,163
|
)
|
|
$
|
(750,599
|
)
|
Net Loss Attributable to Common Stockholders
per share – basic and diluted
|
|
$
|
(10.02
|
)
|
|
$
|
(103.76
|
)
|
|
$
|
(18.37
|
)
|
|
Weighted average number of shares used in computing net loss per share – basic and diluted
|
|
|
40,482
|
|
|
|
40,835
|
|
|
|
40,857
|
|
Year ended December 31, 2015 compared to the year ended December 31, 2014
Total revenue.
Total revenue was $10,273,094 for the year ended December 31, 2015 compared to $5,810,205 for the year ended December 31, 2014, an increase of $4,462,889 or 76.8%. The growth in revenue was primarily attributable to significantly more systems sold during 2015 as we have substantially overcome the uncertainty regarding customer reimbursement for use of our products that had negatively impacted sales in 2014. Average selling price did not change significantly compared to 2014.
Total cost of sales.
Cost of sales was $3,698,687 for the year ended December 31, 2015 compared to $2,054,798 for the year ended December 31, 2014, an increase of $1,643,889 or 80.0% due to the higher sales in 2015 compared to 2014.
Gross profit.
Gross profit was $6,574,407 for the year ended December 31, 2015 compared to $3,755,407 for the year ended December 31, 2014, an increase of $2,819,000, or 75.1%, for the reasons discussed above. Our gross profit percentage was 64.0% in 2015 compared to 64.6% in 2014.
Selling and marketing.
Selling and marketing expense was $3,742,535 for the year ended December 31, 2015 compared to $4,208,241 for the year ended December 31, 2014, a decrease of $465,706 or 11.1%. The net decrease was mainly due to lower spending on trade shows ($180,000), marketing consultants ($150,000) and reduction in sales payroll ($130,000). We expect that selling and marketing expense will increase in the future as we hire more sales personnel and increase marketing activities.
General and administrative.
General and administrative expense was $1,586,401 for the year ended December 31, 2015 compared to $1,650,651 for the year ended December 31, 2014, a decrease of $64,250 or 3.9%. The net decrease was due primarily to lower legal expenses ($141,000) and bad debt expense ($182,000), offset by an increase in payroll of ($114,000), travel expense ($59,000), training and education expense ($24,000), information technology expenses ($25,000) and other professional fees of ($49,000).
Research and development.
Research and development expense was $1,466,728 for the year ended December 31, 2015 compared to $1,576,775 for the year ended December 31, 2014, a decrease of $110,047, or 7.0%. The net decrease in research and development spending was attributable to lower expenses in 2015 related to the enhanced SRT-100 Vision product as well as foreign registrations of the SRT-100 ($195,000),
TABLE OF CONTENTS
offset by an increase in payroll expense of $97,000. We expect that research and development costs will increase in the future as we invest in improvements to existing products as well as development of new products.
Other income (expense).
We incur interest expense in connection with our secured credit facility with Silicon Valley Bank.
Year ended December 31, 2014 compared to the year ended December 31, 2013
Total revenue.
Total revenue was $5,810,205 for the year ended December 31, 2014 compared to $10,478,920 for the year ended December 31, 2013, a decrease of $4,668,715 or 44.6%. The decrease in revenue was primarily due to significantly fewer systems sold in 2014 due to uncertainty regarding reimbursement to our customers for the use of our products. Average selling price in 2014 did not change significantly compared to 2013.
Total cost of sales.
Cost of sales was $2,054,798 for the year ended December 31, 2014 compared to $3,600,348 for the year ended December 31, 2013, a decrease of $1,545,550 or 42.9% due to the lower sales in 2014 compared to 2013.
Gross profit.
Gross profit was $3,755,407 for the year ended December 31, 2014 compared to $6,878,572 for the year ended December 31, 2013, a decrease of $3,123,165, or 45.4%, for the reasons discussed above. Our gross profit percentage was 64.6% in 2014 compared to 65.6% in 2013.
Selling and marketing.
Selling and marketing expense was $4,208,241 for the year ended December 31, 2014 compared to $3,965,276 for the year ended December 31, 2013, an increase of $242,965 or 6.1%. The net increase was mainly due to higher spending on trade shows ($448,000) and marketing consultants ($256,000), offset by lower payroll ($416,000) due to headcount reductions during 2014 and lower travel ($51,000).
General and administrative.
General and administrative expense was $1,650,651 for the year ended December 31, 2014 compared to $1,453,344 for the year ended December 31, 2013, an increase of $197,307 or 13.6%. The net increase was due primarily to higher legal expenses ($251,000) and bad debt expense ($128,000), offset by lower payroll ($146,000).
Research and development.
Research and development expense was $1,576,775 for the year ended December 31, 2014 compared to $1,333,111 for the year ended December 31, 2013, an increase of $243,664, or 18.3%. The increase was mostly research and development ($116,000) attributable to the enhanced SRT-100 Vision product and foreign registrations ($126,000).
Other income (expense).
We incur interest expense in connection with our secured credit facility with Silicon Valley Bank.
Seasonality
We do not believe our business to be seasonal in nature.
Liquidity and capital resources
Overview
As of December 31, 2015, we had cash and cash equivalents of $5,065,068 and an accumulated deficit of $(7,445,809) compared to cash and cash equivalents of $4,538,713 and an accumulated deficit of $(7,208,542) as of December 31, 2014.
Our liquidity position and capital requirements may be impacted by a number of factors, including the following:
|
|
•
|
our ability to generate and increase revenue;
|
|
|
•
|
fluctuations in gross margins, operating expenses and net loss; and
|
|
|
•
|
fluctuations in working capital.
|
Our primary short-term capital needs, which are subject to change, include expenditures related to:
TABLE OF CONTENTS
|
|
•
|
expansion of our sales, marketing and distribution activities;
|
|
|
•
|
expansion of our research and development activities;
|
|
|
•
|
investment in a manufacturing facility; and
|
|
|
•
|
payment of accumulated dividends to stockholders.
|
We regularly evaluate our cash requirements for current operations, commitments, capital requirements and business development transactions, and we may elect to raise additional funds for these purposes in the future.
We may need to raise additional funds to finance future cash needs through public or private equity offerings, debt financings, receivables or royalty financings or corporate collaboration and licensing arrangements. The covenants under our credit facilities limit our ability to obtain additional debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.
If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
Cash flows
The following table provides a summary of our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(128,693
|
)
|
|
$
|
(1,867,682
|
)
|
|
$
|
(1,339,343
|
)
|
|
Investing activities
|
|
|
(251,004
|
)
|
|
|
(123,959
|
)
|
|
|
(196,190
|
)
|
|
Financing activities
|
|
|
3,245,854
|
|
|
|
(45,421
|
)
|
|
|
2,061,888
|
|
|
Total
|
|
$
|
2,866,157
|
|
|
$
|
(2,037,062
|
)
|
|
$
|
526,355
|
|
Cash flows from operating activities
Net cash used in operating activities for 2015 was $1,339,343, consisting of a net loss of $237,267 and an increase in net operating assets of $1,432,418, offset by non-cash charges of $330,342. The increase in net operating assets was primarily due to the increase in sales resulting in an increase in accounts receivable as well as increase in inventory, prepaid expense and deposits and a decrease in deferred revenue, offset by an increase in accounts payable and accrued expenses. Non-cash charges consisted primarily of depreciation and amortization.
Net cash used in operating activities for 2014 was $1,867,682, consisting of a net loss of $3,699,470, offset by a decrease in net operating assets of $1,335,992 and non-cash charges of $475,796. The decrease in net operating assets was primarily due to cash collections and lower sales in 2014 resulting in a decrease in accounts receivable as well as an increase in deferred revenue, offset by an increase in inventories and decrease in accounts payable and accrued expenses. Non-cash charges consisted primarily of depreciation and amortization and provision for bad debts.
Net cash used in operating activities for 2013 was $128,693, consisting primarily of net income of $107,627 and non-cash charges of $444,429 offset by an increase in net operating assets of $680,749. The increase in net operating assets was primarily due to the increase in sales resulting in increases in accounts
TABLE OF CONTENTS
receivable as well as increase in inventory, offset by increases in accounts payable and accrued expenses and deferred revenue. Non-cash charges consisted primarily of depreciation and amortization, product warranties and provision for bad debts.
Cash flows from investing activities
Net cash used in investing activities was $196,190, $123,959 and $251,004 during the years ended December 31, 2015, 2014 and 2013, respectively, with the expenditures in all years for acquisition of property and equipment.
Cash flows from financing activities
Net cash provided by financing activities was $2,061,888 during the year ended December 31, 2015, primarily attributable to an increase of $2,014,186 from common stock issuance, net of offering costs.
Net cash used in financing activities was $45,421 during the year ended December 31, 2014 from distributions to shareholders.
Net cash used in financing activities was $3,245,854 during the year ended 2013, from common stock issuance, net of offering costs.
Indebtedness
Silicon Valley Bank Secured Credit Facility
On March 12, 2013, we entered into a 2-year $3 million revolving credit facility. The credit facility was amended and extended effective March 12, 2015. The maximum borrowing was reduced to $1,500,000 and is limited by our borrowing base of 80% of eligible accounts receivable. Interest, at Prime plus 1.75% (5.25% at December 31, 2015) is payable monthly with outstanding principal and interest due on May 12, 2017, the maturity date. The facility is secured by all of our assets and limits the amount of additional indebtedness, restricts the sale, disposition or transfer of our assets and requires the maintenance of a certain
monthly adjusted quick ratio restrictive covenant and minimum quarterly EBITDA restrictive covenant, as defined in the agreement. Pursuant to the terms of this credit facility, we may not incur additional indebtedness except for certain permitted indebtedness, which includes, among other things, debt that is subordinate to our revolving credit facility debt, corporate credit card debt (up to $50,000), unsecured trade debt incurred in the ordinary course of business, and debt incurred due to endorsement of negotiable instruments incurred in the ordinary course of business. At December 31, 2014, October 31, 2015 and November 30, 2015, we were not in compliance with the financial covenants and received waivers from our lender. We were in compliance with all covenants as of December 31, 2015. Approximately $375,000 and $423,000 was outstanding under the revolving credit facility at December 31, 2014 and 2015. We pay commitment fees of 0.25% per annum on the average unused portion of the
facility.
Off-balance sheet arrangements
We do not have during the period presented, and do not currently have, any off-balance sheet arrangements.
Critical accounting policies
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S., or GAAP. We have identified the accounting policies below as critical to understanding our financial condition and results of our operations. For a detailed discussion on the application of these and other accounting policies, see the notes to our financial statements.
Revenue recognition
Our revenue is primarily derived from sales of our devices, including the SRT-100. We recognize product revenue upon shipment provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable, and collection of the resulting receivable is reasonably assured. We generally do not provide a right of return related to product
TABLE OF CONTENTS
sales. We consider the service contracts as a separate deliverable and as a separate unit of accounting in our product offering. Revenue for service contracts is recognized over the service contract period on a straight-line basis. Revenue for rentals of equipment is recognized over the lease term on a straight-line basis.
Accounts receivable and allowance for doubtful accounts
We do business and extend credit based on an evaluation of our customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. We monitor exposure to credit losses and maintain allowances for anticipated losses considered necessary under the circumstances. To date, we have not experienced significant credit-related losses.
Inventories
Inventories consist of finished product and components and are stated at the lower of cost, determined using the first-in first-out method, or market. Cost includes labor and overhead incurred to prepare the product for sale.
Intangible assets and long-lived assets
Intangible assets are comprised of our patent rights and are amortized over the patents’ estimated useful life of 13 years.
We evaluate our long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows in accordance with accounting guidance. If circumstances suggest the recorded amounts cannot be recovered, based upon estimated future undiscounted cash flows, we reduce the carrying values of such assets to fair value.
JOBS Act
We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced disclosure obligations relating
to the presentation of financial statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We have availed ourselves of the reduced reporting obligations and executive compensation disclosure in this prospectus, and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.
In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we plan to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Recently issued accounting pronouncements
See Note 1 to our audited financial statements included elsewhere in this prospectus for a description of recently issued accounting pronouncements.
TABLE OF CONTENTS
BUSINESS
Overview
We are a medical device company, headquartered in Boca Raton, Florida, specializing in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy. Superficial radiation therapy is based on a technology with decades of successful clinical use treating various benign and malignant skin conditions. Prior to the introduction of Mohs surgery and linear accelerators in the late 1960s and early 1970s, the predecessor of superficial radiation therapy, orthovoltage, was the standard of care in treating several skin conditions, including skin cancer. When Mohs surgery was
developed and linear accelerators, or LINACS, were introduced to treat cancer, the manufacturers of the orthovoltage devices abandoned manufacturing these products believing that Mohs surgery and linear accelerators would ultimately become the standard of care in treating skin cancer. We believe that orthovoltage device manufacturers may have perceived these newer procedures and technology as being superior to orthovoltage for a number of reasons, including (i) the fact that Mohs surgery did not require significant capital investment, other than specialized medical training, (ii) that higher-powered LINACS offered the ability to treat a wider variety of conditions because of its deeper x-ray penetration, and (iii) the perceived impracticalities of orthovoltage machines due to their large size. As a result, the orthovoltage technology became largely dormant.
Recently, healthcare providers have recently been recognizing the benefits of superficial radiation therapy and there has been a resurgence of this technology. Based on an independent retrospective analysis (with 95% confidence intervals) published in
the Journal of the American Academy of Dermatology
in 2012, recurrence rates for all tumors at two and five years were 1.9% and 5.0%, respectively, for cases of cutaneous basal cell carcinoma and squamous cell carcinoma treated using our superficial radiation therapy products, matching the non-recurrence rates for Mohs surgery. We believe this peer-reviewed study
illustrates the effectiveness of superficial radiation therapy in the treatment of non-melanoma skin cancer. Superficial radiation therapy is also an effective treatment modality for keloids, which are firm, rubbery lesions or shiny, fibrous nodules, that can vary from pink to the color of the patient’s flesh or red to dark brown in color, in conjunction with surgical removal. One recent study has indicated that surgical excision combined with platelet rich plasma and post-operative in-office superficial radiation therapy can achieve a non-recurrence rate of 100% at the fourth and eleventh month follow-up. No other treatment modality known to us leads to a greater non-recurrence rate.
We believe that modern superficial radiation therapy technology has improved over its orthovoltage predecessor. With modern technology, such as that found in the SRT-100, an equipment system manufactured by us, there is very low radiation scatter, which is significantly below the threshold defined by the American Association of Physicists in Medicine and the Conference of Radiation Control Program Directors, Inc. Our products preserve healthy tissue while attacking only the cancer cells because the SRT-100, unlike LINACS, uses low energy photon x-rays, which are only capable of penetrating skin up to approximately five
millimeters. Moreover, our superficial radiation therapy products incorporate new digital and diagnostic systems that represent significant technological advancements over the orthovoltage predecessors. Further, while orthovoltage devices were very large (requiring a dedicated room), the SRT-100 is a mobile unit with a 30" x 30" footprint. Additionally, with a shift in the demographics of skin cancer patients due to an aging population, we believe superficial radiation therapy offers certain benefits that may not have been relevant decades ago when skin cancer patients were generally younger. For example, patients with certain health conditions or who have been proscribed certain medications may not be good candidates for surgical procedures, such as Mohs surgery, due to the additional health risks these procedures present.
Although Mohs surgery, a procedure involving the progressive removal of microscopic layers of cancer-containing skin until all cancer cells are removed, is one of the leading methods to treat non-melanoma skin cancer, there are significant downsides to this procedure. For example, patients often experience some degree of pain following the procedure. In addition to the inconvenience and pain involved with undergoing Mohs surgery, there are several other potential unpleasant aspects that may affect the surgical area, such as temporary or permanent numbness, temporary or permanent weakness, itching, enlarged scarring, and other
post-surgical complications.
TABLE OF CONTENTS
We believe that our products provide patients with a safe and virtually pain-free alternative to surgery for treating non-melanoma skin cancers, including basal cell and squamous cell carcinoma, and other skin conditions, including keloids. Our products also allow dermatologists to retain non-melanoma skin cancer patients, rather than referring them to other specialists, while offering radiation oncologists an alternative to costly linear accelerator-based treatments with a
process that is less invasive, more time-efficient, and which improves practice economics. Although superficial radiation therapy treatments typically take less than one minute, this treatment frequently requires multiple visits. Often, patients undergoing superficial radiation therapy treatment will need three to four treatments per week for up to four consecutive weeks to achieve the desired results. Additionally, superficial radiation therapy is typically limited to the treatment of surface-based skin cancers. Due to the limited penetrating ability of the radiation used, superficial radiation therapy typically is ineffective in treated skin cancer in advanced stages.
The SRT-100 system is designed for effectiveness and ease of use. The current features include specific x-ray and automatic filtering technique factors for accurate skin cancer treatment, visual verification of the treated area, a compact design for device mobility, connectivity to digital systems, reduced space requirements, and integrated safety controls for both the patient and the clinician.
We own two patents in the U.S. (U.S. Patent Nos. 7,372,940 and 7,263,170) related to the SRT-100 system and a third patent application pending in the U.S., China and Russia. We have received 510(k) marketing clearance from the FDA, European CE marking certification, CFDA (the Chinese equivalent of the FDA), and Health Canada approval. We also received regulatory clearance for Russia in the fourth quarter of 2015. These governmental clearances and approvals are required to market and sell medical devices to customers located in the countries or areas covered by these agencies. We are currently marketing our SRT-100 in both the
U.S. and abroad to private dermatology practices and private and hospital-based radiation oncology practices. We have been active in bringing this system to the global marketplace since the fourth quarter of 2010 and have begun establishing a distribution network to sell the SRT-100 to healthcare providers in the U.S. and internationally.
Sensus Healthcare, LLC, a Delaware limited liability company, was formed on May 7, 2010, to design, manufacture and market proprietary medical devices specializing in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy. In June 2010, Sensus Healthcare, LLC, a Florida limited liability company (“Sensus (FL)”) acquired all the assets associated with our primary product, the SRT-100, from Topex, Inc. for $1.3 million. Following this acquisition, we relaunched the SRT-100 under the Sensus Healthcare brand. In December 2011, to change our domicile from
Florida to Delaware, we merged with Sensus (FL), with the Delaware limited liability company surviving the merger. Effective as of January 1, 2016, we converted to a Delaware corporation.
Industry overview
Non-melanoma skin cancer
Our products have received FDA-clearance to treat:
|
|
•
|
Squamous Cell Carcinoma;
|
|
|
•
|
Cutaneous Appendage Carcinoma; and
|
|
|
•
|
Other primary malignant epithelial neoplasms of the skin.
|
Based on estimates by the U.S. Surgeon General and analysis by the Agency for Healthcare Research and Quality, of the approximately five million U.S. adults treated for skin cancer on average each year, approximately 4.3 million (or 86%) are treated for non-melanoma skin cancer (basal and squamous cell carcinoma and other rare skin cancers).
TABLE OF CONTENTS
Skin cancer is a growing epidemic. We believe that increased exposure to the sun without skin protection, a decreasing natural ozone layer, and the increase in the aging population demographic are chief causes of this increase. Over the last three decades, the number of people experiencing skin cancer has grown at a higher rate than that of all other cancers combined. According to the Skin Cancer Foundation, one in five Americans is at risk for developing some form of skin cancer
during their lifetime. MD Anderson has said that half of all Americans will have skin cancer at least once by the time they are 65. The U.S. Surgeon General has reported that approximately five million new skin cancer cases are diagnosed annually in the U.S., with an estimated annual treatment cost of over $8 billion, and that these numbers are projected to dramatically increase in the future.
Other skin conditions, including keloids
Our products have received FDA-clearance to treat keloids. Keloids are disfiguring, often benign, tumors, which are more common in people with skin of color. For such affected groups, typical prevalence rates can be as high as 6% to 16%. Keloids commonly form on skin areas where previous trauma has been experienced. Most frequently, keloids form after knee and hip replacement, cesarean-section procedures, bypass surgery and piercings. A large keloid formed near a joint may interfere with joint function. We estimate that the incidence rates of keloids to be three to four times greater than non-melanoma skin cancer, and expect
this market will continue to grow as the population increases.
In addition to keloids, we are exploring the use of superficial radiation therapy for other indications, including psoriasis, eczema, and systemic scleroderma.
Existing alternatives to our products
Mohs surgery
Mohs surgery, which began replacing orthovoltage technology in the 1970s, is currently the standard of care for the most difficult to treat types of skin cancer. This procedure involves the progressive removal of microscopic layers of cancer-containing skin until all cancer cells are removed. The goal is to remove the skin cancer while minimizing the damage to surrounding healthy tissue. Mohs surgery is usually done on an outpatient basis using a local anesthetic.
While Mohs surgery is generally recognized as an improvement to traditional surgery, which involves removing the visible cancer and a small margin of surrounding healthy tissue all at once, patients often experience some degree of pain following the procedure. In addition to the inconvenience and pain involved with undergoing Mohs surgery, there are several other potential unpleasant aspects, such as disfigurement, co-morbid complications, lifestyle disruption, and post-surgical complications. According to the American Society of Plastic Surgeons, 87% of facial plastic surgeons surveyed see patients for reconstructive work
related to skin cancer. In 2014, the nose (68%) was the most common site on the face for skin cancer facial reconstruction followed by cheeks (16%), ears (6%) and forehead (4%).
It can take several weeks or even several months for patients to recover from Mohs surgery. The extent of any residual scarring varies with each patient, but there is often a facial disfiguring scar and permanent nerve-numbness in and around the site of the surgery, which can have long-term impact on the patient’s quality of life. As many patients discover, usually only after electing to have Mohs surgery, the extent and size of the remaining scar is often much larger than what they were led to believe.
Other treatment options for non-melanoma skin cancer
In addition to Mohs surgery, other treatment options for non-melanoma skin cancer include surgical excision, high dose rate brachytherapy, linear accelerators, topical creams and photodynamic therapy. These alternatives have non-recurrence rates that range from approximately 65% to 95%, below the non-recurrence rates for Mohs surgery and superficial radiation therapy, which range from approximately 95% to 98%. In addition to the generally lower non-recurrence rates among all of these alternatives, we believe there are other considerations that may make them less appealing. For example, surgical excision is an expensive,
invasive and painful procedure that often yields poor cosmetic results and has a non-recurrence rate of only approximately 80%. Linear accelerator treatments use more powerful radiation that can potentially cause collateral damage to healthy tissue. Only high dose rate brachytherapy has a comparable cure rate to Mohs
TABLE OF CONTENTS
surgery and superficial radiation therapy, at approximately 95% to 98%, but, based on our experience, this procedure is limited to treating small lesions. Brachytherapy generally involves the permanent or temporary placement of a radioactive source in close proximity to a cancerous tumor, which is intended to treat the condition with radiation. The effective dose received by a patient treated with bracytherapy is generally higher than a patient treated with superficial radiation therapy. In addition, due to the use of radioactive sources in brachytherapy equipment, only radiation oncologists may provide this type of treatment,
limiting the potential market for these devices.
Alternative treatment options for keloids
The current treatment options for keloids include antihistamines, corticosteroid injections, surgical excision, pressure therapy and silicone occlusive dressings. Many of these options will only reduce the size of the keloid or treat the symptoms (itching, pain, and general discomfort), but will not permanently cure the condition. Recurrence is common following these procedures.
The superficial radiation therapy alternative
Non-melanoma skin cancer
We believe our products provide a compelling alternative to existing treatment methods for non-melanoma skin cancer. Aware of the complexities, costs (direct and indirect), inferior cosmetic outcomes and post-procedural complications associated with Mohs surgery, more dermatology and radiation oncology clinical centers around the world are recognizing the benefits and advantages of superficial radiation therapy for patients, physicians, and healthcare systems. Specifically, the precise and targeted treatment that can be accomplished through superficial radiation therapy offers a compelling alternative treatment option for
treating lesions, particularly those located in these sensitive regions of the body. Given that over 80% of skin cancers occur on the head and neck regions of the body, we believe our products compare favorably against traditional invasive surgical procedures, such as Mohs surgery.
Superficial radiation treatments usually take less than a minute, as opposed to up to three hours for Mohs surgery. The number of treatments received by patients electing to receive treatment will depend on the particular patient, the physician, the clinical evaluation and the location of the skin condition.
Based on a retrospective analysis published in the
Journal of the American Academy of Dermatology
in 2012, recurrence rates for all tumors at two and five years were 1.9% and 5.0%, respectively, for cases of cutaneous basal cell carcinoma and squamous cell carcinoma treated with superficial radiation therapy, matching non-recurrence rates for Mohs surgery. We believe this study illustrates the effectiveness of superficial radiation therapy in the treatment of non-melanoma skin cancer.
As the world grows older and lives longer, other health conditions have become a factor in determining a course of treatment. For example, diabetes and heart conditions can add to the risk of complications with surgical procedures. Moreover, skin cancers that are located on certain areas of the body, such as the shin and head regions, can make surgical procedures less desirable because skin areas that are located in close proximity to bone may not heal as quickly or effectively. Consequently, superficial radiation therapy may offer a better alternative. Finally, we believe there is a growing population that would prefer to
avoid surgery, especially when it is to be performed on the head or neck areas, for cosmetic and other reasons. Studies have indicated that the SRT-100 is effective in treating primary lesions that would otherwise be difficult to treat or require extensive surgery involving sensitive areas of the head and neck regions, such as the fold in the nose, eyelids, lips, corner of the mouth, and the lining of the ear, and would lead to a less than desirable cosmetic outcome. Because superficial radiation therapy penetrates the skin only a few millimeters, our treatment procedures do not require the use of anesthetics and eliminates the need for skin grafting.
We believe superficial radiation therapy is one of the most viable and effective treatment modalities for non-melanoma skin cancer. The superior cosmetic outcomes and high non-recurrence rates of superficial radiation therapy (in excess of 95% based on certain studies) are significant factors which make superficial radiation therapy a preferable treatment modality. In addition, temporary side effects of superficial radiation therapy are generally minor, which may include skin redness and blistering similar to mild sunburn. However, the affected areas are usually small due to the typically small treatment area and side effects
typically clear up
TABLE OF CONTENTS
when treatment stops. Superficial radiation therapy has a decades-long successful track record treating skin cancer, and delivers high quality clinical outcomes, reduced cost of treatment and excellent patient satisfaction.
Keloids
Superficial radiation therapy is an effective treatment modality for keloids, in conjunction with surgical removal. One recent study indicated that surgical excision combined with platelet rich plasma and post-operative in-office superficial radiation therapy can achieve a non-recurrence rate of 100% at the fourth to eleventh month follow-up. No other treatment modality known to us leads to a greater non-recurrence rate. In fact, some studies have shown that existing treatment options commonly see recurrence at rates between 50% and 90%, depending on the treatment.
Other applications of superficial radiation therapy
In addition to the treatment of non-melanoma skin cancer and keloids, we believe superficial radiation therapy can be beneficial in the treatment of other skin conditions and we plan to continue our research and development efforts with the goal of expanding our indications into new areas of treatment.
Our Strengths
Cost effective products for a global market.
Our products offer a solution for today’s cost conscious healthcare market. Our products rely on superficial radiation therapy, which we believe is an effective, yet less expensive procedure for payors for the treatment of non-melanoma skin cancer and other skin conditions than existing treatment options. The productivity and reliability associated with our products, along with our related service offerings, allow our customers to quickly and easily install and deploy our products in their respective practices while reducing downtime. Our products offer
reduced treatment times, yet provide similar, or better, outcomes when compared with other treatment modalities for non-melanoma skin cancer and keloids. We believe that we are ideally positioned to meet the demands of the reforming healthcare systems by providing higher quality care at a lower cost with a better patient experience.
Exclusive focus on a large, growing market.
The U.S. Surgeon General estimates that the worldwide skin cancer market for our products represents an over $8 billion opportunity in the U.S. alone that we expect will continue to grow. This growth is being driven by increased incidence of skin cancer and other skin conditions among the general population. We also estimate that the potential market for the treatment of keloids is even larger than the skin cancer market. Because our products offer an effective alternative treatment option, we believe that we are positioned as one of a limited number of
companies exclusively focused on the use of superficial radiation therapy for the treatment of non-melanoma skin cancer and other skin conditions, such as keloids.
Highly experienced management and medical advisory team.
We have assembled a senior management team and medical advisory board with significant experience in the healthcare industry. Our leadership team has a long track record in introducing numerous disruptive technologies and products to the healthcare market in the field of radiology, oncology and interventional medicine. Members of our management team also have experience in product development, launching new products into the healthcare market and selling medical devices and technology to hospitals and private healthcare practices through direct
sales organizations, distributors and manufacturers. We also collaborate with a network of leading medical advisors in the design and use of our products.
Extensive product support network.
In addition to the SRT-100 product line, we offer a unique and dedicated superficial radiation therapy support network for clinicians and therapists, which includes site planning and preparation, system deployment and installation, a national and global network of medical physicists for system commissioning and calibration, a dedicated service network, a dedicated clinical applications and education network and service, SRT University, and online and live customer support. We believe that by offering these dedicated and tailored services we have enhanced our brand and
gained market presence.
Relationships with the medical community.
We are actively involved in scientific, medical, and commercial organizations and communities. We are a member of the American Cutaneous Oncology Society
TABLE OF CONTENTS
(ACOS), which is a dedicated superficial radiation therapy scientific and medical society that promotes the betterment and further education on all superficial radiation therapy-related subject matter and topics, across multi-disciplinary fields, such as radiation oncology, dermatology, medical physics, plastic surgery, physician assistants, and radiation therapy technologists. We anticipate that we will be able to leverage our involvement in these organizations to increase awareness of the benefits of radiation therapy and increase sales of our products.
Our Strategy
Our goal is to be a leading medical device company providing innovative, noninvasive solutions for the treatment of non-melanoma skin cancer and other skin conditions. The key elements of our strategy include:
Increase acceptance of superficial radiation therapy as the standard of care for non-melanoma skin cancer, keloids and other skin conditions.
We believe a great opportunity exists in creating an awareness of our treatment options for consumers. We believe dermatologists are now recognizing that surgery is not the only solution, or necessarily the best solution, for treating skin cancer or other skin conditions, such as keloids, and superficial radiation therapy can now be recognized as a valuable modality in their toolbox. The 95% non-melanoma skin cancer non-recurrence rate at the five-year follow-up
(according to one study with 95% confidence intervals) achieved with superficial radiation therapy, combined with the benefit of a better cosmetic outcome and what we believe to be a more certain reimbursement environment, creates a significant opportunity for us to expand our market share. Focused consumer and practitioner educational awareness of the benefits of superficial radiation therapy is a key for our success. We are seeking to leverage our relationships with medical and other organizations to increase public awareness of superficial radiation therapy treatment options.
Drive adoption and awareness of SRT-100 among specialists, physicians, administrators and patients
.
We intend to educate specialists, physicians, administrators and patients on the compelling case for the treatment of non-melanoma skin cancer with the SRT-100. We believe that increased awareness of the benefits of superficial radiation therapy will favorably impact sales of the SRT-100. Additionally, we believe that our products will allow dermatologists to treat patients without having to refer them to specialists for treatment and will free-up larger, higher power equipment, such as linear
accelerators, for oncologists to treat other patients whose treatment requires the use of these other devices.
Develop new technology products and services.
Since acquiring the SRT-100, we have developed optional add-on technology products and service options which have enhanced the operational capabilities of our SRT-100, including the SRT-100 Vision and SRT-100 Lynx. We believe continued research and development of both new and existing technology will be critical to our success.
Pursue opportunities to enhance our product offerings.
We intend to continue to expand applications of our superficial radiation therapy technology and vigorously protect those innovations through patent applications. We may also opportunistically pursue the licensing or acquisition of complementary products and technologies to strengthen our market position or improve product margins.
Expand our sales organization to support growth.
We intend to expand our highly-trained direct sales organization and broaden our relationships with distributor partners to increase sales and drive revenues.
Lessen our dependency on third party manufacturers.
We are exploring the possibility of reducing our reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of a manufacturing facility.
Our products and services
SRT-100
We offer the SRT-100 product family, which we anticipate will be complemented by additional models and options in the future. With over 200 installations in 11 countries, we believe our SRT-100 product family to be a global leader in the superficial radiation therapy space.
TABLE OF CONTENTS
Our technology is based on several key needs and requirements, including the need for a dedicated and cost-effective device for the treatment of skin cancer, keloids, and other skin conditions. The SRT-100 provides the following clinical and functional advantages:
|
|
•
|
Easy touch automatic set-up procedure with specific kV and mA time technique factors and filter designed for effective skin cancer treatment, including automatic x-ray tube warm-up procedures;
|
|
|
•
|
Specially designed control console for medical physicists and service technicians providing integrated safety and back-up timer controls, automatic system conditioning procedures, calibration, x-ray output verification and system parameters including last treatment status information;
|
|
|
•
|
Advanced patient record management with integrated enterprise workflow management;
|
|
|
•
|
Compact mobile design with a small 30” x 30” footprint and unique scissor x-ray tube arm movements providing a large range of motion for patient access and treatment; and
|
|
|
•
|
High reliability and MTBF (mean time between maintenance) performance that assure availability for the patients and practitioners and lower the total cost of ownership.
|
SRT-100 Vision
The SRT-100 Vision provides customers with additional options compared to the SRT-100 base model. These additional options allow for dedicated treatment planning and full treatment progression documentation in a patient’s record. The SRT-100 Vision provides the user with a unique superficial radiation therapy-tailored treatment planning application that integrates the embedded high frequency ultrasound imaging module, volumetric tumor analysis, beam margins planning, and comprehensive dosimetry parameters. This allows the user to precisely and more accurately plan and prescribe the patient-specific treatment course to
maximize patient outcomes and workflow efficiency. The SRT-100 Vision also offers a comprehensive control console and workflow management control console that provides full record and verify treatment tracing, operator-level access and functional control, audio-visual patient and treated lesion monitoring, and advanced dosimetry setting and tracing.
SRT-100 Lynx
The SRT-100 Lynx is an added hardware and software option for the SRT-100 system that adds full patient record creation, maintenance, and exporting capabilities. This option provides the SRT-100 the capability to be fully integrated in an enterprise environment and communicate via Health Level Seven (HL7) with other clinical data repositories, such as electronic medical records (EMR) and Hospital Information System/Radiology Information System (HIS/RIS), and other planning systems. We accomplish this integration through the use of HL7 interfaces, which are standard in healthcare information technology systems. The HL7
interface allows systems written in different languages and running on different platforms to be able to talk to each other through the use of an abstracted data layer. This allows our customers to easily integrate the SRT-100 with electronic health records systems or other healthcare software systems.
We engineered and deployed this solution as a quick response to recent market dynamics and the Health Information Technology for Economic and Clinical Health (HITECH) Act, a federal law enacted as part of the American Recovery and Reinvestment Act of 2009 to promote the adoption and meaningful use of health information technology. The SRT-100 Vision offers embedded, and even more advanced, electronic patient record connectivity and functions.
Sentinel service program
We offer the Sentinel service program, which provides our customers comprehensive protection for their SRT-100 and SRT-100 Vision systems at an annual price of approximately 10% of the system’s list price. The Sentinel program covers all parts and labor for the period of the contract and one annual preventive maintenance session that includes cooling system maintenance, high voltage loop maintenance, filters and system cleaning, and system touch-ups, should they be required during the preventative maintenance session.
Through our Sentinel service program, we also provide turn-key pre- and post-sale services that include the following:
|
|
•
|
Providing a pre-install kit for the contractors to prepare the treatment room;
|
TABLE OF CONTENTS
|
|
•
|
Room retrofit and shielding;
|
|
|
•
|
System shipping coordination and installation;
|
|
|
•
|
System commissioning by a medical physicist (through a national physics network);
|
|
|
•
|
System registration with the state and daily workflow documentation preparation;
|
|
|
•
|
Clinical applications training with the customer’s superficial radiation therapy staff; and
|
|
|
•
|
Treating the first scheduled patients with our customers (onsite applications training).
|
Consumables
We also believe that there is an opportunity for additional revenue through the sale of consumables. We sell disposable lead shielding replacements, disposable radiation safety items, such as aprons, and eye shields, and disposable applicator tips, which are used to treat various sized lesions and different areas of the body.
Third party coverage and reimbursement
Based on our experience to date, third party payors generally reimburse for superficial radiation therapy procedures in which our products are used, as long as the patient meets the established medical necessity criteria. Reimbursement decisions by particular third party payors may depend upon a number of factors, including each payor’s determination that use of a product is:
|
|
•
|
a covered benefit under its health plan;
|
|
|
•
|
appropriate and medically necessary for the specific indication;
|
|
|
•
|
neither experimental nor investigational.
|
The Centers for Medicare & Medicaid Services, or CMS, the agency responsible for administering the Medicare program, sets coverage and reimbursement policies for the Medicare program in the U.S. CMS policies may alter coverage and payment related to our product portfolio in the future. These changes may occur as the result of national coverage determinations issued by CMS or as the result of local coverage determinations by contractors under contract with CMS to review and make coverage and payment decisions. Medicaid programs are funded by both federal and state governments, may vary from state to state and from year to
year and will likely play an even larger role in healthcare funding pursuant to the recently enacted Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act, collectively, the Affordable Care Act.
A key component in ensuring whether the appropriate payment amount is received for physician and other services, including those procedures using our products, is the existence of a Current Procedural Terminology, or CPT®, code. To receive payment, healthcare practitioners must submit claims to insurers using these codes for payment for medical services. CPT® codes are assigned, maintained and annually updated by the American Medical Association and its CPT® Editorial Panel. The AMA Relative Value Scale Update Committee also establishes relative code values, which is often a basis for payment. If the CPT® codes
or the codes values that apply to the procedures performed using our products are changed, reimbursement for performances of these procedures may be adversely affected.
In the U.S., some insured individuals enroll in managed care programs, which monitor and often require pre-approval of the services that an insured individual will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month and, consequently, may limit the willingness of these providers to use our products.
We believe that the overall escalating cost of medical products and services being paid for by the government and private health insurance has led to, and will continue to lead to, increased pressures on the healthcare and medical device industry to reduce the costs of products and services. All third party reimbursement programs are developing increasingly sophisticated methods of controlling healthcare costs through, for example, prospective reimbursement and capitation programs, group purchasing, redesign of
TABLE OF CONTENTS
benefits, second opinions and prior authorizations, benefit management, utilization review, careful review of bills, encouragement of healthier lifestyles and other preventative services and exploration of more cost-effective methods of delivering healthcare.
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product lines and procedures. There can be no assurance that procedures using our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by third party payors, that an adequate level of reimbursement will be available or that the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. More and more, local, product
specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional layer of clearance requirement.
While the Medicare reimbursement rates for a number of treatment delivery codes for other radiation oncology modalities are expected to decrease in 2016, the Medicare rates for the radiation therapy treatment delivery code is expected to increase in 2016.
Sales and marketing
We focus on two primary markets, private dermatology practices and radiation oncologists in both private and hospital settings. We currently employ a multi-tier sales strategy in an attempt to optimize geographic coverage and focus on what we perceive to be our key markets. This multi-tier sales model uses a direct sales force (currently nine people), as well as international dealers and distributors.
Our dermatology market sales are directed by Stephen Cohen, our Senior Vice President, Strategic Initiatives and Dermatology, capitalizing on his prior experience in executive capacities at Technicare (now Johnson & Johnson), Diasonics, and Xoft. Our direct sales force for radiation oncology is led by Richard Golin, our Executive Vice President of Sales, Oncology and Dermatology, who has prior experience in sales at Toshiba Medical Systems, Siemens, and Hologic. We plan to continue selling and marketing our products to both the dermatology and radiation oncology markets concurrently.
Dermatology Market
The estimated 7,000 private dermatology practices in the U.S. represent the point of entry for most non-melanoma skin cancer patients. We believe the SRT-100 offers dermatologists a competitive advantage by allowing them to retain patients for the treatment of non-melanoma skin cancer, rather than referring them out to specialists for Mohs surgery or other radiation procedures. In addition to non-melanoma skin cancers, our FDA-approved indications include, among others, keloids, Kaposi’s Sarcoma, Actinic Keratosis, Metatypic Carcinoma, Cutaneous Appendage Carcinoma and other malignant skin tumors. We are continuing to
drive our research and development to expand our indications into new areas of treatment.
Radiation Oncology Market
For the estimated 4,400 licensed radiation oncologists in the U.S., we believe the SRT-100 offers a simpler, faster method of treatment with a better overall patient experience. Our SRT-100 system offers the ability to free up more expensive radiation equipment, such as linear accelerators, for more complex procedures while providing patients with effective, non-invasive treatment options for non-melanoma skin cancer.
Other Markets
We also believe that both plastic and general surgery markets present growth opportunities for our product offerings. With FDA clearance to treat keloids through superficial radiation therapy, many plastic surgeons are recognizing the opportunity to be able to provide an effective treatment solution for this benign tumor. Additionally, we believe that plastic surgeons view the non-melanoma skin cancer market as a growth opportunity that can supplement their existing services. We believe there is an opportunity to also provide superficial radiation therapy in a prophylactic manner for various surgical procedures to reduce the
formation of keloids. Within the new healthcare reform environment, superficial radiation therapy can provide hospitals and surgery centers with a direct measurable impact on clinical outcomes for certain procedures, including joint replacement procedures, bypass surgery, and OBGYN/C-section procedures, among others.
TABLE OF CONTENTS
Global Focus
We currently have an installed base of over 200 units in 11 countries. Our customer list includes leading cancer centers, dermatology practices, hospitals and plastic surgery clinics, which we believe further validates our targeted marketing approach led by our direct sales teams and our global distribution partners.
Product Development and Research
We offer the SRT-100 as our base product. The SRT-100 has successfully treated over 200,000 patients around the world in approximately 200 locations. The SRT-100 serves as a conduit to the dermatology and radiation oncology market segments and with approximately 200 units installed worldwide; we believe the SRT-100 has proven itself as a reliable, safe, and effective superficial radiation therapy solution.
We developed the second generation SRT-100 (Gen 2) product through the implementation of a number of engineering and design changes to the original SRT-100. Following the development of the Gen 2 SRT-100, we introduced the SRT-100 Lynx, which combined our clinical indications in treating keloids with a technology solution that allows customers to create and export patient records in an integrated EMR/enterprise environment.
Building on the clinical and commercial success of the SRT-100, we embarked on the development and launch of the SRT-100 Vision. This evolution of the SRT-100 combines the existing computing platform with imaging modalities that create a “search and destroy” therapy platform. The SRT-100 Vision platform provides many advancements and benefits for our customers, including a flexible platform that is capable of treating several different indications, new and advanced workflow management methodologies, and addresses many of the new healthcare environment requirements, such as system integration capabilities with
electronic medical record systems. We plan to continue the development of the SRT-100 Vision by integrating additional imaging modalities to make it a single cohesive hybrid system. We believe the SRT-100 Vision will also allow us to increase our footprint in the enterprise and teaching hospital radiation oncology market segment. By adding image-guidance with high frequency ultrasound and advanced treatment therapy planning, together with advanced record and verify and workflow management tools, the SRT-100 Vision should be ideally positioned to open new opportunities for us in the domestic and international academic and large-scale hospital environments.
We plan to conduct additional research and development for product line expansions with the SRT-100 (Gen 3) and SRT-100 Vision to address a broader and more diversified market and provide additional solutions to the existing and future customer base. The SRT-100 (Gen 3) will be a more modular platform that will include some of the technologies developed for the SRT-100 Vision, and at the same time can be competitively configured to compete in other global value markets.
We anticipate that we will continue developing our technology with the goal of optimizing workflow for users and positively impacting patients’ quality of life and outcomes. We believe our focus will allow us to provide the most advanced and seamless data portability in enterprise and cloud environments to make data readily available and interchangeable for practitioners, payors, and patients, while delivering products with very high levels of reliability and efficacy. As a result, we expect our products and services will achieve commercial and clinical success worldwide and bolster our global market leadership and
financial viability. As new features and capabilities are added to our product portfolio, our users will gain access to a broader patient population, expanded reimbursement potential, and directly address the requirements and needs of accountable care organizations and the trend toward bundling of payments. We believe that this will allow us to increase list prices as our product line is enhanced and improved, which should positively impact our future margins.
We anticipate launching subsequent generations for the SRT-100 (Gen 3) and SRT-100 Vision (Gen 2), which will provide our customers with additional indications for use. These subsequent generations may expand the types of oncological conditions that can be treated with our product family, enhancing scalability and cost effectiveness (enhancing margins), and expanding our market segments. Since our expanded product family may treat various other oncological and dermatologic conditions, we believe many hospital departments will recognize the benefits of our product line. We believe that our new product generations will transform
the field of superficial radiation therapy with ground-breaking technology that will open brand new business opportunities for us and create new disruptive functionalities and clinical services.
TABLE OF CONTENTS
During 2014 and 2015, we spent approximately $1,256,000 and $1,129,000, respectively, on research and development of our products and services.
Competition
The medical device industry is highly competitive, subject to rapid technological change and significantly affected by new product introductions and market activities of other participants. Our currently marketed products, and any future products we commercialize, will compete against healthcare providers who use traditional surgical treatment options, such as Mohs surgery, as well as medical device companies that offer other treatment options for the conditions our products are designed to treat. We currently have three primary medical device company competitors:
|
|
•
|
Xstrahl Medical (formerly Gulmay, headquartered in the United Kingdom)
|
|
|
•
|
Xoft (a subsidiary of iCad, headquartered in New Hampshire)
|
|
|
•
|
Elekta (headquartered in Georgia)
|
Xstrahl Medical is an engineering company focused on industrial and research x-ray therapy devices. We believe most of Xstrahl Medical’s installed base is comprised of legacy orthovoltage machines made up of higher energy devices located in Europe.
Both Xoft and Elekta offer products that are considered Electronic Brachytherapy (“eBx”) devices. Due to this classification, both companies may face challenges in the U.S. and certain other international markets where laws and regulations require that a radiation oncologist, medical physicist, or radiation therapist be involved with every treatment. Additionally, the CPT® Editorial Panel has established two new treatment delivery codes for eBx for 2016, including a specific skin code. In addition, in early 2015, a large Medicare contractor issued guidance precluding the reporting of the existing eBx treatment
delivery code for skin. The 2016 payments rates for the eBx treatment delivery skin code is currently being established by the various Medicare contractors. The new skin only code and payment rates may make this technology a challenge for dermatology in-office applications. Based on typical treatment practices, it appears that both eBx products also have limited capabilities as to size of lesions that can be treated and require expensive consumables. Furthermore, eBx products have very limited clinical studies.
Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their products. Our competitors may also have more extensive customer bases and broader customer relationships than we do, including relationships with our potential customers. In addition, many of these companies and healthcare providers have longer operating histories and greater brand recognition than we do. Because of the size of the skin cancer treatment market and the high growth profile of the
segments in which we compete, we anticipate that companies will dedicate significant resources to developing competing products. Additionally, we may also face competition from smaller companies that have developed or are developing similar technologies for our addressable markets. We believe that the principal competitive factors in our markets include:
|
|
•
|
improved outcomes for medical conditions;
|
|
|
•
|
acceptance by doctors treating non-melanoma skin cancer and keloids;
|
|
|
•
|
potential greater acceptance by the patient community;
|
|
|
•
|
potential greater ease of use and reliability;
|
|
|
•
|
product price and qualification for reimbursement;
|
|
|
•
|
technical leadership and superiority;
|
|
|
•
|
effective marketing and distribution; and
|
We may be unable to compete effectively against our competitors in regard to any one or all of these factors. Our ability to compete effectively will depend on the acceptance of our products by dermatologists,
TABLE OF CONTENTS
radiation oncologists, hospitals and patients, and our ability to achieve better clinical outcomes than products developed by our existing or future competitors. In addition, certain of our competitors could use their superior financial resources to develop products that have features or clinical outcomes similar or superior to our products, which would harm our ability to successfully compete.
Intellectual property
We actively seek to protect the intellectual property we believe is important to our business, including seeking and maintaining patents that cover our products. We also rely on trademarks to build and maintain the integrity of our brand.
We own two issued patents, both of which are U.S. patents. We own one pending patent application. All of our issued U.S. patents expire in 2025. Our patents pertain to technology in the specialized field of superficial radiotherapy treatment. The following two U.S. patents were issued between August 2007 and September 2008 and were assigned to us when we acquired the technology from Topex.
|
|
•
|
U.S. Patent No. 7,372,940: Radiation therapy system with risk mitigation
|
|
|
•
|
U.S. Patent No. 7,263,170: Radiation therapy system featuring rotatable filter assembly (also registered in the EU)
|
The following patent application is pending in the U.S., China and Russia and was submitted in 2013:
|
|
•
|
U.S. Patent Application No. 13/740,181: Hybrid Ultrasound-Guided Superficial Radiotherapy System and Method (published as U.S. Patent Application No. 2013/0217947 A1)
|
As of December 31, 2015, we also owned three U.S. trademark registrations.
We also rely on trade secrets and other unpatented proprietary rights to develop and maintain our competitive position. We seek to protect our unpatented proprietary rights through a variety of methods, including confidentiality agreements with employees, consultants and others who may have access to our proprietary information. We also require our employees to execute invention assignment agreements with respect to inventions arising from their employment.
We acquired the photon x-ray low energy or superficial x-ray therapy system, dubbed the SRT-100 and developed a next generation system — the SRT-100 Vision, which are each designed specifically to treat skin cancer and keloids as an alternative to surgery. Since first introduced in May 2007 by Topex, over 200,000 patients have been successfully treated with the SRT-100 system. The treatment of keloids has now begun at several sites throughout the world, including the U.S. and China. We are in the process of authoring and preparing additional forward-looking patents.
No patents or trademarks may ever be issued or be registered from our pending or future applications for such intellectual property. Even if such patents or trademarks are respectively issued or registered, they, or any of our other intellectual property, may not provide us with any meaningful protection or competitive advantage. Our intellectual property could be challenged, invalidated, circumvented, infringed or misappropriated. In addition, third parties have claimed, and in the future may claim, that we, our customers, licensees or other parties indemnified by us are infringing upon their intellectual property rights. For
a discussion of these risks, please see “Risk factors — Risks related to our intellectual property.”
Manufacturing and supply
We currently use a third party located in the U.S. to manufacture our products. In July 2010, we entered into a manufacturing agreement with RbM Services, LLC (“RbM”) pursuant to which RbM agreed to manufacture our SRT-100 products based on an annual 12-month sales forecast and rolling six-month sales forecast. We pay a fixed price per unit under the terms of this agreement, subject to annual adjustments due to changes in the costs of materials. The initial term of this agreement was three years with successive one-year renewals thereafter. We continue to do business with RbM, although we or RbM may terminate the
agreement with 90 days’ written notice or upon at least 60 days’ notice prior to the end of each additional one-year renewal period. We believe our third party manufacturer meets FDA, International Organization for Standardization, or ISO, and other quality standards. We maintain internal policies, procedures and supplier management processes to ensure that our third party manufacturer is meeting applicable quality standards. To
TABLE OF CONTENTS
date, we have not experienced any difficulty in locating and obtaining the materials necessary to meet demand for our products, and we believe manufacturing capacity is sufficient to meet global market demand for our products for the foreseeable future.
We believe this third party manufacturing relationship initially allowed us to work with a supplier that has well-developed specific competencies while minimizing our capital investment, controlling costs and shortening cycle times, all of which we believe allowed us to compete with our competitors. However, as discussed elsewhere in this prospectus, we are exploring the possibility of reducing our reliance on third party manufacturers by bringing certain manufacturing, service and research and development functions in-house, which could include the acquisition of equipment and other fixed assets or the acquisition or lease of
a manufacturing facility.
Government regulation
Our business is subject to extensive federal, state, local and foreign laws and regulations including those relating to the protection of the environment, health and safety. Some of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of subjective interpretations. In addition, these laws and their interpretations are subject to change or new laws may be enacted.
Both federal and state governmental agencies continue to subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement efforts. We believe that we have structured our business operations and relationships with our customers to comply with all applicable legal requirements. However, it is possible that governmental entities or other third parties could interpret these laws differently and assert otherwise. We discuss below the statutes and regulations that are most relevant to our business. For the years ended December 31, 2014 and 2015, we incurred approximately $326,000
and $330,000, respectively, in expenses related to regulatory compliance and quality standards.
U.S. Food and Drug Administration (FDA) regulation of medical devices
The Federal Food, Drug and Cosmetic Act, or FDCA, and FDA regulations establish a comprehensive system for the regulation of medical devices intended for human use. Our products include medical devices that are subject to these, as well as other federal, state, and local laws and regulations. FDA is responsible for the overall enforcement of quality, regulatory and statutory requirements governing medical devices. Our regulated medical devices include our SRT-100 product line.
FDA classifies medical devices into one of three classes — Class I, Class II, or Class III — depending on their level of risk and the types of controls that are necessary to assure device safety and effectiveness. The class assignment determines the type of premarketing submission or application, if any, that will be required before marketing in the U.S.
|
|
•
|
Class I devices present a low risk and are not life-sustaining or life-supporting. The majority of Class I devices are subject only to “general controls” — e.g., prohibition against adulteration and misbranding, registration and listing, good manufacturing practices, labeling, and adverse event reporting. General controls are baseline requirements that apply to all classes of medical devices.
|
|
|
•
|
Class II devices present a moderate risk and are devices for which general controls alone are not sufficient to provide a reasonable assurance of safety and effectiveness. Devices in Class II are subject to both general controls and “special controls” — e.g., special labeling, compliance with industry standards, and postmarket surveillance. Unless exempted, Class II devices typically require FDA clearance before marketing, through the premarket notification (510(k)) process, in accordance with 21 CFR, Part 807 requirements.
|
|
|
•
|
Class III devices present the highest risk. These devices generally are life-sustaining, life-supporting, or for a use that is of substantial importance in preventing impairment of human health, or present a potential unreasonable risk of illness or injury. Class III devices are devices for which general controls, by themselves, are insufficient and for which there is insufficient information to establish
|
TABLE OF CONTENTS
|
|
|
special controls to provide a reasonable assurance of safety and effectiveness. Class III devices are subject to general controls and typically require approval of a premarket approval application, or PMA in accordance with 21 CFR, Part 814, before marketing.
|
Unless it is exempt from premarket review requirements, a medical device must receive marketing authorization from the FDA prior to being commercially distributed in the U.S. The most common pathways for obtaining marketing authorization are 510(k) clearance and PMA. With the enactment of the Food and Drug Administration Safety and Innovation Act, or the FDASIA, the availability of a
de novo
pathway was facilitated for certain low- to moderate-risk devices that do not qualify for the 510(k) pathway due to the absence of a predicate device.
510(k) pathway
Currently, all of our products are subject to the 510(k) requirement or are exempt from the 510(k) requirement. The 510(k) review process compares a new device to a legally marketed device. Through the 510(k) process, FDA determines whether a new medical device is “substantially equivalent” to a legally marketed device (i.e., predicate device) that is not subject to PMA requirements. “Substantial equivalence” means that the proposed device: (a) has the same intended use as the predicate device; (b) the same or similar technological characteristics; (c) the information submitted in the 510(k) demonstrates
that the proposed device is as safe and effective as the predicate device; and (d) the proposed device does not raise different questions of safety and effectiveness than the predicate device.
To obtain 510(k) clearance, we must submit a 510(k) application containing sufficient information and data to demonstrate that our proposed device is substantially equivalent to a legally marketed predicate device. These data generally include non-clinical performance testing (e.g., software validation, bench testing electrical safety testing), but may also include clinical data. Typically, it takes approximately four months for FDA to complete its review of a 510(k) submission; however, it can take significantly longer and clearance is never assured. During its review of a 510(k), FDA may request additional information,
including clinical data, which may significantly prolong the review process. After completing its review of a 510(k), FDA may issue an order, in the form of a letter, that finds the device to be either (1) substantially equivalent and states that the device can be marketed in the U.S., or (2) not substantially equivalent and states that device cannot be marketed in the U.S. Depending upon the reasons for the not substantially equivalent finding, the device may need to be approved through the PMA pathway (discussed below) prior to commercialization. A new medical device for which there is no substantially equivalent device is automatically designated a Class III device. Depending on the nature of the new device, the manufacturer may ask the FDA to make a risk-based determination of the new device and reclassify it in Class I or Class II. This process is referred to as the
de novo
process. If the FDA agrees, the new device will be reassigned to the appropriate other class. If the
FDA does not agree, the manufacturer will have to submit a PMA. We have received FDA clearances for our SRT-100 and SRT-100 Vision.
After a device receives 510(k) clearance, any modification that could significantly affect the safety or effectiveness of the device, or that would constitute a major change in its intended use, including significant modifications to any of our products, requires submission and clearance of a new 510(k). FDA relies on each manufacturer to make and document this determination initially, but FDA can review any such decision and can disagree with a manufacturer’s determination. We have made and plan to continue to make minor product enhancements that we believe do not require new 510(k) clearances. However, we expect to
confer with FDA on planned changes that may require a special, abbreviated or traditional 510(k) submission. If FDA disagrees with our determination regarding whether a new 510(k) clearance was required for these modifications, we may need to cease marketing or recall the modified device. FDA may also subject us to other enforcement actions, including, but not limited to, issuing a warning letter or untitled letter to us, seizing our products, imposing civil penalties, or initiating criminal prosecution.
Premarket approval pathway
We currently do not market any devices that are subject to PMA requirements. Unlike the comparative standard of the 510(k) pathway, the PMA approval process requires an independent demonstration of the safety and effectiveness of a device. PMA is the most stringent type of device marketing application required by FDA. PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific
TABLE OF CONTENTS
evidence to assure that the device is safe and effective for its intended use(s). A PMA application generally includes extensive information about the device including the results of clinical testing conducted on the device and a detailed description of the manufacturing process.
After a PMA application is accepted for review, FDA begins an in-depth review of the submitted information. FDA regulations provide 180 days to review the PMA and make a determination; however, in reality, the review time is normally longer (e.g., 1 – 3 years). During this review period, FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside FDA may be convened to review and evaluate the data supporting the application and provide recommendations to FDA as to whether the data provide a reasonable assurance
that the device is safe and effective for its intended use. In addition, FDA generally will conduct a preapproval inspection of the manufacturing facility to ensure compliance with the Quality System Regulation, or QSR, which imposes comprehensive development, testing, control, documentation and other quality assurance requirements for the design and manufacturing of a medical device.
Based on its review, FDA may (1) issue an order approving the PMA, (2) issue a letter stating the PMA is “approvable” (e.g., minor additional information is needed), (3) issue a letter stating the PMA is “not approvable,” or (4) issue an order denying PMA. A company may not market a device subject to PMA review until FDA issues an order approving the PMA. As part of a PMA approval, FDA may impose post-approval conditions intended to ensure the continued safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution, and requiring the
collection of additional clinical data. Failure to comply with the conditions of approval can result in materially adverse enforcement action, including withdrawal of the approval.
Most modifications to a PMA approved device, including changes to the design, labeling, or manufacturing process, require prior approval before being implemented. Prior approval is obtained through submission of a PMA supplement. The type of information required to support a PMA supplement and FDA’s time for review of a PMA supplement vary depending on the nature of the modification.
Clinical trials
Clinical trials of medical devices in the U.S. are governed by FDA’s Investigational Device Exemption regulation, in accordance with 21 CFR, Part 812. This regulation places significant responsibility on the sponsor of the clinical study including, but not limited to, choosing qualified investigators, monitoring the trial, submitting required reports, maintaining required records, and assuring investigators obtain informed consent, comply with the study protocol, control the disposition of the investigational device, submit required reports, etc.
Clinical trials of significant risk devices (e.g., implants, devices used in supporting or sustaining human life, devices of substantial importance in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health) require FDA and Institutional Review Board approval prior to starting the trial. FDA approval is obtained through submission of an Investigational Device Exemption application. Clinical trials of non-significant risk devices (i.e. devices that do not meet the regulatory definition of a significant risk device) only require Institutional Review Board approval before starting.
The clinical trial sponsor is responsible for making the initial determination of whether a clinical study is significant risk or non-significant risk; however, a reviewing Institutional Review Board or the FDA may review this decision and disagree with the determination.
An Investigational Device Exemption application must be supported by appropriate data, such as performance data, animal and laboratory testing results, showing that it is safe to evaluate the device in humans and that the clinical study protocol is scientifically sound. There is no assurance that submission of an Investigational Device Exemption will result in the ability to commence clinical trials. Additionally, after a trial begins, FDA may place it on hold or terminate it if, among other reasons, it concludes that the clinical subjects are exposed to an unacceptable health risk.
As noted above, FDA may require a company to collect clinical data on a device in the postmarket setting. The collection of such data may be required as a condition of PMA approval. FDA also has the authority to order, via a letter, a postmarket surveillance study, in accordance with 21 CFR, Part 822, for
TABLE OF CONTENTS
certain devices at any time after they have been cleared or approved. We do not expect to launch clinical trials subject to the Investigational Device Exemption regulations for future products. Also, our products are not currently subject to any required postmarket surveillance studies.
Pervasive and continuing FDA regulation
After a device is entered into commerce in the U.S., regardless of its classification or premarket pathway, numerous additional FDA requirements generally apply. These include:
|
|
•
|
Establishment registration and device listing requirements, in accordance with 21 CFR, Part 807;
|
|
|
•
|
Quality System Regulation requirements, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation, and servicing of finished devices, in accordance with 21 CFR, Part 820;
|
|
|
•
|
Labeling requirements, which mandate the inclusion of certain content in device labels and labeling, and which also prohibit the promotion of products for uncleared or unapproved, i.e., “off-label,” uses;
|
|
|
•
|
Medical Device Reporting regulation, which requires that manufacturers and importers report to FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur, in accordance with 21 CFR, Part 803; and
|
|
|
•
|
Reports of Corrections and Removals regulation, which requires that manufacturers and importers report to FDA recalls (i.e., corrections or removals) if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; manufacturers and importers must keep records of recalls that they determine to be not reportable, in accordance with 21 CFR, Part 806.
|
FDA enforces these requirements by inspection and market surveillance. Failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include, but is not limited to, the following sanctions:
|
|
•
|
Issuance of Form 483 observations during a facilities inspection;
|
|
|
•
|
Untitled letters or warning letters;
|
|
|
•
|
Fines, injunctions and civil penalties;
|
|
|
•
|
Consent Decree, which forces improvements in the quality management system through the use of the federal courts;
|
|
|
•
|
Recall or seizure of our products;
|
|
|
•
|
Operating restrictions, partial suspension or total shutdown of production;
|
|
|
•
|
Refusing our request for 510(k) clearance or premarket approval of new products;
|
|
|
•
|
Withdrawing 510(k) clearance or premarket approvals that are already granted; and
|
We are subject to unannounced establishment inspections by FDA, as well as other regulatory agencies overseeing the implementation of and compliance with applicable state public health regulations. These inspections may include our suppliers’ facilities.
International
International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. In order to market our products in other countries, we must obtain regulatory approvals and comply with extensive safety and quality regulations in other countries. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. The European Union/European Economic Area, or EU/EEA, requires a CE conformity mark in order to market medical devices. Many other countries, such as
TABLE OF CONTENTS
Australia, India, New Zealand, Pakistan and Sri Lanka, accept CE or FDA clearance or approval, although others, such as China, Brazil, Canada and Japan require separate regulatory filings.
In the EEA, our devices are required to comply with the essential requirements of the EU Medical Devices Directive (93/42/EEC). Compliance with these requirements entitles us to affix the CE marking of conformity to our medical devices, without which they cannot be commercialized in the EEA. To demonstrate compliance with the essential requirements and obtain the right to affix the CE marking of conformity we must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low risk medical devices (Class I), where the manufacturer can issue an EC
Declaration of Conformity based on a self-assessment of the conformity of its products with the essential requirements of the Medical Devices Directive, a conformity assessment procedure requires the intervention of a Notified Body, which is an organization accredited by a Member State of the EEA to conduct conformity assessments. The Notified Body would typically audit and examine the quality system for the manufacture, design and final inspection of our devices before issuing a certification demonstrating compliance with the essential requirements. Based on this certification we can draw up an EC Declaration of Conformity which allows us to affix the CE mark to our products.
Further, the advertising and promotion of our products in the EEA is subject to the laws of individual EEA Member States implementing the EU Medical Devices Directive, Directive 2006/114/EC concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other EEA Member State laws governing the advertising and promotion of medical devices. These laws may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.
Sales and marketing commercial compliance
Federal anti-kickback laws and regulations prohibit, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for, or to induce either the referral of an individual, or the purchase, order or recommendation of, any good or service paid for under federal healthcare programs such as the Medicare and Medicaid programs. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of such
prohibitions.
In addition, federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Off-label promotion has been pursued as a violation of the federal false claims laws. Pursuant to FDA regulations, we can only market our products for cleared or approved uses. Although surgeons are permitted to use medical devices for indications other than those cleared or approved by FDA based on their medical judgment, we are prohibited from promoting products for such
off-label uses. Additionally, the majority of states in which we market our products have similar anti-kickback, false claims, anti-fee splitting and self-referral laws, which may apply to items or services reimbursed by any third party payor, including commercial insurers, and violations may result in substantial civil and criminal penalties.
To enforce compliance with the federal laws, the U.S. Department of Justice, or DOJ, has increased its scrutiny of interactions between healthcare companies and healthcare providers which has led to an unprecedented level of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time- and resource-consuming. Additionally, if a healthcare company settles an investigation with the DOJ or other law enforcement agencies, the company may be required to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity
agreement.
The U.S. and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical device industry, including increased U.S. government oversight and enforcement of the Foreign Corrupt Practices Act. Whenever a governmental authority concludes that we are not in compliance with applicable laws or regulations, that authority can impose fines, delay or suspend regulatory clearances, institute proceedings to detain or seize our products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against us or our officers or
employees and can
TABLE OF CONTENTS
recommend criminal prosecution. Moreover, governmental authorities can ban or request the recall, repair, replacement or refund of the cost of devices we distribute.
Additionally, the commercial compliance environment is continually evolving in the healthcare industry as some states, including California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians. The Affordable Care Act also imposes reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers. Device manufacturers are also required to report and disclose any investment interests held by physicians
and their family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
Healthcare fraud and abuse
Healthcare fraud and abuse laws apply to our business when a customer submits a claim for an item or service that is reimbursed under Medicare, Medicaid or most other federally-funded healthcare programs. The federal Anti-Kickback Statute prohibits unlawful inducements for the referral of business reimbursable under federally-funded healthcare programs, such as remuneration provided to physicians to induce them to use certain tissue products or medical devices reimbursable by Medicare or Medicaid. The Anti-Kickback Statute is subject to evolving interpretations. For example, the government has enforced the Anti-Kickback
Statute to reach large settlements with healthcare companies based on sham consultant arrangements with physicians. The majority of states also have anti-kickback laws which establish similar prohibitions that may apply to items or services reimbursed by any third party payor, including commercial insurers. Further, recently enacted amendments to the Affordable Care Act, among other things, amend the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers
and employees could be subject to severe criminal and civil penalties including, for example, exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.
In addition to the Anti-Kickback Statute, the federal physician self-referral statute, commonly known as the Stark Law, prohibits physicians who have a financial relationship with an entity, including an investment, ownership or compensation relationship, from referring Medicare patients for designated health services, which include clinical pathology services, unless an exception applies. Similarly, entities may not bill Medicare or any other party for services furnished pursuant to a prohibited referral. Many states have their own self-referral laws as well, which in some cases apply to all third party payors, not just
Medicare and Medicaid. If a governmental authority were to conclude that we are not in compliance with the Stark Law or state self-referral laws and regulations, our pathology laboratory business could be subject to severe financial consequences, including the obligation to refund amounts billed to third party payors in violation of such laws, civil penalties and potentially also exclusion from participation in government healthcare programs like Medicare and Medicaid. The Stark Law often is enforced through lawsuits brought under the Federal False Claims Act, violations of which trigger significant monetary penalties and treble damages.
Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigations of healthcare providers and suppliers throughout the country for a
wide variety of
TABLE OF CONTENTS
Medicare billing practices, and has obtained multi-million and multi-billion dollar settlements in addition to individual criminal convictions. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and suppliers’ compliance with the healthcare reimbursement rules and fraud and abuse laws.
Health information privacy
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses, known as covered entities, as well as their business associates that perform services for them that involve individually identifiable health information. The HIPAA privacy and security regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with
respect to the use and disclosure of protected health information by covered entities and their business associates, in addition to setting standards to protect the confidentiality, integrity and security of protected health information.
We have implemented policies and procedures related to compliance with the HIPAA privacy and security regulations, as required by law. The privacy and security regulations establish a “floor” and do not supersede state laws that are more stringent. Therefore, we are required to comply with both federal privacy and security regulations and varying state privacy and security laws. In addition, for healthcare data transfers from other countries relating to citizens of those countries, we must comply with the laws of those other countries. The federal privacy regulations restrict our ability to use or disclose patient
identifiable laboratory data, without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. HIPAA, as amended by HITECH, provides for significant fines and other penalties for wrongful use or disclosure of protected health information in violation of the privacy and security regulations, including potential civil and criminal fines and penalties. If we do not comply with existing or new laws and regulations related to protecting the privacy and security of health information, we could be subject to monetary fines, civil penalties or criminal sanctions. In addition, other federal and state laws that protect the privacy and security of patient information may be subject to enforcement and interpretations by various governmental authorities and courts resulting in complex compliance issues. For example, we
could incur damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of confidential health information or other private personal information. If we were to experience a breach of protected health information, we could be subject to significant adverse publicity in addition to possible enforcement sanctions and civil damages lawsuits. Finally, we may be required to incur additional costs related to ongoing HIPAA compliance as may be necessary to address evolving interpretations and enforcement of HIPAA and other health information privacy and security laws, the enactment of new laws or regulations, emerging cybersecurity threats and other factors.
Employees
As of December 31, 2015, we had 23 employees, all in the U.S. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Facilities
Our corporate headquarters and principal office is located in Boca Raton, Florida. Our corporate headquarters and principal office occupies approximately 4,500 square feet of leased space. The lease term expires in 2017. Our lease contains escalating rent clauses. Our rental expense in 2015 was approximately $98,000 and our estimated minimum rent in 2016 is approximately $101,000. We believe that our current facilities are suitable and adequate to meet our current needs and that suitable additional space will be available as and when needed on acceptable terms. Our manufacturing and service functions are physically located at
our third party manufacturer’s facility. We are planning to review the feasibility of bringing certain manufacturing, service and research and development functions in-house, which may require the purchase or lease of a manufacturing facility. See “Use of Proceeds.”
TABLE OF CONTENTS
Legal proceedings
We are party to certain legal proceedings in the ordinary course of business. We assess, in conjunction with our legal counsel, the need to record a liability for litigation and related contingencies. We do not believe that any current legal proceedings are likely to have a material effect on our business, financial condition or results of operations. Please see Note 6 to the Financial Statements.
Seasonality
We do not believe our business to be seasonal in nature.
TABLE OF CONTENTS
MANAGEMENT
The following table sets forth the name, age, and position of the individuals who currently serve as executive officers and directors of Sensus Healthcare, Inc. as of January 1, 2016. The following also includes certain information regarding our directors’ and officers’ individual experience, qualifications, attributes and skills and brief statements of those aspects of our directors’ backgrounds that led us to conclude that they are qualified to serve as directors.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
Executive officers:
|
|
|
|
|
|
Joseph C. Sardano
|
|
63
|
|
Chief Executive Officer and Chairman
|
|
Kalman Fishman
|
|
45
|
|
Chief Technology Officer and Chief Operating Officer
|
|
Arthur Levine
|
|
58
|
|
Chief Financial Officer
|
|
Richard Golin
|
|
62
|
|
Executive Vice President of Sales, Oncology and International
|
|
Stephen Cohen
|
|
56
|
|
Senior Vice President, Strategic Initiatives and Dermatology
|
Non-executive directors:
|
|
|
|
|
|
John Heinrich
|
|
68
|
|
Director
|
|
William McCall
|
|
69
|
|
Director
|
|
Samuel O’Rear
|
|
67
|
|
Director
|
Executive Officers
Joseph C. Sardano
. Mr. Sardano is a co-founder and has served as our President, Chief Executive Officer and Chairman of the Board since our inception in June 2010. From July 2008 to February 2009, Mr. Sardano served as Chief Commercial Officer of Xoft, Inc., an electronic brachytherapy medical device company. From 2005 to 2008, Mr. Sardano served as managing partner and healthcare consultant for Molecular Imaging Ventures. From May 2005 to November 2005, Mr. Sardano served as Vice President of Siemens Medical Systems. Mr. Sardano served from September 2002 to May 2005 as Sr. Vice President of Global
Sales and Marketing of CTI Molecular Imaging and Pet Net Pharmaceuticals, a developer of imaging and isotope solutions for the healthcare industry which was acquired by and now operates as a subsidiary of Siemens Medical Solutions. From August 1998 to September 2002 Mr. Sardano served as Americas Sales Manager for Functional Imaging at GE Medical Systems. From July 1997 to August 1998, Mr. Sardano served as Vice President of Sales and Marketing for Elscint Inc., a developer and manufacturer of medical imaging solutions, including nuclear medicine, computed tomography magnetic resonance imaging and x-ray scanners, the imaging activities of which were sold to GE Medical Systems in 1999. From June 1991 to December 1995, Mr. Sardano served as Region Sales Manager of Toshiba America Medical Systems. Mr. Sardano has a Bachelor of Arts degree from Concordia University in Montreal, Canada, as well as several Business Certificates from McGill University, School of Management. Our board of
directors believes that Mr. Sardano’s breadth of experience with and leadership of the introduction and commercialization of new technologies and services within the healthcare industry qualifies him to serve as our President, Chief Executive Officer and Chairman of the Board.
Kalman Fishman
. Mr. Fishman is a co-founder and has served as our Chief Technology Officer and Chief Operating Officer since our inception in June 2010. Prior to our inception, Mr. Fishman served as Vice President of Sales & Business Development for Rcadia Medical Imaging from August 2008 to September 2009, Vice President of Sales & Marketing of Positron Medical Systems from August 2007 to July 2008, Director of Strategic Outsourcing & Business Development from December 2006 to July 2007, and Director, Sales and Marketing at Siemens Medical Systems from September 2004 to December 2006.
Prior to that, Mr. Fishman served as Global Product Manager and Six Sigma Black Belt from January 2000 to February 2004 at GE Medical Systems. Mr. Kalman holds an associate’s degree in computer science from the Ort Singalowski Technological Institute in Tel Aviv, Israel and also attended the Milwaukee School of Engineering.
Arthur Levine
. Mr. Levine has served as our Chief Financial Officer since August 2014. Prior to joining us, Mr. Levine served as Chief Accounting Officer of Trade Street Residential, a publicly traded real estate investment trust, from June 2012 to June 2014. From April 2010 to May 2012, Mr. Levine served as
TABLE OF CONTENTS
Chief Financial Officer of IVAX Diagnostics, a publicly traded in vitro diagnostics company. Mr. Levine previously served in various finance roles at several technology companies and worked at Ernst & Young in the U.S. and abroad. He is a graduate of the Wharton School of the University of Pennsylvania and is a Certified Public Accountant.
Richard Golin
. Mr. Golin is a co-founder and has served as our Executive Vice President of Sales, Oncology and International, since our inception in June 2010. Prior to our inception, Mr. Golin served as Vice President of Sales, East, for Xoft, Inc. from August 2008 to August 2009, Regional Sales Manager for Biospace Med USA from August 2007 to August 2008, Director of Sales Skeletal Health for Hologlc, a developer, manufacturer and supplier of diagnostic and medical imaging systems related to women’s health, from 2006 to 2007 and as Region Sales Manager at Siemens Medical Systems from 2005 to
2006. From 2003 to 2005, Mr. Golin served as Region Vice President of Sales for CTI Molecular Imaging, a developer of imaging solutions for the healthcare industry which was acquired by and now operates as a subsidiary of Siemens Medical Solutions under the name Siemens Molecular Imaging. Mr. Golin’s other previous experience related to medical device sales and marketing includes having served as Region Sales Manager for Toshiba Medical Systems from 1992 to 2003 and as the Vice President of Sales & Marketing at Ausonics, a developer of ultrasonic technology from 1986 to 1989.
Stephen Cohen
. Mr. Cohen is a co-founder and has served as our Senior Vice President, Strategic Initiatives and Dermatology, since our inception in June 2010. Prior to our inception, Mr. Cohen served as Regional Sales Manager for Xoft Inc., a medical device company that develops and commercializes miniaturized electronic brachytherapy (eBx) technology for radiation oncology applications, from October 2008 to June 2009. Prior to that, Mr. Cohen’s medical device sales and marketing experience includes having served as Regional Sales Manager for Diasonics, a developer and manufacturer of ultrasound
and other medical imaging equipment, from 1985 to 1988, and from 1983 to 1985, as Regional Sales Manager for Technicare, a developer of CT, DR and MRI scanners and other medical imaging equipment that was acquired by Johnson and Johnson in 1986. Mr. Cohen has a bachelor’s degree from the University of Texas at Austin.
Non-executive Directors
John Heinrich
. Dr. Heinrich has served as director since February 2012. His experience over the past 25 years includes having served as Chief Executive Officer of PhoenixNMR, a provider of probes for solid state NMR, from November 2014 to present, Managing Partner of Kansas Analytical Services, a provider of analytical services, from April 2007 to present, Chief Executive Officer of Acuitas Medical Ltd., a developer of MRI software, from May 2006 to December 2010 and April 2013 to present, a partner in Revolution NMR LLC, a provider of components and accessories for solid state NMR from May 2004 to
present, President and Chief Operating Officer of Meretek Diagnostics Inc., a developer and marketer of medical diagnostics, from July 2001 to July 2004; President and Chief Executive Officer of Otsuka Electronics USA Inc., a developer and marketer of medical and scientific equipment, from February 1994 to December 1999; President and Chief Operating Officer of Summit World Trade, a diversified group of healthcare and technology companies, from January 1991 to January 1994; and President and Chief Operating Officer of Technomed International USA Inc., a developer and marketer of therapeutic technology, from January 1988 to December 1990. Mr. Heinrich has a Ph.D. in Metallurgical Engineering from the University of Notre Dame. Given Dr. Heinrich’s substantial involvement in the development and management of a wide range of diagnostic imaging, therapeutic, medical diagnostic, and scientific instrument companies for more than 25 years, our board of directors believes that he is
qualified to serve as a director.
William McCall
. Mr. McCall has served as director since October 2015. Mr. McCall is currently Managing Director of Heritage Advisory Group, a financial advisory practice of Ameriprise Financial Services Inc. and has worked in such capacity since January 2014. Mr. McCall's also currently serves as Managing Partner of Investors Capital Alliance LLC (since June 2009), a consulting company; Chief Executive Officer of WMW Partners LLC (since March 2009), an SEC-registered investment adviser; member of Pandora Mineral Resources LLC (since June 2015), and Board member of Cherokee Farm Partners Inc. (since
January 2015), an entity of the University of Tennessee Research Foundation. Mr. McCall has a B.S. in business administration and received a Chartered Wealth Advisor® designation from the Michigan State University Estate and Wealth Management Institute. Mr. McCall has a B.S. in business administration from the University of Tennessee and also earned his Chartered Wealth Advisor® designation through the Michigan
TABLE OF CONTENTS
State University Estate and Wealth Management Institute. In light of Mr. McCall's substantial experience as a financial advisor and portfolio manager for over 43 years, our board of directors believes that he is qualified to serve as a director.
Samuel O’Rear
. Mr. O’Rear has served as director since February 2012. Mr. O’Rear is the founder of The Innovation Group, Inc., which provides commercialization services to healthcare companies. Since June 1990, Mr. O’Rear has been the CEO and Senior Partner of Total Innovation Group, Inc. and is currently an Investor/Principal/Board Member in several start-ups in the healthcare industry (Data Advantage — Investor & Advisor to CEO, Remcare — Investor, UP Labs — Investor — Advisor to BOD). From June 1, 1990 to June 1,
1991, Mr. O’Rear served as the Chief Operating Officer of Medical Imaging Centers of America. Before then, Mr. O’Rear worked for GE Healthcare, from October 1976 to June 1990 where he was promoted from sales management, financing/asset management, and marketing positions to Vice President, General Manager of X-Ray Business, and for Siemens Medical Systems Jan 1974 to October 1976, as sales representative. Mr. O’Rear also served as the clinician in the ancillary services of three hospitals, primarily in the UAB Health System during the years March 1970 to January 1974. Mr. O’Rear has a Bachelor of Science from the University of Alabama and attended the Marketing Development Program at Northwestern University. In light of Mr. O’Rear’s 40 years of experience in the healthcare industry as a clinician, a sales and marketing director, general manager, and as the owner or principal in several healthcare services businesses, our board of directors believes that he
is qualified to serve as a director.
Board of directors and committees
Our board of directors currently consists of four directors. Our board of directors has determined that each of our directors, other than Mr. Sardano, is an “independent director” as defined under the NYSE MKT listing standards. Under our bylaws, the number of directors will be determined from time to time by our board of directors.
We have a classified board of directors, which consists of three classes of directors. At each annual meeting of stockholders, directors of one class are elected for a three-year term. The terms of the directors identified above will expire upon the election and qualification of successor directors at the annual meeting of stockholders in the calendar year in which their terms expire.
The director class assignments are as follows:
|
|
•
|
Class I director (with a term expiring at the 2016 annual meeting) — Mr. Heinrich;
|
|
|
•
|
Class II director (with a term expiring at the 2017 annual meeting) — Mr. McCall;
|
|
|
•
|
Class III directors (with terms expiring at the 2018 annual meeting) — Messrs. O’Rear and Sardano.
|
Audit committee
Our audit committee currently consists of Messrs. O’Rear, Heinrich and McCall, with Mr. O’Rear serving as chairman. We anticipate that each member of the audit committee will meet the definition of “independent director” for purposes of the NYSE MKT rules and the independence requirements of Rule 10A-3 under the Exchange Act. We also believe that Mr. O’Rear qualifies as an “audit committee financial expert” under SEC rules.
Our audit committee will be responsible for, among other matters:
|
|
•
|
appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm;
|
|
|
•
|
discussing with our independent registered public accounting firm their independence from management;
|
|
|
•
|
reviewing with our independent registered public accounting firm the scope and results of their audit;
|
|
|
•
|
approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
|
TABLE OF CONTENTS
|
|
•
|
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
|
|
|
•
|
reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements;
|
|
|
•
|
establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal control or auditing matters; and
|
|
|
•
|
reviewing and approving related person transactions.
|
Our board of directors anticipates that it will adopt a new written charter for the audit committee to become effective upon our conversion to a Delaware corporation, which will be available on our website.
Compensation committee
Our compensation committee currently consists of Messrs. Heinrich and McCall, with Mr. Heinrich serving as chairman. Our board of directors has affirmatively determined that each member of the compensation committee meets the heightened definition of “independent director” for purposes of the rules applicable to members of the compensation committee, and the definition of “non-employee director” for purposes of Section 16 of the Exchange Act.
The compensation committee will be responsible for, among other matters:
|
|
•
|
annually reviewing and approving our goals and objectives for executive compensation;
|
|
|
•
|
annually reviewing and approving for the chief executive officer and other executive officers (1) the annual base salary level, (2) the annual cash incentive opportunity level, (3) the long-term incentive opportunity level, and (4) any special or supplemental benefits or perquisites;
|
|
|
•
|
reviewing and approving employment agreements, severance arrangements and change of control agreements for the chief executive officer and other executive officers, as appropriate;
|
|
|
•
|
making recommendations and reports to the board of directors concerning matters of executive compensation;
|
|
|
•
|
reviewing compensation plans, programs and policies;
|
|
|
•
|
handling such other matters that are specifically delegated to the compensation committee by the board of directors from time to time.
|
Our board of directors adopted a new written charter for the compensation committee effective upon our conversion to a Delaware corporation, which will be available on our website.
Compensation committee interlocks and insider participation
None of our executive officers currently serve on the compensation committee or board of directors of any other company of which any member or proposed member of our compensation committee is an executive officer.
Nominating and corporate governance committee
We currently do not have a nominating and corporate governance committee. Prior to the closing of this offering, we expect to form our nominating and corporate governance committee consisting of Messrs. Heinrich, McCall and O’Rear, with Mr. McCall serving as chairman.
The nominating and corporate governance committee will be responsible for, among other matters:
|
|
•
|
identifying the requisite skills and characteristics to be found in individuals qualified to serve as members of the board of directors;
|
|
|
•
|
conducting inquiries into the background and qualifications of possible candidates;
|
|
|
•
|
recruiting of qualified candidates for membership on the board of directors;
|
TABLE OF CONTENTS
|
|
•
|
recommending for selection by the board of directors, (1) nominees to the board of directors and (2) committee members for each committee of the board of directors;
|
|
|
•
|
overseeing the corporate governance of the company;
|
|
|
•
|
evaluating the performance of the committee and its charter on an annual basis;
|
|
|
•
|
handling such other matters that are specifically delegated to the nominating and corporate governance committee by the board of directors from time to time.
|
Our board of directors adopted a new written charter for the nominating and corporate governance committee effective prior to the closing of this offering, which will be available on our website.
Role of the board in risk oversight
One of the key functions of our board of directors is informed oversight of our risk management process. The board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures
and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The nominating and corporate governance committee monitors compliance with legal and regulatory requirements and the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper liability-creating conduct. Our nominating and corporate governance committee is also responsible for overseeing our risk management efforts generally, including the allocation of risk management functions among our board of directors and its committees. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our audit committee periodically reviews the general process for the oversight of risk management by our board of directors.
TABLE OF CONTENTS
EXECUTIVE AND DIRECTOR COMPENSATION
Introduction
This section provides an overview of our executive compensation program, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below. For 2015, our named executive officers, or NEOs, were:
|
|
•
|
Joseph C. Sardano, who was our founder and has served as our Chief Executive Officer and a member of our board of directors, since our inception in 2010;
|
|
|
•
|
Kalman Fishman, who has served as our Chief Technology Officer since our inception in 2010; and
|
|
|
•
|
Arthur Levine, who has served as our Chief Financial Officer since 2014.
|
The objective of our compensation program is to provide a total compensation package to each named executive officer that will enable us to attract, motivate and retain outstanding individuals, reward named executive officers for performance and align the financial interests of each named executive officer with the interests of our stockholders to encourage each named executive officer to contribute to our long-term performance and success.
The compensation program for our named executive officers consists of the following elements: base salary; performance-based discretionary cash bonus; equity-based incentive compensation; and severance and change-in-control benefits.
Our compensation committee, with input from the board, determines the compensation for our named executive officers. Upon completion of this offering, we will have an independent compensation committee that meets the enhanced independence standards applicable to compensation committees and that will be responsible for determining the compensation for our named executive officers and administering our equity compensation plans and awards.
Employment arrangements and agreements
We have entered into written employment agreements with each of our named executive officers. These agreements were negotiated on an arms-length basis and establish the key elements of compensation, as set forth below. The terms of the agreements with our named executive officers are described in further detail below.
Mr. Sardano’s employment
We entered into an employment agreement with Mr. Sardano with an effective date of February 8, 2016. The initial base salary set forth in the agreement is $300,000, which may be increased from time to time (but never decreased) pursuant to the determination of our Compensation Committee. Under his employment agreement, Mr. Sardano will serve as our President and Chief Executive Officer. His agreement is for an initial term that ends December 31, 2020; however, the agreement provides for continuously renewing one-year periods thereafter unless either he or we provide written notice of the intent not to renew the agreement for a
new term at least six months in advance of the end of the initial term or any one-year renewal term.
In addition to his salary, Mr. Sardano is entitled to participate in our incentive compensation programs. Mr. Sardano is entitled to an annual cash incentive bonus based on a plan established by our Compensation Committee. Mr. Sardano’s target annual bonus must be at least $100,000, which may be increased from time to time (but never decreased) pursuant to the determination of our Compensation Committee. Mr. Sardano is also eligible to participate in and receive equity compensation or other long-term incentive compensation as may be granted by our Compensation Committee pursuant to a plan that the Compensation Committee
may adopt from time to time. For Mr. Sardano, any annual cycle equity awards will be determined in discretion of our Compensation Committee; however, his agreement requires that the Compensation Committee base their decision on a basis at least as favorable as the basis for making grants to other senior executive officers of the company.
Mr. Sardano is entitled to certain severance benefits if his employment is terminated upon his death or Disability, change-in-control, without cause (as defined in the agreement) or if he resigns within 120 days
TABLE OF CONTENTS
after the occurrence of any of the following (“Good Reason”): (a) reduction by us of his base salary or target bonus; (b) material reduction, other than during any period of illness or incapacity, of his authority, responsibilities, or duties such that he no longer has the title of, or serves or functions as Chief Executive Officer, (c) failure of our Board of Directors to nominate him for election as a member of the board of directors or failure to be re-elected to our Board (other than due to legal or exchange requirements that would prohibit him from serving on our Board of Directors); (d) relocation of principal
place of employment more than 50 miles from our current principal executive offices; (e) our failure to obtain the written assumption of our obligations under the employment agreement by a successor; (f) our failure to renew the employment agreement (not as a result of death, Disability, or for cause); or (g) any other material breach of his employment agreement by us, including termination of Mr. Sardano for any other reason that is not a “for cause” termination. For the severance benefits to which he may be entitled, please see the section entitled “Severance benefits under employment agreements.”
Mr. Sardano is entitled to participate in all of the employee benefit programs and perquisites generally available to our senior executive officers. The agreement contains customary business expense reimbursement, indemnification, confidentiality, non-compete and non-solicitation provisions.
Prior to entering into this employment agreement, we did not have a written agreement with Mr. Sardano. In 2015, we paid Mr. Sardano a base salary of $272,475 per year. Mr. Sardano was also eligible to receive discretionary cash bonuses in addition to his base salary and received a non-accountable car allowance of approximately $1,100 per month. Mr. Sardano was also eligible to participate in the employment benefit plans, programs and policies maintained by us from time to time.
Mr. Fishman’s employment
We entered into an employment agreement with Mr. Fishman with an effective date of February 8, 2016. The initial base salary set forth in the agreement is $200,000, which may be increased from time to time (but never decreased) pursuant to the determination of our Compensation Committee. Under his employment agreement, Mr. Fishman will serve as our Chief Technology Officer and Chief Operating Officer. His agreement is for an initial term that ends December 31, 2020; however, the agreement provides for continuously renewing one-year periods thereafter unless either he or we provide written notice of the intent not to renew the
agreement for a new term at least six months in advance of the end of the initial term or any one-year renewal term.
In addition to his salary, Mr. Fishman is entitled to participate in our incentive compensation programs. Mr. Fishman is entitled to an annual cash incentive bonus based on a plan established by our Compensation Committee. Mr. Fishman’s target annual bonus must be at least $50,000, which may be increased from time to time (but never decreased) pursuant to the determination of our Compensation Committee. Mr. Fishman is also eligible to participate in and receive equity compensation or other long-term incentive compensation as may be granted by our Compensation Committee pursuant to a plan that the Compensation Committee
may adopt from time to time.
Mr. Fishman is entitled to certain severance benefits if his employment is terminated upon his death or Disability, change-in-control, without cause (as defined in the agreement) or if he resigns within 120 days after the occurrence of any of the following (“Good Reason”): (a) reduction by us of his base salary or target bonus; (b) material reduction, other than during any period of illness or incapacity, of his authority, responsibilities, or duties such that he no longer has the title of, or serves or functions as Chief Technology Officer and Chief Operating Officer, (c) relocation of principal place of employment
more than 50 miles from our current principal executive offices; (d) our failure to obtain the written assumption of our obligations under the employment agreement by a successor; (e) our failure to renew the employment agreement (not as a result of death, Disability, or for cause); or (f) any other material breach of his employment agreement by us, including termination of Mr. Fishman for any other reason that is not a “for cause” termination. For the severance benefits to which he may be entitled, please see the section entitled “Severance benefits under employment agreements.”
Mr. Fishman is entitled to participate in all of the employee benefit programs and perquisites generally available to our senior executive officers. The agreement contains customary business expense reimbursement, indemnification, confidentiality, non-compete and non-solicitation provisions.
TABLE OF CONTENTS
Prior to entering into this employment agreement, we did not have a written agreement with Mr. Fishman. In 2015, we paid Mr. Fishman a base salary of $189,000 per year. Mr. Fishman was also eligible to receive discretionary cash bonuses in addition to his base salary and received a non-accountable car allowance of approximately $1,100 per month. Mr. Fishman was also eligible to participate in the employment benefit plans, programs and policies maintained by us from time to
time.
Mr. Levine’s employment agreement
We entered into an employment agreement with Mr. Levine with an effective date of February 8, 2016. This agreement supersedes our original employment agreement with Mr. Levine, which was dated August 12, 2014. Under Mr. Levine’s new agreement, his initial base salary is $200,000, which may be increased from time to time (but never decreased) pursuant to the determination of our Compensation Committee. Under his employment agreement, Mr. Levine will serve as our Chief Financial Officer. His agreement is for an initial term that ends December 31, 2020; however, the agreement provides for continuously renewing one-year
periods thereafter unless either he or we provide written notice of the intent not to renew the agreement for a new term at least six months in advance of the end of the initial term or any one-year renewal term.
In addition to his salary, Mr. Levine is entitled to participate in our incentive compensation programs. Mr. Levine is entitled to an annual cash incentive bonus based on a plan established by our Compensation Committee. Mr. Levine’s target annual bonus must be at least $50,000, which may be increased from time to time (but never decreased) pursuant to the determination of our Compensation Committee. Mr. Levine is also eligible to participate in and receive equity compensation or other long-term incentive compensation as may be granted by our Compensation Committee pursuant to a plan that the Compensation Committee may
adopt from time to time.
Mr. Levine is entitled to certain severance benefits if his employment is terminated upon his death or Disability, change-in-control, without cause (as defined in the agreement) or if he resigns within 120 days after the occurrence of any of the following (“Good Reason”): (a) reduction by us of his base salary or target bonus; (b) material reduction, other than during any period of illness or incapacity, of his authority, responsibilities, or duties such that he no longer has the title of, or serves or functions as Chief Financial Officer, (c) relocation of principal place of employment more than 50 miles from our
current principal executive offices; (d) our failure to obtain the written assumption of our obligations under the employment agreement by a successor; (e) our failure to renew the employment agreement (not as a result of death, Disability, or for cause); or (f) any other material breach of his employment agreement by us, including termination of Mr. Levine for any other reason that is not a “for cause” termination. For the severance benefits to which he may be entitled, please see the section entitled “Severance benefits under employment agreements.”
Mr. Levine is entitled to participate in all of the employee benefit programs and perquisites generally available to our senior executive officers. The agreement contains customary business expense reimbursement, indemnification, confidentiality, non-compete and non-solicitation provisions.
In 2015, we paid Mr. Levine a base salary of $160,000 per year pursuant to his now-superseded employment agreement, dated as of August 12, 2014. Under his prior employment agreement, Mr. Levine was also eligible to receive discretionary cash bonuses with a targeted payout of 20% of his base salary pursuant to the annual bonus plan determined and adopted by the board from time to time. Mr. Levine also received a non-accountable car allowance of approximately $1,100 per month and was eligible to participate in the employment benefit plans, programs and policies maintained by us from time to time.
Base salary
We pay base salaries to attract, recruit and retain qualified employees. The base salaries of each of the named executive officers, pursuant to their respective employment agreements, is as follows: Mr. Sardano — $300,000 Mr. Fishman — $200,000; and Mr. Levine — $200,000. Following the consummation of this offering, our compensation committee will review and set base salaries of our named executive officers annually consistent with their employment agreements.
TABLE OF CONTENTS
Performance-based cash bonus compensation
Our executive compensation program includes an annual performance-based discretionary cash bonus. Our board of directors approves the terms and conditions of these awards on an annual basis. We intend to continue an annual performance-based cash bonus program for the named executive officers.
Equity incentive compensation
Since 2013, we have granted options under our 2013 Option Plan. The option award agreements for all participants in the 2013 Option Plan are substantially similar. The awards provide for a five-year vesting period, with 100% of the options vesting on the fifth anniversary of the grant date. The plan also provides for accelerated vesting in the event of a change in control or termination of employment by us other than for cause and such termination occurs within 90 days prior to a change in control. Historically, we have not provided option awards to any of our named executive officers. For information about the equity awards
held by the named executive officers at December 31, 2015, see “Outstanding equity awards at Fiscal Year-End” below.
In connection with the corporate conversion, outstanding options were converted into options to purchase our common stock at a one for one basis. Upon a change in control, which includes the closing of an initial public offering, all outstanding options will become immediately vested and will be automatically exercised pursuant to a cashless exercise feature, as set forth in our 2013 Option Plan.
In July 2015, we granted Mr. Levine 435 shares, equal to approximately one percent of the issued and outstanding units of the company, which shares will vest upon the expiration of contractual lock-ups following the occurrence of a Liquidity Event (as defined in his equity grant agreement), which will include the successful completion of this offering.
Benefits and perquisites
We offer health and welfare benefits and life insurance to our named executive officers on the same basis that these benefits are offered to our other eligible employees, except that we pay the employee contribution toward the cost of health insurance for our named executive officers and we provide our named executive officers the opportunity for an executive physical. We offer a 401(k) plan to all eligible employees. In addition, Messrs. Sardano, Fishman and Levine each receive a non-accountable monthly car allowance.
Summary compensation table
The following table sets forth information concerning the total compensation awarded to, earned by or paid to the named executive officers for the fiscal year ended December 31, 2015, calculated in accordance with SEC rules and regulations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
(1)
|
|
All other
compensation
($)
(2)
|
|
Total
($)
|
Joseph C. Sardano
Chief Executive Officer
|
|
|
2015
|
|
|
|
272,475
|
|
|
|
55,000
|
|
|
|
30,976
|
|
|
|
358,451
|
|
Kalman Fishman
Chief Technology Officer
|
|
|
2015
|
|
|
|
189,000
|
|
|
|
57,800
|
|
|
|
32,470
|
|
|
|
279,270
|
|
Arthur Levine
Chief Financial Officer
|
|
|
2015
|
|
|
|
160,000
|
|
|
|
48,000
|
|
|
|
36,672
|
|
|
|
244,672
|
|
|
|
(1)
|
For Mr. Fishman, his 2015 bonus includes $20,000 in sales commissions.
|
|
|
(2)
|
All other compensation includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
Life
insurance
($)
|
|
Health
insurance
($)
|
|
Car
allowance
($)
|
|
Mr. Sardano
|
|
|
5,544
|
|
|
|
12,438
|
|
|
|
12,994
|
|
|
Mr. Fishman
|
|
|
1,260
|
|
|
|
18,216
|
|
|
|
12,994
|
|
|
Mr. Levine
|
|
|
3,612
|
|
|
|
20,066
|
|
|
|
12,994
|
|
TABLE OF CONTENTS
Outstanding equity awards at fiscal year-end
The following table sets forth information with respect to outstanding option awards and incentive stock awards for each of the named executive officers as of December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
Name
|
|
Incentive
share grant
date
|
|
Equity
incentive plan
awards:
number of
unearned
shares
(#)
(1)
|
|
Equity
incentive plan
awards:
market or
payout value of
unearned shares
($)
(2)
|
|
Joseph C. Sardano
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Kalman Fishman
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Arthur Levine
|
|
|
7/30/15
|
|
|
|
435
|
|
|
|
—
|
|
|
|
(1)
|
Represents a grant of 435 shares which shares will vest upon the expiration of contractual lock-ups in connection with this initial public offering in accordance with the terms of the award agreement.
|
|
|
(2)
|
In accordance with U.S. GAAP, compensation costs for awards with performance conditions should be recorded in the Company’s financial statements at the time that it is probable the performance condition is achieved, which is the closing of an initial public offering. As of December 31, 2015, the performance condition had not been probable and accordingly no compensation cost was recorded.
|
Potential payments upon termination or change in control
Mr. Levine’s employment agreement provides that stock issued to Mr. Levine in connection with his employment shall vest upon his involuntary termination or upon the occurrence of a Liquidity Event (as defined in his equity grant agreement), which includes the closing of this initial public offering.
Severance benefits under employment agreements
We have agreed to pay severance benefits to our named executive officers in the event of their termination by us under certain circumstances as follows:
In connection with a change in control.
In the event of that the employment of Mr. Sardano, Mr. Fishman, or Mr. Levine terminates without cause or due to a resignation for good reason in connection with a change in control, the executive is entitled to receive any salary earned but unpaid prior to termination, any business expenses that were incurred but not reimbursed as of the date of termination, a separation allowance, payable in equal installments over a 12-month period, equal to two times the sum of (x) the executive’s then base salary and (y) the executive’s then target bonus, if termination
occurs prior to the end of any fiscal year, a pro rata annual incentive bonus, the ability to participate (through COBRA or otherwise), on the same terms and conditions as in effect for the executive immediately prior to termination, in the medical, dental, disability, and life insurance programs until the earlier of (i) expiration of a 24-month period or (ii) such time the executive is covered by the benefits of a subsequent employer. In addition, all of the executive’s then-outstanding equity awards, if any, shall vest in full immediately upon termination.
Termination without cause or resignation for good reason,
In the event of that the employment of Mr. Sardano, Mr. Fishman, or Mr. Levine terminates without cause or due to a resignation for good reason (other than in connection with a change in control), the executive is entitled to receive any salary earned but unpaid prior to termination, any business expenses that were incurred but not reimbursed as of the date of termination, a separation allowance, payable in equal installments over a 12-month period, equal to one times the sum of (x) the executive’s then base salary and (y) the executive’s
then target bonus, if termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus, the ability to participate (through COBRA or otherwise), on the same terms and conditions as in effect for the executive immediately prior to termination, in the medical, dental, disability, and life insurance programs until the earlier of (i) expiration of a 12-month period or (ii) such time the executive is covered by the benefits of a subsequent employer. In addition, all of the executive’s then-outstanding equity awards, if any, shall vest in full immediately upon termination.
Termination due to death or disability.
In the event of that the employment of Mr. Sardano, Mr. Fishman, or Mr. Levine terminates due to death or Disability, the executive is entitled to receive any
TABLE OF CONTENTS
salary earned but unpaid prior to termination, any business expenses that were incurred but not reimbursed as of the date of termination, any earned benefits to which executive was entitled as of the date of termination pursuant to the terms of any compensation or benefit plans to the extent permitted by such plans, any annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the date of termination, and, if termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus.
For voluntary resignation without good reason.
In the event that any of Mr. Sardano, Mr. Fishman, or Mr. Levine voluntarily terminates his employment for any reason other than good reason, no further payments are due, except that the executive will be entitled to any salary earned but unpaid prior to termination, any benefits accrued prior to termination and any business expenses that were incurred but not reimbursed as of the date of termination.
Termination for Cause
. In the event that we terminate Mr. Sardano, Mr. Fishman, or Mr. Levine for cause, no further payments are due, except that the executive will be entitled to any salary earned but unpaid prior to termination and any business expenses that were incurred but not reimbursed as of the date of termination.
Accelerated vesting of option awards
Pursuant to our 2013 Option Plan, (i) options shall fully vest as of the time of a Change in Control (as such term is defined in our 2013 Option Plan) if the participant is, and has been, continuously employed by or providing services to the company as of such time; (ii) options shall fully vest and be deemed outstanding as of the time of a Change in Control if the participant is, and has been, continuously employed by or providing services to the company as of the date that is within 90 days prior to a Change in Control and the participant’s employment and any other service with the company was terminated by the company
without cause.
2013 Option Plan
In October 2013, we adopted the Sensus Healthcare, LLC 2013 Option Plan to provide a means to attract, retain and motivate our directors, employees and consultants upon whose judgment, initiative and efforts our continued success, growth and development are dependent.
The plan provides for the grant of options to employees, directors and consultants. The plan is administered by the compensation committee of our board of directors. The maximum number of shares that may be granted under the plan is equal to 1% of our outstanding shares from time to time. The compensation committee has the discretion to grant option awards and set the vesting terms for awards, provided that the exercise price for such option awards may not be less than fair market value.
Except as otherwise provided in the applicable award agreement, in the event of termination of a participant’s employment and other services, the participant’s unvested options will expire, unless the termination occurs within 90 days prior to a change in control and other conditions are met, in which case the options will vest as of the date of the Change in Control. In the event of any termination (including termination due to death or disability) other than termination by us without cause: (i) all of the participant’s options (vested or unvested) will expire; and (ii) any option interests acquired by the
participant through option exercise that took place within thirty (30) days immediately preceding the date of such termination of employment and services, will be forfeited to us and the exercise price paid by the participant (other than the exercise price paid by virtue of our withholding option interests) will be returned to the participant.
Director compensation
In 2015, we did not pay any cash fees or grant any equity or equity-based awards to our directors in connection with their service on our board of directors. We anticipate adopting a compensation program for non-employee directors following the closing of our initial public offering.
TABLE OF CONTENTS
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 9, 2016 regarding the beneficial ownership of our common stock, giving effect to our conversion from a Delaware limited liability company to a Delaware corporation, by:
|
|
•
|
each person or group known by us to beneficially owns more than 5% of our outstanding shares of common stock;
|
|
|
•
|
each of our named executive officers;
|
|
|
•
|
each of our directors; and
|
|
|
•
|
all of our current executive officers and directors as a group.
|
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities or has the right to acquire such powers within 60 days. For purposes of calculating each person’s percentage ownership, common stock issuable pursuant to options exercisable within 60 days are included as outstanding and beneficially owned for that person or group, but are not
deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each beneficial owner identified in the table possesses sole voting and investment power over all common stock shown as beneficially owned by the beneficial owner.
The percentage of beneficial ownership is based on 42,852 shares of common stock outstanding prior to this offering after giving effect to our conversion from a Delaware limited liability company to a Delaware corporation, shares of common stock to be outstanding after the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional shares of our common stock and shares of common stock to be outstanding after the completion of this offering, assuming exercise of the underwriters’ option to purchase additional shares of our common stock in full.
The address for each beneficial owner is c/o Sensus Healthcare, Inc., 851 Broken Sound Pkwy. NW #215, Boca Raton, Florida 33487.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After this offering
(1)
|
|
|
|
Prior to this offering
|
|
Assuming underwriters’
option to purchase additional
shares is not exercised
|
|
Assuming underwriters’
option to purchase additional
shares is exercised in full
|
|
|
|
Number of shares
beneficially owned
|
|
Number of shares
beneficially owned
|
|
Number of shares
beneficially owned
|
|
Name
|
|
Number
of shares
|
|
Percentage
of shares
|
|
Number
of shares
|
|
Percentage
of shares
|
|
Number
of shares
|
|
Percentage
of shares
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Golin
|
|
|
4,196.65
|
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
Stephen Cohen
|
|
|
4,196.65
|
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Named executive officers and directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph C. Sardano
|
|
|
6,876.29
|
|
|
|
16.0
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
Kalman Fishman
|
|
|
4,196.65
|
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
Arthur Levine
|
|
|
435.00
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
John Heinrich
|
|
|
123.75
|
|
|
|
|
*
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
William McCall
(2)
|
|
|
2,250.00
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
Samuel O’Rear
|
|
|
551.08
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Current executive officers
and directors as a group
(8 persons)
|
|
|
22,826.07
|
|
|
|
50.6
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
*
|
Represents less than 1%.
|
|
|
(1)
|
Assumes that each stockholder entitled to receive a Dividend Payment in connection with our corporate conversion elects to receive such Dividend Payment in the form of our common stock. See “Corporate Conversion.”
|
|
|
(2)
|
Includes 2,250 shares issuable upon exercise of warrants held by Investors Capital Alliance, LLC, for which Mr. McCall serves as managing partner and over which Mr. McCall has voting and dispositive authority.
|
TABLE OF CONTENTS
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Prior to the completion of this offering, we expect to adopt a written policy on transactions with related persons. Under SEC rules, a related person is an officer, director, nominee for director or beneficial owner of more than 5% of any class of our voting securities (our 5% Security Holders) or an immediate family member of any of the foregoing. Pursuant to our related party transaction written policy, directors (including director nominees), executive officers and employees will be required to report any transactions or circumstances that may create or appear to create a conflict between the personal interests of the
individual and our interests, regardless of the amount involved.
The audit committee of the board of directors is responsible for evaluating each related party transaction and making a recommendation to the disinterested members of the board of directors as to whether the transaction at issue is fair, reasonable and within our policy and whether it should be ratified and approved. In the course of its review and approval of related party transactions, our audit committee will consider the relevant facts and circumstances to decide whether to approve such transactions. Our audit committee will approve only those transactions that it determines are in our best interest. In particular, our
policy on related party transactions will require our audit committee to consider, among other factors it deems appropriate:
|
|
•
|
whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; and
|
|
|
•
|
the extent of the related party’s interest in the transaction.
|
Pursuant to our policy on related party transactions, our audit committee will identify the following categories of transactions as deemed to be preapproved by the audit committee, even if the aggregate amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the Company’s average assets as of the last day of the Company’s two most recent fiscal years:
|
|
•
|
our employment of any executive officer or compensation paid by us to any executive officer if our compensation committee approved (or recommended that our board of directors approve) such compensation;
|
|
|
•
|
any compensation paid to a director if the compensation is required to be reported in our proxy statement under Item 402 of the SEC’s compensation disclosure requirements;
|
|
|
•
|
any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of $1,000,000, or 2% of that company’s total annual net product revenues;
|
|
|
•
|
any charitable contribution, grant or endowment made by us to a charitable organization, foundation or university at which a related person’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1,000,000, or 2% of the charitable organization’s total annual receipts;
|
|
|
•
|
any transaction where the related person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis;
|
|
|
•
|
any transaction involving a related person where the rates or charges involved are determined by competitive bids;
|
|
|
•
|
any transaction with a related person involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and
|
|
|
•
|
any transaction with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services.
|
In addition, our code of business conduct and ethics, which will become effective upon our corporate conversion, requires that each of our employees and directors inform his or her superior or the chairman of the audit committee, respectively, of any material transaction or relationship that comes to their attention that
TABLE OF CONTENTS
could reasonably be expected to create a conflict of interest. Further, at least annually, each director and executive officer will complete a detailed questionnaire that asks questions about any business relationship that may give rise to a conflict of interest and all transactions in which we are involved and in which the executive officer, a director or a related person has a direct or indirect material interest.
Other than compensation agreements and other arrangements which are described under “Executive and Director Compensation” and the transactions described below, since January 1, 2013, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $82,894 (our current threshold for reporting related party transactions) and in which any related person had or will have a direct or indirect material interest.
Relationship of Certain Employees
James Sardano, the brother of our President and Chief Executive Officer Joseph C. Sardano, is currently employed as a member of our sales team and received compensation in the amount of $120,080 and $180,577 during 2014 and 2013, respectively.
Conversion to corporate form
On January 1, 2016, we converted from a Delaware limited liability company to a Delaware corporation under the name Sensus Healthcare, Inc. Existing holders, including our 5% Security Holders, executive officers and directors, of (1) units and (2) options and warrants to purchase units, received the number of shares of common stock or the number of options described in this prospectus as a result of the corporate conversion. The existing securities held by our officers, directors, nominees for director and 5% Security Holders, executive officers and directors will be converted on the same basis as all other holders of such
securities. See “Corporate Conversion” and “Principal Stockholders” for additional information.
Limitation of liability and indemnification
As permitted by Delaware law, we adopted provisions in our certificate of incorporation, which will be effective as of the closing date of this offering, that limit or eliminate the personal liability of our directors. Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for:
|
|
•
|
any breach of the director’s duty of loyalty to us or our stockholders;
|
|
|
•
|
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
|
|
|
•
|
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
|
|
|
•
|
any transaction from which the director derived an improper personal benefit.
|
These limitations do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission. If Delaware law is amended to authorize the further elimination or limiting of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law as so amended.
As permitted by Delaware law, our certificate of incorporation or bylaws, as applicable, that will be effective as of the closing date of this offering also provide that:
|
|
•
|
we will indemnify our directors and officers to the fullest extent permitted by law; and
|
|
|
•
|
we will advance expenses to our directors and officers in connection with legal proceedings in connection with a legal proceeding for which indemnification is required.
|
TABLE OF CONTENTS
Pursuant to Delaware law, we may, by action of our board of directors, also indemnify our other employees and other agents to the same extent that we may indemnify our officers and directors.
We anticipate entering into indemnification agreements with our directors and officers to provide such officers and directors with additional contractual assurances regarding the scope of their indemnification. We expect that each of these indemnification agreements will provide that we will indemnify the director or officer to the fullest extent permitted by law for claims arising in his capacity as a director or officer, provided that he acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, our best interests and, with respect to any criminal proceeding, had no reasonable cause to
believe that his conduct was unlawful. We expect that each of these indemnification agreements will provide that in the event that we do not assume the defense of a claim against a director or officer, we will be required to advance his expenses in connection with his defense, provided that he undertakes to repay all amounts advanced if it is ultimately determined that he is not entitled to be indemnified by us.
We also intend to purchase and maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.
We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we understand that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
TABLE OF CONTENTS
DESCRIPTION OF CAPITAL STOCK
The following description summarizes important terms of our capital stock. For a complete description, you should refer to our certificate of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant portions of the Delaware General Corporation Law, or the DGCL.
Common stock
General
. Our certificate of incorporation authorizes the issuance of up to 50,000,000 shares of our common stock, and there were 42,852 shares of our common stock outstanding following our corporate conversion on January 1, 2016. Prior to the commencement of this offering, we expect to effect a -for-one forward stock split after which shares of our common stock will be outstanding. Following this offering, shares of common stock will be outstanding, assuming the underwriters fully exercise their over-allotment option.
Voting rights
. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and will not have cumulative voting rights. Unless otherwise required by law, matters submitted to a vote of our stockholders require the approval of a majority of votes cast by stockholders represented in person or by proxy and entitled to vote on such matter, except that (1) the affirmative vote of the holders of at least seventy-five percent (75%) of the total voting power of the shares of the then-outstanding
common stock is required to remove directors for cause, approve a change of control transaction, amend any provision of the bylaws, or amend certain provisions of the certificate of incorporation; and (2) if the number of nominees for director exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors will be able to elect all of the directors standing for election, if they so choose.
Dividend rights
. Holders of common stock will be entitled to receive ratably dividends if, as and when dividends are declared from time to time by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any then outstanding preferred stock.
Other matters
. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to any liquidation preference granted to holders of any outstanding preferred stock. Holders of common stock will have no preemptive or conversion rights or other subscription rights, and no redemption or sinking fund provisions will be applicable to our common stock. All outstanding shares of common stock are, and the shares of common stock to be
outstanding upon completion of this offering will be, fully paid and nonassessable.
Preferred stock
As of January 1, 2016, no shares of preferred stock were outstanding. Our certificate of incorporation permits our board of directors to issue up to 5,000,000 shares of preferred stock from time to time in one or more classes or series. The board also may fix the relative rights and preferences of those shares, including dividend rights, conversion rights, voting rights, redemption rights, terms of sinking funds, liquidation preferences, the number of shares constituting any class or series and the designation of the class or series. Terms selected by our board of directors in the future could decrease the amount of earnings
and assets available for distribution to holders of common stock or adversely affect the rights and powers, including voting rights, of the holders of common stock without any further vote or action by the stockholders. As a result, the rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future, which could have the effect of decreasing the market price of our common stock.
Anti-takeover effects of provisions of our certificate of incorporation and bylaws and Delaware law
The provisions of the DGCL and our certificate of incorporation and bylaws could have the effect of discouraging others from attempting an unsolicited offer to acquire our company. Such provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
TABLE OF CONTENTS
Election and removal of directors
. Our board of directors is divided into three classes with initial terms ending at our annual meetings of stockholders in 2016, 2017 and 2018, respectively. Following their initial terms, each class of directors will be elected for a three-year term. Our directors may be removed only by the affirmative vote of at least 75% of our then outstanding common stock and only for cause. For more information on the terms of our
directors, see the section entitled “Management — Board of directors and committees.” This system of electing and removing directors generally makes it more difficult for stockholders to replace a majority of our directors.
Authorized but unissued shares.
The authorized but unissued shares of our common stock and our preferred stock will be available for future issuance without any further vote or action by our stockholders. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of our common stock and our preferred stock could render more difficult or discourage an attempt to obtain control over us by means of a proxy contest, changes in our
management, tender offer, merger or otherwise.
Stockholder action; advance notification of stockholder nominations and proposals.
Our certificate of incorporation and bylaws require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by written consent. Our certificate of incorporation also requires that special meetings of stockholders be called only by a majority of our board of directors. In addition, our bylaws provide that candidates for director may be nominated and other business brought before an annual meeting only by the board of
directors or by a stockholder who gives written notice to us no later than 90 days prior to nor earlier than 120 days prior to the first anniversary of the last annual meeting of stockholders. These provisions may have the effect of deterring unsolicited offers to acquire our company or delaying changes in our management, which could depress the market price of our common stock.
Amendment of certain provisions in our organizational documents
. The amendment of any of the above provisions would require approval by holders of at least 75% of the voting power of all of the then outstanding shares of the capital stock entitled to vote generally in the election of directors, voting together as a single class.
No cumulative voting
. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise.
Delaware anti-takeover law.
Section 203 of the DGCL, an anti-takeover law, applies to us. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless the “business combination” or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting
in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporation’s voting stock.
Limitation of liability and indemnification
Our certificate of incorporation provides that no director will be personally liable for monetary damages for breach of any fiduciary duty as a director, except with respect to liability:
|
|
•
|
for any breach of the director’s duty of loyalty to us or our stockholders;
|
|
|
•
|
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
|
|
|
•
|
under Section 174 of the DGCL (governing distributions to stockholders); or
|
|
|
•
|
for any transaction from which the director derived any improper personal benefit.
|
TABLE OF CONTENTS
If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. The modification or repeal of this provision of our certificate of incorporation will not adversely affect any right or protection of a director existing at the time of such modification or repeal.
Our certificate of incorporation will provide that we will, to the fullest extent permitted by law, indemnify our directors and officers against all liabilities and expenses in any suit or proceeding or arising out of their status as an officer or director or their activities in these capacities. We will also indemnify any director or officer who, at our request, is or was serving as a director, officer, employee, agent or trustee of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise. We may, by action of our board of directors, provide indemnification to our employees
and agents within the same scope and effect as the foregoing indemnification of directors and officers.
Listing
We have applied to list our common stock on the NYSE MKT under the symbol “SRTS.”
Transfer agent and registrar
The transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC.
TABLE OF CONTENTS
SHARES ELIGIBLE FOR FUTURE SALE
Based upon the number of shares outstanding as of January 1, 2016, and after giving effect to the proposed -for-one forward stock split, we will have shares of common stock outstanding upon the closing of this offering, assuming the underwriters fully exercise their over-allotment option. All the shares of our common stock sold in this offering are freely tradable without restriction or further registration under the Securities Act, except for any such shares which may be held or acquired by our “affiliates,” as that term is defined in Rule 144 promulgated under the
Securities Act, which shares will be subject to the volume limitations and other restrictions of Rule 144 described below. The remaining shares of common stock will be “restricted securities,” as that term is defined in Rule 144. These restricted securities will be eligible for public sale only if they are registered under the Securities Act, or if they qualify for an exemption from registration, for example, under Rule 144.
Rule 144
In general, under Rule 144 as in effect on the date of this prospectus, a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock for at least six months, would be entitled to sell an unlimited number of shares of our common stock provided current public information about us is available and, after owning such shares for at least one year, would be entitled to sell an unlimited number of shares of our common stock without restriction. Our affiliates who have beneficially owned restricted securities within the meaning of Rule 144 for
at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
|
|
•
|
1% of the number of shares of our common stock then outstanding; or
|
|
|
•
|
the average weekly trading volume of our common stock on the during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
|
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a member who acquired shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by
that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Options
Following the date of this prospectus, we may file one or more registration statements on Form S-8 under the Securities Act to register the issuance of up to shares of common stock under our stock plans. These registration statements will become effective upon filing. All of the shares issued or to be issued upon the exercise of stock options or settlement of other awards under our stock plans are or will be eligible for resale in the public market without restrictions, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements described below.
Lock-up agreements
Notwithstanding the foregoing, we and all of the holders of our equity prior to this offering have agreed with the underwriters, subject to limited exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the 180-day lock-up period after the date of this prospectus without the prior written consent of the underwriters. For an additional description of the lock-up agreements, please refer to the section entitled “Underwriting — Lock-Up Agreements.”
TABLE OF CONTENTS
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
Overview
The following is a summary of the material U.S. federal income tax consequences of the purchase, ownership and disposition of our common stock to a non-U.S. holder that purchases shares of our common stock in this offering. For purposes of this summary, a “non-U.S. holder” means a beneficial owner of our common stock that is not a “U.S. person” or a partnership for U.S. federal income tax purposes. A U.S. person is any of the following:
|
|
•
|
an individual citizen or resident of the U.S.;
|
|
|
•
|
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the U.S., any state thereof or the District of Columbia;
|
|
|
•
|
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
|
|
|
•
|
a trust (1) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes.
|
In the case of a holder that is classified as a partnership for U.S. federal income tax purposes, the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common stock, then you should consult your own tax advisor.
This summary is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below. We cannot assure you that a change in law, possibly with retroactive application, will not alter significantly the tax consequences described in this summary. We have not sought and do not plan to seek any ruling from the
U.S. Internal Revenue Service, which we refer to as the IRS, with respect to the statements and conclusions set forth in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This summary does not address all aspects of U.S. federal income taxes that may be relevant to non-U.S. holders in light of their personal circumstances, and does not deal with federal taxes other than the U.S. federal income tax, or with state, local or non-U.S. tax considerations. Special rules, not discussed here, may apply to certain non-U.S. holders, including (without limitation):
|
|
•
|
controlled foreign corporations;
|
|
|
•
|
passive foreign investment companies; and
|
|
|
•
|
pass-through entities (or investors in such entities) that are subject to special treatment under the Code.
|
Such non-U.S. holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
This summary applies only to a non-U.S. holder that holds our common stock as a capital asset (within the meaning of Section 1221 of the Code).
If you are considering the purchase of our common stock, you should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our common stock, as well as the consequences to you arising under U.S. tax laws other than the federal income tax laws or under the laws of any other taxing jurisdiction.
TABLE OF CONTENTS
Dividends
As discussed under the section entitled “Dividend policy” above, we do not currently anticipate paying any dividends in the foreseeable future. If we make a distribution of cash or property (other than certain distributions of our common stock) with respect to our common stock, such distribution will be treated as a dividend for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Dividends paid to you generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by you within the U.S. and, in cases in which certain tax treaties apply, are attributable to a U.S. permanent establishment maintained by you, are not subject to the withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated individual or corporate rates. Certain certification and disclosure requirements including delivery of a properly executed IRS Form W-8ECI must be satisfied for effectively connected income to be exempt from U.S. federal withholding tax. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
If the amount of a distribution paid on our common stock exceeds our current and accumulated earnings and profits, such excess will be allocated ratably among each share of common stock with respect to which the distribution is paid and treated first as a tax-free return of capital to the extent of your adjusted tax basis in each such share, and thereafter as capital gain from a sale or other disposition of such share of common stock that is taxed to you as described below under the heading “Gain on disposition of common stock.” Your adjusted tax basis in a share of our common stock is generally the purchase price of
such share, reduced by the amount of any such tax-free returns of capital.
If you wish to claim the benefit of an applicable income tax treaty to avoid or reduce withholding of U.S. federal income tax on dividends, then you must (i) provide the withholding agent with a properly completed IRS Form W-8BEN or W-8BEN-E (or other applicable form) and certify under penalties of perjury that you are not a U.S. person and are eligible for treaty benefits, or (ii) if our common stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable U.S. Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that act as
intermediaries (including partnerships).
If you are eligible for a reduced rate of U.S. federal income tax pursuant to an income tax treaty, then you may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim with the IRS.
Gain on disposition of common stock
Subject to the discussion below under “Information reporting and backup withholding tax” and “Additional withholding tax,” you generally will not be subject to U.S. federal income tax with respect to gain realized on the sale or other taxable disposition of our common stock (other than a redemption that is treated as a distribution for U.S. federal income tax purposes and taxed as described above), unless:
|
|
•
|
the gain is effectively connected with a trade or business you conduct in the U.S., and, in cases in which certain tax treaties apply, is attributable to a U.S. permanent establishment maintained by you;
|
|
|
•
|
if you are an individual, you are present in the U.S. for 183 days or more in the taxable year of the sale or other taxable disposition, and you have a “tax home” (as defined in the Code) in the U.S.; or
|
|
|
•
|
we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time within the shorter of (i) the five-year period ending on the date of the sale or other taxable disposition of our common stock and (ii) your holding period for our common stock.
|
If you are a non-U.S. holder described in the first bullet point above, you generally will be subject to tax on the net gain derived from the disposition under regular graduated U.S. federal income tax rates. If you are a foreign corporation described in the first bullet point above, you may also be subject to a branch profits tax equal to 30% of your effectively connected earnings and profits or such lower rate as may be specified by an applicable income tax treaty. If you are an individual described in the second bullet point above, you will
TABLE OF CONTENTS
generally be subject to a flat 30% tax on the gain derived from the disposition, which may be offset by certain U.S. source capital losses (even though you are not considered a resident of the U.S.) but may not be offset by any capital loss carryovers.
With respect to the third bullet point above, we believe that we are not currently, and we do not anticipate becoming, a U.S. real property holding corporation. However, because the determination of whether we are a U.S. real property holding corporation depends on the fair market value of our U.S. real property interests relative to the fair market value of our global real property interests and other business assets, there can be no assurance that we will not become a U.S. real property holding corporation in the future. In the event we do become a U.S. real property holding corporation, as long as our common stock is
regularly traded on an established securities market, gain on a sale or disposition of our common stock will generally be subject to taxation pursuant to the third bullet point above only with respect to a non-U.S. holder that actually or constructively held more than 5% of our common stock at any time during the shorter of (i) the five-year period ending on the date of the sale or disposition of our common stock or (ii) the non-U.S. holder’s holding period for our common stock. If gain on the sale or other taxable disposition of our common stock were subject to taxation under the third bullet point above, the non-U.S. holder would be subject to regular U.S. federal income tax with respect to such gain in generally the same manner as a U.S. person and may be subject to withholding tax.
Information reporting and backup withholding tax
We must report annually to the IRS and to you the amount of dividends paid to you and the amount of tax, if any, withheld with respect to such dividends. The IRS may make this information available to the tax authorities in the country in which you are resident.
Additional information returns may be filed and you may be subject to backup withholding (currently at a rate of 28%) with respect to dividends paid on, and the proceeds from the disposition of, shares of our common stock, unless, generally, you certify under penalties of perjury (usually on IRS Form W-8BEN or W-8BEN-E) that you are not a U.S. person or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against your U.S. federal income tax liability, provided the required information is timely furnished by you to the IRS.
Additional withholding tax
Sections 1471 through 1474 of the Code (commonly referred to as “FATCA”) generally will impose a 30% withholding tax on (i) dividends paid on our common stock and (ii) gross proceeds from the sale or other disposition of our common stock that occurs after December 31, 2018, in each case if the common stock is held by or through:
|
|
•
|
certain foreign financial institutions (including investment funds), unless the institution otherwise qualifies for an exemption or enters into an agreement with the U.S. Treasury (i) to collect and report, on an annual basis, information with respect to accounts in the institution held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons, and (ii) to withhold on certain payments; or
|
|
|
•
|
a non-financial non-U.S. entity, unless the entity (i) either certifies to the applicable withholding agent or the IRS that the entity does not have any “substantial United States owners” or provides certain information regarding the entity’s “substantial United States owners” or (ii) otherwise establishes an exemption from such withholding tax.
|
The rules described above may be modified by an intergovernmental agreement entered into between the United States and an applicable foreign country, or by future Treasury regulations or other guidance. Non-U.S. holders are encouraged to consult their tax advisors regarding the possible implications of these rules on their investment in our common stock.
POTENTIAL PURCHASERS OF OUR COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK.
TABLE OF CONTENTS
UNDERWRITING
Joseph Gunnar & Co., LLC and Neidiger, Tucker, Bruner, Inc. are acting as the joint book-running managers and the representatives of the underwriters of the offering. We have entered into an underwriting agreement dated , 2016 with the representatives. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally agreed to purchase, at the public offering price set forth on the cover page of this prospectus, less the underwriting discounts and commissions, the number of shares of common stock listed next
to its name in the following table:
|
|
|
|
|
Name of Underwriter
|
|
Number of Shares
|
|
Joseph Gunnar & Co., LLC
|
|
|
|
|
|
Neidiger, Tucker, Bruner, Inc.
|
|
|
|
|
The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
We have granted to the underwriters an option to purchase up to additional shares of common stock at a purchase price of $ per share, less underwriting discounts and commissions. The underwriters may exercise this option for 45 days from the date of this prospectus solely to cover sales of shares of common stock by underwriters in excess of the total number of shares of common stock set forth in the table above. If any of these additional shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered. We
will pay the expenses associated with the exercise of the over-allotment option. If this option is exercised in full, the total price to the public will be $ and the total net proceeds, before expenses, to us will be $ .
Discounts and Commissions
The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Per Share
|
|
Without
Over-Allotment
|
|
With
Over-Allotment
|
|
Public offering price
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Non-accountable expense allowance
(1)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The expense allowance of 1% is not payable with respect to the shares sold upon exercise of the underwriters’ over-allotment option.
|
The underwriters propose to offer the shares offered by us to the public at the public offering price set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $ per share. If all of the shares offered by us are not
TABLE OF CONTENTS
sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a further supplement to this prospectus supplement.
We have paid an expense deposit of $50,000 to the representatives, which will be applied against the out-of-pocket accountable expenses that will be paid by us to the underwriters in connection with this offering. The underwriting agreement, however, provides that in the event the offering is terminated, the $50,000 out-of-pocket expense deposit paid to the representatives will be returned to the extent such expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
We have also agreed to pay the underwriters’ expenses relating to the offering, including (a) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $3,000 per individual and $10,000 in the aggregate; (b) all fees incurred in clearing this offering with FINRA; (c) all fees, expenses and disbursements relating to registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the representative; (d) all fees, expenses and disbursements relating to registration, qualification or exemption of
securities offered under the “blue sky” securities laws of such states and jurisdictions designated by the representative (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of “blue sky” counsel, it being agreed that such fees and expenses will be limited to a payment of $15,000 to such counsel upon the commencement of “blue sky” work by such counsel and an additional $5,000 at closing, if the offering is commenced on the Over-the-Counter Bulletin Board, or an aggregate of $5,000 at closing if the offering is consummated on a national exchange; (e) the $29,500 cost associated with the use of Ipreo’s book building, prospectus tracking and compliance software for the offering, (f) the fees and expenses of the underwriters’ legal counsel not to exceed $50,000; (g) up to $20,000 of the representatives actual accountable “road show” expenses for the offering, (h) the costs associated
with bound volumes of the public offering materials as well as commemorative mementos and Lucite tombstones, not to exceed $2,500, and (i) up to $10,000 in costs associated with post-closing advertisement of the offering in the
Wall Street Journal
and
New York Times.
We estimate that the total expenses of the offering payable by us, excluding the total underwriting discounts and commissions and expense reimbursement, will be approximately $ .
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, we, our officers and directors, and all of our equityholders have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently
acquired, without the prior written consent of the representatives, for a period of 180 days from the date of this prospectus.
The lock-up period described in the preceding paragraphs will be automatically extended if: (1) during the last 17 days of the restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings release, unless the representatives waive this extension in
writing.
TABLE OF CONTENTS
Representatives’ Warrants
We have agreed to issue to the representatives warrants, or the Representatives Warrants, to purchase up to a total of shares of common stock (5% of the shares of common stock sold in this offering). The warrants are exercisable at a per share price equal to 125% of the public offering price per share in the offering, at any time, and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the offering, which period shall not extend further than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(i). The warrants have been
deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The representatives (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the offering. In addition, the warrants provide for registration rights upon request, in certain cases. The demand registration right provided will not be greater than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(iv). The piggyback registration right provided will not be greater than seven years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(v). We will bear all fees and
expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Right of First Refusal
Until 24 months from the closing of the offering, the representatives have a right of first refusal to act as sole investment bankers, sole book-runners or sole placement agents, at representatives’ sole discretion, for each and every future public and private equity and debt offering, which we or any subsidiary or successor may seek to sell in public or private equity and public debt offerings during such 24-month period. The representatives will not have more than one opportunity to waive or terminate the right of first refusal in consideration of any payment or fee.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these
websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
|
|
•
|
Stabilizing transactions permit underwriters to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
|
|
|
•
|
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may
|
TABLE OF CONTENTS
|
|
|
purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option or purchasing shares in the open market.
|
|
|
•
|
Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
|
|
|
•
|
Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
|
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of common stock or preventing or retarding a decline in the market price of our shares of common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on the NYSE MKT, in the
over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive market making
In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on the NYSE MKT in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are
exceeded.
Other Relationships
Certain of the underwriters and their affiliates have engaged, and may in the future engage, in investment banking transactions with us in the ordinary course of their business. They have received, and expect to receive, customary compensation and expense reimbursement for these commercial and investment banking transactions. Neidiger, Tucker, Bruner, Inc. served as the placement agent of our offering of units we consummated on December 28, 2015, for which it received a transaction fee of approximately $154,000 in cash. Neidiger, Tucker, Bruner, Inc. also served as placement agent of our offering of units that closed on
January 3, 2013, for which it received a transaction fee of approximately $400,000 and warrants to acquire 357 units with an exercise price of $1,100 per unit. Except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.
Offer Restrictions Outside the U.S.
Other than in the U.S., no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into
whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the
TABLE OF CONTENTS
offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the common stock under this prospectus is only made to persons to whom it is lawful to offer the common stock without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is
made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the common stock sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
China
The information in this document does not constitute a public offer of the common stock, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The common stock may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of common stock will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of common stock has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
|
|
•
|
to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
|
TABLE OF CONTENTS
|
|
•
|
to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
|
|
|
•
|
to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of Sensus Healthcare, Inc. or any underwriter for any such offer; or
|
|
|
•
|
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of common stock shall result in a requirement for the publication by Sensus Healthcare, Inc. of a prospectus pursuant to Article 3 of the Prospectus Directive.
|
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The common stock have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the common stock have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial
Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the common stock cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The common stock have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l)
of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The common stock offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority, or ISA, nor have such common stock been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the common stock being offered. Any resale in Israel,
directly or indirectly, to the public of the common stock offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
TABLE OF CONTENTS
Italy
The offering of the common stock in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating to the common stock may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
|
|
•
|
to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
|
|
|
•
|
in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.
|
Any offer, sale or delivery of the common stock or distribution of any offer document relating to the common stock in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
|
|
•
|
made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
|
|
|
•
|
in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.
|
Any subsequent distribution of the common stock in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such common stock being declared null and void and in the liability of the entity transferring the common stock for any damages suffered by the investors.
Japan
The common stock have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the common stock may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified
Institutional Investors. Any Qualified Institutional Investor who acquires common stock may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of common stock is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The common stock have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the common stock have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissao do Mercado de Valores Mobiliários) for
approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of common stock in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
TABLE OF CONTENTS
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the common stock be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of common stock in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may
receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the common
stock may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of common stock will not be supervised by, the Swiss Financial Market Supervisory Authority (“FINMA”).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the common stock have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has Sensus Healthcare, Inc. received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the common stock within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the common stock, including the receipt of
applications or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by Sensus Healthcare, Inc.
No offer or invitation to subscribe for common stock is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the common stock. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the common stock may not be offered or sold in the United Kingdom by means of this
document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the common stock has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to Sensus Healthcare, Inc.
TABLE OF CONTENTS
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or
(iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will be passed upon for us by our counsel, Gunster, Yoakley & Stewart, P.A., Fort Lauderdale, FL. Certain legal matters will be passed upon for the underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, NY.
EXPERTS
The financial statements of Sensus Healthcare, Inc. as of December 31, 2014 and 2015, and for each of the years in the three-year period ended December 31, 2015, have been included herein and in the registration statement in reliance upon the report of Marcum LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including exhibits and schedules, under the Securities Act with respect to the shares of our common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and exhibits and schedules to the registration statement. For further information with respect to our company and the shares of common stock to be sold in this offering, reference is made to the registration statement, including the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the
contents of any contract is an exhibit to the registration statement, each statement is qualified in all respects by the exhibit to which the reference relates. In addition, as a result of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act, and will file annual, quarterly and current reports and other information with the SEC. Our SEC filings, including the registration statement on Form S-1 and all filed exhibits and schedules thereto, are available to the public on the SEC’s website at
http://www.sec.gov
. To receive copies of public records not posted to the SEC’s website at prescribed rates, you may complete an online form at
http://www.sec.gov
, send a fax to (202) 772-9337 or submit a written request to the SEC, Office of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information.
TABLE OF CONTENTS
FINANCIAL STATEMENTS OF SENSUS HEALTHCARE, INC.
CONTENTS
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Members
of Sensus Healthcare, Inc.
We have audited the accompanying balance sheets of Sensus Healthcare, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sensus Healthcare, Inc., as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum LLP
West Palm Beach, FL
February 9, 2016
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2014
|
|
2015
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,538,713
|
|
|
$
|
5,065,068
|
|
|
Accounts receivable, net
|
|
|
407,592
|
|
|
|
2,071,572
|
|
|
Inventories
|
|
|
844,074
|
|
|
|
998,861
|
|
|
Prepaid expenses and other
|
|
|
48,312
|
|
|
|
432,787
|
|
|
Total Current Assets
|
|
|
5,838,691
|
|
|
|
8,568,288
|
|
|
Property and Equipment, Net
|
|
|
260,497
|
|
|
|
320,699
|
|
|
Patent Rights, Net
|
|
|
819,281
|
|
|
|
722,895
|
|
|
Deposits
|
|
|
24,272
|
|
|
|
24,272
|
|
|
Total Assets
|
|
$
|
6,942,741
|
|
|
$
|
9,636,154
|
|
Liabilities and Stockholder’s Equity
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,081,039
|
|
|
$
|
2,307,465
|
|
|
Product warranties
|
|
|
47,614
|
|
|
|
48,363
|
|
|
Revolving credit facility
|
|
|
375,000
|
|
|
|
422,702
|
|
|
Deferred revenue, current portion
|
|
|
1,249,880
|
|
|
|
890,234
|
|
|
Total Current Liabilities
|
|
|
2,753,533
|
|
|
|
3,668,764
|
|
|
Deferred Revenue, Net of Current Portion
|
|
|
51,000
|
|
|
|
45,786
|
|
|
Total Liabilities
|
|
|
2,804,533
|
|
|
|
3,714,550
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value – 1,000,000 shares authorized, 40,835 and 42,852 shares issued and outstanding at December 31, 2014 and 2015, respectively
|
|
|
408
|
|
|
|
428
|
|
|
Additional paid-in capital
|
|
|
11,346,342
|
|
|
|
13,366,985
|
|
|
Accumulated deficit
|
|
|
(7,208,542
|
)
|
|
|
(7,445,809
|
)
|
|
Total Stockholders’ Equity
|
|
|
4,138,208
|
|
|
|
5,921,604
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
6,942,741
|
|
|
$
|
9,636,154
|
|
The accompanying footnotes are an integral part of these financial statements.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
Revenues
|
|
$
|
10,478,920
|
|
|
$
|
5,810,205
|
|
|
$
|
10,273,094
|
|
|
Cost of Sales
|
|
|
3,600,348
|
|
|
|
2,054,798
|
|
|
|
3,698,687
|
|
|
Gross Profit
|
|
|
6,878,572
|
|
|
|
3,755,407
|
|
|
|
6,574,407
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
3,965,276
|
|
|
|
4,208,241
|
|
|
|
3,742,535
|
|
|
General and administrative
|
|
|
1,453,344
|
|
|
|
1,650,651
|
|
|
|
1,586,401
|
|
|
Research and development
|
|
|
1,333,111
|
|
|
|
1,576,775
|
|
|
|
1,466,728
|
|
|
Total Operating Expenses
|
|
|
6,751,731
|
|
|
|
7,435,667
|
|
|
|
6,795,664
|
|
|
Income (Loss) From Operations
|
|
|
126,841
|
|
|
|
(3,680,260
|
)
|
|
|
(221,257
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(20,467
|
)
|
|
|
(20,030
|
)
|
|
|
(17,786
|
)
|
|
Interest income
|
|
|
1,253
|
|
|
|
820
|
|
|
|
1,776
|
|
|
Total Other Income (Expense)
|
|
|
(19,214
|
)
|
|
|
(19,210
|
)
|
|
|
(16,010
|
)
|
|
Net Income (Loss)
|
|
$
|
107,627
|
|
|
$
|
(3,699,470
|
)
|
|
$
|
(237,267
|
)
|
|
Preferential distribution
|
|
|
(513,332
|
)
|
|
|
(537,693
|
)
|
|
|
(513,332
|
)
|
|
Net Loss Attributable to Common Stockholders
|
|
$
|
(405,705
|
)
|
|
$
|
(4,237,163
|
)
|
|
$
|
(750,599
|
)
|
Net Loss Attributable to Common Stockholders
per share – basic and diluted
|
|
$
|
(10.02
|
)
|
|
$
|
(103.76
|
)
|
|
$
|
(18.37
|
)
|
|
Weighted average number of shares used in computing net loss per share – basic and diluted
|
|
|
40,482
|
|
|
|
40,835
|
|
|
|
40,857
|
|
The accompanying footnotes are an integral part of these financial statements.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
Balance – December 31, 2012
|
|
|
37,260
|
|
|
$
|
372
|
|
|
$
|
8,138,388
|
|
|
$
|
(3,616,699
|
)
|
|
$
|
4,522,061
|
|
|
Issuance of common stock for cash, net of offering costs
|
|
|
3,575
|
|
|
|
36
|
|
|
|
3,245,818
|
|
|
|
—
|
|
|
|
3,245,854
|
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,080
|
|
|
|
—
|
|
|
|
1,080
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107,627
|
|
|
|
107,627
|
|
|
Balance – December 31, 2013
|
|
|
40,835
|
|
|
$
|
408
|
|
|
$
|
11,385,286
|
|
|
$
|
(3,509,072
|
)
|
|
$
|
7,876,622
|
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6,477
|
|
|
|
—
|
|
|
|
6,477
|
|
|
Distributions paid
|
|
|
—
|
|
|
|
—
|
|
|
|
(45,421
|
)
|
|
|
—
|
|
|
|
(45,421
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,699,470
|
)
|
|
|
(3,699,470
|
)
|
|
Balance – December 31, 2014
|
|
|
40,835
|
|
|
$
|
408
|
|
|
$
|
11,346,342
|
|
|
$
|
(7,208,542
|
)
|
|
$
|
4,138,208
|
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6,477
|
|
|
|
—
|
|
|
|
6,477
|
|
|
Issuance of common stock for cash, net of offering costs
|
|
|
2,017
|
|
|
|
20
|
|
|
|
2,014,166
|
|
|
|
—
|
|
|
|
2,014,186
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(237,267
|
)
|
|
|
(237,267
|
)
|
|
Balance – December 31, 2015
|
|
|
42,852
|
|
|
$
|
428
|
|
|
$
|
13,366,985
|
|
|
$
|
(7,445,809
|
)
|
|
$
|
5,921,604
|
|
The accompanying footnotes are an integral part of these financial statements.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
107,627
|
|
|
$
|
(3,699,470
|
)
|
|
$
|
(237,267
|
)
|
|
Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
265,557
|
|
|
|
272,649
|
|
|
|
315,599
|
|
|
Provision for product warranties
|
|
|
122,000
|
|
|
|
13,024
|
|
|
|
7,189
|
|
|
Provision for bad debts
|
|
|
55,792
|
|
|
|
183,646
|
|
|
|
1,077
|
|
|
Stock based compensation
|
|
|
1,080
|
|
|
|
6,477
|
|
|
|
6,477
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,368,941
|
)
|
|
|
2,118,715
|
|
|
|
(1,665,057
|
)
|
|
Inventories
|
|
|
(342,934
|
)
|
|
|
(327,350
|
)
|
|
|
(238,011
|
)
|
|
Prepaid expenses and deposits
|
|
|
13,963
|
|
|
|
(28,707
|
)
|
|
|
(384,475
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
807,482
|
|
|
|
(607,958
|
)
|
|
|
1,226,425
|
|
|
Deferred revenue
|
|
|
288,991
|
|
|
|
267,826
|
|
|
|
(364,860
|
)
|
|
Product warranties
|
|
|
(79,310
|
)
|
|
|
(66,534
|
)
|
|
|
(6,440
|
)
|
|
Total Adjustments
|
|
|
(236,320
|
)
|
|
|
1,831,788
|
|
|
|
(1,102,076
|
)
|
|
Net Cash Used In Operating Activities
|
|
|
(128,693
|
)
|
|
|
(1,867,682
|
)
|
|
|
(1,339,343
|
)
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
$
|
(251,004
|
)
|
|
$
|
(123,959
|
)
|
|
$
|
(196,190
|
)
|
|
Net Cash Used In Investing Activities
|
|
|
(251,004
|
)
|
|
|
(123,959
|
)
|
|
|
(196,190
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
$
|
3,575,000
|
|
|
$
|
—
|
|
|
$
|
2,200,000
|
|
|
Proceeds from revolving credit facility, net
|
|
|
—
|
|
|
|
—
|
|
|
|
47,702
|
|
|
Distributions to members
|
|
|
—
|
|
|
|
(45,421
|
)
|
|
|
—
|
|
|
Offering costs related to issuance
|
|
|
(329,146
|
)
|
|
|
—
|
|
|
|
(185,814
|
)
|
|
Net Cash Provided By (Used In) Financing Activities
|
|
|
3,245,854
|
|
|
|
(45,421
|
)
|
|
|
2,061,888
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
2,866,157
|
|
|
|
(2,037,062
|
)
|
|
|
526,355
|
|
|
Cash and Cash Equivalents – Beginning
|
|
|
3,709,618
|
|
|
|
6,575,775
|
|
|
|
4,538,713
|
|
|
Cash and Cash Equivalents – Ending
|
|
$
|
6,575,775
|
|
|
$
|
4,538,713
|
|
|
$
|
5,065,068
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Paid
|
|
$
|
20,748
|
|
|
$
|
20,031
|
|
|
$
|
17,814
|
|
Non Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of inventory unit to property and equipment
|
|
$
|
44,000
|
|
|
$
|
—
|
|
|
$
|
83,224
|
|
The accompanying footnotes are an integral part of these financial statements.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 1 — Summary of Significant Accounting Policies
Description of the Business
Sensus Healthcare, Inc. (the “Company”) is a manufacturer of superficial radiation therapy devices and has established a distribution and marketing network to sell the devices to healthcare providers globally. The Company operates as a corporation under the laws of the State of Delaware and was organized on May 7, 2010. The Company operates as one segment from its corporate headquarters located in Boca Raton, Florida.
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc (“corporate conversion”). As a result of the corporate conversion, the holders of the different classes of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options, respectively, to purchase units of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively. Each unit converted to one share of common stock. Preferential
distributions will no longer accrue as of January 1, 2016. In the event of an initial public offering or change in control (as defined) the accumulated distribution of $2,674,000 as of December 31, 2015 will be paid. The corporate conversion has been reflected retroactively for all periods presented.
Effective January 1, 2016, the Company will be subject to corporate income taxes. (See note 8).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates to which it is reasonably possible that a change could occur in the near term include, revenue recognition, inventory reserves, receivable allowances, recoverability of long lived assets and estimation of
the Company’s product warranties. Actual results could differ from those estimates.
Revenue Recognition
The Company’s sales primarily relate to sales of the Company’s devices. The Company recognizes product revenue upon shipment provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company does not provide a right of return related to product sales. Revenues for service contracts are recognized over the service contract period on a straight-line basis. Revenue for rentals of equipment is recognized over the lease term on a straight-line basis.
The Company sells products and services under multiple-element arrangements with separate units of accounting; in these situations, total consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then recognized for each unit based on its specific characteristics. A deliverable in an arrangement qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. The principal deliverables in our multiple deliverable arrangements that qualify as separate units of accounting consist of (i) sales of medical devices and
accessories and (ii) service contracts. Performance obligations, including installation and customer training, are considered inconsequential and are combined with the product as one unit of accounting. The Company operates in a highly regulatory environment and is continually entering into new markets in which state or foreign approval is sometimes required prior to the customer being able to use the product. In these cases, where regulatory approval is pending, revenue is deferred until such time regulatory approval is obtained and customer acceptance becomes certain.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 1 — Summary of Significant Accounting Policies
- (continued)
Deferred revenue consists of payments from customers for separately priced service contracts, deposits on products and sales pending regulatory approval. Deferred revenue as of December 31, 2014 and 2015 was as follows:
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2014
|
|
2015
|
|
Service contracts
|
|
$
|
519,445
|
|
|
$
|
669,717
|
|
|
Sales pending regulatory approval
|
|
|
465,915
|
|
|
|
155,517
|
|
|
Deposits on products
|
|
|
264,520
|
|
|
|
65,000
|
|
|
Total deferred revenue, current portion
|
|
$
|
1,249,880
|
|
|
$
|
890,234
|
|
|
Service contracts, net of current portion
|
|
|
51,000
|
|
|
|
45,786
|
|
|
Total deferred revenue
|
|
$
|
1,300,880
|
|
|
$
|
936,020
|
|
The Company provides warranties, generally one year, in conjunction with the sale of its product. These warranties are short term in nature and entitle the customer to repair, replacement, or modification of the defective product subject to the terms of the respective warranty. The Company records an estimate of future warranty claims at the time the Company recognizes revenue from the sale of the product based upon management’s estimate of the future claims rate.
Shipping and handling costs are expensed as incurred and are included in cost of sales.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.
Segment and Geographical Information
The Company operates in one segment. All of the Company’s assets are maintained in the United States. The Company’s revenue is generated primarily from customers in the United States, which represented approximately 96%, 94% and 82% of its net revenues for the years ended December 31, 2013, 2014 and 2015, respectively. Customers in China accounted for approximately 2%, 5% and 14% of revenues for the years ended December 31, 2013, 2014 and 2015, respectively. Service revenue comprised approximately 4%, 14% and 12% of revenues for the years ended December 31, 2013, 2014 and 2015, respectively. Rental income was not
significant for any of the years presented.
Fair Value of Financial Instruments
Carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities and revolving credit facility approximate fair value due to their relative short maturities.
Cash and Cash Equivalents
The Company maintains its cash and cash equivalents with financial institutions which balances exceed the federally insured limits. Federally insured limits are $250,000 for deposits. As of December 31, 2014 and 2015 the Company had approximately $4,289,000 and $4,782,000, respectively in excess of federally insured limits.
For purposes of the statement of cash flows, the Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be a cash equivalent.
Accounts Receivable
The Company does business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 1 — Summary of Significant Accounting Policies
- (continued)
customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for doubtful accounts was approximately $42,000 and $27,000, respectively, as of December 31, 2014 and 2015. To date, the Company has not experienced significant credit-related losses.
Inventories
Inventories consist of finished product and components and are stated at the lower of cost, determined using the first-in-first-out method, or net realizable value. Cost includes labor and overhead incurred to prepare the product for sale.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-line basis over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of property or extend their useful lives are capitalized. When assets are sold or returned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income.
Inventory units designated for customer demonstrations, as part of the sales process, are reclassified to property and equipment and the depreciation is recorded to selling and marketing expense. The inventory used for demonstrations that was reclassified to property and equipment for the years ended December 31, 2013 and 2015 was approximately $44,000 and $44,000, respectively. No inventory was reclassified for the year ended December 31, 2014.
Inventory units designated for customer rental agreements are reclassified to property and equipment and the depreciation is recorded to cost of sales. The inventory under rental agreements reclassified to property and equipment for the year ended December 31, 2015 was approximately $39,000. No inventory was reclassified for the years ended December 31, 2013 and 2014.
Intangible Assets
Intangible assets are comprised of the Company’s patent rights and the amortization over the patents’ estimated useful life of approximately 13 years is included in cost of sales. As of December 31, 2015 the remaining useful life was 90 months.
Long-Lived Assets
The Company evaluates its long-lived assets, including intangible assets, for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows in accordance with accounting guidance. If circumstances suggest the recorded amounts cannot be recovered, based upon estimated future undiscounted cash flows, the carrying values of such assets are reduced to fair value. No impairment charges were recorded for long-lived assets for the years ended December 31, 2013, 2014 and 2015.
Research and Development
Research and development costs relate to products under development by the Company and quality and regulatory costs and are expensed as incurred.
Income Taxes
Through December 31, 2015, the Company was not subject to income taxes in any jurisdiction. Each member was responsible for the tax liability, if any, related to their proportionate share of the Company’s taxable income. The Company was a pass-through entity and there are no uncertain tax positions that would
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 1 — Summary of Significant Accounting Policies
- (continued)
require recognition in the financial statements. If the Company incurs an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors. Effective January 1, 2016, the Company converted to a Delaware corporation that will be subject to corporate income taxes (see note 8).
Earnings per Share
Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period using the treasury stock method for options and warrants. The diluted net income per share attributable to common stockholders is computed by giving effect to all potential dilutive common share equivalents outstanding for the period. In periods when the Company has incurred a net loss, options and warrants to purchase common share are considered common share equivalents but have been excluded from the
calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. Shares excluded in 2013, 2014 and 2015 were computed under the treasury stock method as follows:
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
Warrants
|
|
|
1,118
|
|
|
|
1,118
|
|
|
|
1,213
|
|
|
Options
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
Equity-Based Compensation
Pursuant to accounting guidance related to accounting for equity-based compensation, the Company is required to recognize all share-based payments to non-employees and employees in the financial statements based on fair values on the grant date. The Company has accounted for issuance of shares, options, and warrants in accordance with the guidance, which requires the recognition of expense, based on grant-date fair values, over the service period, generally periods over which the shares, options and warrants vest.
Advertising Costs
Advertising and promotion expenses are charged to expense as incurred. Advertising and promotion expense included in selling expense in the accompanying statements of operations amounted to approximately $463,000, $973,000 and $773,000 for the years ended December 31, 2013, 2014 and 2015, respectively.
Operating Leases
Rent expense for operating leases which contain escalating rental clauses is recorded on a straight-line basis over the lease term.
Deferred Initial Public Offering Costs
Deferred offering costs, which consist of direct incremental legal, accounting and other fees relating to the IPO, are capitalized. The deferred offering costs will be offset against IPO proceeds upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed. As of December 31, 2015, approximately $310,000 of deferred offering costs were capitalized in prepaid expenses and other on the balance sheets. No deferred offering costs were capitalized as of December 31, 2014.
Recently issued accounting pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 1 — Summary of Significant Accounting Policies
- (continued)
current GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. Entities can transition to
the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the future adoption of this standard.
The FASB has issued ASU No. 2014-12, Compensation- Stock Compensation (Topic 718): Accounting for Shared-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that
the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the impact of the future adoption of this standard but it does not expect the adoption to have a material effect on our financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2015, and interim periods within those years, with early adoption permitted. The Company
is currently evaluating the impact of the adoption of this standard but it does not expect the adoption to have a material effect on our financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). Under the new guidance, companies are required to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. In addition, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances will also be classified as noncurrent. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2016. The Company is
currently evaluating the impact of the adoption of this standard but it does not expect the adoption to have a material effect on our financial statements.
Reclassification
Depreciation and amortization for the years ended December 31, 2013 and 2014, which had been previously presented in the Statement of Operations as a separate line item, have been reclassified to cost of sales, selling and marketing, and general and administrative expense. The Company believes this is a more meaningful presentation.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 1 — Summary of Significant Accounting Policies
- (continued)
The reclassification for the years ended December 31, 2013 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
2013
|
|
2014
|
Amortization:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
96,386
|
|
|
|
96,386
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
42,249
|
|
|
|
82,861
|
|
|
Selling and marketing
|
|
|
109,724
|
|
|
|
79,901
|
|
|
General and administrative
|
|
|
17,198
|
|
|
|
13,501
|
|
|
|
|
|
265,557
|
|
|
|
272,649
|
|
Note 2 — Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
As to December 31,
|
|
Estimated
Useful Lives
|
|
|
|
2014
|
|
2015
|
|
Operations and rental equipment
|
|
$
|
290,364
|
|
|
$
|
504,786
|
|
|
|
3 years
|
|
|
Tradeshow and demo equipment
|
|
|
392,002
|
|
|
|
397,325
|
|
|
|
3 years
|
|
|
Computer equipment
|
|
|
72,894
|
|
|
|
88,451
|
|
|
|
3 years
|
|
|
|
|
|
755,260
|
|
|
|
990,562
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(494,763
|
)
|
|
|
(669,863
|
)
|
|
|
|
|
|
Property and Equipment, Net
|
|
$
|
260,497
|
|
|
$
|
320,699
|
|
|
|
|
|
Depreciation expense was approximately $169,000, $176,000 and $219,000 for the years ended December 31, 2013, 2014 and 2015, respectively.
Note 3 — Patent Rights
|
|
|
|
|
|
|
|
|
As to December 31,
|
|
|
|
2014
|
|
2015
|
|
Gross carrying amount
|
|
$
|
1,253,018
|
|
|
$
|
1,253,018
|
|
|
Less accumulated depreciation
|
|
|
(433,737
|
)
|
|
|
(530,123
|
)
|
|
Net Carrying Amount
|
|
$
|
819,281
|
|
|
|
722,895
|
|
Amortization expense was approximately $96,000 for each of the years ended December 31, 2013, 2014 and 2015 and is included in cost of sales in the statement of operations. Future amortization expense is as follows:
|
|
|
|
|
2016
|
|
$
|
96,386
|
|
|
2017
|
|
|
96,386
|
|
|
2018
|
|
|
96,386
|
|
|
2019
|
|
|
96,386
|
|
|
2020
|
|
|
96,386
|
|
|
Thereafter
|
|
|
240,965
|
|
|
Total
|
|
$
|
722,895
|
|
Note 4 — Revolving Credit Facility
On March 12, 2013, the Company entered into a 2-year $3 million revolving credit facility. The credit facility was amended and extended effective March 12, 2015. The maximum borrowing was reduced to $1,500,000 and is limited by the Company’s eligible borrowing base of 80% of eligible accounts receivable.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 4 — Revolving Credit Facility
- (continued)
Interest, at Prime plus 1.75% (5.25% at December 31, 2015) is payable monthly with outstanding principal and interest due on May 12, 2017, the maturity date. The facility is secured by all of the Company’s assets and limits the amount of additional indebtedness, restricts the sale, disposition or transfer of assets of the Company and requires the maintenance of a certain monthly adjusted quick ratio restrictive covenant and minimum quarterly EBITDA restrictive covenant, as defined in the agreement. At December 31, 2014, the Company was not in compliance with its minimum EBITDA requirement and received a waiver from its
lender. The Company was not in compliance with its adjusted quick ratio requirement for October and November 2015 and received a waiver from its lender. The Company was in compliance with all covenants as of December 31, 2015. Approximately $375,000 and $423,000 was outstanding under the revolving credit facility at December 31, 2014 and 2015. The Company pays commitment fees of 0.25% per annum on the average unused portion of the line of credit.
Note 5 — Product Warranties
Changes in product warranty liability was as follows for the years ended December 31, 2014 and 2015:
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
2014
|
|
2015
|
|
Balance, beginning of period
|
|
$
|
101,124
|
|
|
$
|
47,614
|
|
|
Warranties accrued during the period
|
|
|
13,024
|
|
|
|
7,189
|
|
|
Payments on warranty claims
|
|
|
(66,534
|
)
|
|
|
(6,440
|
)
|
Balance, end of period
|
|
$
|
47,614
|
|
|
$
|
48,363
|
|
Note 6 — Commitment and Contingencies
Operating Lease Agreements
The Company maintains a lease requiring monthly payments with an unrelated third party to lease approximately 4,500 square feet of office space, which lease is guaranteed by the founding members. The lease expires on July 31, 2017 and lease payments increase by 3% annually.
Future minimum payments as of December 31, 2015 are as follows:
|
|
|
|
|
2016
|
|
$
|
101,000
|
|
|
2017
|
|
|
60,000
|
|
|
|
|
$
|
161,000
|
|
Rental expense for the years ended December 31, 2013, 2014 and 2015 was approximately $83,000, $89,000 and $98,000, respectively.
Manufacturing Agreement
In July 2010, the Company entered into a three-year contract manufacturing agreement with an unrelated third party for the production and manufacture of the Company’s main product in accordance with the Company’s product specifications. The Company continues to do business with the contract manufacturer in accordance with the July 2010 agreement. The Company or the manufacturer has the option to terminate the agreement with 90 days written notice. Any change in the relationship with the manufacturer could have an adverse effect on the Company’s business.
Purchases from this manufacturer totaled approximately $2,973,000, $1,459,000 and $2,871,000 for the years ended December 31, 2013, 2014 and 2015, respectively. As of December 31, 2014 and 2015, approximately $95,000 and $1,079,000 was due to this manufacturer, which is presented in accounts payable and accrued expenses in the accompanying balance sheets.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 6 — Commitment and Contingencies
- (continued)
Legal Contingencies
The Company is party to certain legal proceedings in the ordinary course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. The Company does not believe that any current legal proceedings are likely to have a material effect on the business, financial condition, or results of operations, with the possible exception of one lawsuit (involving a customer seeking, among other things, to return and obtain a refund for one of the Company’s devices) in which the Company is unable to estimate the possible loss or range of loss.
Note 7 — Stockholders’ Equity
See Note 8 – Subsequent Event – regarding the Company’s statutory conversion to a Delaware corporation and conversion of preferred and common member interests to common stock.
The Company has authorized 1,000,000 shares of common stock, of which 40,835, 40,835 and 42,852 shares were issued and outstanding as of December 31, 2013, 2014 and 2015, respectively.
During the year ended December 31, 2014, distributions were paid of approximately $45,000. During the years ended December 31, 2013 and 2015 there were no distributions.
Stock Issuances
During 2011, the Company offered to a limited number of investors (the “investor members”) preferred membership interests (the “interests”) consisting of (i) cumulative, non-compounded, 8% per annum preferential return, payable annually, if and when such distributions are made by the Company’s board of directors and (ii) participation in the Company’s net profits, net losses and distributions of the Company’s assets pursuant to the operating agreement. The offering raised approximately $6.4 million in gross proceeds ($6.0 million net of offering costs), utilizing a private placement
memorandum. As of December 31, 2013, 2014 and 2015, accumulated unpaid preferential distributions were approximately $1,648,000 ($129.22 per share), $2,161,000 ($169.49 per share) and $2,674,000 ($209.74 per share), respectively. Preferential distributions will no longer accrue after December 31, 2015 (see note 8).
In the event of liquidation of the Company, distributions to lenders and investors with the preferred return will take place first, until the preferred return has been satisfied. If sufficient assets remain after the satisfaction of the lenders and investors, distributions will be made to all stockholders, on a pro rata basis.
In March 2012, the Company offered non-preferred equity interests to qualified investors (the “1
st
Common Offering”). All interests were common membership interests in the Company and did not bear a preferred rate of return. The placement agent was entitled to transaction fees of 7.5% of the gross proceeds of the offering including reimbursement of certain costs not to exceed $50,000. The Company raised approximately $2.4 million in gross proceeds ($2.1 million net of offering costs) from the sale of these interests. No warrants were granted related to this offering.
In December 2012, the Company offered non-preferred equity interests to qualified investors (the “2
nd
Common Offering”). All interests were common membership interests in the Company and did not bear a preferred rate of return. The placement agent received transaction fees equal to 7.5% of the gross proceeds of the offering including reimbursement of certain costs not to exceed 1% of the gross proceeds of the offering. In addition, the placement agent received investor rights to 5 year warrants. The Company raised approximately $3.6 million in gross proceeds ($3.2 million net of offering costs) from the
successful completion and of the private placement in 2013.
On December 28, 2015, the Company issued 2,017 common membership interests to qualified investors and raised approximately $2.2 million in gross proceeds (approximately $2.0 million net of offering costs).
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 7 — Stockholders’ Equity
- (continued)
The placement agent in this offering received transaction fees equal to 7.0% of the gross proceeds of the offering. No warrants were granted related to this offering.
Warrants
In March 2011, the closing date of the preferred offering, the Company’s placement agent was granted investor rights to 5 year warrants (the “placement agent warrants”) to purchase 2,250 preferred shares of the Company at an exercise price of approximately $503 per share. Dividends on the preferred interest do not accumulate until the warrants are exercised.
In April, 2013, the closing date of the 2
nd
Common Offering, the placement agent received investor rights to 5 year warrants to purchase 357 common shares of the Company at an exercise price of $1,100 per share which was equal to 110% of the offering price.
All warrants were fully vested as of December 31, 2014 and 2015. The following table summarizes the Company’s warrant activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Unit Warrants
|
|
Common Unit Warrants
|
|
|
|
Number
of Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average Remaining Contractual Term
(In Years)
|
|
Number
of Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average Remaining Contractual Term
(In Years)
|
|
Outstanding
– December 31, 2012
|
|
|
2,250
|
|
|
$
|
503
|
|
|
|
3.17
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
357
|
|
|
|
1,100
|
|
|
|
5.00
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled (forfeited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
– December 31, 2013
|
|
|
2,250
|
|
|
$
|
503
|
|
|
|
2.17
|
|
|
|
357
|
|
|
$
|
1,100
|
|
|
|
4.26
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled (forfeited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
– December 31, 2014
|
|
|
2,250
|
|
|
$
|
503
|
|
|
|
1.17
|
|
|
|
357
|
|
|
$
|
1,100
|
|
|
|
3.26
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled (forfeited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
– December 31, 2015
|
|
|
2,250
|
|
|
$
|
503
|
|
|
|
0.17
|
|
|
|
357
|
|
|
$
|
1,100
|
|
|
|
2.26
|
|
|
Exercisable
– December 31, 2015
|
|
|
2,250
|
|
|
$
|
503
|
|
|
|
0.17
|
|
|
|
357
|
|
|
$
|
1,100
|
|
|
|
2.26
|
|
2013 Option Plan
The Company’s 2013 option plan (the “Plan”) permits the grant of 375 shares of common interests to its employees. Option awards are generally granted with an exercise price equal to the fair value of the Company’s common shares at the date of grant and those option awards generally vest based on 5 years of continuous service. The awards provide for accelerated vesting if there is a change in control as defined in the Plan. Upon the closing of an initial public offering, all options issued under the Plan will automatically be exercised using a cashless exercise feature.
2013 Options Granted
On November 1, 2013, the Company granted two employees, options to each purchase 30 shares of common stock at an exercise price of $1,000 per share. In lieu of cash exercise, the options also contain certain cashless exercise provisions however the net settlement amount remains fixed. The options expire 10 years from the grant date and vest 5 years from the grant date. No options were granted during the years ended December 31, 2014 and 2015.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 7 — Stockholders’ Equity
- (continued)
The fair value of each option is estimated on the date of grant using the Black-Scholes Option Pricing Model (“Black-Scholes Model) that uses the assumptions noted in the following table. Expected volatilities are based on historical volatilities of comparable companies, industry indexes and other factors. Because the Company has no historical exercise data and alternative information, such as exercise data relating to employees of other companies, is not easily obtainable, the Company concluded that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term.
Accordingly, the Company utilized the “simplified” method for “plain vanilla” options equal to the average of the term of the option and the vesting period. The risk-free rate represents the yield on U.S. Treasury bonds with a maturity equal to the expected term of the warrant. The weighted average grant date fair value of the options granted during the year ended December 31, 2013 was approximately $40,000 using the following assumptions:
|
|
|
|
|
Expected volatility
|
|
|
64%
|
|
|
Expected term
|
|
|
7.5 years
|
|
|
Risk free interest rate
|
|
|
2.01%
|
|
|
Dividend rate
|
|
|
0%
|
|
A summary of option activity under the Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(In Years)
|
|
Outstanding
– December 31, 2012
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
60
|
|
|
|
1,000
|
|
|
|
10.00
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled (forfeited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
– December 31, 2013
|
|
|
60
|
|
|
$
|
1,000
|
|
|
|
9.83
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled (forfeited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
– December 31, 2014
|
|
|
60
|
|
|
$
|
1,000
|
|
|
|
8.83
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled (forfeited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
– December 31, 2015
|
|
|
60
|
|
|
$
|
1,000
|
|
|
|
7.83
|
|
|
Exercisable
– December 31, 2015
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Total intrinsic value of stock options was $0 as of December 31, 2013 and 2014, and approximately $5,000 as of December 31, 2015. The Company recognized approximately $1,000, $6,000 and $6,000 of stock based compensation related to the grant of the options to its employees for the year ended December 31, 2013, 2014 and 2015, respectively. Total stock based compensation related to nonvested awards not yet recognized as of December 31, 2013, 2014 and 2015 is approximately $39,000, $32,000 and $26,000, respectively, which will be recognized over the remaining vesting period through November 30, 2019.
Equity Interest Awarded to an Executive
During the year ended December 31, 2014, the Company granted a 1% ownership interest in the Company to an executive which vests upon a change in control of the Company. During 2015, the terms were
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 7 — Stockholders’ Equity
- (continued)
amended such that the ownership interest will vest in the event of involuntary termination or a liquidity event, as defined. In accordance with accounting principles generally accepted in the United States, compensation cost for awards with performance conditions should be recorded in the Company’s financial statements at which time that it is probable the performance condition is achieved. As of December 31, 2014 and 2015, the performance condition was not probable and accordingly no compensation cost was recorded.
Note 8 — Subsequent Events
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Sensus Healthcare, Inc. As a result of the corporate conversion, the holders of the different classes of units of Sensus Healthcare, LLC became holders of common stock of Sensus Healthcare, Inc. Holders of warrants and options, respectively, to purchase units of Sensus Healthcare, LLC became holders of warrants and options to purchase common stock of Sensus Healthcare, Inc., respectively. Each unit converted to one share of common stock. Preferential distributions will no longer accrue as
of January 1, 2016. In the event of an initial public offering or change in control (as defined) the accumulated unpaid distribution as of December 31, 2015 will be paid in cash or shares, at the option of each stockholder with a preferential distribution.
Following is an unaudited pro forma balance sheet to reflect the accrual of the dividend payable to the former holders of units with a preferred return:
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
Actual
|
|
Pro Forma
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,065,068
|
|
|
$
|
5,065,068
|
|
|
Working capital
|
|
|
4,899,524
|
|
|
|
4,899,524
|
|
|
Total assets
|
|
|
9,636,154
|
|
|
|
9,636,154
|
|
|
Total liabilities
|
|
|
3,714,550
|
|
|
|
6,388,747
|
|
|
Total stockholders’ equity
|
|
|
5,921,604
|
|
|
|
3,247,407
|
|
|
Total liabilities and stockholders’ equity
|
|
|
9,636,154
|
|
|
|
9,636,154
|
|
Income Taxes (Unaudited)
Effective January 1, 2016, the Company will be subject to corporate income taxes. The unaudited supplemental pro forma income tax expense (benefit) gives effect to the tax treatment of the Company as if it had been subject to federal and state income taxes for the years ended December 31, 2013, 2014 and 2015.
The Company has recognized an increase in valuation allowance equal to 100% of the pro forma deferred tax expense (benefit) attributable to the years ended December 31, 2013, 2014 and 2015.
TABLE OF CONTENTS
SENSUS HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
Note 8 — Subsequent Events
- (continued)
The pro forma net income tax expense (benefit) is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
Current income tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred income tax expense (benefit) before valuation allowance
|
|
|
37,486
|
|
|
|
(1,400,125
|
)
|
|
|
(90,281
|
)
|
|
Net income tax expense (benefit) before valuation allowance
|
|
|
37,486
|
|
|
|
(1,400,125
|
)
|
|
|
(90,281
|
)
|
|
Increase (decrease) in valuation allowance
|
|
|
(37,486
|
)
|
|
|
1,400,125
|
|
|
|
90,281
|
|
|
Net income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s pro forma income tax rates vary from statutory federal income tax rates due to the following:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
Income (loss) before income tax expense (benefit)
|
|
$
|
107,627
|
|
|
$
|
(3,699,470
|
)
|
|
$
|
(237,267
|
)
|
|
Income tax expense (benefit) at statutory federal rate of 34%
|
|
$
|
36,593
|
|
|
$
|
(1,257,820
|
)
|
|
$
|
(80,671
|
)
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expenses
|
|
|
23,125
|
|
|
|
20,016
|
|
|
|
17,320
|
|
|
State income taxes
|
|
|
6,376
|
|
|
|
(132,154
|
)
|
|
|
(4,915
|
)
|
|
Research and development credit
|
|
|
(28,608
|
)
|
|
|
(30,167
|
)
|
|
|
(22,016
|
)
|
|
Pro forma income tax expense (benefit) before valuation allowance
|
|
|
37,486
|
|
|
|
(1,400,125
|
)
|
|
|
(90,281
|
)
|
|
Increase (decrease) in valuation allowance
|
|
|
(37,486
|
)
|
|
|
1,400,125
|
|
|
|
90,281
|
|
|
Pro forma income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
TABLE OF CONTENTS
TABLE OF CONTENTS
Shares of
Common Stock
PROSPECTUS
|
|
|
|
|
Joseph Gunnar & Co.
|
|
Neidiger, Tucker, Bruner, Inc.
|
Through and including , 2016 (the 25
th
day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
TABLE OF CONTENTS
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other expenses of issuance and distribution.
The following table sets forth all fees and expenses, other than underwriting discounts and commissions, payable solely by the registrant in connection with the offer and sale of the securities being registered. All amounts shown are estimated except for the registration fee of the SEC, the FINRA filing fee and the NYSE MKT listing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
2,461
|
|
|
FINRA filing fee
|
|
|
4,166
|
|
|
NYSE MKT listing fee
|
|
|
55,000
|
|
|
Accounting fees and expenses
|
|
|
|
*
|
|
Legal fees and expenses
|
|
|
|
*
|
|
Printing fees and expenses
|
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
|
*
|
|
Blue sky fees and expenses
|
|
|
|
*
|
|
Miscellaneous
|
|
|
|
*
|
|
Total
|
|
$
|
*
|
|
|
|
*
|
To be completed by amendment.
|
Item 14. Indemnification of directors and officers.
On January 1, 2016, Sensus Healthcare, LLC converted into a Delaware corporation pursuant to a statutory conversion and change its name to Sensus Healthcare, Inc. Section 145(a) of the Delaware General Corporation Law (the “DGCL”) provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
Further subsections of DGCL Section 145 provide that:
|
|
•
|
to the extent a present or former director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by such person in connection therewith;
|
TABLE OF CONTENTS
|
|
•
|
the indemnification and advancement of expenses provided for pursuant to Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise; and
|
|
|
•
|
the corporation shall have the power to purchase and maintain insurance of behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.
|
As used in this Item 14, the term “proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether or not by or in the right of Registrant, and whether civil, criminal, administrative, investigative or otherwise.
Section 145 of the DGCL makes provision for the indemnification of officers and directors in terms sufficiently broad to indemnify officers and directors of each of the registrants incorporated in Delaware under certain circumstances from liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the “Act”). Sensus Healthcare, Inc. may, in its discretion, similarly indemnify its employees and agents.
The certificate of incorporation and bylaws of Sensus Healthcare, Inc. provide that, to the fullest extent and under the circumstances permitted by Section 145 of the DGCL, Sensus Healthcare, Inc. will indemnify directors and officers from and against any and all of the expenses, liabilities or other maters referred to in Section 145 of the DGCL. In addition, the certificate of incorporation of Sensus Healthcare, Inc. relieves its directors from monetary damages to it or its stockholders for breach of such director’s fiduciary duty as a director to the fullest extent permitted by the DGCL. Under Section 102(b)(7) of the
DGCL, a corporation may relieve its directors from personal liability to such corporation or its stockholders for monetary damages for any breach of their fiduciary duty as directors except (i) for a breach of the duty of loyalty, (ii) for failure to act in good faith, (iii) for intentional misconduct or knowing violation of law, (iv) for willful or negligent violations of certain provisions in the DGCL imposing certain requirements with respect to stock repurchases, redemptions and dividends, or (v) for any transactions from which the director derived an improper personal benefit.
Sensus Healthcare, Inc. also intends to purchase and maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.
Item 15. Recent sales of unregistered securities.
The following list sets forth information as to all securities we have sold or exchanged since January 1, 2013, which were not registered under the Securities Act. Amounts below do not give effect to our corporate conversion from a limited liability company to a corporation and, in connection therewith, the conversion of all outstanding units (as of January 1, 2016) into an aggregate of 42,852 shares of our common stock.
|
|
(1)
|
Since January 1, 2013, we have issued units in the following transactions:
|
|
|
•
|
On January 3, 2013, we issued an aggregate of 3,575 units without preferred returns to certain investors in a private placement at a price per unit of $1,000 for aggregate gross consideration of approximately $3.6 million. In addition, we issued warrants to acquire an aggregate of 357 units, with an exercise price of $1,100 per unit and which were exercisable for a five-year term. In connection with this private placement we paid placement agent commissions and fees in the aggregate amount of approximately $0.4 million.
|
TABLE OF CONTENTS
|
|
•
|
On December 28, 2015, we issued an aggregate of 2,017 units without preferred returns to certain investors in a private placement at a price per unit of $1,090.73 for aggregate gross consideration of $2.2 million. In connection with this private placement we paid placement agent commissions and fees in the aggregate amount of approximately $0.2 million.
|
|
|
(2)
|
Since January 1, 2013, we have issued units in the following transactions to certain of our employees:
|
|
|
•
|
On July 30, 2015, we issued 435 units without preferred returns to Arthur Levine, our Chief Financial Officer, as equity compensation. These units will vest upon the expiration of the contractual lock-up agreements in connection with a Liquidity Event (as defined in his equity grant agreement), which includes this initial public offering.
|
|
|
•
|
We have granted options to employees under our 2013 Option Plan to acquire 60 units with a weighted-average exercise price of $1,000 per unit.
|
We claimed exemption from registration under the Securities Act for the sale and issuance of securities in the transactions described in paragraph (1) by virtue of Section 4(a)(2) and Regulation D promulgated thereunder as transactions not involving any public offering. All of the purchasers of unregistered securities for which we relied on Section 4(a)(2) and Regulation D represented that they were accredited investors as defined under the Securities Act. We claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view
to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the unit certificates issued in such transactions.
We claimed exemption from registration under the Securities Act for the sales and issuances of securities in the transactions described in paragraph (2) above under Section 4(a)(2) of the Securities Act in that such sales and issuances did not involve a public offering or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701.
Item 16. Exhibits and financial statement schedules.
(a) The exhibits listed below in the “Index to exhibits” are part of this Registration Statement on Form S-1 and are numbered in accordance with Item 601 of Regulation S-K.
(b) Financial statement schedules. Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
(3) The undersigned will provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
TABLE OF CONTENTS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
TABLE OF CONTENTS
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boca Raton, State of Florida, on February 9, 2016.
Sensus Healthcare, Inc.
|
|
By:
|
/s/ Joseph C. Sardano
Joseph C. Sardano
Chief Executive Officer
|
POWER OF ATTORNEY
Each of the undersigned officers and directors of Sensus Healthcare, Inc. hereby constitutes and appoints Joseph C. Sardano, Arthur Levine and Michael Sardano and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement of Sensus Healthcare, Inc. on Form S-1, and any other registration statement relating to the same offering (including any registration statement, or amendment thereto, that is to become effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and any and all amendments thereto (including post-effective amendments), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
/s/ Joseph C. Sardano
Joseph C. Sardano
|
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
|
February 9, 2016
|
/s/ Arthur Levine
Arthur Levine
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
|
February 9, 2016
|
/s/ John Heinrich
John Heinrich
|
|
Director
|
|
February 9, 2016
|
/s/ William McCall
William McCall
|
|
Director
|
|
February 9, 2016
|
/s/ Samuel O’Rear
Samuel O’Rear
|
|
Director
|
|
February 9, 2016
|
TABLE OF CONTENTS
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
1.1*
|
|
Form of Underwriting Agreement.
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of December 12, 2011, by and between Sensus Healthcare, LLC and Sensus Healthcare, LLC.
|
|
2.2
|
|
Plan of Conversion of Sensus Healthcare, LLC.
|
|
3.1
|
|
Form of Amended and Restated Certificate of Incorporation of Sensus Healthcare, Inc.
|
|
3.2*
|
|
Bylaws of Sensus Healthcare, Inc., effective as of January 1, 2016.
|
|
3.3
|
|
Limited Liability Company Agreement, dated as of September 30, 2010, by and among Sensus Healthcare, LLC and the members party thereto.
|
|
3.4
|
|
Amendment to Operating Agreement of Sensus Healthcare, LLC, dated as of February 28, 2012.
|
|
3.5
|
|
Second Amendment to Operating Agreement of Sensus Healthcare, LLC, dated as of April 5, 2013.
|
|
4.1
|
|
Warrant Agreement of Sensus Healthcare, LLC, dated as of March 31, 2011, by and between Sensus Healthcare, LLC and Anderson Strudwick, Inc.
|
|
4.2
|
|
Assignment of Warrant Agreement, dated as of March 31, 2012, by and among Anderson Strudwick, Inc., Investors Capital Alliance, LLC and Sensus Healthcare, LLC.
|
|
4.3*
|
|
Form of Common Stock Certificate of Sensus Healthcare, Inc.
|
|
4.4
|
|
Form of Warrant Agreement of Sensus Healthcare, LLC, dated as of February 1, 2013, by and between Sensus Healthcare, LLC and certain investors.
|
|
4.5*
|
|
Form of Representatives’ Warrant.
|
|
5.1*
|
|
Opinion of Gunster, Yoakley & Stewart, P.A.
|
|
10.1+
|
|
Sensus Healthcare, LLC 2013 Option Plan.
|
|
10.2
|
|
Amended and Restated Loan and Security Agreement by and between Sensus Healthcare, LLC and Silicon Valley Bank, dated as of March 12, 2013.
|
|
10.3
|
|
Default Waiver and First Amendment to Amended and Restated Loan and Security Agreement by and between Sensus Healthcare, LLC and Silicon Valley Bank, dated May 12, 2015.
|
|
10.4
|
|
Asset Purchase Agreement by and between Sensus Healthcare, LLC and Topex, Inc., dated as of April 16, 2010.
|
|
10.5*
|
|
Form of Indemnification Agreement.
|
|
10.6
|
|
Office Lease Agreement, dated as of July 26, 2010, by and between Rexall Sundown, Inc. and Sensus Healthcare, LLC.
|
|
10.7
|
|
Amendment to Lease, dated as of January 27, 2014, by and between Rexall Sundown, Inc. and Sensus Healthcare, LLC.
|
|
10.8+
|
|
Form of Non-Qualified Option Grant Agreement.
|
|
10.9+
|
|
Equity Grant Agreement, dated as of July 30, 2015, by and among Arthur Levine, Sensus Healthcare, LLC and certain contributing members named therein.
|
|
10.10+
|
|
Employment Agreement between Sensus Healthcare, Inc. and Joseph C. Sardano.
|
|
10.11+
|
|
Employment Agreement between Sensus Healthcare, Inc. and Kalman Fishman.
|
|
10.12+
|
|
Employment Agreement between Sensus Healthcare, Inc. and Arthur Levine.
|
|
10.13#
|
|
Manufacturing Agreement, dated as of July 20, 2010, by and between RbM Services, LLC and Sensus Healthcare, LLC.
|
|
14.1*
|
|
Sensus Healthcare, Inc. Code of Ethics.
|
TABLE OF CONTENTS
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
21.1
|
|
Subsidiaries.
|
|
23.1
|
|
Consent of Marcum LLP.
|
|
23.2*
|
|
Consent of Gunster, Yoakley & Stewart, P.A. — included in Exhibit 5.1.
|
|
24.1
|
|
Power of Attorney — included on the signature page hereto.
|
|
|
*
|
To be filed by amendment
|
|
|
+
|
Indicates a management contract or compensatory plan
|
|
|
#
|
The Registrant has sought confidential treatment with respect to certain portions of this exhibit which has been submitted separately to the Securities and Exchange Commission.
|
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER,
DATED AS OF DECEMBER 12, 2011,
BY AND BETWEEN SENSUS HEALTHCARE, LLC
AND
SENSUS HEALTHCARE, LLC
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER
(the
“
Agreement
”) is made and entered into this 12
th
day of December, 2011, by and among
SENSUS
HEALTHCARE, LLC
, a Delaware limited liability company (the “
Surviving Entity
”) and
SENSUS HEALTHCARE,
LLC
, a Florida limited liability company (the “
Merging Entity
”).
WITNESSETH:
WHEREAS
, the Surviving Entity is a limited
liability company duly organized and existing under and by virtue of the laws of the State of De1aware;
WHEREAS
, the Merging Entity is a limited
liability company duly organized and existing under and by virtue of the laws of the State of Florida; and
WHEREAS
, pursuant to duly authorized
actions by the members of the Merging Entity and by the Board of Managers and the members of the Surviving Entity. the Merging
Entity and the Surviving Entity have determined that they shall merge (the “Merger”) upon the terms and conditions
and in the manner set forth in this Agreement and in accordance with Section 18-209 of the Delaware Limited Liability Company Act
and Section 608.438 of the Florida Limited Liability Company Act.
NOW THEREFORE
, in consideration of the
mutual promises herein contained, the Merging Entity and the Surviving Entity hereby agree as follows:
1.
MERGER
.
At the Effective Time (as herein defined), the Merging Entity shall be merged with and into the Surviving Entity upon the terms
and conditions set forth in this Agreement.
2.
SURVIVING
ENTITY
. At the Effective Time:
(a) The
Surviving Entity shall be the surviving entity of the Merger and shall continue to exist as a limited liability company under and
be governed by the laws of the State of Delaware, with all of the rights and obligations as are provided by Delaware law;
(b) The
Merging Entity shall cease to exist, and its property shall become the property of the Surviving Entity as the surviving entity
of the Merger; and
(c) Management
of the Surviving Entity shall be vested in the Board of Managers of the Surviving Entity, whose principal address is 18659 Ocean
Mist Drive, Boca Raton, Florida 33498.
3.
CHARTER
DOCUMENTS
. At the Effective Time:
(a) The
Certificate of Organization of the Surviving Entity, as in effect immediately prior to the Effective Time, shall be the Certificate
of Organization of the Surviving Entity;
(b) The
Limited Liability Company Agreement of the Surviving Entity, as in effect immediately prior to the Effective Time, shall be the
Limited Liability Company Agreement of the Surviving Entity; and
(c) The
members of the Surviving Entity immediately prior to the Effective Time shall be the members of the Surviving Entity, and the Board
of Managers of the Surviving Entity immediately prior to the Effective Time shall be the Board of Managers of the Surviving Entity
and shall retain such designation for the term provided by law or in the Limited Liability Company Agreement, or until his successor
is elected and qualified.
4.
MANNER
AND BASIS OF CONVERTING INTERESTS
. At the Effective Time, (a) all of the issued and outstanding membership interests of
the Merging Entity and any rights to acquire membership interests or other securities or obligations of the Merging Entity shall
be surrendered to the Surviving Entity and canceled, and no membership interests of the Surviving Entity or cash or other property
will be issued in exchange therefor or in respect thereof, and (b) all of the issued and outstanding membership interests of the
Surviving Entity shall remain outstanding, and the current members of the Surviving Entity shall continue to own the same number
and type of membership interests of the Surviving Entity as such members owned prior to the Effective Time.
5.
APPROVAL
.
The Merger contemplated by this Agreement has previously been submitted to and adopted and/or approved by the members of the Merging
Entity and by the Board of Managers and the members holding a majority of the outstanding membership interests of the Surviving
Entity. The members of the Merging Entity (acting by and through any representative of the Merging Entity designated by the members)
and the Board of Managers and the members holding a majority of the outstanding membership interests of the Surviving Entity (acting
by and through a Manager or any representative of the Surviving Entity designated by the Board of Managers) shall be, and hereby
is, authorized and directed to perform all such further acts and execute and deliver to the proper authorities for filing all documents,
as the same may be necessary or proper to render effective the Merger contemplated by this Agreement.
6.
EFFECTIVE
TIME OF MERGER
. The Merger shall be effective at the time of filing of the Certificate of Merger with respect to the Merger
with the Office of the Secretary of State of the State of Delaware (the “
Effective Time
”).
7.
MISCELLANEOUS
.
(a)
Governing
Law
. This Agreement shall be construed in accordance with the laws of the State of Delaware.
(b)
No
Third Party Beneficiaries
. The terms and conditions of this Agreement are solely for the benefit of the parties hereto
and the members of the Merging Entity and the members of the Surviving Entity, and no person not a party to this Agreement shall
have any rights or benefits whatsoever under this Agreement, either as a third party beneficiary or otherwise.
(c)
Complete
Agreement
. This Agreement constitutes the complete agreement between the parties and incorporates all prior agreements
and representations in regard to the matters set forth herein and it may not be amended, changed or modified except by a writing
signed by the party to be charged by said amendment, change or modification.
(d)
Counterparts
.
This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed to be an original instrument,
but all of such counterparts together shall constitute but one agreement.
(Signatures on following page)
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 12
th
day of December, 2011.
|
|
Sensus Healthcare, LLC, a
|
|
|
Florida limited liability company
|
|
|
|
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
|
Joseph C. Sardano
|
|
|
|
Managing Member, President
|
|
|
|
and Chief Executive Officer
|
|
|
|
|
|
|
Sensus Healthcare, LLC, a
|
|
|
Delaware limited liability company
|
|
|
|
|
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
|
President and Manager
|
Exhibit 2.2
PLAN OF CONVERSION OF
SENSUS HEALTHCARE, LLC
PLAN OF CONVERSION
This Plan of Conversion (this “
Plan
of Conversion
”) of Sensus Healthcare, LLC, a Delaware limited liability company (the “
Company
”), is
made and entered into effective as January 1, 2016 in accordance with the terms of the Company’s Limited Liability Company
Agreement, dated as of September 30, 2010, as amended (the “
LLC Agreement
”), the Delaware Limited Liability
Company Act and the Delaware General Corporation Law. Capitalized terms used but not otherwise defined in this Plan of Conversion
have the meanings ascribed to such terms in the LLC Agreement.
RECITALS
A. The
Company was formed under the name Sensus Healthcare, LLC on May 7, 2010 by the filing of a certificate of formation with the Secretary
of State of the State of Delaware (“
Certificate of Formation
”). Under the terms of the LLC Agreement, the Company
is managed by its board of managers (the “
Board
”).
B. A conversion of a Delaware limited liability
company into a Delaware corporation may be made under Title 8, Section 265 of the Delaware General Corporation Law and
Title 6, Section 18-216 of the Delaware Limited Liability Company Act.
C. The
Board has unanimously approved the conversion of the Company into a Delaware corporation (the “
Conversion
”)
and the terms of this Plan of Conversion.
NOW, THEREFORE, the Company does hereby adopt
this Plan of Conversion to effect the Conversion as follows:
|
|
1.
|
Terms and Conditions of Conversion
.
|
|
|
a.
|
The name of the converting entity is Sensus Healthcare, LLC, and the name of the converted entity is Sensus Healthcare, Inc.
(the “
Corporation
”).
|
|
|
b.
|
The Conversion shall become effective as of 12:01 a.m.
Eastern Standard Time January 1, 2016 (the “
Effective Time
”).
|
|
|
c.
|
The Certificate of Conversion shall be in substantially
the form attached hereto as
Exhibit A
.
|
|
|
d.
|
At the Effective Time, the Company shall continue its
existence in the organizational form of a Delaware corporation for all purposes of the laws of the State of Delaware. All of the
rights, privileges and powers of the Company and all property and all debts due to the Company, as well as all other things and
causes of action belonging to the Company, shall remain vested in the Corporation and shall be the property of the Corporation.
All actions and resolutions of the Board and the Members, as applicable, taken or adopted from the inception of the Company prior
to the Effective Time shall continue in full force and effect as if the Corporation’s Board of Directors and the stockholders,
respectively, had taken such actions and adopted such resolutions. All rights of creditors and all liens upon any property of
the Company shall be preserved unimpaired, and all debts, liabilities and duties of the Company shall remain attached to the Corporation
and may be enforced against the Corporation to the same extent as if said debts, liabilities and duties had originally been incurred
or contracted by the Corporation in its capacity as a Delaware corporation.
|
|
|
e.
|
At the Effective Time, each outstanding Unit of the Company
shall be automatically converted into one share of common stock of the Corporation, par value $0.01 (the “
Common Stock
”),
as provided in Section 3 below, with each such share of Common Stock having the rights, preferences and privileges set forth in
the Certificate of Incorporation (as defined below), as the same may be amended or restated.
|
|
|
f.
|
At the Effective Time, the Certificate of Formation and
the LLC Agreement shall be terminated and of no further force or effect and shall be superseded in their entirety by the Certificate
of Incorporation (as defined below) and the Bylaws (as defined below), and no party shall have any further rights, duties or obligations
pursuant to the Certificate of Formation or the LLC Agreement. Notwithstanding the foregoing, the termination of the LLC Agreement
shall not relieve any party thereto from any liability arising in connection with any breach by such party of the LLC Agreement.
|
2.
Certificate
of Incorporation; Directors
. At the Effective Time, a Certificate of Incorporation of the Corporation in substantially the
form attached hereto as
Exhibit B
(the “
Certificate of Incorporation
”) shall be
filed with the Secretary of State of the State of Delaware. Pursuant to an Action of the Sole Incorporator substantially in the
form attached hereto as
Exhibit C
, which shall be executed immediately following the filing of the Certificate of
Incorporation, the initial directors of the Corporation shall be elected. Thereafter, immediately following the execution of the
Action of the Sole Incorporator, the initial directors shall ratify and approve the bylaws of the Corporation and elect officers
of the Corporation.
|
|
3.
|
Manner and Basis of Converting Units in the Company
.
|
|
|
a.
|
At the Effective Time, each Unit in the Company (including
those with a Preferred Return) outstanding immediately prior to the Effective Time shall be converted automatically, without any
action on the part of the holder thereof, into one validly issued, fully paid and non-assessable share of Common Stock.
|
|
|
b.
|
By virtue of the Conversion and effective at the Effective
Time, each share of Common Stock issued in exchange for Units that, immediately prior to the Effective Time, was unvested or was
subject to a repurchase option, risk of forfeiture or other condition pursuant to the terms of the LLC Agreement, an employment
agreement or any other applicable agreement of the Company shall be subject to the vesting requirements, repurchase options, risks
of forfeiture or other conditions that may be set forth in a new or amended employment agreement or other applicable agreement
between the Corporation and the holder receiving such share of Common Stock, and the certificate representing such share of Common
Stock, if any, may accordingly be marked with appropriate legends in the discretion of the Corporation.
|
|
|
c.
|
By virtue of the Conversion and effective at the Effective
Time, each option or warrant to purchase Units outstanding immediately prior to the Effective Time shall be automatically converted
into an option or warrant, as the case may be, to purchase shares of Common Stock equal to the number of Units for which the options
or warrants, as the case may be, were exercisable immediately prior to the Conversion multiplied by the number of shares of Common
Stock into which one Unit is converted pursuant to Section 3(a), at the same aggregate exercise price and on the same terms and
conditions as the converted option or warrant to purchase Units of the Company.
|
|
|
d.
|
No fractional shares of Common Stock will be issued in
connection with the Conversion.
|
|
|
e.
|
By virtue of the Conversion and effective at the Effective Time, the Preferred Return shall
terminate. In exchange for the termination of the Preferred Return, each Unit that had a Preferred Return immediately prior
to the Effective Time (“
Preferred Unit
”) shall be entitled to a one-time payment of $209.74
(“
Dividend Payment
”). Such Dividend Payment will be paid by the Corporation only if and when (i) it
closes an initial public offering of the Corporation’s common stock (“
IPO
”); or
(ii) a Change in Control occurs. For purposes of this Plan
of Conversion, “Change in Control” means (A) the sale of all or substantially all of the assets of the Corporation
or of more than 51% of the capital stock of the Corporation; or (B) a merger, consolidation, recapitalization or reorganization
of the Corporation that results in the inability of the then-existing stockholders to designate or elect a majority of the members
of the Corporation’s board of directors (or equivalent governing body) of the resulting entity or its parent company. In
the event of an IPO, each holder of a
Preferred Unit (“
Preferred Holder
”) shall be granted a one-time right, exercisable no later than 30 days
after the closing of the IPO (“
Election Termination Date
”), to elect to convert all or a portion of the
Dividend Payment payable to the Preferred Holder into Common Stock based upon the price the Common Stock was sold to the
public in the IPO (“
Election
”). Immediately after the closing of the IPO, but before the Dividend Payment
is paid to the Preferred Holder, the Corporation shall mail an election form to each Preferred Holder to allow such Preferred
Holder to make an Election. In the event a Preferred Holder does not make a valid Election before the Election Termination
Date, then the Corporation shall deem the Preferred Holder as having elected to receive the Dividend Payment solely in cash.
In the event a Preferred Holder makes a valid Election to convert all or a portion of the Dividend Payment payable to the
Preferred Holder into Common Stock, then the Corporation shall reduce the Dividend Payment owed to such Preferred Holder in
cash by the amount of the Dividend Payment converted to Common Stock. No later than 30 days after the Election Termination
Date, the Corporation shall (i) pay each Preferred Holder the Dividend Payment in cash, if any, after reducing the Dividend
Payment by any amount Preferred Holder elects to convert to Common Stock through a valid Election, and (ii) issue shares of
Common Stock to each Preferred Holder, if any, to the extent Preferred Holder elects to convert to Common Stock through a
valid Election.
|
|
|
f.
|
The shares of Common Stock into which Units shall be
converted at the Effective Time shall not have been registered under the Securities Act or the securities laws of any state and
may not be transferred, pledged or hypothecated except as permitted under the Securities Act and applicable state securities laws
pursuant to registration or exemption therefrom; any certificates evidencing the Common Stock, if any, or any other securities
issued in respect of the Common Stock upon any split, dividend, recapitalization, merger, consolidation or similar event, shall
bear any legend required by the Corporation, required under applicable U.S. federal and state securities laws or called for
by any agreement between the Corporation and any stockholder.
|
|
|
g.
|
The shares of Common Stock into which the Units shall
be converted at the Effective Time and any shares of Common Stock issued by the Corporation as a result of a valid Election shall
be subject to transfer restrictions for 180 days pursuant to a customary lock-up agreement that each stockholder will be required
to execute upon an IPO.
|
4.
U.S. Federal
Income Tax Consequences
. The Conversion has been structured to be treated, for U.S. federal income tax purposes, as if
the Company transferred its assets to the Corporation for shares of the Corporation’s Common Stock pursuant to an exchange
described in Section 351 of the Internal Revenue Code of 1986, as amended, followed by a distribution of the shares of the
Corporation’s Common Stock to the Members in liquidation of the Company, as described in Rev. Rul. 2004-59.
5.
Approval
.
This Plan of Conversion (including without limitation, the Certificate of Conversion, the Certificate of Incorporation, and the
Bylaws) has been duly approved by the Board, all of the holders of the Units with a Preferred Return, and a majority of the Units
without a Preferred Return.
6.
Authority;
Further Actions
. The Company is hereby authorized to execute, deliver, and perform, and each of the managers and officers of
the Company, acting alone, on behalf of the Company or otherwise, is hereby authorized to execute, deliver, and file (if necessary
or desirable), all documents, agreements, and certificates that such manager or officer determines are necessary, appropriate,
proper, advisable, incidental, or convenient to consummate the Conversion, and any other documents, agreements, or certificates
contemplated thereby or related thereto with respect to the Conversion (all with such terms and conditions as such managers or
officers shall approve); its approval to be conclusively, but not exclusively, evidenced by its execution of any such documents,
agreements, or certificates). The Board of Directors and the duly appointed officers of the Corporation shall have the authority
to execute and deliver all further documents and instruments and take further action as may be necessary or appropriate to carry
out the intent and purposes of this Plan of Conversion. The Members of the Company and the stockholders of the Corporation shall,
from time to time, as and when requested by the Board or by the Board of Directors of the Corporation or any officer of the Company
or the Corporation, execute and deliver all such further documents and instruments and take such other further action necessary
to carry out the intent and purposes of this Plan of Conversion.
7.
Amendment
or Termination
. This Plan of Conversion may be amended or terminated by the Company and the Conversion may be abandoned at
any time prior to the Effective Time, notwithstanding any prior approval of this Plan of Conversion by the Members.
8.
Counterparts
.
This Plan of Conversion may be executed in two or more counterparts, and each such counterpart and copy shall be and constitute
an original instrument.
9.
Governing
Law
. This Plan of Conversion shall be governed by and construed under the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, having
received the required approval from the Board, hereby adopts this Plan of Conversion as of the date set forth above.
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
|
By:
|
/s/ Joseph Sardano
|
|
|
|
Name: Joseph Sardano
|
|
|
|
Title: President and Chief Executive Officer
|
Exhibit List
*
A - Certificate of Conversion
B - Certificate of Incorporation
C - Action of Sole Incorporator
|
|
*
|
The exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant
agrees to furnish supplementary a copy of any omited exhibit to the Commission upon request.
|
Exhibit 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SENSUS HEALTHCARE,
INC.
Amended
and restated
Certificate
OF INCORPORATION
OF
Sensus
Healthcare, Inc.
Sensus Healthcare,
Inc., a corporation organized and existing under the laws of the State of Delaware (the “
Corporation
”), hereby
certifies as follows:
1. The name of the
Corporation is Sensus Healthcare, Inc. The Corporation’s original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on ________.
2. This Amended
and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242, 245, and 228 of the Delaware General
Corporation Law, and restates, integrates, and further amends the provisions of the Corporation’s Certificate of Incorporation.
3. The text of the
Certificate of Incorporation of this Corporation is hereby amended and restated in its entirety, effective _______, as set forth
in
Exhibit A
attached hereto.
IN WITNESS WHEREOF,
the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer
this ______.
|
|
SENSUS HEALTHCARE, INC.
|
|
|
a Delaware corporation
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
Arthur Levine
|
|
|
Title:
|
Chief Financial Officer
|
|
|
|
|
EXHIBIT
A
Article I
The name of the corporation
is Sensus Healthcare, Inc. (the “
Corporation
”).
Article II
The address of the
registered office of the Corporation in the State of Delaware will be at 3411 Silverside Road, Rodney Building #104, Wilmington,
Delaware 19810. The name of the registered agent of the Corporation at such address is Corporate Creations Network Inc.
Article III
The purpose of the
Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation
Law.
Article IV
The total number
of shares and classes of stock that the Corporation will have authority to issue is 55,000,000 shares, which will be divided
into two classes, as follows: 5,000,000 shares of preferred stock, with the par value of $ 0.01 per share, and 50,000,000
shares of common stock, with the par value of $ 0.01 per share.
The Board of Directors
is hereby expressly authorized (A) to provide for one or more series of preferred stock out of the unissued shares of preferred
stock; and (B) with respect to each such series, to fix (i) the number of shares constituting such series and the designation of
such series; (ii) the voting powers (if any) of the shares of such series; and (iii) the preferences and relative, participating,
optional, or other special rights (if any), and any qualifications, limitations, or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional, and other special rights of each series of preferred stock
(if any), and the qualifications, limitations, or restrictions thereof, may differ from those of any and all other series at any
time outstanding.
Article V
|
|
A.
|
Powers of the Board of Directors
|
The business and affairs
of the Corporation will be managed by or under the direction of the Board of Directors. Elections of directors need not be by written
ballot unless otherwise provided in the bylaws of the Corporation (the “
Bylaws
”).
|
|
B.
|
Number of Directors; Classes of Directors
|
Subject to the rights
of the holders of one or more series of preferred stock then outstanding, the total number of directors constituting the entire
Board of Directors of the Corporation will be as set forth in the Bylaws. Other than those directors (if any) elected by the holders
of any series of preferred stock then outstanding, the Board of Directors will be and is divided into three classes, as nearly
equal in number as possible, designated: Class I, Class II, and Class III. In case of any increase or decrease, from time to time,
in the number of directors, the number of directors in each class will be apportioned as nearly equal as possible. No decrease
in the number of directors will shorten the term of any incumbent director.
|
|
C.
|
Term of Office; Qualification
|
Except for the terms
of such additional directors (if any) as elected by the holders of any series of preferred stock then outstanding, each director
will serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected;
provided
,
that
each director initially appointed to Class I will serve for an initial term expiring at the
Corporation’s first annual meeting of stockholders following the filing of this Certificate of Incorporation of the Corporation
(this “
Certificate
”) with the Secretary of State of the State of Delaware; each director initially appointed
to Class II will serve for an initial term expiring at the Corporation’s second annual meeting of stockholders following
the filing of this Certificate with the Secretary of State of the State of Delaware; and each director initially appointed to Class
III will serve for an initial term expiring at the Corporation’s third annual meeting of stockholders following the filing
of this Certificate with the Secretary of State of the State of Delaware, in all cases subject to such director’s earlier
death, resignation, or removal. Directors need not be stockholders unless so required by this Certificate or the Bylaws, wherein
other qualifications for directors may be prescribed.
Except for such additional
directors (if any) as elected by the holders of any series of preferred stock then outstanding, any director or the entire Board
of Directors may be removed from office only for cause and only by the affirmative vote of at least seventy-five percent (75%)
of the total voting power of the then-outstanding shares of the common stock of the Corporation entitled to vote in any annual
election of directors or class of directors.
Article VI
A special meeting of
the stockholders for any purpose or purposes may be called at any time by resolution of the Board of Directors, and may not be
called by any other person or persons.
|
|
B.
|
No Stockholder Action Permitted by Written Consent
|
No action that is required
or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected
by written consent of stockholders in lieu of a meeting.
|
|
C.
|
Change of Control Transactions
|
In addition to any
affirmative vote required by applicable law or this Certificate, including, without limitation, any vote of the holders of any
class or series of stock of the Corporation required by applicable law or this Certificate, a Change of Control Transaction (as
defined below) will require, except as otherwise prohibited by applicable law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the total voting power of the shares of the then-outstanding voting stock of the Corporation, voting
together as a single class. Such affirmative vote will be required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be permitted, by applicable law or in any agreement with any national securities exchange or otherwise.
A “
Change of Control Transaction
” means the occurrence of any of the following events: (i) the sale, encumbrance
or disposition (other than non-exclusive licenses in the ordinary course of business and the grant of security interests in the
ordinary course of business) by the Corporation of all or substantially all of the Corporation’s assets; (ii) the merger
or consolidation of the Corporation with or into any other corporation or entity, other than a merger or consolidation which would
result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or its parent) more than fifty percent (50%) of
the total voting power represented by the voting securities of the Corporation or such surviving entity or its parent outstanding
immediately after such merger or consolidation; or (iii) the issuance by the Corporation, in a transaction or series of related
transactions, of voting securities representing more than two percent (2%) of the total voting power of the Corporation before
such issuance, to any person or persons acting as a group as contemplated in Rule 13d-5(b) under the Securities Exchange Act of
1934 (or any successor provision) such that, following such transaction or related transactions, such person or group of persons
would hold more than fifty percent (50%) of the total voting power of the Corporation, after giving effect to such issuance.
Article VII
|
|
A.
|
Limitation of Liability
|
To the fullest extent
permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation
will not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
|
|
B.
|
Indemnification of Directors and Officers
|
The Corporation will
indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact that he or she, or a person for whom he or she
is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation,
is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership,
joint venture, trust, enterprise, or nonprofit entity, including service with respect to employee benefit plans (each such person,
an “
Indemnified Party
”), against all liability and loss suffered and expenses (including attorneys’ fees)
reasonably incurred by such Indemnified Party. The Corporation will be required to indemnify an Indemnified Party in connection
with a proceeding (or part thereof) initiated by such Indemnified Party only if the proceeding (or part thereof) was explicitly
authorized by the Board of Directors of the Corporation.
Any repeal or modification
of the provisions of this
Article VII
will not adversely affect any right or protection of any person provided in this
Article
VII
with respect to any act or omission occurring prior to the time of such repeal or modification.
Article VIII
In furtherance and
not in limitation of the powers conferred by statute, the Board of Directors is expressly empowered to adopt, amend, or repeal
Bylaws of the Corporation. Any adoption, amendment, or repeal of the Bylaws of the Corporation by the Board of Directors will require
the approval of a majority of the entire Board of Directors. The stockholders will also have power to adopt, amend, or repeal the
Bylaws of the Corporation;
provided
,
however
, that, in addition to any vote of the holders of any class
or series of stock of the Corporation required by applicable law or this Certificate, the affirmative vote of the holders of at
least seventy-five percent (75%) of the total voting power of the shares of the then-outstanding voting stock of the Corporation,
voting together as a single class, will be required to adopt, amend, or repeal any provision of the Bylaws of the Corporation.
Article IX
The Corporation will
have the right, subject to any express provisions or restrictions contained in this Certificate or the Bylaws, from time to time,
to amend, alter, or repeal any provision of this Certificate in any manner now or hereafter provided by applicable law, and all
rights and powers of any kind conferred upon a director or stockholder of the Corporation by this Certificate, or any amendment
of this Certificate, are conferred subject to such right.
Notwithstanding any
other provision of this Certificate, the Bylaws, or any provision of applicable law that might otherwise permit a lesser vote or
no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation, and, as applicable,
such other approvals of the Board of Directors of the Corporation, as are required by this Certificate, the Bylaws, or applicable
law, the affirmative vote of the holders of at least seventy-five percent (75%) of the total voting power of the shares of the
then-outstanding voting stock of the Corporation, voting together as a single class, will be required to amend or repeal any provisions,
or adopt any provisions inconsistent with those provisions, set forth in
Articles V
,
VI
,
VIII
,
IX
,
or
X
of this Certificate.
Article X
Unless the Corporation
consents in writing to the selection of an alternative forum (an “
Alternative Forum Consent
”), the Court of
Chancery of the State of Delaware will be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf
of the Corporation; (B) any action or proceeding asserting a claim for breach of a fiduciary duty owed by any director, officer,
employee, or agent of the Corporation to the Corporation or the Corporation’s stockholders; (C) any action or proceeding
asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, this Certificate, or the Bylaws of
the Corporation; or (D) any action or proceeding asserting a claim governed by the internal affairs doctrine, in each case subject
to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein;
provided
,
however
, that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any
such action or proceeding, the sole and exclusive forum for such action or proceeding will be another state or federal court located
within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within
the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such
court lacked personal jurisdiction over an indispensable party named as a defendant therein. If any action the subject matter
of which is within the scope of this
Article X
is filed in a court other than the Court of Chancery of the State of
Delaware (or any other state or federal court located within the State of Delaware, as applicable) (a “
Foreign Action
”)
by or in the name of any stockholder, such stockholder will be deemed to have consented to (i) the personal jurisdiction of
the Court of Chancery of the State of Delaware (or such other state or federal court located within the State of Delaware, as applicable)
in connection with any action brought in any such court to enforce this
Article X
; and (ii) having service of
process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action as
agent for such stockholder. The existence of any prior Alternative Forum Consent will not act as a waiver of the Corporation’s
ongoing consent right as set forth above in this
Article X
with respect to any current or future actions or claims.
Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation will be deemed
to have notice of and consented to the provisions of this
Article X
. Failure to enforce the foregoing provisions
would cause the Corporation irreparable harm and the Corporation will be entitled to equitable relief, including, without limitation,
injunctive relief and specific performance, to enforce the foregoing provisions.
Exhibit 3.3
LIMITED LIABILITY COMPANY AGREEMENT,
DATED AS OF SEPTEMBER 30, 2010,
BY AND AMONG
SENSUS HEALTHCARE, LLC
AND THE MEMBERS PARTY THERETO
LIMITED LIABILITY COMPANY AGREEMENT
OF
SENSUS HEALTHCARE, LLC,
a Delaware Limited Liability Company
MEMBERSHIP INTERESTS HEREUNDER HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY OTHER SECURITIES LAWS. SUCH INTERESTS MAY NOT BE
OFFERED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR
EXEMPTION THEREFROM, AND COMPLIANCE WITH RESTRICTIONS ON TRANSFERABILITY HEREIN.
This
LIMITED LIABILITY
COMPANY AGREEMENT
(the “Agreement”) is entered into and shall be effective as of the 30th day of September, 2010,
among Sensus Healthcare, LLC (the “Company”), a limited liability company organized under the laws of the State of
Delaware and the Members listed on Exhibit “A” attached hereto (each referred to individually as a “Member”
and collectively as the “Members”).
ARTICLE I
ORGANIZATION AND DEFINITIONS
1.01
Organization.
The Company was formed through the filing of the Certificate in the State of Delaware pursuant to applicable law. The Company shall
be governed by the laws of the State of Delaware in accordance with this Agreement.
1.02
Principal
Office; Registered Office; Registered Agent.
The principal and registered office of the Company shall be at such location as
may be determined by the Board. The registered agent of the Company will also be determined by the Board. The initial principal
office shall be 18659 Ocean Mist Drive, Boca Raton, Florida 33498. The initial registered office and registered agent shall be
as set forth in the Certificate and shall remain unchanged until changed by the Board.
1.03
Term.
The Company will continue perpetually, unless it is terminated under this Agreement.
1.04
Certain
Definitions and Agreements.
As used in this Agreement, the following terms have the meanings ascribed to them in this Section
1.04 and include the plural as well as the singular number:
“Additional
Members”
means those Persons who become Members after the effective date of this Agreement.
“Affiliate”
means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by, or under common control
with such Person; (ii) any officer, director, manager, member or partner of such Person; or (iii) a Family Member of such Person.
For this purpose “control” means the possession, direct or indirect, of the power to direct or cause the direction
of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the
terms “controls,” “controlled by” and “under common control with” have correlative meanings.
“Agreement”
means this Limited Liability Company Agreement, as amended from time to time.
“Approved Transfers”
means any Transfer or series of Transfers approved by Majority Vote of the Members.
“Board”
means the Board of Managers of the Company. The Board is comprised of all of the Managers of the Company as determined pursuant
to Article VI hereof.
“Book Value”
of an asset means its adjusted basis for federal income tax purposes, subject to the following provisions. The initial Book Value
of an asset contributed by a Member is its gross Fair Market Value as initially recorded on the Company’s books. Company
assets shall be revalued (i) when and as contemplated by Regs. §1.704-1(b)(2)(iv)(e), and, (ii) if the Board determines in
its discretion that a revaluation is necessary to reflect economic arrangements among Members, when and as contemplated by Regs.
§1.704-1(b)(2)(iv)(f). Upon any such revaluation, Book Values shall be adjusted to equal the revalued amounts. Book Values
shall be reduced for cost recovery deductions, determined pursuant to Regs. §1.704-1(b)(2)(iv)(g)(3).
“Capital Account”
means the Capital Account established for each Member and maintained in accordance with the provisions of this Agreement and the
Regulations.
“Capital Contribution”
means the total cash and Fair Market Value of other property contributed to the equity of the Company by a Member, which shall
be equal to the amount stipulated in writing by said Member and the Company, as determined by the Board in good faith. The transfer
of liabilities to the Company in connection with a transfer of money or property to the Company shall reduce the net amount of
the Capital Contribution by the amount of said liabilities. The amounts of the initial Capital Contributions of the Members are
set forth in Exhibit “A” hereto.
“Certificate”
means the Certificate of Formation filed with the State of Delaware for the purpose of evidencing the organization of the Company
pursuant to the laws of the State of Delaware, as may be amended from time to time in accordance with this Agreement and applicable
law.
“Code”
means the Internal Revenue Code of 1986, as it may be amended, or any subsequent federal law concerning income tax as enacted in
substitution for, or that corresponds with, such Code.
“Company”
means Sensus Healthcare, LLC, a Delaware limited liability company.
“Consent”
means the consent of a Person, given as provided in Section 6.11, to do the act or thing for which the consent is solicited, or
the act of granting such consent, as the context may require.
“Covered Person”
has the meaning set forth in Section 7.02.
“Fair Market
Value”
means, with respect to any item, the price (in cash or other consideration) at which said item would be sold in
a sales transaction between a willing buyer and a willing seller negotiating on arms’-length terms. The Fair Market Value
of an item, shall be deemed for all purposes to be equal to the Fair Market Value of such item as determined by the Board.
“Family Member”
of a Person means the spouse, ancestors, lineal descendants and siblings of a Person, and the spouses of the foregoing Family Members.
“Initial Members”
means Joseph C. Sardano, Stephen and Vicki Cohen, Richard Golin and Kalman and Michal Fishman.
“Interest”
means, as to each Member, the interest of a Member in the Company as a Member including all economic and non-economic rights, liabilities
and obligations.
“Investor Members”
means the Members of the Company other than the Initial Members.
“Liquidity Event”
means (a) a consolidation, merger or reorganization of the Company or a sale of all the assets of or the Interests in the Company,
(b) a dissolution or winding up of the Company or a sale or liquidation of all or substantially all of the Company’s assets,
or (c) an initial public offering.
“Majority Vote”
means the affirmative vote of Members holding a majority of the outstanding Percentage Interests entitled to vote with respect
to the matter in question. Such vote may be evidenced by a written consent signed by such Members, which may be executed in counterparts.
“Managers”
means those Persons appointed as Managers from time to time by the Members in accordance with Article VI hereof.
“Members”
means the Persons designated in this Agreement as the members of the Company and any Persons who become members of the Company,
pursuant to this Agreement.
“Notification”
means a writing, containing the information required by this Agreement to be communicated to any Person.
“Percentage
Interest”
means, the percentage interest of a Member in the Company as set forth on Exhibit A, as may be amended from
time to time in accordance with this Agreement.
“Permitted Transfer”
shall mean a Transfer of Interests by a Member which is in compliance with Section 8.02 and which is made (a) after such Member’s
death, to a Family Member of such Member or to a trust established solely for the benefit of such Member and/or such Member’s
Family Members, or (b) while such Member is living, to a trust or entity controlled by or under common control with such Member.
“Person”
means a natural person, corporation, trust, partnership, joint venture, association, limited liability company or other business
or other legal entity of any kind.
“Preferred Return”
means, in respect of any Member, a cumulative (non- compounded) preferred return to such Member that accrues and accumulates at
a rate of eight percent (8%) per annum (calculated like interest) on the amount of Unreturned Capital of such Member calculated
from the date a Capital Contribution is made. A pro rata daily share of the Preferred Return determined in accordance with the
number of days in each fiscal year shall accumulate on a daily basis.
“Profit”
or
“Loss”
means, for a period, the Company’s taxable income or loss determined under Code §703(a),
including all items stated separately thereunder, with the following adjustments, to the extent not otherwise taken into account:
(i) income exempt from federal income tax shall be added; (ii) expenditures described in Code §705(a)(2)(B) or treated as
such pursuant to Regs. §1.704-1(b)(2)(iv) shall be deducted; (iii) in lieu of cost recovery deductions taken in computing
taxable income or loss, said deductions shall be determined under Regs. §1.704-1(b)(2)(iv)(g)(3); (iv) in lieu of taxable
gain or loss from an asset disposition, gain or loss shall be determined by reference to the asset’s Book Value instead of
tax basis; and (v) items of income, gain, loss, or deduction allocated separately pursuant to Section 4.03 hereof shall be excluded
from the computation of Profit or Loss. If the Company’s taxable income or loss for such period, as adjusted in the manner
provided above, is a positive amount, such amount shall be the Company’s Profit for such period, and if negative, such amount
shall be the Company’s Loss for such period.
“Pro Rata,”
whether capitalized or not, means in the proportion that the item being measured for each Member bears to the total of all such
items for all Members for whom a contribution, distribution, allocation or other item is due or being made, shared, or determined.
“Qualified Offer”
The term Qualified Offer means a
bona fide
offer in writing from an independent third party who is not an Affiliate or an
officer, director, employee or agent of the party to whom the offer is given. In order to qualify as a
bona fide
offer,
an offer must disclose the identity of the principals making the offer and be accompanied by current and accurate financial statements
of the offeror or other information acceptable in the discretion of the Board demonstrating the ability of the offeror to carry
out its terms.
“Regulations”
and
“Regs.”
means the Treasury Regulations of the United States Treasury Department pertaining to the Code,
as amended, and any successor provisions thereto.
“Sardano”
means Joseph C. Sardano.
“Super Majority
Vote”
means the affirmative vote of Members holding at least seventy-five percent (75%) of the outstanding Percentage
Interests entitled to vote with respect to the matter in question. Such vote may be evidenced by a written consent signed by such
Members, which may be executed in counterparts.
“Target Capital
Balance”
means, with respect to a Member, the respective net amount, positive or negative, that would be distributed
to such Member or for which such Member would be liable to the Company under this Agreement, determined as if the Company were
to (a) sell all of the assets of the Company for cash in an amount equal to the Book Value of such assets and (b) distribute the
net proceeds of such sale, after providing for the claims of creditors, pursuant to Section 9.02 of this Agreement. In addition,
the Target Capital Account Balance of a Member as determined above shall be adjusted by debiting it in an amount equal to the sum
of the Member’s share of the Company’s “partnership minimum gain” (as determined according to Regulations
Section 1.704-2(g)) and such Member’s “partner nonrecourse debt minimum gain” (as determined according to Regulations
Section 1.704-2(i)(3)). The Target Capital Account Balance shall be calculated for each Member as of the end of each period for
which an allocation of Profits or Losses is to be made.
“Tax Distribution”
has the meaning given to said term in Section 5.01(b).
“Tax Matters
Member”
means Sardano, or such other person as may be designated by Majority Vote of the Members.
“Transfer”
means, as a noun, any voluntary or involuntary, direct or indirect, transfer, sale, pledge, hypothecation or other disposition
and, as a verb, voluntarily or involuntarily, directly or indirectly, to transfer, sell, pledge, hypothecate or otherwise dispose
of.
“Unpaid Preferred
Return”
means, with respect to each Member, the aggregate Preferred Return of such Member minus the cumulative distributions
paid to said Member pursuant to Section 5.01(a)(i) and Section 9.02(b)(i) of this Agreement.
“Unreturned
Capital”
means, with respect to each Member, the sum of all Capital Contributions made to the Company by the Member minus
the cumulative distributions paid to said Member pursuant to Section 9.02(b)(ii) of this Agreement.
ARTICLE II
PURPOSES AND BUSINESS OF THE COMPANY;
RIGHTS OF THE COMPANY
2.01
Purposes
of the Company.
The Company has been formed for the purpose of (i) acquiring Topex, Inc., a manufacturer of a superficial radiation
therapy device known as the SRT100, (ii) to manufacture, market and sell the SRT100, (iii) to design, manufacture and market related
products, and (iv) to carry on any lawful purpose permitted to be carried on by limited liability companies under applicable law.
2.02
Authority
of the Company.
To carry out its purposes, the Company, consistent with and subject to the provisions of this Agreement and
all applicable laws, is empowered and authorized to do any and all acts and things incidental to, or necessary, appropriate, proper,
advisable, or convenient for, the furtherance and accomplishment of its purposes.
ARTICLE III
MEMBERS; CAPITAL CONTRIBUTIONS;
CAPITAL ACCOUNTS
3.01
Members.
The name, address, fax number, Capital Contribution of each Member, and Percentage Interest of each Member, are set forth in
Exhibit
A
hereto, amended from time to time to reflect the admission of Additional Members. Except as otherwise provided in this Agreement,
the Members shall not be required to lend any funds to the Company or to make any additional Capital Contribution to the Company.
3.02
Additional
Members.
Additional Members may be admitted to the Company only by Majority Vote of the Board and with the Majority Vote of
the Members. This Agreement shall be amended to reflect the Additional Members as parties, and
Exhibit A
shall be amended
to set forth the information relating to said Additional Members, including the amount of their Capital Contributions and Percentage
Interest issued to the Additional Members. The Members acknowledge and agree that the admission of Additional Members will reduce
their proportionate rights with respect to the Company, including without limitation their Percentage Interests, and hereby Consent
to the admission of Additional Members and to such reductions. The Additional Members shall be required to execute this Agreement,
as so amended. The Members hereby agree and acknowledge that the Company may issue Interests in the Company to employees and consultants
of the Company. The Members hereby approve an aggregate issuance of up to 2% of the Percentage Interests in the Company to one
or more employees or consultants of the Company on such terms as determined by the Board, and such issuance shall only reduce the
Percentage Interests of the Initial Members as set forth on
Exhibit A
attached hereto. Any further issuances of equity in
the Company to employees or other service providers, if any, shall be on such terms as determined by the Board.
3.03
Company
Capital; Representations and Warranties Regarding Contributions
.
(a) The
Initial Members have made initial Capital Contributions in amounts reflected opposite each Member’s name in
Exhibit A
hereto (or shall make them at such times as agreed to by the Company in writing) and such amounts shall be credited to each Member’s
Capital Account and shall receive the Percentage Interests reflected opposite each Initial Members’ name on
Exhibit A
.
The Capital Contributions of the Investor Members to the Company shall be made on or before their admission as a Member in such
amounts and with such Percentage Interests reflected opposite each Investor Member’s name on Exhibit A.
(b) Except
as specifically set forth in this Agreement, no Member shall be paid interest on any Capital Contribution to the Company or on
such Member’s Capital Account. A Member shall not receive from the Company or out of Company property and shall have no right
to withdraw and demand, and the Company shall not return to a Member, any part of its Capital Contribution or Capital Account.
Distributions to the Members shall be made only as expressly provided for in this Agreement.
(c) The
Company may from time to time determine that additional capital (in addition to the Capital Contributions made pursuant to this
Agreement) is required in order to achieve the purposes of the Company described above. Upon such a determination, the Board is
authorized to cause the Company to offer additional Interests in the Company to investors upon such terms and conditions as are
determined by the Board to be fair and reasonable. In addition, the Board may cause the Company to issue additional Interests in
the Company or options and/or warrants to acquire such additional Interests to employees and/or consultants of the Company or other
Persons on such terms as the Board may determine so long as such grants are within the parameters set forth in this Agreement relating
to grants of additional Interests. The Board is authorized to cause the Company to take all necessary actions, including the amendment
of this Agreement, to reflect the admission of Additional Members and the adjustment of the Interests held by the Members, resulting
from the offering of additional Interests in the Company. No Person shall have any preemptive or similar rights regarding the issuance
of additional Interests merely by reason of the Person’s status as a Member.
3.04
Capital
Accounts
.
(a) A
separate Capital Account shall be established, maintained and adjusted for each Member in accordance with Regs. §1.704-1(b),
including subclause (2)(iv)(b) thereof Provisions of this Agreement relating to the maintenance of Capital Accounts shall be interpreted
and applied in a manner consistent therewith. If the Board determines that it is prudent to modify the manner in which Capital
Accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the Company may make such modifications.
(b) In
the event of a revaluation of Company assets as contemplated in the definition of “Book Value,” Capital Accounts shall
be adjusted in compliance with the applicable Regulations, and the aggregate adjustment to Capital Accounts shall be classified
as Profit or Loss, as applicable, and allocated among the Members in accordance with Article IV. To the extent provided for in
a resolution of the Board, amounts so credited to the Capital Accounts of the Members shall constitute additional amounts to be
distributed to them in a liquidation of the Company under Article IX, in such manner and priority as specified in said resolution,
which shall be consistent with the economic arrangements among the Members.
(c) In
the event of a transfer of Interests in accordance with this Agreement, the proportionate attributes and Capital Account balances
thereof shall be transferred to the assignee, such that amounts contributed, distributed or allocated with respect to Interests
which were held by a predecessor in interest of a Member shall be taken into account for purposes of determining allocations, distributions
and other attributes associated with said Interests.
3.05
Liability
of Members
.
(a) Subject
to Section 3.05(b), no Member shall have any personal liability whatsoever in his capacity as a Member, whether to the Company,
to any of the Members, or to the creditors of the Company, for the debts, liabilities, contracts, or any other obligations of the
Company, or for any losses of the Company. A Member shall be liable only to make its initial Capital Contributions as expressly
provided for herein and shall not be required to lend any funds to the Company or to make any farther capital contributions to
the Company or to repay to the Company, any Member, or any creditor of the Company all or any fraction of any negative amount in
a Member’s Capital Account.
(b) In
accordance with applicable law, a Member of the Company may, under certain circumstances, be required to return to the Company,
for the benefit of Company creditors, amounts previously distributed to such Member. It is the intent of the patties that no distribution
to any Member shall be deemed a return or withdrawal of capital, and that no Member shall be obligated to pay any such amount to
or for the account of the Company or any creditor of the Company. However, if any court of competent jurisdiction holds that, notwithstanding
the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of
such Member only and not of any other Member.
(c) A
Member shall not be personally liable for the payment or repayment of any amounts standing in the account of another Member including,
but not limited to, the Capital Contributions. Any such payment or repayment, if required to be made, shall be made solely from
the Company’s assets. A Member shall have no personal liability to repay to the Company any negative amount of its Capital
Account.
3.06
Defaults.
Each Member, by its execution hereof, hereby acknowledges and agrees that such Member’s obligation to pay any Capital Contributions
at the time and in the amount described in Section 3.03(a), above, constitutes a legally enforceable obligation of such Member,
and consents to the enforcement and collection of such obligation by any legal means, without the requirement of any prior accounting
or other equitable procedure on the part of the Company.
3.07
Transaction
Expenses.
The Company shall pay and assume any reasonable and customary pre-formation expenses of the Company and the direct
expenses of the Initial Members, or Affiliates thereof, in connection with the consummation of the transactions contemplated in
this Agreement provided, however, that all Members shall pay and assume its own expenses in connection with the negotiation of
this Agreement. The Initial Members estimate the pre-formation expenses of the Company to be less than $50,000.00 which includes
legal, accounting, printing and travel expenses of the Initial Members relating to pre-formation of the Company and shall not include
any Capital Contributions made by the Initial Members. The Company shall be required to obtain the approval of the Board for the
payment of pre-formation expenses in excess of $50,000. In addition to the pre-formation expenses, the Members acknowledge that
Sardano, in addition to his Capital Contribution, has made an advance on behalf of the Company in the amount of $100,000 (“Sardano
Advance”) to fund a payment due pursuant to the Asset Purchase Agreement to acquire assets of Topex, Inc. Upon acquiring
the assets of Topex, Inc. or as soon as practicable thereafter and prior to any distributions under this Agreement, the Members
agree the Sardano Advance plus interest at a rate of 8% per annum from the date of the Sardano Advance shall be paid by the Company
to Sardano.
ARTICLE IV
ALLOCATIONS
4.01
Determination
of Profits and Losses; Preliminary Adjustments.
Profits, Losses and/or component items thereof, including individual items
of gross income, gain, loss, deduction or credit, shall be determined for each pe1iod pursuant to income tax accounting methods
adopted by the Board for the Company consistently applied and shall be allocated among the Members in the manner provided in this
Article IV. Prior to making allocations for a period, Capital Accounts shall be adjusted to reflect all contributions, distributions
and other events during the period that affect Capital Account balances other than said allocations.
4.02
Allocation
of Profits and Losses.
The net amount of Profit or Loss for a period shall be allocated among the Members in such manner that,
as of the end of such period, the Capital Account balance of each Member equals, or is as close as possible to, the Target Capital
Account Balance of such Member. The allocations under this Section 4.02 shall be of the residual amounts of Profit and Loss arising
during the period after giving effect to the special allocations of Section 4.03 below made for such period, which shall be made
prior to allocations under this Section 4.02.
4.03
Special
Allocations
.
(a)
Priority.
Allocations for a period under other provisions of this Agreement shall be of the residual amount of Profit or Loss or items thereof
remaining after giving effect to allocations under this Section 4.03 for said period.
(b)
Chargebacks,
offsets and nonrecourse deductions
. The allocations set forth below shall be made to the extent applicable and in the mam1er
provided for in Regulations relating thereto. Items of income and gains shall be allocated to the Members in such manner as shall
cause the Company to make allocations in accordance with provisions in the Regulations relating to: “minimum gain chargebacks”
under Regs. §1.704-2(f); “partner nonrecourse debt minimum gain chargebacks” under Regs. §1.704-2(i)(4);
and “qualified income offsets” under Regs. §1.704-1(b)(2)(ii)(d). Partner nonrecourse deductions under Regs. §1.704-2(i)
shall be allocated to the Member who bears the economic risk of loss with respect to the particular partner nonrecourse liabilities
to which they relate. Nonrecourse deductions under Regs. §1.704-2(b)(1) shall be allocated to the Members Pro Rata in accordance
with their Percentage Interests.
(c)
Loss
Limits
. Allocations of Losses or items of expense or deductions to a Member shall not exceed the maximum amount that can be
allocated to the Member pursuant to the limit set forth in Regs. §1.704-1(b)(2)(ii)(d). Items in excess of said limit shall
be reallocated to the other Members in accordance with Section 4.02.
(d)
Other
Allocations
. The Board is authorized to cause the Company to make such other allocations of Profit, Loss and items thereof
as it may determine such that all of said items will be allocated among the Members in a manner which will be respected pursuant
to the Regulations.
4.04
Tax
Allocations.
(a) Except
as otherwise provided in this Agreement, for Federal income tax purposes, all items of Company income, gain, loss, deduction, basis,
amount realized and credit, and the character and source of such items, shall be allocated among the Members in the same manner
as the corresponding items of income, gain, loss, deduction or credit are allocated to Capital Accounts in accordance with Sections
4.02 or 4.03. The Company shall maintain such books, records and accounts as are necessary to make such allocations.
(b) The
Board is authorized to make, for tax purposes only, allocations of income, gain, loss or deduction or adopt conventions as are
necessary or appropriate to comply with the Regulations under Code §704(c), and in particular, in respect of a Capital Contribution
of property other than cash and adjustments to the Book Value of Company assets at the times specified in the definition of Book
Value. Allocations will be made under methods selected by the Board and permissible under Regs. §1.704-3 and in conformity
with Regs. §§1.704-1(b)(2)(iv)(f) and 1.704-1(b)(4)(i).
4.05
Allocations
in Event of Assignment; Prorations
.
(a) Subject
in all cases to applicable law, if there is a Transfer of Interests in accordance with this Agreement, for purposes of allocations
of Profits and Losses and distributions of cash and property, the effective date of the Transfer as to the Company will be the
effective date stated in the Transfer instrument or such other date as the assignor and assignee agree, but not earlier than the
date the Board receives Notification of the Transfer, or, in the case of an involuntary Transfer, the date of the operative event.
Distributions of cash and property with respect to any Interests shall be made to the Person who is shown as the holder of such
Interests in the Company’s books at the time of the distribution.
(b) In
the event of a change in a Member’s Percentage Interest during the course of a period, allocations to said Member of Profits,
Losses and other items arising during such period shall be determined in accordance with the weighted average Percentage Interest
of the Member during said period, giving equal weight to each day during such period, except that if the Regs. require another
method for making such allocations in such case, or if the Board approves another method for making such allocations which is reasonable
and complies with the Regs. then the allocations to such Member shall be made in accordance with such other method.
4.06
Imputed
Interest.
If any Member makes a loan to the Company, or the Company makes a loan to any Member, and interest in excess of the
amount actually payable is imputed under Code §§7872, 483, or 1271 through 1288 or corresponding provisions of subsequent
Federal income tax law, then any item of income or expense of the Company attributable to any such imputed interest shall be allocated
solely to the Member who made or received the loan and shall be credited or charged to its Capital Account, and a corresponding
Capital Contribution by or distribution to said Member shall be deemed to have occurred, as appropriate.
ARTICLE V
DISTRIBUTIONS
5.01
Timing
and Priority of Distributions.
(a)
Generally.
Except as otherwise provided in this Agreement, the Company shall distribute cash or other property at such times as may be
determined by the Board, in its sole discretion, as follows:
(i) First,
to the Members, Pro Rata in accordance with their relative Unpaid Preferred Returns, until the Unpaid Preferred Return of each
Member is reduced to zero;
(ii) Then,
to the Members, Pro Rata, in accordance with their relative Percentage Interests.
The Board may, but shall
not be required to, cause the Company to distribute pursuant to this Section 5.01(a) an amount equal to the aggregate Unpaid Preferred
Return between May 15
th
and July 15
th
of each calendar year depending upon the cash flow and profitability
of the Company.
(b)
Tax
Distributions
. If, with respect to any fiscal year, the Company has not previously made distributions to its Members under
Sections 5.01(a) in an amount at least equal to the Tax Distribution (as defined below), the Board may, to the extent of cash available
for distributions as determined by the Board, make distributions under this Section 5.01(b) of amounts up to the remaining balance
of the Tax Distribution. “Tax Distribution” means, with respect to each Member, an amount equal to (i) the then effective
highest marginal tax rate applicable under the Code for individuals multiplied by (ii) the amount of net income (taking into account
all items of deduction and loss) allocated to such Member for the immediately preceding taxable year. Distributions to any Member
pursuant to this Section 5.01(b) shall be treated as an advance of, and shall reduce in the same order of priority and on a dollar-for-dollar
basis until fully recovered, any subsequent distributions to which such Member is otherwise entitled under Sections 5.01(a) and
9.02(b), but no Member shall be required to repay any Tax Distribution. The calculation of the Tax Distribution shall be determined
by the Board in its sole and absolute discretion.
5.02
Distributions
In Kind.
If the Company distributes property other than cash to its Members, the amount of such distribution shall be deemed
to be equal to the Fair Market Value of the property distributed, net of any liabilities that said property may be subject to or
which may be assumed by the Members in connection therewith. Said Fair Market Value shall be determined by the Board in good faith.
5.03
Payments
to Tax Authorities.
Notwithstanding anything to the contrary in this Agreement, the Company shall withhold such amounts as
may be required pursuant to the Code (including §1446 thereof), the Regulations or any provision of any state, local or foreign
law with respect to any payment, distribution or allocation of income to the Members and such withheld amow1ts shall be treated
for all purposes of this Agreement as amounts distributed to the Members to which such withholdings are attributable and reduce
amounts otherwise distributable to said Member as quickly as possible. The Company shall pay over to any federal, state, local
or foreign government any amounts required to be so withheld in accordance with applicable law.
5.04
Limitation
on Distributions to Members.
The Company shall not distribute cash or property to any Member unless, after such distribution
is made, the fair value of the Company’s assets exceeds its liabilities, and unless said distribution is in compliance with
any loan agreements or similar documents to which the Company is subject.
ARTICLE VI
MANAGEMENT; BOARD OF MANAGERS;
MEETINGS AND CONSENTS OF THE BOARD AND MEMBERS
6.01
Management
Power of Board.
(a) The
Board is hereby granted the right, power, and authority to do on behalf of the Company all things which are necessary or appropriate
to manage the Company’s affairs and fulfill the purposes of the Company, including delegating their management powers to
officers, employees, agents or other representatives of the Company. Any and all persons dealing with the Company shall have the
right to rely upon the actions of the Board to bind the Company by its actions or signature. Only the Board has the authority to
act for, and bind, the Company, except to the extent it delegates said authority to other persons in writing.
(b) Except
as expressly provided for in this Agreement, no actions of the Company require the Consent of any Members, and all Company actions
that are authorized by the Board will be deemed to be valid in all respects. Actions authorized by the Board that do not require
the Consent of the Members include without limitation the borrowing of money and the entering into transactions with Affiliates
or other related persons of the Company or any Member on arms-length terms, as determined by the Board.
6.02
Authority
of the Members.
Except as specifically provided in this Agreement, no Member shall take part in the management or control of
the Company’s business or affairs, and no Member shall have power to represent, act for, sign for or bind the Company. The
Members hereby Consent to the exercise by the Board of the powers conferred on it by law and this Agreement.
6.03
Number
of Managers; Qualifications.
The number of Managers on the Board shall be five (5), unless by Majority Vote of the Members,
the number of Managers is increased or decreased. Managers may but need not be Members.
6.04
Appointment
of Managers; Removal; Vacancies.
The Initial Members shall have the right to appoint and replace one (1) Manager, who initially
shall be Joseph C. Sardano and the Investor Members shall have the right to appoint and replace one (1) Manager. The initial Manager
appointment by the Investor Members shall occur no later than ninety (90) days past the final closing of the offering. Sardano
shall have the light to appoint three (3) Managers (the “Independent Managers”). The initial Independent Managers shall
be Samuel O’Rear, John Heinrich, and Mark Gordon Cherney. If a Manager ceases to serve as a Manager, the Member(s) which
appointed said Manager shall appoint a successor Manager. A Manager shall continue to serve in such office until removed by the
Member(s) that appointed such Manager or in the case of the Independent Managers until removed by Sardano or until said Manager
dies or resigns.
6.05
Board
Meetings.
Regular meetings of the Board may be held at such places within or without the State of Delaware and at such times
as the Board may from time to time determine, and if so determined, notices thereof need not be given. Special meetings of the
Board may be held at any time or place within or without the State of Delaware whenever called by any Manager. Notice of a special
meeting of the Board shall be given by the person or persons calling the meeting at least twenty-four (24) hours before the special
meeting. Said notice must specify the time and place, and information regarding telephone numbers. Notices must be sent to the
addresses and fax numbers specified in the records of the Company with respect to each Manager. Members of the Board may participate
in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation shall constih1te presence in person at such meeting.
6.06
Quorum;
Vote Required for Action.
At all meetings of the Board a majority of the Board shall constitute a quorum for the transaction
of business. The vote of a majority of the Managers present at a meeting at which a quorum is present shall be required and shall
be sufficient for approval of any action taken by the Board and shall constitute a Consent of the Board under this Agreement. The
Board cannot approve any action at a meeting at which a quorum is not present.
6.07
Action
by Managers by Written Consent.
Any action required or permitted to be taken at any meeting of the Board may be taken without
a meeting if a majority of the Board Consents thereto in writing.
6.08
Executive
Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies.
The Board may elect a President, one or
more Executive Vice Presidents, Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant
Treasurers, and such other officers as the Board deems necessary. The initial officers of the Company shall be as follows:
Joseph C. Sardano, President;
Stephen N. Cohen, Vice President for Business Development;
Kalman Fishman, Chief Operating Officer; and
Richard Golin, Executive Vice President of Sales and
Marketing.
Each such officer shall
hold office until the first annual meeting of the Board after the Officer’s election, or until the Officer’s successor
is elected and qualified or until the Officer’s earlier resignation or removal. Any officer may resign at any time upon written
notice to the Company. The Board may remove any officer with or without cause at any time. Any number of offices may be held by
the same person. Any vacancy occurring in any office of the Company by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the Board at any regular or special meeting.
6.09
Powers
and Duties of Executive Officers.
The officers of the Company shall have such powers and duties in the management of the Company
as may be prescribed by the Board.
6.10
Meetings
of Members.
Any matter requiring the Consent of all or any of the Members pursuant to this Agreement may be considered at a
meeting of the Members held not less than ten (l0) business days after Notification thereof shall have been given to all other
Members by (i) Members owning at least fifty percent (50%) of the Percentage Interests, or (ii) any Manager. The Notification shall
state the proposed action to be taken. The Company shall not be required to hold a special or annual meeting of Members. A Member
may issue a proxy or power of attorney to any Person to act on its behalf at any meeting, and the actions of such Person consistently
with such proxy or power of attorney shall be deemed to be the actions of said Member.
6.11
Method
of Giving Consent.
On any matter that is to be voted on, consented to or approved by Members, the Members may take such action
without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken,
shall be signed by the Members having not less than the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all Members entitled to vote thereon were present and voted.
6.12
Submissions
to Members.
The Board shall give all the Members Notification of any proposal or other matter required by any provision of
this Agreement or by law to be submitted for the consideration and approval of the Members. Such Notification shall include any
information required by the relevant provision of this Agreement or by law.
ARTICLE VII
REIMBURSEMENT AND INDEMNITY
7.01
Reimbursement
of Managers.
The Managers shall be entitled to be reimbursed by the Company for out-of pocket expenses incurred in their capacities
as Managers in connection with the management of the Company and its business. The Managers shall not receive any salary for serving
as Managers of the Company.
7.02
Indemnification
of the Managers and Members by the Company.
The Company shall indemnify and hold harmless the Members, the Managers and the
Company’s officers and employees, and the Affiliates of each of the foregoing Persons (each of the foregoing Persons is referred
to as a “Covered Person”), to the fullest extent permitted by law against losses, judgments, liabilities, expenses
and amounts incurred or paid, including attorneys’ fees, costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities, by the Covered Person in com1ection with any claim, action, suit or proceeding in which such Covered Person
becomes involved as a party or otherwise, or with which such Covered Person shall be threatened, in connection with the conduct
of the Company’s affairs. Expenses incurred by any Covered Person in connection with the preparation and presentation of
a defense or response to any claims covered hereby shall be paid by the Company. The Company shall pay the amounts described herein
to the Covered Person (or to the parties making claims against the Covered Person in satisfaction of said claims) within 10 days
after written demand therefor is delivered to the Company by the Covered Person. Without limiting the foregoing sentence, the indemnities
by the Company provided for therein shall apply with respect to all actions taken by the Managers or Members which they believe
to be in the best interests of the Company in accordance with the business judgment rule, other than actions which constitute willful
misconduct or gross negligence.
ARTICLE VIII
TRANSFERABILITY OF INTERESTS;
RIGHTS OF FIRST REFUSAL; DRAG-ALONG
8.01
Prohibition
Against Transfers.
Except for (i) Approved Transfers, (ii) Permitted Transfers, and (iii) as otherwise expressly permitted
by this Article VIII, no Transfer of any Interests may be made by a Member to any Person, whether voluntarily or by operation of
law, without the prior written consent of the Board. Transfers which are Approved Transfers or Permitted Transfers are not subject
to the provisions of Section 8.03. Transfers which are made pursuant to or in compliance with provisions of Sections 8.03 may be
consummated in accordance with said provisions even if they are not Approved Transfers or Permitted Transfers.
8.02
Certain
Agreements by Transferees.
No Approved Transfer, Permitted Transfer or Transfer pursuant to Section 8.03 below shall be valid
or permitted, nor shall any transferee of Interests by means of any such Transfer have any rights hereunder, unless and until all
of the following conditions are satisfied or waived in writing by the Board.
(a) The
transferee (if not already a Member prior to such Transfer) shall have executed and delivered to the Company a counterpart of this
Agreement pursuant to which the transferee agrees to be bound by the provisions of this Agreement and the written acceptance and
adoption by the transferee of the provisions of this Agreement and the assumption by the transferee of all obligations of the transferor
under this Agreement.
(b) The
transferor shall deliver to the Company the fully executed and acknowledged written instrument of assignment or other applicable
document setting forth the intention of the transferor to transfer such transferor’s Interests to the transferee.
(c) The
transferor and transferee shall execute and acknowledge such other instruments as the Board may reasonably deem necessary or desirable
to effect such Transfer and admission of the transferee as a Member.
(d) If
requested by the Board, counsel reasonably satisfactory to the Board shall have rendered an opinion, at the transferor’s
sole cost and expense, that (i) such Transfer may be effected without registration under the Securities Act or violation of applicable
state securities laws, (ii) such Transfer will not result in the termination of the Company’s tax treatment as a partnership
for federal income tax purposes or the termination of the limited liability of the Members under applicable law, (iii) if there
is a loan or other material contract or instrument to which the Company is a party or by which the Company or any of its properties
or assets are bound or subject, such Transfer will not entitle the holder of the indebtedness secured thereby or other contractual
party to accelerate the indebtedness or terminate or otherwise materially alter the terms of the agreement, and (iv) the Company
will not be required to register under the Investment Company Act, as in effect at the time of rendering such opinion. Each Member
acknowledges and confirms that such Member’s Interests constitute securities that have not been registered under any federal
or state securities laws by virtue of exemptions from the registration provisions thereof and consequently cannot be sold except
pursuant to appropriate registration or exemption from registration as applicable.
(e) The
Board (with advice of counsel) shall have determined in writing that any such Transfer will not have an adverse legal, operational,
tax or securities law effect upon the Company and, without limiting the foregoing, such Transfer does not violate this Agreement
and does not and will not cause the Company or the Board to violate the Securities Act, the Exchange Act, the Investment Company
Act, ERISA or the laws, rules, regulation, orders and other directives of any governmental authority. and
(f) The
transferee has paid all reasonable expenses incurred by the Company (including its legal fees) in connection with the Company’s
determination of the transferee’s and transferor’s compliance with the foregoing provisions, or otherwise in connection
with such Transfer.
8.03
Rights
of First Refusal.
(a)
Qualified
Offer; Right of First Refusal.
In the event that any Member receives a Qualified Offer (the “Selling Member”) to
purchase Interests owned by the Selling Member (the “Offered Interests”) and the Selling Member desires to accept such
Qualified Offer, the Selling Member shall promptly send a notice (an “Offer Notice”) to the Company and to the other
Members (the “Remaining Members”) in the manner required by this Agreement, irrevocably offering to sell all (and not
less than all) of the Offered Interests to the Company, or if not accepted by the Company, to the Remaining Members, on such terms
and conditions as are contained in the Qualified Offer. The notice shall contain a true and complete copy of the Qualified Offer.
The Company and the Remaining Members shall then have such rights and privileges, for the prescribed time periods, as are set forth
below. Transfers which are Approved Transfers or Permitted Transfers are not subject to the provisions of this section.
(b)
Right
of the Company
. In the event that an Offer Notice has been sent by the Selling Member to the Company and the Remaining Members
pursuant to this Agreement, for a period of 30 days after its receipt of such Offer Notice, the Company shall have the right, at
its sole option, to purchase all (and not less than all) of the Offered Interests on such terms and conditions as are contained
in the Qualified Offer. The exercise or non-exercise of the Company’s right to purchase all of the Offered Interests shall
be determined by the Majority Vote of the Remaining Members. If the Company elects to purchase all of the Offered Interests, the
Company shall send to the Selling Member and the Remaining Members written notice of such election prior to expiration of the foregoing
30-day period, which notice shall advise the Selling Member of such election, and which shall specify a closing date and time,
which shall be no later than 60 days (unless more time is required by law) after the expiration of the foregoing 30-day period.
The closing shall be held at the Company’s offices. If the Company’s purchase of Offered Interests requires an amendment
to any governing documents of the Company or a reduction of its capital or a reappraisal of its assets and/or any other Company
action, the Members, including the Selling Member, agree that they shall vote or cause a vote to be made (as Members of the Company)
in favor of any such Company action as may be necessary or convenient for the taking of such action.
(c)
Right
of the Remaining Members.
If the Company does not exercise its right to purchase the Offered Interests within the time period
specified for the exercise of said right, the Company shall immediately send the Selling Member and the Remaining Members written
notice that it is not exercising its rights of first refusal hereunder, and for a period of 30 days beginning on the day after
expiration of the 30-day period set forth in Section 8.03(b), the Remaining Members (Pro Rata, in proportion to the Percentage
Interests in the Company owned by the Remaining Members, or, if the Remaining Members agree otherwise, in such other proportion
as they shall agree upon) shall have the right, at their sole option, to purchase all (and not less than all) of the Offered Interests
on such terms and conditions as are contained in the Qualified Offer. Such option may be exercised by Remaining Members by providing
the Selling Member and the Company with a notice pursuant to this Agreement advising of the intent to exercise the option to purchase
their Pro Rata portion of the Offered Interests within such 30-day period. If any Remaining Members fail to exercise their rights
hereunder within such 30 days, the Selling Member shall promptly send a notice to the Company and to the Remaining Members which
exercised their rights hereunder identifying the Remaining Members who failed to exercise said rights and advising of the number
of Offered Interests not so purchased. The Remaining Member(s) which originally exercised their rights hereunder shall then have
an additional 10-day period commencing on the date of receipt of the foregoing notice from the Selling Member in which to exercise
an option to purchase the remaining Offered Interests in accordance with the procedures stated above. If Remaining Members elect
to purchase all of the Offered Interests, the closing shall occur no later than 60 days (unless more time is required by law) after
the expiration of last of the applicable periods specified in this paragraph. The closing shall be held at the Company’s
offices.
8.04
Right
to Proceed with Sale.
If the rights of the Remaining Members provided for above in this Article VIII are not exercised within
the prescribed time periods and all conditions set forth in Section 8.02 have been satisfied, the Selling Member shall have the
right to accept the Qualified Offer in whole (but not in part) and to sell all of the Offered Interests, but only in strict accordance
with all of the provisions of the Qualified Offer; and only if the sale is fully consummated within 120 days after the expiration
of the last of said time periods. The Selling Member shall furnish such proof of the completion of the sale and the terms thereof
as the Company may reasonably request. If, at the end of said 120-day period, the Selling Member has not sold the Offered Interests,
all of the restrictions on and procedures relating to Transfers set forth in this Agreement shall again come into effect with respect
thereto.
ARTICLE IX
DISSOLUTION; LIQUIDATION AND TERMINATION
OF THE COMPANY;
9.01
Dissolution.
(a) The
Company shall be dissolved upon the Majority Vote of the Board and upon the Majority Vote of the Members to dissolve the Company
following the sale, distribution to the Members, or other disposition of all or substantially all of the assets of the Company,
or as required by applicable law.
(b) Dissolution
of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not
terminate until the Articles of the Company have been canceled and the business of the Company wound-up and assets of the Company
distributed as provided in Section 9.02.
9.02
Liquidation.
(a) Upon
a Liquidity Event or the dissolution of the Company, the Board or a liquidating trustee, if one is appointed, shall wind up the
affairs of the Company and liquidate all or any part of the assets of the Company. The Board or such liquidating trustee shall
determine the time, manner and terms of any sale or other disposition of the Company’s property for the purpose of obtaining,
in its opinion, fair value for such assets.
(b) Profits
and Losses arising from such sales and distributions upon liquidation shall be allocated to the Member’s Capital Accounts
as provided in Article IV prior to making liquidating distributions to the Members. In settling accounts after dissolution, the
assets of the Company shall first be paid out to creditors, whether by payment or by establishment of due and adequate reserves,
in the order of priority as provided by law; and then to the Members as follows:
(i) First,
to the Members, Pro Rata in accordance with their relative Unpaid Preferred Returns, until the Unpaid Preferred Return of each
Member is reduced to zero;
(ii) Second,
to the Members, Pro Rata in accordance with their relative Unreturned Capital, until the Unreturned Capital of all Members is reduced
to zero;
(iii)
Then, to the Members, Pro Rata, in accordance with their relative Percentage Interests.
(c) When
the Board or liquidating trustee has complied with the foregoing liquidation plan, the Members shall execute, acknowledge, and
cause to be filed an instrument evidencing the cancellation of the Articles of the Company.
9.03
Liquidation
Following Sale of Business to Third Party.
Without limiting other provisions of this Agreement, the Board by Majority Vote
and with a Majority Vote of Members may sell the Company (a “Sale”). Within 30 days after consummation of a Sale, the
proceeds thereof shall be distributed to the Members in accordance with the priorities set forth in Section 9.02(b).
ARTICLE X
AMENDMENTS
10.01
Amendments
Generally.
(a) Amendments
to this Agreement to reflect the addition or substitution of a Member, the admission of a successor Member by the Company or the
withdrawal of a Member, shall be made at the time and in the manner referred to in Article VIII.
(b) The
Board shall, within a reasonable time after the adoption of any amendment to this Agreement, make any filings or publications required
or desirable to reflect such amendment, including any required filing for recordation of any certificate of the Company or other
instrument or similar document of the type contemplated by this Agreement.
10.02
Adoption
of Amendments.
(a) Except
as otherwise provided in Section 10.02(b), this Agreement may be amended from time-to-time only with the Consent of a Super Majority
Vote of the Members.
(b) Notwithstanding
any other provision of this Agreement to the contrary, the Board has the authority to amend this Agreement without the consent
of any Member if the amendment either is necessary or advisable to reflect the economic arrangement of the Members or does not
have a material adverse economic effect on any Member. Each Member by executing this Agreement acknowledges and agrees that amendments
to this Agreement approved by a Super Majority Vote of Members are valid and enforceable against each Member, and each Member irrevocably
waives any appraisal or dissenters’ rights the Member may have under applicable law.
(c) On
the adoption of any amendment to this Agreement, the amendment shall be executed by the Board and all of the Members and, only
if necessary under applicable law, be recorded in the proper records of each jurisdiction in which recordation is necessary for
the Company to conduct business or to preserve the limited liability of the Members. Each Member hereby irrevocably appoints and
constitutes the Board as his agent and attorney-in-fact to execute, swear to, and record any and all such amendments. The power
of attorney given herewith is irrevocable, is coupled with an interest and shall survive the leaving of a Member granting it.
10.03
Amendments
on Admission or Withdrawal of Members.
If this Agreement shall be amended to reflect the admission or substitution of a Member,
the amendment to this Agreement shall be adopted, executed and sworn to by all Members and the Person to be substituted or added
and the assigning Member. Any such amendment may be executed by the Board on behalf of the Members, the substituted or added Member,
and the assigning Member pursuant to the power of attorney granted in Section 10.02(c).
10.04
Amendment
of Articles.
In the event this Agreement shall be amended pursuant to this Article X, the Board shall amend the Articles to
reflect such change if it deems such amendment to be necessary.
ARTICLE XI
RECORDS AND ACCOUNTING; REPORTS; TAX
MATTERS
11.01
Records
and Accounting.
The books and records of the Company shall be kept on such basis of accounting, as may be determined by the
Board. Financial statement of the Company shall be prepared in accordance with Generally Accepted Accounting Principles. Proper
and complete records and books of account of the business of the Company, including a list of the names and addresses of all Members,
shall be maintained by the Board at the Company’s principal place of business, and each Member or his duly authorized representative
shall have access to them, upon reasonable notice and for a proper purpose, at all reasonable times during business hours. Any
Member, or his duly authorized representatives, upon paying the costs of collection, duplication and mailing, shall be entitled
for any proper purpose to a copy of the list of names and addresses and of the Members and other records or books specified in
applicable law. Such information shall be used for Company purposes only. There shall be an interim closing of the books of account
of the Company at such time as the Company’s taxable year ends pursuant to the Code and at such other times as the Board
determines is required under this Agreement.
11.02
Tax
Information.
Within a reasonable period of time after the end of each calendar year, the Board will cause to be delivered to
each Person who was a Member at any time during such calendar year all information necessary for the preparation of such Member’s
federal income tax returns, including a statement showing each Member’s share of Profits or Losses, and the amount of any
distribution made to or for the account of such Member pursuant to this Agreement.
11.03.
Designation
of Tax Matters Member.
(a) Sardano
shall act as the initial Tax Matters Member of the Company, as provided in Regulations pursuant to Code §6231 (referred to
therein as “tax matters partner”). Each Member hereby approves of such designation and agrees to execute, certify,
acknowledge, deliver, swear to, file, and record at the appropriate public offices such documents as may be deemed necessary or
appropriate to evidence such approval, including statements required to be filed with the tax returns of the Company in order to
effect the election and designation of the foregoing Member as Tax Matters Member.
(b) To
the extent and in the manner provided by applicable law, the Tax Matters Member shall furnish the name, address, profits interest,
and taxpayer identification number of each Member (or assignee) or each indirect member (as defined in Code §6231(a)(10))
to the IRS. The Tax Matters Member shall have the duties and authority accorded to a tax matters partner in Code §§6221
through 6234 and the Regulations thereunder in the event of an administrative or judicial proceeding relating to the adjustment
of Company items required to be taken into account by a Member or indirect member for United States federal income tax purposes.
(c) Notwithstanding
any other provision of this Agreement, the Company shall indemnify and reimburse, to the fullest extent provided by law, the Tax
Matters Member for all expenses, including legal and accounting fees (as such fees are incurred), claims, liabilities, losses,
and damages incurred in connection with any tax audit or judicial review proceeding with respect to the tax liability of the Members,
the payment of all such expenses to be made before any cash distributions are made to the Members. No Member shall be obligated
to provide funds for such purpose.
11.03
Elections.
The Board may cause the Company to make all elections required or permitted to be made by the Company under the Code and not otherwise
expressly provided for in this Agreement.
ARTICLE XII
MISCELLANEOUS
12.01
Notification.
(a) Any
Notification to any Member shall be at the address of such Member set forth in Exhibit “A” hereto or such other mailing
address of which such Member shall advise the Board in writing. Any Notification to the Company or the Board shall be at the principal
office of the Company set forth in Section 1.02. The Board may change the location of the Company’s principal office upon
notice thereof to the Members.
(b) Any
Notification shall be deemed to have been duly given if personally delivered or sent by United States mail or by facsimile transmission
confirmed by letter and will be deemed given, unless earlier received (i) if sent by certified or registered mail, return receipt
requested, five calendar days after being deposited in the United States mails, postage prepaid; (ii) if sent by United States
Express Mail, two calendar days after being deposited in the United States mails, postage prepaid; (iii) if sent by facsimile transmission,
the date sent provided confirmatory notice was sent by first-class mail, postage prepaid; and (iv) if delivered by hand, on the
date of receipt.
12.02
Governing
Law; Separability of Provisions.
It is the intention of the parties that the internal laws of the State of Delaware shall govern
the validity of this Agreement, the construction of its terms and interpretation of the rights and duties of the parties. If any
provision of this Agreement shall be held to be invalid, the remainder of this Agreement shall not be affected thereby.
12.03
Entire
Agreement.
This Agreement (including any exhibits and schedules attached hereto) contains the entire understanding of the parties
in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the
parties with respect to such subject matter. The exhibits and schedules attached hereto constitute a part hereof as though set
forth in full above.
12.04
Amendment;
Waiver.
This Agreement may not be modified, amended, supplemented, canceled or discharged, except as provided in this Agreement.
No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power
or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of
the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of
time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they may have against each other.
12.05
Binding
Effect; Assignment.
The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or
equitable rights hereunder. Except as expressly provided herein, the rights and obligations of this Agreement may not be assigned
by any of the parties.
12.06
Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.07
Interpretation.
When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. Time shall be of
the essence in this Agreement. For purposes of applying the Code and Regulations as provided in this Agreement only, references
to the “Company” and the “Members” in this Agreement standing alone or as part of other defined terms shall
be deemed to correspond to references to a “partnership” and “partners,” respectively. Nothing herein or
in the tax reporting of the Company and Members shall be construed to cause any of them to be considered to be a partnership or
partners of any kind pursuant to any applicable non-tax laws or doctrines.
12.08
Arm’s
Length Negotiations.
Each party herein expressly represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed itself of the terms, contents, conditions and effects of this Agreement; (b) said
party has relied solely and completely upon its own judgment in executing this Agreement; (c) said party has had the opportunity
to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its
own free will in executing this Agreement; (e) said party is not acting under duress, whether economic or physical, in executing
this Agreement; and (f) this Agreement is the result of arm’s length negotiations conducted by and among the parties and
their respective counsel.
IN WITNESS WHEREOF,
the parties have executed this Agreement as of the date first above written.
|
|
THE COMPANY:
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
Name:
|
Joe Sardano
|
|
|
Title:
|
President/CEO
|
|
EXHIBIT “A”
|
|
Sensus Healthcare LLC
|
|
as of 3/31/13
|
|
Units
|
|
|
%
|
|
|
“Preferred” Investor Members
|
|
|
|
|
|
|
|
|
|
A: Preferred (35)
|
|
|
12,750.01
|
|
|
|
29.320
|
%
|
|
Warrants: ICA
|
|
|
2,250.00
|
|
|
|
5.174
|
%
|
|
“Common” Members (95)
|
|
|
|
|
|
|
|
|
|
Managers: (5)
|
|
|
|
|
|
|
|
|
|
Joe Sardano
|
|
|
6,876.29
|
|
|
|
15.813
|
%
|
|
Rick Golin
|
|
|
4,196.65
|
|
|
|
9.651
|
%
|
|
Stephen Cohen
|
|
|
4,196.65
|
|
|
|
9.651
|
%
|
|
Kal Fishman
|
|
|
4,196.65
|
|
|
|
9.651
|
%
|
|
Stephen Arnold
|
|
|
1,500.00
|
|
|
|
3.449
|
%
|
|
|
|
|
20,966.24
|
|
|
|
48.215
|
%
|
|
Employees: Reserved (0)
|
|
|
375.00
|
|
|
|
0.862
|
%
|
|
B: Common: Sterne Agee (18)
|
|
|
2,385.00
|
|
|
|
5.485
|
%
|
|
C: Common: NTB (68)
|
|
|
3,600.00
|
|
|
|
8.279
|
%
|
|
Warrants: NTB*
|
|
|
|
|
|
|
|
|
|
D. Board/Medical Advisor (4)
|
|
|
483.75
|
|
|
|
1.112
|
%
|
|
Referral Agent: C. Torrey
|
|
|
675.00
|
|
|
|
1.552
|
%
|
|
Total
|
|
|
43,485.00
|
|
|
|
100.000
|
%
|
*To Be Issued: Warrants to NTB (right to buy 360 units)
|
|
|
A. Preferred Shareholder Members
|
|
|
|
*Detailed List of Investor Members
|
|
Initial Capital
Contributions
|
|
|
Units
|
|
|
Current
Percentage
Interest
|
|
|
|
|
TOTAL
|
|
$
|
6,416,500
|
|
|
|
12,750.01
|
|
|
|
29.320
|
%
|
|
|
|
|
|
|
|
|
|
|
12,750.01
|
|
|
|
29.320
|
%
|
Common Shareholder Members
B. Common Shareholder Members (Sterne Agee)
|
|
|
*Detailed List of Investor Members
|
|
Initial Capital
Contributions
|
|
|
Units
|
|
|
Current
Percentage
Interest
|
|
|
|
|
TOTAL
|
|
$
|
2,385,000
|
|
|
|
2,385.00
|
|
|
|
5.485
|
%
|
|
|
|
|
|
|
|
|
|
|
2,385.00
|
|
|
|
5.485
|
%
|
C. Common Shareholder Members (NTB)
|
|
|
*Detailed List of Investor Members
|
|
Initial Capital
Contributions
|
|
|
Units
|
|
|
Current
Percentage
Interest
|
|
|
|
|
TOTAL
|
|
$
|
3,600,000
|
|
|
|
3,600.00
|
|
|
|
8.279
|
%
|
|
|
|
|
|
|
|
|
|
|
3,600.00
|
|
|
|
8.279
|
%
|
|
|
|
D. Board Members / Medical Advisor
|
|
|
|
*Detailed List of Investor Members
|
|
Initial Capital
Contributions
|
|
|
Units
|
|
|
Current
Percentage
Interest
|
|
|
|
|
TOTAL
|
|
$
|
0
|
|
|
|
483.75
|
|
|
|
1.112
|
%
|
Exhibit 3.4
AMENDMENT TO OPERATING AGREEMENT
OF
SENSUS HEALTHCARE, LLC,
DATED AS OF FEBRUARY 28, 2012
AMENDMENT TO THE OPERATING AGREEMENT
OF
SENSUS HEALTHCARE, LLC
This Amendment to Operating
Agreement (“
Amendment
”) is made and entered into as of the
28
th
day of
February
,
2012 (“
Effective Date
”), by Sensus Healthcare, LLC, a Delaware limited liability company (the “
Company
”).
WHEREAS
, the
Company is governed by that certain Operating Agreement effective as of September 30, 2010 (the “
Agreement
”);
and
WHEREAS
, this
Amendment is intended to clarify the Agreement as to the Percentage Interests of the Members as of the Effective Date and otherwise
amend the Agreement as set forth herein.
WHEREAS
, pursuant
to the provisions of Section 10.02(b) of the Agreement, the Board of Directors of the Company may amend the Agreement to reflect
changes set forth herein; and
WHEREAS
, capitalized
terms used and not otherwise defined herein have the respective meanings assigned to them in the Agreement.
NOW, THEREFORE
,
in consideration of the mutual covenants and obligations set forth in the Agreement and in this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Agreement is hereby amended as follows:
1. The parties agree
that the recitals are true and accurate and hereby incorporate the recitals into this Amendment.
2.
Section 5.01(b)
.
The first sentence of Section 5.01(b) is hereby amended to replace the word “may” with the word “shall”.
3.
Schedule A
.
Schedule A
currently attached to the Agreement shall be deleted in its entirety and shall be replaced with
Schedule A
attached hereto and made a part hereof.
4. Except as modified
by this Amendment, all of the provisions of the Agreement shall remain unchanged and in full force and effect.
[Signatures on the following page]
IN WITNESS WHEREOF
,
the undersigned have executed this Amendment as of the date first above written.
|
|
THE COMPANY:
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
|
Joseph C. Sardano, President
|
|
EXHIBIT “A” As of February 24, 2012
|
|
Name
|
Non-Cash
Contributions
Subject to 8%
Preferred Return
|
Initial Capital
Contributions
Subject to 8%
Preferred Return
|
Percentage
Interest Excluding
Warrants
|
|
Joseph C. Sardano, Initial Member
|
$150,000
|
$ -0-
|
20.43%
|
|
Stephen Cohen and Vicki Cohen, Initial 11ember
|
$ 50,000
|
$ -0-
|
12.52%
|
|
Richard Golin, Initial Member
|
$ 50,000
|
$ -0-
|
12.52%
|
|
Kalman Fishman and Michal Fishman, Initial Member
|
$ 50,000
|
$ -0-
|
12.52%
|
|
Stephen G. Arnold (CFO)
|
$ -0-
|
N/A
|
4.00%
|
|
Employee Pool (Reserved, Available)
|
$ -0-
|
N/A
|
1.00%
|
|
Mark Cherney, Board Member
|
$ -0-
|
N/A
|
0.30%
|
|
Samual O'Rear, Board Member
|
$ -0-
|
N/A
|
0.30%
|
|
John Heinrich, Board Member
|
$ -0-
|
N/A
|
0.30%
|
|
Annand Cognetta, Medical Advisory Board Member
|
$ -0-
|
N/A
|
0.30%
|
|
Charles P. Torrey, Jr. (Referral Agent)
|
$ -0-
|
N/A
|
1.80%
|
|
**6% Warrants have been drafted, but not issued and shall dilute Initial Members only
|
|
The Offering - Private Placement completed March 31, 2011 - All Investors
|
$ -0-
|
$6,416,500
|
34.00%
|
|
Detail Members
|
Non-Cash
Contributions Not
Subject to 8%
Preferred Return
|
Initial Capital
Contributions
Subject to 8%
Preferred Return
|
Percentage
Interest
|
Exhibit 3.5
SECOND AMENDMENT TO OPERATING AGREEMENT
OF
SENSUS HEALTHCARE, LLC,
DATED AS OF APRIL 5, 2013
SECOND AMENDMENT TO LIMITED LIABILITY
COMPANY AGREEMENT
OF
SENSUS HEALTHCARE, LLC
This
SECOND AMENDMENT
TO LIMITED LIABILITY COMPANY AGREEMENT OF SENSUS HEALTHCARE, LLC
(this “
Amendment
”) is entered into effective
as of April 5
,
2013, by and among SENSUS HEALTHCARE, LLC, a Delaware limited liability company (the “
Company
”),
and the undersigned requisite members of the Board of Managers of the Company (the “
Board
”).
WHEREAS
, the
Company is governed by that certain Operating Agreement dated as of September 30, 2010, as amended (the “
Agreement
”);
WHEREAS
, pursuant
to Section 10.02(b) of the Agreement, the Board has the authority to amend the Agreement without the consent of any Member if the
amendment either is necessary or advisable to reflect the economic arrangement of the Members or does not have a material adverse
economic effect on any Member, and the undersigned have agreed to amend the Agreement accordingly as herein provided; and
WHEREAS
, the
undersigned Board Members, constituting the only authority required under the Agreement to amend the Agreement, desire to amend
the Agreement as herein provided.
NOW, THEREFORE
,
in consideration of the mutual covenants and agreements set forth herein, the parties hereto hereby agree as follows:
1.
Capitalized
Terms
. Capitalized terms used and not otherwise defined in this Amendment shall have the meanings ascribed to them in the
Agreement.
2.
Amendments
.
The Agreement is hereby amended as follows:
(a) Section
1.04 of the Agreement is hereby modified by adding the following sentence to the definition of “Percentage Interest”:
Percentage Interest shall be determined
by a fraction (expressed as a percentage), (a) the numerator of which is the number of Units owned by that Member, and (b) the
denominator of which is the aggregate number of Units owned by all Members.
(b) Section
1.04 of the Agreement is hereby modified by adding the following additional defined term:
“Units” means, with
respect to any Member, the fractional share expressed as a number of Units of that Member’s Percentage Interest in the Company.
IN WITNESS WHEREOF,
the parties hereto have executed this Amendment effective as of the date first above written.
|
|
THE COMPANY:
|
|
|
|
|
|
Sensus Healthcare, LLC
|
|
|
|
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
|
Joseph C. Sardano, President
|
|
|
|
|
|
BOARD MEMBERS:
|
|
|
|
|
|
/s/ Joseph C. Sardano
|
|
|
|
|
|
/s/ Mark Cherney
|
|
|
|
|
|
/s/ Don Stransberry
|
|
|
|
|
|
/s/ John P. Heinrich
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 4.1
WARRANT AGREEMENT OF
SENSUS HEALTHCARE, LLC,
DATED AS OF MARCH 31, 2011,
BY AND BETWEEN SENSUS HEALTHCARE, LLC
AND
ANDERSON STRUDWICK, INC.
THE SECURITIES REPRESENTED BY THIS WARRANT,
INCLUDING THE LIMITED LIABILITY COMPANY MEMBERSHIP INTERESTS ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS. THE TRANSFERABILITY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO LIMITED IN ACCORDANCE WITH THE TERMS OF THE
COMPANY’S OPERATING AGREEMENT.
WARRANT AGREEMENT
of
SENSUS HEALTHCARE, LLC
|
Dated as of:
|
March 31, 2011 (the “Effective Date”)
|
|
|
|
|
Expiration Date:
|
March 31, 2016
|
WHEREAS
, Sensus
Healthcare, LLC, a Delaware limited liability company (the “Company”), has entered into an Engagement Letter dated
March 15, 2010, with Anderson Strudwick, Inc., a Virginia corporation (the “Holder”);
WHERE
AS, the
Company desires to grant Holder the right to purchase membership interests in the Company in accordance with the terms and conditions
of this Warrant Agreement (the “Agreement or the “Warrant”).
NOW, THEREFORE
,
in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the Company and Holder hereby agree as follows:
FOR VALUE RECEIVED
,
the Company hereby grants to Holder or its permitted assigns, and the Holder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from the Company, limited liability company membership interests in the Company.
The amount of membership interests (the “Amount”), that the Holder may purchase from the Company shall be equal to
six percent (6.0%) of the outstanding membership interests of the Company as of the Effective Date, as more fully described herein
(the “Membership Interests”). The exercise price of the Membership Interests shall be $1,132,539 (the “Exercise
Price”), and is payable in cash. The Exercise Price may be adjusted from time to time in accordance with Section 3 hereof,
according to the terms, conditions and procedures set forth herein. This Warrant (the “Warrant”) will expire at 5:00
p.m. (Eastern Time), on March 31, 2016 (the “Expiration Date”), five years after the Effective Date. The Membership
Interests issued upon exercise of this Warrant, shall sometimes be referred to herein as “Warrant Interests” . This
Warrant is subject to the following terms and conditions:
1.
Exercise;
Payment; Issuance of Certificates
Any purchase of Membership
Interests by Holder hereunder shall be made pursuant to the following terms and procedures:
1.1 Holder
electing to purchase Membership Interests must surrender this Warrant and deliver the exercise form attached hereto as
Exhibit
A
(the “Exercise Form”), together with the investment representation letter attached hereto as Exhibit B, each
duly completed and executed, to the Company at its principal office (or at such other location as the Company may advise the Holder
in writing), along with payment in full of the aggregate Exercise Price (“Purchase Price”) for the full Amount, no
later than the Expiration Date hereof. The Holder must also, as a condition to the purchase, execute the Operating Agreement of
the Company. The Holder may not exercise less than the full Amount hereunder.
1.2 Payment
of the Purchase Price shall be made in cash, transmitted by certified check or wire transfer. If Holder fails to deliver the Exercise
Form to the Company by the Expiration Date, properly completed and executed, along with payment in full of the Purchase Price for
Membership Interests to be purchased thereunder and the executed Operating Agreement, this Warrant shall expire and all rights
granted pursuant to this Warrant shall automatically terminate and Holder shall waive its right to purchase any Membership Interests
hereunder .
1.3 The
Company agrees that the Membership Interests to be purchased hereunder upon exercise of this Warrant shall be and are deemed to
be issued to the Holder hereof as the record owner of such Membership Interests as of the close of business on the date on which
Holder has delivered to the Company the Exercise Form hereunder, properly completed and executed, along with payment in full for
the Membership Interests purchased thereunder and the executed Operating Agreement of the Company.
1.4 The
Company may, at its option and sole discretion issue a certificate for the Membership Interests purchased hereunder, and deliver
such certificate to the Holder hereof.
2.
Exercise
Price; Membership Interests to Be Fully Paid; Issuance of Additional Percentage Interests
2.1 The
Exercise Price for the Membership Interests is $1,132,539, subject to adjustment as set forth hereinafter. The Membership Interests
to be issued by the Company upon exercise hereof shall equal six percent (6.0%) of the outstanding Membership Interests of the
Company as of the Effective Date. Attached hereto as
Exhibit C
is the determination of the Exercise Price.
2.2 The
Company covenants and agrees that all Membership Interests which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights
of any person and free of all taxes, liens and charges with respect to the issue thereof.
2.3 The
Warrant provides for the purchase of 6.0% of Percentage Interests of the Company, as of the Effective Date. The Holder acknowledges
and agrees that the issuance by the Company of additional Percentage Interests after the Effective Date will reduce the Holder’s
proportionate rights with respect to the Company, including without limitation the Percentage Interest issued to the Holder upon
exercise of this Warrant.
3.
Adjustment
of Exercise Price
3.1 The
Exercise Price is subject to adjustment in accordance with this Section 3 and from time to time upon the occurrence of certain
events described in this Section 3.
3.2 In
the event the Company shall, at any time or from time to time after the Effective Date, issue any equity as a Membership Interests
dividend to the beneficial holders of Membership Interests, or subdivide or combine the outstanding Membership Interests into a
greater or lesser number (any such sale, issuance, subdivision or combination being herein called a “Capital Change”),
then, and thereafter upon each Capital Change, the Exercise Price in effect immediately prior to such Capital Change shall be changed
to a price (including any applicable fraction of a cent) determined by dividing (a) the total number of Membership Interests outstanding,
on a fully diluted basis, immediately prior to such Share Change, multiplied by the Exercise Price in effect immediately prior
to such Capital Change, by (b) the total number of Membership Interests outstanding, on a fully diluted basis, immediately after
such Capital Change.
3.3 In
the case of any reclassification, capital reorganization or other equivalent change of outstanding Membership Interests, the Company
shall cause effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase
the kind and number of Membership Interests or other securities or property (including cash) received upon such reclassification,
capital reorganization or other change, that might have been acquired upon exercise of this Warrant immediately prior to such reclassification,
capital, reorganization or other change. Any such provision shall include provision for adjustments that shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 3. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other equivalent changes of outstanding Membership Interests.
4.
ISSUE
TAX
In the event the Company
elects to issue a certificate or certificates for any Percentage Interests purchased hereunder, such issuance of certificates shall
be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof;
provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
5.
Closing
of Books
The Company will at
no time close its transfer books against the transfer of any Warrant or of any Percentage Interests, or take any action in any
manner which interferes with the timely exercise of this Warrant.
6.
No
Preferred Return, Voting or Dividend Rights; Limitation of Liability
Except as otherwise
provided hereunder, until such time as the Holder exercises its right to purchase the Membership Interests and complete the purchase
of the Membership Interests contemplated hereby, nothing contained in this Warrant shall be construed as conferring upon the Holder
hereof any rights as a member of the Company including, but not limited to, the right to vote, or to consent, or to receive notice
as a member of the Company, or any rights to a Preferred Return (as that term is defined in the Operating Agreement of the Company).
No provisions hereof, in the absence of affirmative action by the Holder to purchase Percentage Interests, and no mere enumeration
herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Exercise Price or as
a member of the Company, whether such liability is asserted by the Company or by its creditors.
7.
Modification
and Waiver
This Warrant and any
provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the
Holder.
8.
Notices
All notices required
or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be
notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next
business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid,
or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification
of receipt. All communications shall be sent to the Holder at the Holder’s address as shown on the books of the Company or
to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from
time to time provide to the other.
9.
Binding
Effect on Successors
This Warrant shall
be binding upon any business entity succeeding the Company by merger, consolidation or acquisition of all or substantially all
of the Company’s assets. All of the covenants and agreements of the Company shall inure to the benefit of the successors
and assigns of the Holder hereof. This Warrant may not be assigned by Holder without the prior written consent of the Company.
If this Warrant is assigned pursuant to the terms hereof, the term “Holder” shall be deemed to refer to the permitted
assignee(s).
10.
Descriptive
Headings and Governing Law
The description headings
of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.
This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of
the State of Florida, without giving effect to the conflict of laws principles thereof.
11.
Lost
Warrant
The Company represents
and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company,
at its expense, will make and deliver a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.
[REMAINDER OF PAGE LEFT INTENTIONALLY
BLANK;
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF,
the Company has caused this Warrant to be duly executed by its officer thereunto duly authorized as of this
31
day
of March 2012, to be effective as of March 31, 2011 .
|
|
THE COMPANY:
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
|
By:
|
/s/ Joe Sardano
|
|
|
|
Joseph Sardano, President
|
EXHIBIT A
EXERCISE FORM
___________________, 20___
Sensus Healthcare, LLC
Ladies and Gentlemen:
The undersigned holder
(“Holder”)
of that certain Warrant (the
“Warrant”),
issued by
Sensus Healthcare, LLC
(the
“Company”)
and dated March 31, 2011, hereby exercises its right to purchase pursuant thereto the number of limited liability company membership
interests of the Company
(“Warrant Interests”)
at an exercise price
(“Exercise Price”)
and
aggregate purchase price (the
“Purchase Price”)
listed immediately below:
|
Number of Warrant Interests
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
6.0% of the outstanding membership interests of the Company as of March 31, 2011
|
|
$
|
1,132,539
|
|
Pursuant to the terms of the Warrant, the
Holder delivers the Purchase Price herewith in cash or by certified check, or by wire transfer according to the following instructions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account No.:
|
|
|
|
Routing Number:
|
|
The Holder also makes the representations
set forth on the attached
Exhibit B
to the Warrant.
Very truly yours,
HOLDER:
|
NAME:
|
|
|
|
|
print name of individual or entity
|
|
|
|
|
|
|
|
IF HOLDER IS AN INDIVIDUAL:
|
|
|
|
IF HOLDER IS AN ENTITY:
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
print name of person signing/or entity
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
print title of person signing/or entity
|
|
ADDRESS:
STREET:
CITY:
STATE AND ZIP:
FACSIMILE:
EXHIBIT B
INVESTMENT REPRESENTATION LETTER
THIS INVESTMENT REPRESENTATION LEITER MUST
BE COMPLETED, SIGNED AND RETURNED TO SENSUS HEALTHCARE, LLC, ALONG WITH THE ASSOCIATED EXERCISE FORM(S) BEFORE THE MEMBERSHIP INTERESTS
ISSUABLE UPON EXERCISE OF THE WARRANT WITH AN EFFECTIVE DATE OF MARCH 31, 2011 WILL BE ISSUED.
_______________, 201__
SENSUS HEALTHCARE, LLC
Ladies and Gentlemen:
Pursuant to the exercise that certain Warrant,
with an Effective Date of March 31, 2011 (the “
Warrant
”), issued by
SENSUS HEALTHCARE, LLC
(the “
Company
”),
the undersigned holder of the Warrant (“
Purchaser
”) intends to purchase limited liability company membership
interests of the Company (the “Membership Interests”). The Membership Interests will be issued to Purchaser in a transaction
not involving a public offering and pursuant to an exemption from registration under the United States Securities Act of 1933,
as amended (the “
33 Act
”), and applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows:
1. Purchaser
is acquiring the Membership Interests for its own account, for investment purposes only, without the intent toward the further
sale or distribution thereof, and Purchaser shall not make any sale, transfer or other disposition of the Membership Interests
in violation of the 33 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission
or in violation of any other applicable securities law.
2. Purchaser
has been advised that the Membership Interests have not been registered under the 33 Act or any state securities laws on the ground
that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on
Purchaser’s representations set forth in this letter.
3. Purchaser
has been informed that under the 33 Act, the Membership Interests must be held indefinitely unless subsequently registered under
the 33 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer
or disposition by Purchaser of the Membership Interests.
Very truly yours,
PURCHASER:
|
NAME:
|
|
|
|
|
print name of individual or entity
|
|
|
|
|
|
|
|
IF PURCHASER IS AN INDIVIDUAL:
|
|
|
|
IF PURCHASER IS AN ENTITY:
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
print name of person signing for entity
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
print title of person signing for entity
|
|
EXHIBIT C
WARRANT AND EXERCISE PRICE CALCULATION
|
The “Exercise Price” Calculation
|
|
|
|
|
|
Gross proceeds of the Offering (including gross proceeds purchased by management and/or affiliates of management and the Company):
|
|
$
|
6,416,650
|
|
|
|
|
|
|
|
|
Percentage Interest Purchased in the Offering
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
Exercise Price: Price to purchase 6.0% in the Offering:
|
|
$
|
1,132,539
|
|
Exhibit 4.2
ASSIGNMENT OF WARRANT AGREEMENT,
DATED AS OF MARCH 2012,
BY AND AMONG ANDERSON STRUDWICK, INC.,
INVESTORS CAPITAL ALLIANCE, LLC
AND
SENSUS HEALTHCARE, LLC
ASSIGNMENT
OF
WARRANT AGREEMENT
THIS ASSIGNMENT OF
WARRANT AGREEMENT (“Assignment”) is made and entered into as of the 31 day of March, 2012, by and among Anderson
& Strudwick, Inc., a Virginia corporation (the “Assignor”), Investors Capital Alliance, LLC, a Delaware limited
liability company (“Assignee”) and Sensus Healthcare, LLC, a Delaware limited liability company (“Sensus”).
WHEREAS, Assignor acted
as placement agent to Sensus to arrange a private placement of its equity securities pursuant to certain engagement letter dated
March 15, 2010 between Assignor and Sensus (the “Agreement”).
WHEREAS, pursuant to
the Agreement, Assignor was to receive that certain warrant issued by Sensus to purchase equity in Sensus equal to six percent
(6%) of Sensus as of March 31, 2011, (the “Warrant”).
WHEREAS, Assignor has
requested that Sensus, rather than issuing the Warrant to Assignor, instead issue the warrant to Assignee.
NOW THEREFORE, in consideration
of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agrees as follows:
1.
Representations
and Warranties of Assignor
. Assignor hereby makes the following representations and warranties to Sensus.
(a)
Corporate
Status
. Assignor is a corporation duly incorporated and validly existing under the laws of the State of Virginia.
(b)
Power
and Authority
. Assignor has the power and authority to execute and deliver this Assignment, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. Assignor has taken all action necessary to authorize the execution and
delivery of this Assignment, the performance of its obligations hereunder and the consummation of the transactions contemplated
hereby.
(c)
Enforceability
.
This Assignment has been duly executed and delivered by Assignor and this Assignment constitutes the legal, valid and binding obligation
of Assignor, enforceable against it in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable
principles regardless of whether such enforceability is considered in a proceeding at law or in equity.
(d)
No
Violation
. The execution and delivery of this Assignment by Assignor, the performance by Assignor of its obligations hereunder
and the consummation by Assignor of the transactions contemplated hereby will not: (i) contravene any provision of its Articles
of Incorporation or Bylaws, (ii) violate or conflict with any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any governmental or regulatory authority applicable to, binding upon or enforceable against Assignor, (iii)
result in or require the creation or imposition of any lien upon Assignor, or (iv) require the consent, approval, authorization
or permit of, or filing with or notification to, any governmental or regulatory authority, any court or tribunal or any other person
or entity.
(e)
Accuracy
of Information Furnished by Assignor
. No statement or information made or furnished by Assignor herein contains or shall contain
any untrue statement of fact or omits or shall omit any fact necessary to make the information contained therein not misleading.
2.
Assignor’s
Assignment; Assignee’s Acceptance
. Subject to the payment by Assignee to Sensus of $2,500 representing its legal costs
in connection with the review and preparation of this Assignment of Warrant Agreement, as provided by Section 6 hereof, Assignor
hereby transfers, grants, conveys and assigns to Assignee all of Assignor’s right, title and interest in the Warrant, and
Assignee does hereby accept such assignment from Assignor and assumes all obligations arising therefrom, from and after the date
hereof, relieving the Assignor from any liabilities associated therewith. The Warrant is attached hereto as Exhibit A.
3.
Indemnity
of Sensus
.
(a)
Agreement
to Indemnify
. The Assignor and Assignee, jointly and severally, agree to indemnify and hold Sensus and Sensus’ representatives,
affiliates, successors and assigns (each an “Indemnified Party”) harmless from and against any and all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation, legal and court fees and expenses) incurred or suffered
by any Indemnified Party arising out of or resulting from (i) any breach of a representation or warranty made by Assignor in this
Assignment or in any other document or instrument delivered pursuant to this Assignment, (ii) any breach of the covenants or agreements
made by Assignor in this Assignment or in any other document or instrument delivered pursuant to this Assignment, and (iii) any
liability or obligation (whether absolute or contingent, liquidated or unliquidated, or due or to become due) arising from or related
to the transactions contemplated hereby (collectively, “Indemnifiable Damages”).
(b)
Survival
of Representations and Warranties
. Each of the representations, warranties, covenants and agreements made by Assignor in this
Assignment shall survive the date hereof (along with the indemnification obligations contained in this Section 3).
(c)
Reliance
on Representations and Warranties
. Notwithstanding any knowledge of facts determined or determinable by an Indemnified Party
by investigation, each Indemnified Party shall have the right to fully rely on the representations, warranties, covenants and agreements
of the Assignor contained in this Assignment or in any other documents or papers delivered in connection herewith. Each representation,
warranty, covenant and agreement contained in this Assignment is independent of each other representation, warranty, covenant and
agreement.
(d)
Third
Party Actions
. Promptly after receipt by an Indemnified Party of notice of commencement of any action by a third party which
could give rise to Indemnifiable Damages, such Indemnified Party will notify the indemnifying party of the commencement thereof;
provided, however, that the failure to so notify the indemnifying party will not relieve the indemnifying party from any liability
or obligation hereunder unless the indemnifying party has been materially prejudiced thereby. The parties agree that with respect
to any third party action, any Indemnified Party may (i) assume the defense thereof with its own legal counsel, at the indemnifying
party’s sole cost and expense, (ii) provide the indemnifying party with all information that they reasonably request relating
to the handling of such claim, (iii) confer with the indemnifying party as to the most cost-effective manner in which to handle
such claim, and (iv) use its reasonable efforts to minimize the cost of handling such claim.
(e)
Cumulative
Remedies
. The parties agree that, in connection with any breach or alleged breach by a party of the terms and provisions of
this Assignment, in addition to all other remedies available at law or hereunder, the injured party shall be entitled to equitable
relief, including injunctive relief and specific performance and all reasonable attorney’s fees and costs incurred in connection
therewith. All rights, powers and remedies afforded to a party under this Assignment, by law or otherwise, shall be cumulative
(and not alternative) and shall not preclude assertion or seeking by a party of any other rights or remedies.
4.
Counterparts
.
This Assignment may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together
shall be deemed to be one and the same instrument.
5.
Entire
Assignment; No Third Party Beneficiaries
. This Assignment (including the exhibits attached hereto) and other documents delivered
at the Closing, contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements
and understandings (oral or written) between or among the parties with respect to such subject matter. This Assignment is not intended
to confer upon any Person, other than the parties hereto, any rights or remedies hereunder.
6.
Expenses
.
Assignor shall pay the fees and expenses of Sensus, including its counsel fees, incurred in connection with this Assignment.
7.
Amendment;
Waiver
. This Assignment may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed
by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Assignment eement
shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise
of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding
or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the
parties. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations or any other acts. The rights and remedies of the
parties under this Assignment are in addition to all other rights and remedies, at law or equity, that they may have against each
other.
8.
Binding
Effect; Assignment
. The rights and obligations of this Assignment shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be construed to give any other person any legal or
equitable rights hereunder. The rights and obligations of this Assignment may not be assigned by the Assignor or Assignee without
the prior written consent of Sensus.
9.
Governing
Law; Severability
. This Assignment shall be construed in accordance with and governed for all purposes by the laws of the State
of Florida applicable to contracts executed and to be wholly performed within such State. If any word, phrase, sentence, clause,
section, subsection or provision of this Assignment as applied to any party or to any circumstance is adjudged by a court to be
invalid or unenforceable, the same will in no way affect any other circumstance or the validity or enforceability of any other
word, phrase, sentence, clause, section, subsection or provision of this Assignment.
[Signature Page Follows]
IN WITNESS WHEREOF,
each of the parties has caused this Assignment of Warrant Agreement to be executed and delivered by its duly authorized officer
or agent as of the day and year first written above.
|
Witnesses:
|
|
ASSIGNOR
:
|
|
|
|
|
|
/s/ Norma H. Sellors
|
|
ANDERSON & STRUDWICK, INC.
|
|
Print Name: Norma H. Sellors
|
|
|
|
|
|
By:
|
/s/ Donald H. Newlin
|
|
/s/ Debra B. Leimer
|
|
Name:
|
Donald H. Newlin
|
|
Print Name: Debra B. Leimer
|
|
Title:
|
Chairman
|
|
Witnesses:
|
|
ASSIGNEE
|
|
|
|
|
|
/s/ Kelley B. Simpson
|
|
INVESTORS CAPITAL ALLIANCE, LLC
|
|
Print Name: Kelley B. Simpson
|
|
|
|
|
|
By:
|
/s/ Milton A. Turner
|
|
/s/ Lorraine Rajkowski
|
|
Name:
|
Milton A. Turner
|
|
Print Name: Lorraine Rajkowski
|
|
Title:
|
Chief Manager
|
|
|
|
SENSUS HEALTHCARE, INC.
|
|
|
|
|
|
|
Print Name:
|
|
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
Print Name:
|
|
Title:
|
|
Exhibit 4.4
FORM OF WARRANT AGREEMENT OF
SENSUS HEALTHCARE, LLC,
DATED AS OF FEBRUARY 1, 2013,
BY AND BETWEEN SENSUS HEALTHCARE, LLC
AND CERTAIN INVESTORS
THE SECURITIES REPRESENTED BY THIS WARRANT,
INCLUDING THE LIMITED LIABILITY COMPANY MEMBERSHIP INTERESTS ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS. THE TRANSFERABILITY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO LIMITED IN ACCORDANCE WITH THE TERMS OF THE
COMPANY’S OPERATING AGREEMENT.
WARRANT AGREEMENT
of
SENSUS HEALTHCARE, LLC
|
Dated as of:
|
|
February 1, 2013 (the “Effective Date”)
|
|
Expiration Date:
|
|
February 1, 2018
|
WHEREAS
, Sensus
Healthcare, LLC, a Delaware limited liability company (the “Company”), has entered into an Engagement Letter dated
November 8, 2012, and a Placement Agent Agreement, undated, with Neidiger, Tucker, Bruner, Inc., a
COLORADO
corporation
(“NTB”);
WHEREAS
, the
Company desires to grant NTB or its designees (the “Holder”), the right to purchase Units (as hereinafter defined)
in the Company in accordance with the terms and conditions of this Warrant Agreement (the “Agreement or the “Warrant”).
WHEREAS
, NTB
has named
________________
as one of its designees.
NOW, THEREFORE
,
in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the Company and Holder hereby agree as follows:
FOR VALUE RECEIVED
,
the Company hereby grants to Holder or its permitted assigns, and the Holder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from the Company, units representing limited liability company membership
interests in the Company (the “Units”). The number of Units (the “Amount”), that the Holder may purchase
from the Company shall be
___
as of the Effective Date, as more fully described herein. The Units do not provide for any
distribution preferences or preferred return. The exercise price of the Units shall be $
_____________
(the “Exercise
Price”), and is payable in cash. The Exercise Price may be adjusted from time to time in accordance with Section 3 hereof,
according to the terms, conditions and procedures set forth herein. This Warrant (the “Warrant”) will expire at 5:00
p.m. (Eastern Time), on February _l_, 2018 (the “Expiration Date”), five years after the Effective Date. The Units
issued upon exercise of this Warrant, shall sometimes be referred to herein as “Warrant Units”. The Company may at
some time reorganize as a C corporation and any references to “Warrant Units” shall refer to shares of the Company’s
common stock (“Common Stock”) which are issued in exchange for the Warrant Units. This Warrant is subject to the following
terms and conditions:
1. EXERCISE;
PAYMENT; ISSUANCE OF CERTIFICATES
Any purchase of Units
by Holder hereunder shall be made pursuant to the following terms and procedures:
1.1 Holder
electing to purchase Units must surrender this Warrant and deliver the exercise form attached hereto as
Exhibit A
(the “Exercise
Form”), together with the investment representation letter attached hereto as
Exhibit B
, each duly completed and executed,
to the Company at its principal office (or at such other location as the Company may advise the Holder in writing), along with
payment in full of the aggregate Exercise Price (“Purchase Price”) for the full Amount, no later than the Expiration
Date hereof. The Holder must also, as a condition to the purchase, execute the Operating Agreement of the Company. The Holder may
exercise this Warrant in full or in part at any time prior to the Expiration Date.
1.2 Payment
of the Purchase Price may be made, at the discretion of the Holder by (i)(i) cash, (ii) certified check, (iii) wire transfer of
funds to the Company, (iv) any combination of the foregoing or (iv) a cashless exercise on or after May _1_, 2013 as follows: the
Holder shall be entitled to receive a certificate for the number of Warrant Units equal to the quotient obtained by dividing [(A-B)
(X)] by (A),where:
(A) = the ten.
(10) day average trading price the Company’s Common Stock on the exchange, inter-dealer communication system or national
quotation bureau where the Company’s Common Stock is listed immediately preceding the exercise date of the Warrant. In the
event, the Company’s Common Stock is not publicly traded, the cashless exercise will be permissible based on an assumed price
equivalent to ____ per Unit.
(B) = the Exercise
Price of this Warrant, as adjusted hereunder; and
(X) = the number
of Warrant Units that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise
were by means of a cash exercise rather than a cashless exercise.
1.3 If
Holder fails to deliver the Exercise Form and the investment representation letter to the Company by the Expiration Date, properly
completed and executed, along with payment in full of the Purchase Price for the Units to be purchased thereunder and the executed
Operating Agreement, this Warrant shall expire and all rights granted pursuant to this Warrant shall automatically terminate and
Holder shall waive its right to purchase any Units hereunder.
1.4 The
Company agrees that the Units to be purchased hereunder upon exercise of this Warrant shall be and are deemed to be issued to the
Holder hereof as the record owner of such Units as of the close of business on the date on which Holder has delivered to the Company
the Exercise Form and the investment representation letter hereunder, properly completed and executed, along with payment in full
for the Units purchased thereunder and the executed Operating Agreement of the Company. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder hereto to the purchase the balance of the Warrant Units purchase hereunder.
1.5 The
Company may, at its option and sole discretion issue a certificate for the Units purchased hereunder, and deliver such certificate
to the Holder hereof.
2. EXERCISE
PRICE; UNITS TO BE FULLY PAID; ISSUANCE OF ADDITIONAL PERCENTAGE INTERESTS
2.1 The
Exercise Price for the Units is
$___________
, subject to adjustment as set forth hereinafter. The Units to be issued by
the Company upon exercise hereof shall be
___
.
2.2 The
Company covenants and agrees that all Units which may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any person
and free of all taxes, liens and charges with respect to the issue thereof.
2.3 The
Warrant provides for the purchase of _
__
_ Units of the Company, as of the Effective Date. The Holder acknowledges and agrees
that the issuance by the Company of additional Units or any other types or forms of membership interests in the Company, including
the existing preferred membership interest of the Company, after the Effective Date, will reduce the Holder’s proportionate
membership interests with respect to the Company.
3. ADJUSTMENT
OF EXERCISE PRICE
3.1 The
Exercise Price is subject to adjustment in accordance with this Section 3 and from time to time upon the occurrence of certain
events described in this Section 3.
3.2 In
the event the Company shall, at any time or from time to time after the Effective Date, issue Units as a dividend to the beneficial
holders of Units, or subdivide or combine the outstanding Units into a greater or lesser number (any such issuance, subdivision
or combination being herein called a “Capital Change”), then, and thereafter upon each such Capital Change, the Exercise
Price in effect immediately prior to such Capital Change shall be changed to a price (including any applicable fraction of a cent)
determined by dividing (a) the total number of Units outstanding, on a fully diluted basis, immediately prior to such Capital Change,
multiplied by the Exercise Price in effect immediately prior to such Capital Change, by (b) the total number of Units outstanding,
on a fully diluted basis, immediately after such Capital Change.
3.3 In
the case of any reclassification, capital reorganization or other equivalent change of outstanding Units, the Company shall cause
effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the
kind and number of Units or other securities or property (including cash) received upon such reclassification, capital reorganization
or other change, that might have been acquired upon exercise of this Warrant immediately prior to such reclassification , capital,
reorganization or other change. Any such provision shall include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other equivalent changes of outstanding Units.
4. ISSUE
TAX
In the event the Company
elects to issue a certificate or certificates for the Units purchased hereunder, such issuance of certificates shall be made without
charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised.
5. CLOSING
OF BOOKS
The Company will at
no time close its transfer books against the transfer of any Warrant or of any Units, or take any action in any manner which interferes
with the timely exercise of this Warrant.
6. NO
VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY
Except as otherwise
provided hereunder, until such time as the Holder exercises its right to purchase the Units and complete the purchase of the Units
contemplated hereby, nothing contained in this Warrant shall be construed as conferring upon the Holder hereof any rights as a
member of the Company including, but not limited to, the right to vote, or to consent, or to receive notice as a member of the
Company, or any rights to a dividend or distribution. No provisions hereof, in the absence of affirmative action by the Holder
to purchase Units, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of
such Holder for the Exercise Price or as a member of the Company, whether such liability is asserted by the Company or by its creditors.
7. REGISTRATION
RIGHTS.
Pursuant to a Registration
Rights Agreement dated as of even date herewith between the Company and the Holder, certain registration rights apply to the Warrant
Units issuable upon exercise of this Warrant. See the Registration Rights Agreement for a full description of the registration
rights applicable to such shares of Common Stock and the limitations on such rights.
8. MODIFICATION
AND WAIVER; NOTICES
This Warrant and any
provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the
Holder. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient,
if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent to the Holder at the Holder’s address as
shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or
such other address as either may from time to time provide to the other.
9. BINDING
EFFECT ON SUCCESSORS
This Warrant shall
be binding upon any business entity succeeding the Company by merger, consolidation or acquisition of all or substantially all
of the Company’s assets. All of the covenants and agreements of the Company shall inure to the benefit of the successors
and assigns of the Holder hereof. This Warrant may not be assigned by Holder without the prior written consent of the Company.
If this Warrant is assigned pursuant to the terms hereof, the term “Holder” shall be deemed to refer to the permitted
assignee(s).
10. DESCRIPTIVE
HEADINGS AND GOVERNING LAW
The description headings
of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.
This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of
the State of Florida, without giving effect to the conflict of laws principles thereof.
11. LOST
WARRANT
The Company represents
and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company,
at its expense, will make and deliver a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK;
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF
,
the Company has caused this Warrant to be duly executed by its officer thereunto duly authorized as of this 1st day of February
2013.
|
|
THE COMPANY:
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
|
By:
|
|
EXHIBIT A
EXERCISE FORM
____________________, 201___
Sensus Healthcare, LLC
Ladies and Gentlemen:
The undersigned holder (“
Holder
”)
of that certain Warrant (the “
Warrant
”), issued by
Sensus Healthcare, LLC
(the “
Company
”)
and dated February 2013, hereby exercises its right to purchase pursuant thereto the number of Units of the Company (“
Warrant
Interests
”) at an exercise price (“
Exercise Price
”) and aggregate purchase price (the “
Purchase
Price
”) listed immediately below:
|
Number of Warrant Interests
|
|
|
Exercise Price
|
|
|
|
Aggregate Purchase Price
|
|
|
|
|
|
|
|
|
|
|
|
|
______ of Units
|
|
$
|
|
|
|
$
|
|
|
If Cash Exercise
The Holder delivers the Purchase Price
herewith in cash, by certified check, or by wire transfer pursuant to Section 1.2(i), (ii), (iii) or (iv) of the Warrant according
to the following instructions:
|
|
______________________
|
|
|
______________________
|
|
|
______________________
|
|
|
Account No.:
|
|
|
Routing Number:
|
If Cashless Exercise
The Holder elects to convert the Warrant
into ____ Warrant Units pursuant to the cashless exercise provision contained in Section 1.2(iv) of the Warrant. This conversion
is exercised with respect to ____ Warrant Units covered by the Warrant.
The Holder also makes the representations
set forth on the attached Exhibit B to the Warrant.
Very truly yours,
HOLDER:
|
NAME:
|
|
|
|
|
print name of individual or entity
|
|
|
IF HOLDER IS AN INDIVIDUAL:
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
signature
|
|
|
IF HOLDER IS AN ENTITY:
|
|
|
|
|
|
Name:
|
|
|
|
|
print name of person signing for entity
|
|
|
|
|
|
|
Title:
|
|
|
|
|
print title of person signing/or entity
|
|
|
ADDRESS:
|
|
|
|
|
|
STREET: ___________________________
|
|
|
CITY: ___________________________
|
|
|
STATE AND ZIP: ___________________________
|
|
|
FACSIMILE: ___________________________
|
|
EXHIBIT B
INVESTMENT REPRESENTATION LETTER
THIS INVESTMENT REPRESENTATION LETTER MUST
BE COMPLETED, SIGNED AND RETIJRNED TO SENSUS HEALTHCARE, LLC, ALONG WITH THE ASSOCIATED EXERCISE FORM(S) BEFORE THE MEMBERSHIP
INTERESTS ISSUABLE UPON EXERCISE OF THE WARRANT WITH AN EFFECTIVE DATE OF FEBRUARY __, 2013 WILL BE ISSUED.
________________, 201__
SENSUS HEALTHCARE, LLC
Ladies and Gentlemen:
Pursuant to the exercise that certain Warrant,
with an Effective Date of February 2013 (the “
Warrant
”), issued by
SENSUS HEALTHCARE, LLC
(the “
Company
”),
the undersigned holder of the Warrant (“
Purchaser
”) intends to purchase Units representing limited liability
company membership interests in the Company. The Units will be issued to Purchaser in a transaction not involving a public offering
and pursuant to an exemption from registration under the United States Securities Act of 1933, as amended (the “
33 Act
”),
and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration
relied upon by the Company, Purchaser represents, warrants and agrees as follows:
1. Purchaser
is acquiring the Units for its own account, for investment purposes only, without the intent toward the further sale or distribution
thereof, and Purchaser shall not make any sale, transfer or other disposition of the Units in violation of the 33 Act or the General
Rules and Regulations promulgated thereunder by the Securities and Exchange Commission or in violation of any other applicable
securities law.
2. Purchaser
has been advised that the Units have not been registered under the 33 Act or any state securities laws on the ground that this
transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser’s
representations set forth in this letter.
3. Purchaser
has been informed that under the 33 Act, the Units must be held indefinitely unless subsequently registered under the 33 Act or
unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition
by Purchaser of the Units.
Very truly yours,
PURCHASER:
|
NAME:
|
|
|
|
|
print name of individual or entity
|
|
|
IF PURCHASER IS AN INDIVIDUAL:
|
|
|
|
|
|
|
By:
|
|
|
|
|
signature
|
|
|
IF PURCHASER IS AN ENTITY:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
print name of person signing for entity
|
|
|
|
|
|
|
Title:
|
|
|
|
|
print title of person signing/or entity
|
|
Exhibit 10.1
SENSUS HEALTHCARE, LLC
2013 OPTION PLAN
SENSUS HEALTHCARE, LLC
2013 OPTION PLAN
1.
Establishment,
Effective Date and Term.
Sensus Healthcare,
LLC, a Delaware limited liability company (the “Grantor”), hereby establishes the Sensus Healthcare, LLC 2013 Option
Plan. The Effective Date of the Plan shall be the date that the Plan is approved by the Grantor (October 10, 2013) in accordance
with the laws of the State of Delaware and the LLC Agreement. Unless earlier terminated pursuant to Section 16(i) hereof, the Plan
shall terminate on the tenth anniversary of the Effective Date. Unless defined herein, capitalized terms used herein are defined
in Appendix A attached hereto.
2.
Purpose.
The purpose of the
Plan is to enable the Company to attract, retain, reward and motivate Eligible Individuals by providing them with an opportunity
to acquire or increase a proprietary interest in the Grantor and to incentivize them to expend maximum effort for the growth and
success of the Company, so as to strengthen the mutuality of the interests between Eligible Individuals and Members of the Grantor.
3.
Eligibility.
Options may be granted
under the Plan to any Eligible Individual, as determined by the Committee from time to time pursuant to the terms of the Plan.
4.
Administration
and Grant of Awards.
(a)
General
.
The Committee shall have the power and authority to grant Options under the Plan. The Plan shall be administered by the Committee,
which shall have the full power and authority to take all actions, and to make all determinations not inconsistent with the specific
terms and provisions of the Plan and deemed by the Committee to be necessary or appropriate to the administration of the Plan,
any Option granted or any Option Agreement entered into hereunder. The Committee may correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any Option Agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect as it may determine in its sole discretion. The Committee may, if it so determines in its sole discretion,
(i) accelerate the vesting and/or exercisability of any Option granted hereunder and (ii) extend the term of any Option to the
earlier of (A) the latest date the Option could have expired under its original terms or (B) 10 years from the Grant Date. The
decisions by the Committee shall be final, conclusive and binding. Any exercise by the Committee of its power, authority and discretion
hereunder must be ratified by the majority of its members.
(b)
Delegation
to Officers or Employees
. The Committee may designate officers or employees of the Company to assist the Committee in the administration
of the Plan. The Committee may delegate authority to officers or employees of the Company to grant Options and execute Option Agreements
or other documents on behalf of the Company in connection with the administration of the Plan, subject to whatever limitations
or restrictions the Committee may impose and in accordance with applicable law and the LLC Agreement.
(c)
Designation
of Advisors
. The Committee may designate professional advisors to assist the Committee in the administration of the Plan. The
Committee may employ such legal counsel, consultants, and agents as it may deem desirable for the administration of the Plan and
may rely upon any advice and any computation received from any such counsel, consultant, or agent. The Company shall pay all expenses
and costs incurred by the Committee for the engagement of any such counsel, consultant, or agent.
(d)
Participants
Outside the U.S
. In order to conform with the provisions of local laws and regulations in foreign countries in which the Company
may operate, the Committee shall have the sole discretion to: (i) modify the terms and conditions of the Options granted under
the Plan to Eligible Individuals located outside the United States; (ii) establish subplans with such modifications as may be necessary
or advisable under the circumstances presented by local laws and regulations; and (iii) take any action which it deems advisable
to comply with or otherwise reflect any necessary governmental regulatory procedures, or to obtain any exemptions or approvals
necessary with respect to the Plan or any subplan established hereunder.
(e)
Liability
and Indemnification
. No Covered Individual shall be liable for any action or determination made in good faith with respect
to the Plan, any Option granted hereunder or any Option Agreement entered into hereunder. The Grantor shall, to the maximum extent
permitted by applicable law and the LLC Agreement, indemnify and hold harmless each Covered Individual against any cost or expense
(including reasonable attorney fees reasonably acceptable to the Grantor) or liability (including any amount paid in settlement
of a claim with the approval of the Grantor), and amounts advanced to such Covered Individual necessary to pay the foregoing at
the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, any
Option granted hereunder or any Option Agreement entered into hereunder. Such indemnification shall be in addition to any rights
of indemnification such individuals may have under applicable law or under LLC Agreement. Notwithstanding anything else herein,
this indemnification will not apply to the actions or determinations made by a Covered Individual with regard to Options granted
to such Covered Individual under the Plan, Option Agreements entered into by such Covered Individual or arising out of such Covered
Individual’s own fraud or bad faith.
(f)
LLC
Agreement Incorporated
. Notwithstanding anything herein to the contrary, the Plan shall be subject to all of the terms, conditions
and restrictions set forth in the LLC Agreement, including future amendments thereto, if any, pursuant to the terms thereof, which
LLC Agreement is incorporated herein by reference as a part of this Agreement. No Interests shall be issued to any Participant
unless such Participant becomes a party to the LLC Agreement.
5.
Interests
Subject To Plan.
(a)
Interests
Available for Options
. The total number of Interests that may be issued pursuant to Options granted under the Plan shall be
up to one percent (1%) of the Interests in the Grantor as set forth in Section 3.02 of the LLC Agreement.
(b)
Reduction
of Interests Available for Options
. Upon the granting of an Option, the number of Interests available under this Section for
the granting of further Options shall be reduced by the number of Interests subject to the Option.
(c)
Cancelled,
Forfeited, or Surrendered Options
. Notwithstanding anything to the contrary in this Plan, if any Option is cancelled, forfeited
or terminated for any reason prior to exercise or becoming vested in full, Interests that were subject to such Option shall, to
the extent cancelled, forfeited or terminated, immediately become available for future Options granted under the Plan as if said
Option had never been granted; provided, however, that any Interests subject to an Option which is cancelled, forfeited or terminated
in order to pay the Exercise Price, purchase price or any taxes or tax withholdings on an Option shall not be available for future
Options granted under the Plan.
(d)
Recapitalization
.
If the outstanding Interests are increased or decreased or changed into or exchanged for a different number or kind of interest
or other securities of the Grantor by reason of any recapitalization, reclassification, reorganization, split, combination of Interests,
exchange of Interests, distribution payable in Interests of the Grantor, conversion of the Grantor into a different form of entity
or other increase or decrease in such Interests effected without receipt of consideration by the Grantor occurring after the Effective
Date, an appropriate and proportionate adjustment shall be made by the Committee in its sole discretion to (i) the aggregate number
and kind of interests available under the Plan; (ii) the calculation of the reduction of Interests available under the Plan; (iii)
the number and kind of interests issuable upon exercise of outstanding Options granted under the Plan; and (iv) the Exercise Price
of outstanding Options granted under the Plan.
6.
Grant
of Options.
Subject to the terms
and conditions of the Plan, the Committee may grant to such Eligible Individuals as the Grantor may determine, Options to purchase
such number of Interests and on such terms and conditions as the Committee shall determine in its sole and absolute discretion.
Each grant of an Option shall satisfy the requirements set forth in the Plan and Option Agreement.
7.
Exercise
Price.
The Exercise Price
of an Option shall be fixed by the Committee and stated in the respective Option Agreement, provided that the Exercise Price of
Interest subject to such Option may not be less than Fair Market Value of such Interests on the Grant Date.
8.
Limitation
on Option Period.
Subject to Sections
11 and 12, Options granted under the Plan and all rights to purchase Interests thereunder shall terminate no later than the 10
th
anniversary of the Grant Date of such Options, or on such earlier date as may be stated in the Option Agreement relating to such
Option. In the case of Options expiring prior to the 10
th
anniversary of the Grant Date, the Committee may in its discretion,
at any time prior to the expiration or termination of said Options, extend the term of any such Options for such additional period
as it may determine, but in no event beyond the 10
th
anniversary of the Grant Date thereof.
9.
Vesting
Schedule and Conditions.
No Options may be exercised
prior to becoming vested. Unless otherwise provided by the Committee in the Option Agreement, the Options shall fully vest on the
fifth anniversary of the Grant Date, if and only if the Participant is, and has been, continuously employed by or providing services
to the Company as of the fifth anniversary of the Grant Date, as determined by the Committee in its sole discretion. No portion
of the Option shall vest prior to the fifth anniversary of the Grant Date. Notwithstanding the foregoing (i) Options shall fully
vest as of the time of a Change in Control if the Participant is, and has been, continuously employed by or providing services
to the Company as of such time;
(i) Options
shall fully vest and be deemed outstanding as of the time of a Change in Control if the Participant is, and has been, continuously
employed by or providing services to the Company as of the date that is within 90 days prior to a Change in Control and the Participant’s
employment and any other service with the Company was terminated by the Company without Cause.
10.
Exercise.
(a)
Notice
.
Prior to exercise of the Option, the Participant shall deliver to Grantor a written notice, in the form acceptable to the Grantor,
stating that the Participant is exercising the Option and specifying the number of Interests which are to be purchased pursuant
to the Option. An attempt to exercise any Option granted hereunder other than as set forth in the Plan shall be invalid and of
no force and effect.
(b)
Payment
.
Unless otherwise provided by the Committee, the Exercise Price as well as any tax that the Company may be required to transmit
to any government entity/agency in connection with Option exercise (the amount to be paid with respect to such tax to be determined
by the Committee in its sole discretion) must be paid to Company in before the applicable exercise date. Payment of the Exercise
Price for the Interests pursuant to the exercise of an Option shall be made by one of the following methods:
(i) by
wire transfer, certified or cashier’s check, bank draft or money order;
(ii) by
any other method which the Committee, in its sole and absolute discretion and to the extent permitted by applicable law and the
LLC Agreement, may permit.
(c)
Certificates
and Certificate Legend
. With respect to Interests purchased pursuant to Options issued under this Plan, each certificate representing
Interests shall bear the following legends or any other legend consistent with the provisions of the Plan and the Option Agreement
the Committee deems appropriate in its discretion:
“THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE BEEN ACQUIRED FROM SENSUS HEALTHCARE, LLC, A DELAWARE LIMITED LIABILITY COMPANY (the “COMPANY”)
WITHOUT BEING REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND ARE RESTRICTED SECURITIES
AS THAT TERM IS DEFINED UNDER RULE 144, PROMULGATED UNDER THE SECURITIES ACT. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED,
DISTRIBUTED, OR OTHERWISE DISPOSED OF IN ANY MANNER (“TRANSFER”) UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES
ACT OR EXCEPT PURSUANT TO A VALID EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AS EVIDENCED BY AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT THE TRANSFER WILL NOT RESULT IN A VIOLATION OF THE SECURITIES ACT.
THE SALE OR OTHER TRANSFER OF INTERESTS
REPRESENTED BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY OPERATION OF LAW, ARE SUBJECT TO CERTAIN TERMS, CONDITIONS,
AND RESTRICTIONS ON TRANSFER AS SET FORTH IN THE SENSUS HEALTHCARE, LLC 2013 OPTION PLAN (THE “PLAN”), IN AN AGREEMENT
ENTERED INTO BY AND BETWEEN THE REGISTERED OWNER OF SUCH INTERESTS AND THE COMPANY, DATED
(THE “OPTION AGREEMENT”)
AND LIMITED LIABILITY COMPANY AGREEMENT OF SENSUS HEALTHCARE, LLC. A COPY OF THE PLAN AND THE OPTION AGREEMENT MAY BE OBTAINED
FROM THE SECRETARY OF THE COMPANY.”
11.
Termination
of Employment or Service.
Subject to Section
9 hereof or unless otherwise provided in an Option Agreement, in the event the Participant’s employment and other services
for the Company are terminated (including due to termination with or without Cause, death or disability), all of the Participant’s
outstanding Options (whether vested or unvested) shall be subject to the rules of this paragraph.
Upon termination of
the Participant’s employment and other services for the Company, the Participant’s unvested Options shall expire. Upon
any termination (including termination due to death or disability) other than termination by the Company without Cause: (i) all
of the Participant’s Options (vested or unvested) shall expire; and (ii) any Option Interests acquired by the Participant
through Option exercise that took place within thirty (30) days immediately preceding the date of such termination of employment
and services, shall be forfeited to the Grantor and the Exercise Price paid by the Participant (other than the Exercise Price paid
by virtue of the Grantor withholding Option Interests) shall be returned to the Participant.
Any Option held by
a Participant at termination, may be exercised by the Participant, to the extent (i) exercisable at termination and (ii) not forfeited
in connection with such termination, provided that the notice of such exercise is given to the Grantor no later than 30 days following
termination, but in no event can an Option be exercised after the termination of the Option pursuant to Section 8 hereof. Unless
otherwise determined by the Committee, temporary absence from employment or service because of illness, vacation, approved leaves
of absence or military service shall not constitute a termination of employment or other service.
12.
Change
in Control.
Unless otherwise provided
in an Option Agreement, as of a Change in Control all the outstanding Options shall terminate and shall be deemed exercised through
“cashless exercise”, whereby the Participant shall be entitled to the number of Interests equal to the number of Interests
subject to the Option, reduced by the number of Interests the cumulative Fair Market Value of which equals to the cumulative Exercise
Price of the Option. For purposes of the immediately preceding sentence, the Fair Market Value shall be determined as of the time
immediately prior to a Change in Control.
13.
Change
in Status of Parent or Subsidiary.
Unless otherwise provided
in an Option Agreement, in the event that an entity or business unit which was previously a part of the Company is no longer a
part of the Company, as determined by the Committee in its sole discretion, the Participant service’s with the Company shall
be deemed terminated for purposes of the Plan. The Committee may, in its sole and absolute discretion, treat the service of a Participant
employed by such entity or business unit as service with the Company.
14.
Company’s
Right To Purchase Award Interests.
Unless otherwise provided
in an Option Agreement, the Grantor shall have the right to repurchase the Option Interests issued with respect to any Participant
following such Participant’s termination of employment and service with the Company, at a price for the Option Interests
equal to the lesser of: (i) the Fair Market Value of such Option Interests, as determined on the day of such termination, or (ii)
Exercise Price paid by the Participant (other than the Exercise Price paid by virtue of the Grantor withholding Option Interests)
for such Option Interests, provided that the Grantor notifies the Participant of its intent to exercise such right within 90 days
of termination. The right of the Grantor to repurchase the Option Interests pursuant to this Section 14 shall terminate upon the
occurrence of a Change in Control.
15.
Requirements
of Law.
(a)
Violations
of Law
. The Grantor shall not be required to sell or issue any Interests under any Option if the sale or issuance of such Interests
would constitute a violation by the individual exercising the Option, the Participant or the Company of any provisions of any law,
rule or regulation of any stock exchange or automated quotation system on which the Interests may be listed or traded or governmental
authority, including without limitation, any provisions of the Sarbanes-Oxley Act, and any other federal or state securities laws
or regulations. Any determination in this connection by the Committee shall be final, binding, and conclusive. The Company shall
not be obligated to take any affirmative action in order to cause the exercise of an Option, the issuance of Interests pursuant
thereto or the grant of an Option to comply with any law or regulation of any governmental authority.
(b)
Registration
.
At the time of any exercise or receipt of any Option, the Grantor may, if it shall determine it necessary or desirable for any
reason, require the Participant (or Participant’s heirs, legatees or legal representative, as the case may be), as a condition
to the exercise or grant thereof, to deliver to the Grantor a written representation of present intention to hold the Interests
for their own account as an investment and not with a view to, or for sale in connection with, the distribution of such Interests,
except in compliance with applicable federal and state securities laws with respect thereto. In the event such representation is
required to be delivered, an appropriate legend may be placed upon each certificate delivered to the Participant (or Participant’s
heirs, legatees or legal representative, as the case may be) upon the Participant’s exercise of part or all of the Option
or receipt of an Option and a stop transfer order may be placed with the transfer agent. Each Option shall also be subject to the
requirement that, if at any time the Grantor determines, in its discretion, that the listing, registration or qualification of
the Interests subject to the Option upon any securities exchange or under any state or federal law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as a condition of or in connection with, the issuance or purchase
of the Interests thereunder, the Option may not be exercised in whole or in part and the restrictions on an Option may not be removed
unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Grantor in its sole discretion. Each Participant shall be obligated to cooperate with the Grantor and any
underwriters in connection with any public offering of the Grantor’s securities and any transactions relating thereto and
shall execute and deliver any such agreements and documents (“Market Standoff Agreements”), including without limitation,
a lock-up agreement, as may be reasonably requested by the Grantor or the underwriters relating to securities of the Grantor held
by the Participant (including without limitation all Interests held by the Participant), in form and content specified by the Grantor.
In the event that a Participant fails to enter into Market Standoff Agreements as provided herein, then the Participant shall automatically
be deemed subject to such terms and restrictions with respect to such securities as may be specified by the Grantor. The Participant
shall provide the Grantor with any certificates, representations and information that the Grantor requests and shall otherwise
cooperate with the Grantor in obtaining any listing, registration, qualification, consent or approval that the Grantor deems necessary
or appropriate.
(c)
Withholding
.
The Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes
that the Company is required by any law or regulation of any governmental authority, whether federal, state or local, domestic
or foreign, to withhold in connection with the grant or exercise of an Option, or the removal of restrictions on an Option including,
but not limited to: (i) canceling of any number of Interests issuable in an amount sufficient to reimburse the Company for the
amount it is required to so withhold; (ii) withholding the amount due from any such person’s wages or compensation due to
such person; or (iii) requiring the Participant to pay the Company cash in the amount the Company is required to withhold with
respect to such taxes.
(d)
Governing
Law
. The Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida.
16.
General
Provisions.
(a)
Option
Agreements
. All Options granted pursuant to the Plan shall be evidenced by an Option Agreement. Each Option Agreement shall
specify the terms and conditions of the Option granted and shall contain any additional provisions as the Committee shall deem
appropriate, in its sole and absolute discretion (including, to the extent that the Committee deems appropriate, provisions relating
to confidentiality, non-competition, non- solicitation and similar matters). The terms of each Option Agreement need not be identical
for Eligible Individuals provided that all Option Agreements comply with the terms of the Plan.
(b)
Distributions
.
Participant shall not be entitled to receive, currently or on a deferred basis any distributions with respect to Interests covered
by an Option.
(c)
Prospective
Employees
. Notwithstanding anything to the contrary, any Option granted to a Prospective Employee shall not become vested prior
to the date the Prospective Employee commences performing services for the Company.
(d)
Issuance
of Certificates; Member Rights
. Company may deliver to the Participant a certificate evidencing the Participant’s ownership
of Interests issued pursuant to the exercise of an Option as soon as administratively practicable after satisfaction of all conditions
relating to the issuance of such Interests. A Participant shall not have any of the rights of a Member with respect to such Interests
prior to satisfaction of all conditions relating to the issuance of such Interests, and, except as expressly provided in the Plan,
no adjustment shall be made for distributions of any kind for which the record date is prior to the date on which all such conditions
have been satisfied.
(e)
Transferability
of Options
. A Participant may not Transfer an Option. Options may be exercised during the Participant’s lifetime only
by the Participant. No Option shall be liable for or subject to the debts, contracts, or liabilities of any Participant, nor shall
any Option be subject to legal process or attachment for or against such person. Any purported Transfer of an Option in contravention
of the provisions of the Plan shall have no force or effect and shall be null and void, and the purported transferee of such Option
shall not acquire any rights with respect to such Option.
(f)
Buyout
and Settlement Provisions
. The Committee may at any time on behalf of Company offer to buy out any Options previously granted
based on the fair market value of the Options at the time of the offer.
(g)
Use
of Proceeds
. The proceeds received by Company from the sale of Interests pursuant to Options granted under the Plan shall constitute
general funds of Company.
(h)
Modification
or Substitution of an Option
. Subject to the terms and conditions of the Plan, the Committee may modify outstanding Options.
Notwithstanding the following, unless explicitly provided for in the Plan, no modification of an Option shall materially adversely
affect any rights or obligations of the Participant under the applicable Option Agreement without the Participant’s consent.
The Committee in its sole and absolute discretion may rescind, modify, or waive any vesting requirements or other conditions applicable
to an Option.
(i)
Amendment
and Termination of Plan
. The Board of Managers may, at any time and from time to time, amend, suspend or terminate the Plan
as to any Interests as to which Options have not been granted, provided that such action by the Board of Managers shall comply
with applicable federal or state law, the LLC Agreement or with the rules of any stock exchange or automated quotation system on
which the Interests may be listed or traded. Except as explicitly permitted herein, no amendment, suspension or termination of
the Plan shall, without the consent of the holder of an Option, materially alter or impair rights or obligations under any Option
theretofore granted under the Plan. Options granted prior to the termination of the Plan may extend beyond the date the Plan is
terminated and shall continue subject to the terms of the Plan as in effect on the date the Plan is terminated.
(j)
Section
409A of the Code
. The Plan is intended not to provide for deferral of compensation for purposes of Section 409A of the Code.
The provisions of the Plan shall be interpreted in a manner that promotes such intent expressed in the immediately preceding sentence
and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Option would otherwise
frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid
this conflict.
In the event that following
the application of the immediately preceding paragraph, any Option is subject to Section 409A of the Code, the provisions of Section
409A of the Code and the regulations issued thereunder are incorporated herein by reference to the extent necessary for any Option
that is subject Section 409A of the Code to comply therewith. In such event, the provisions of the Plan shall be interpreted in
a manner that satisfies the requirements of Section 409A of the Code and the related regulations, and the Plan shall be operated
accordingly. If any provision of the Plan or any term or condition of any Option would otherwise frustrate or conflict with this
intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict.
Notwithstanding any other
provisions of the Plan, the Company does not guarantee to any Participant or any other person that any Option intended to be exempt
from Section 409A of the Code shall be so exempt, nor that any Option intended to comply with Section 409A of the Code shall so
comply, nor will the Company indemnify, defend or hold harmless any individual with respect to the tax consequences of any such
failure.
(k)
Disclaimer
of Rights
. No provision in the Plan, any Option granted hereunder, or any Option Agreement entered into pursuant to the Plan
shall be construed to confer upon any individual the right to remain in the employ of or other service with the Company or to interfere
in any way with the right and authority of the Company either to increase or decrease the compensation of any individual, including
any holder of an Option, at any time, or to terminate any employment or other relationship between any individual and the Company.
The grant of an Option pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate,
or to sell or transfer all or any part of its business or assets.
(l)
Unfunded
Status of Plan
. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation.
With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to such Participant
by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor
of the Company.
(m)
Nonexclusivity
of Plan
. The adoption of the Plan shall not be construed as creating any limitations upon the right and authority of the Company
to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes
of individuals or specifically to a particular individual or individuals) as the Company in its sole and absolute discretion determines
desirable.
(n)
Other
Benefits
. Unless otherwise required by applicable law, no payment, award or distribution under the Plan shall be deemed compensation
for purposes of any arrangement between the Company and Participant, including computing benefits under any retirement plan of
the Company or any agreement or arrangement between a Participant and the Company.
(o)
Headings
.
The section headings in the Plan are for convenience only; they form no part of this Plan and shall not affect its interpretation.
(p)
Pronouns
.
The use of any gender in the Plan shall be deemed to include all genders, and the use of the singular shall be deemed to include
the plural and vice versa, wherever it appears appropriate from the context.
(q)
Successors
and Assigns
. The Plan shall be binding on all successors of the Company and all permitted successors and assigns of a Participant.
(r)
Severability
.
If any provision of the Plan or any Option Agreement shall be determined to be illegal or unenforceable by any court of law in
any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms,
and all provisions shall remain enforceable in any other jurisdiction.
(s)
Notices
.
Any communication or notice required or permitted to be given under the Plan shall be in writing, and mailed by registered or certified
mail or delivered by hand, to the Grantor, to its principal place of business, attention: General Counsel, and if to the holder
of an Option, to the address as appearing on the records of the Company.
(t)
No
limitation on Company Transactions.
The existence of the Plan and any awards granted hereunder shall not affect in any way
the right or power of the Company, Grantor and their equity holders to make, engage in or authorize any adjustment, recapitalization,
reorganization or other change in the Company’s or Grantor’s capital structure or its business, any merger or consolidation
of the Company, Grantor or an affiliate, any issue of debt or securities, the dissolution or liquidation of the Company or its
affiliates, any sale or transfer of all or part of its assets or business or any other act or proceeding.
APPENDIX A
DEFINITIONS
“Board of Managers”
means the Board of Managers of the Grantor.
“Cause”
means, solely with respect to the Plan, a termination of employment or other service with the Company due to a Participant’s
dishonesty, fraud, theft of the Company property, willful misconduct, abandonment or gross neglect by Participant of Participant’s
duties for the Company, death or disability;
provided, however,
that if the Participant and the Company have entered into
an employment agreement or consulting agreement which defines the term Cause, the term Cause shall be defined in accordance with
such agreement with respect to any Option granted to the Participant on or after the effective date of the respective employment
or consulting agreement. The Committee shall determine in its sole and absolute discretion whether Cause exists for purposes of
the Plan.
“Change in Control”
means
(a) any
Person, (other than the Grantor, any trustee or other fiduciary holding securities under any employee benefit plan of the Grantor,
any company owned, directly or indirectly, by members of the Grantor in substantially the same proportions as their ownership of
membership interests in the Grantor), becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Grantor representing fifty percent (50%) or more of the value of the Grantor’s
then outstanding securities (the “Majority Owner”); provided, however, that no Change in Control shall occur under
this paragraph (a) unless a Person who was not a Majority Owner at some time after the Effective Date becomes a Majority Owner
after the Effective Date;
(b) a
merger, consolidation, reorganization, or other business combination of the Grantor with any other entity, other than a merger
or consolidation which would result in the securities of the Grantor outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent
(50%) by value of the securities of the Grantor or such surviving entity outstanding immediately after such merger or consolidation;
(c) the
consummation of the sale or disposition by the Grantor of all or substantially all of the Grantor’s assets other than (x)
the sale or disposition of all or substantially all of the assets of the Grantor to a Person or Persons who beneficially own, directly
or indirectly, at least fifty percent (50%) or more of the securities of the Grantor by value at the time of the sale or (y) pursuant
to a spin-off type transaction, directly or indirectly, of such assets to the members of the Grantor; or
(d) an
IPO.
Change in Control shall
refer solely to the first such Change in Control following the Effective Date.
“Code”
means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
“Committee”
shall mean Joseph C. Sardano, Stephen Cohen, Richard Golin, Kalman Fishman and Stephen Arnold. In the event any of the above-referenced
individuals (i) is no longer performing services for the Company, and (ii) no longer holds any Interests, such individual shall
immediately cease to be a part of the Committee. If no person remains on the Committee, the functions of the Committee will be
exercised by the Board of Managers.
“Company”
means the Grantor, the subsidiaries of the Grantor and all other entities whose financial statements are required to be consolidated
with the financial statements of the Grantor pursuant to United States generally accepted accounting principles, and any other
entity determined to be an affiliate of the Grantor as determined by the Grantor in its sole and absolute discretion.
“Covered Individual”
means any current or former member of the Committee or of the Board of Managers or any individual designated pursuant to Section
4(c).
“Eligible Individual”
means any employee, officer, director (employee or non-employee director), independent contractor or consultant of the Company
and any Prospective Employee to whom Options are granted in connection with an offer of future engagement with the Company.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“Exercise Price”
means the purchase price per Interest subject to an Option.
“Fair Market
Value” means, unless otherwise required by the Code, as of any date, the last sales price reported for the Interest on the
day immediately prior to such date (i) as reported by the national securities exchange in the United States on which it is then
traded; or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by
the National Association of Securities Dealers, Inc., or if the Interest shall not have been reported or quoted on such date, on
the first day prior thereto on which the Interest was reported or quoted;
provided, however,
that Grantor may modify the
definition of Fair Market Value to reflect any changes in the trading practices of any exchange or automated system sponsored by
the National Association of Securities Dealers, Inc. on which the Interests is listed or traded. If the Interests are not readily
traded on a national securities exchange or any system sponsored by the National Association of Securities Dealers, Inc., the Fair
Market Value shall be determined in good faith by the Committee in its sole discretion. Notwithstanding anything in the foregoing
paragraph, Fair Market Value shall be determined consistent with Section 409A of the Code.
“Grant Date”
means the date on which the Grantor approves the grant of an Option or such later date as is specified by the Grantor and set forth
in the applicable Option Agreement. Notwithstanding anything in the foregoing paragraph, Fair Market Value shall be determined
consistent with Section 409A of the Code.
“Grantor”
means Sensus Healthcare, LLC, a Delaware limited liability company and its successors.
“Interest(s)”
means Interest(s) of the Grantor, as defined in the LLC Agreement and unless the context otherwise requires, any securities or
other property into which the Interests may be converted or exchanged.
“IPO” means
the completion by the Grantor an underwritten initial public offering of the Interests pursuant to an effective registration statement
filed with the Securities and Exchange Commission (an “Initial Public Offering”).
“LLC Agreement”
means Limited Liability Company Agreement of Sensus Healthcare, LLC, a Delaware Limited Liability Company, as it may be amended
from time to time.
“Member”
means Member as defined in the LLC Agreement.
“Option”
means an option to purchase Interests granted pursuant to the Plan.
“Option Agreement”
means a written agreement entered into by the Grantor and a Participant setting forth the terms and conditions of the grant of
an Option to such Participant.
“Option Interests”
shall mean Interests issued upon the exercise of an Option hereunder.
“Participant”
means any Eligible Individual who holds an Option under the Plan and any of such individual’s successors or permitted assigns.
“Person”
shall mean any person, corporation, partnership, joint venture, limited liability company or other entity or any group (as such
term is defined for purposes of Section 13(d) of the Exchange Act), other than an entity that is part of the Company.
“Plan”
means this Sensus Healthcare, LLC 2013 Option Plan.
“Prospective
Employee” means any individual who has committed to become an employee or other service provider of the Company within sixty
(60) days from the date an Option is granted to such individual.
“Transfer”
means, as a noun, any direct or indirect, voluntary or involuntary, exchange, sale, bequeath, pledge, mortgage, hypothecation,
encumbrance, distribution, transfer, gift, assignment or other disposition or attempted disposition of, and, as a verb, directly
or indirectly, voluntarily or involuntarily, to exchange, sell, bequeath, pledge, mortgage, hypothecate, encumber, distribute,
transfer, give, assign or in any other manner whatsoever dispose or attempt to dispose of.
Exhibit 10.2
AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT
BY AND BETWEEN SENSUS HEALTHCARE, LLC
AND SILICON VALLEY BANK, DATED AS OF
MARCH 21, 2013
AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT
THIS AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
(this “
Agreement
”) dated as of March 12, 2013 (the “
Effective
Date
”) between SILICON VALLEY BANK, a California corporation (“
Bank
”), and SENSUS HEALTHCARE, LLC,
a Delaware limited liability company (“
Borrower
”), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. The parties agree as follows:
Recitals
A. Bank
and Borrower have entered into that certain Loan and Security Agreement dated as of December 15, 2011 (as amended, the “
Prior
Loan Agreement
”) and that certain Intellectual Property Security Agreement of even date therewith.
B. Borrower
has requested, and Bank has agreed, to replace, amend and restate the Prior Loan Agreement in its entirety. Bank and Borrower hereby
agree that the Prior Loan Agreement is amended and restated in its entirety as follows:
|
|
1
|
ACCOUNTING AND oTHER TERMS
|
Accounting terms not
defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP;
provided
that if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any
Loan Document, and either Borrower or Bank shall so request, Borrower and Bank shall negotiate in good faith to amend such ratio
or requirement to preserve the original intent thereof in light of such change in GAAP;
provided, further,
that, until so
amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b)
Borrower shall provide Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder
setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change
in GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are
defined therein.
|
|
2
|
LOAN AND TERMS OF PAYMENT
|
2.1 Promise
to Pay.
Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and
accrued and unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1 Revolving
Advances.
(a)
Availability
.
Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts
borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable
terms and conditions precedent herein.
(b)
Termination;
Repayment
. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable .
2.2 Overadvances
.
If, at any time, the outstanding principal amount of the aggregate Advances exceeds the lesser of either the Revolving Line or
the Borrowing Base, Borrower shall immediately pay to Bank in cash the amount of such excess (such excess, the “Overadvance”).
Without limiting Borrower’ s obligation to repay Bank any Overadvance, Borrower agrees to pay Bank interest on the outstanding
amount of any Overadvance, on demand, at the Default Rate.
2.3 Payment
of Interest on the Credit Extensions.
(a)
Interest
Rate
. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating
per annum rate equal to the greater of two percentage points (2.00%) above the Prime Rate or five and one-quarter percent (5.25%),
which interest shall be payable monthly in accordance with Section 2.3(e) below.
(b)
Default
Rate
. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at
a rate per annum which is five percentage points (5.0%) above the rate that is otherwise applicable thereto (the “
Default
Rate
”). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without
limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable
to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative
to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies
of Bank.
(c)
Adjustment
to Interest Rate
. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective
on the effective date of any change to the Prime Rate and to the extent of any such change.
(d)
Minimum
Interest
. In the event the aggregate amount of interest earned by Bank under the Revolving Line in any quarter (such period,
the “
Minimum Interest Period
,” which period shall begin on the Effective Date and continue with each quarter
thereafter until the earlier of the Revolving Line Maturity Date or the date this Agreement is terminated) is less than Five Thousand
Dollars ($5,000) (exclusive of any collateral monitoring fees, unused line fees, or any other fees and charges hereunder) (“
Minimum
Interest
”), Borrower shall pay to Bank, upon demand by Bank, an amount equal to the (i) Minimum Interest minus (ii) the
aggregate amount of all interest earned by Bank under the Revolving Line (exclusive of any collateral monitoring fees, unused line
fees or any other fees and charges hereunder) in such Minimum Interest Period. Borrower shall not be entitled to any credit, rebate,
or repayment of any Minimum Interest pursuant to this Section 2.3(d) notwithstanding any termination of this Agreement or the suspension
or termination of Bank’s obligation to make loans and advances hereunder. Bank may deduct amounts owing by Borrower under
this Section 2.3(d) pursuant to the terms of Section 2.5(c). Bank shall provide Borrower prompt written notice of deductions made
from the Designated Deposit Account pursuant to the terms of this Section 2.3(d).
(e)
Payment;
Interest Computation
. Interest is payable monthly on the first calendar day of each month and shall be computed on the basis
of a 360-day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Pacific
time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of
any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension
is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.
2.4 Fees
.
Borrower shall pay to Bank:
(a)
Anniversary
Fee
. A fully earned, non-refundable commitment fee of Seven Thousand Five Hundred Dollars ($7,500), on the first anniversary
of the Effective Date;
(b)
Good
Faith Deposit
. Borrower has paid to Bank a deposit of Five Thousand Dollars ($5,000) to initiate Bank’s due diligence
review process, which deposit will be applied to the Bank Expenses on the Effective Date;
(c)
Bank
Expenses
. All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this
Agreement which fees for the documentation and negotiation of this Agreement will not exceed Five Thousand Dollars ($5,000) as
of the Effective Date unless agreed upon in advance by Bank and Borrower) incurred through and after the Effective Date, when due
(or, if no stated due date, upon demand by Bank); and
(d)
Fees
Fully Earned
. Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled
to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this
Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder. Bank may deduct amounts
owing by Borrower under the clauses of this Section 2.4 pursuant to the terms of Section 2.5(c). Bank shall provide Borrower prompt
written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.4.
2.5 Payments;
Application of Payments; Debit of Accounts.
(a) All
payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff
or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00
p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that
is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue
to accrue until paid.
(b) Bank
has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied.
Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to
be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified
elsewhere in this Agreement.
(c) Bank
may debit the Designated Deposit Account for principal and interest payments or any other amounts Borrower owes Bank when due.
These debits shall not constitute a set-off.
2.6 Withholding
.
Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental
Authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any
Governmental Authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction
from any such payment or other sum payable hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower
with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the
making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no
withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental
Authority. Borrower will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made
such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such
withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded
or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.6 shall survive the termination
of this Agreement.
3.1 Conditions
Precedent to Initial Credit Extension
. Bank’s obligation to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:
(a) duly
executed original signatures to this Agreement;
(b) the
Operating Documents and long-form good standing certificates of Borrower and its Subsidiaries certified by the Secretary of State
(or equivalent agency) of Borrower’s and such Subsidiaries’ jurisdiction of organization or formation and each jurisdiction
in which Borrower and each Subsidiary is qualified to conduct business, each as of a date no earlier than thirty (30) days prior
to the Effective Date;
(c) duly
executed original signatures to the completed Borrowing Resolutions for Borrower;
(d) certified
copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including
any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or
have been or, in connection with the initial Credit Extension, will be terminated or released; and
(e) payment
of the fees and Bank Expenses then due as specified in Section 2.4 hereof.
3.2 Conditions
Precedent to all Credit Extensions
. Bank’s obligations to make each Credit Extension, including the initial Credit Extension,
is subject to the following conditions precedent:
(a) timely
receipt of an executed Payment/Advance Form;
(b) the
representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of
the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof;
and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate
and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result
from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations
and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in
the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall
be true, accurate and complete in all material respects as of such date; and
(c) Bank
determines to its satisfaction that there has not been a Material Adverse Change.
3.3 Covenant
to Deliver
. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition
precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such
item shall not constitute a waiver by Bank of Borrower’ s obligation to deliver such item, and the making of any Credit Extension
in the absence of a required item shall be in Bank’s sole discretion.
3.4 Procedures
for Borrowing
.
(a)
Advances
.
Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to
obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by
12:00 p.m. Pacific time on the Funding Date of the Advance. Together with any such electronic or facsimile notification, Borrower
shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer. Bank
may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer. Bank shall credit Advances to the
Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his
or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.
|
|
4
|
CREATION OF SECURITY INTEREST
|
4.1 Grant
of Security Interest.
Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations,
a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired
or arising, and all proceeds and products thereof.
Borrower acknowledges
that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms
of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations
hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security
interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank’s Lien
in this Agreement).
If this Agreement is
terminated, Bank’s Lien m the Collateral shall continue until the Obligations (other than inchoate indemnity obligations)
are satisfied in full, and at such time, Bank shall, at Borrower’ s sole cost and expense, terminate its security interest
in the Collateral and all rights therein shall revert to Borrower. In the event (x) all Obligations (other than inchoate indemnity
obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security
interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank
Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash
collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent
(105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%),
of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due
in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to
such Letters of Credit.
4.2 Priority
of Security Interest
. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at
all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are
permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien under this Agreement). If Borrower
shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement,
with such writing to be in form and substance reasonably satisfactory to Bank.
4.3 Authorization
to File Financing Statements
. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder , including a notice that any disposition
of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code. Such financing
statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an
equal or lesser scope, or with greater detail, all in Bank’s discretion.
|
|
5
|
REPRESENTATIONS AND WARRANTIES
|
Borrower represents
and warrants as follows:
5.1 Due
Organization, Authorization; Power and Authority
. Borrower is duly existing and in good standing in its jurisdiction of formation
and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or
its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have
a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank a completed
certificate signed by Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a)
Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower
is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection
Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief
executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure
or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate
pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may
from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by
one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower
shall promptly notify Bank of such occurrence and provide Bank with Borrower ‘s organizational identification number.
The execution, delivery
and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with
any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material
Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination
or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound
or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental
Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or (v) conflict
with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material
agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound
in which the default could reasonably be expected to have a material adverse effect on Borrower ‘s business.
5.2 Collateral
.
Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a
Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no Collateral Accounts at or with any
bank or financial institution other than Bank or Bank’s Affiliates except for the Collateral Accounts described in the Perfection
Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a
perfected security interest therein, pursuant to the terms of Section 6.6(b). The Accounts are bona fide, existing obligations
of the Account Debtors.
The Collateral is not
in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None
of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as
permitted pursuant to Section 7.2.
Borrower is the sole
owner of the Intellectual Property which it owns or purports to own except for (a) non exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material
Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own
and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower
owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or
in part. To the best of Borrower’ s knowledge, no claim has been made that any part of the Intellectual Property violates
the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect
on Borrower’s business.
Except as noted on
the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.
5.3 Accounts
Receivable.
(a) For
any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing such Eligible Accounts are and shall be true and correct and all such invoices, instruments
and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. Whether or not
an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security
interest in such funds and verify the amount of such Eligible Account.
(b) All
sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all
applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding
of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate. To the best of Borrower’s knowledge,
all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in accordance with their terms.
5.4 Litigation
.
There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).
5.5 Financial
Statements; Financial Condition
. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to
Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated
results of operations. There has not been any material deterioration in Borrower’ s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.6 Solvency
.
The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value
of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement;
and Borrower is able to pay its debts (including trade debts) as they mature.
5.7 Regulatory
Compliance
. Borrower is not an “investment company” or a company “controlled” by an “investment
company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower (a) has
complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation
of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower
and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with,
and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently
conducted.
5.8 Subsidiaries;
Investments
. Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for
Permitted Investments.
5.9 Tax
Returns and Payments; Pension Contributions
. Borrower has timely filed all required tax returns and reports, and Borrower has
timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to
the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted,
so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made
therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Ten Thousand
Dollars ($10,000).
To the extent Borrower
defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development
in, the proceedings, and (ii) post bonds or take any other steps required to prevent the Governmental Authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a “
Permitted Lien
.” Borrower is unaware
of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming
due and payable by Borrower in excess of Ten Thousand Dollars ($10,000). Borrower has paid all amounts necessary to fund all present
pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation
in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any
such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
5.10 Use
of Proceeds
. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business
requirements and not for personal, family, household or agricultural purposes.
5.11 Full
Disclosure
. No written representation, warranty or other statement of Borrower in any certificate or written statement given
to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates
and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections
and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual
results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
5.12 Definition
of “Knowledge.”
For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’
s knowledge or awareness, to the “best of ‘ Borrower’ s knowledge, or with a similar qualification, knowledge
or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.
Borrower shall do all
of the following:
6.1 Government
Compliance
.
(a) Maintain
its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect
on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, in all material respects, with
all laws, ordinances and regulations to which it is subject.
(b) Obtain
all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which
it is a party and the grant of a security interest to Bank in all of its property. Borrower shall promptly provide copies of any
such obtained Governmental Approvals to Bank.
6.2 Financial
Statements, Reports, Certificates
. Provide Bank with the following:
(a)
Borrowing
Base Reports
. Within thirty (30) days after the last day of each month, aged listings of accounts receivable and accounts payable
(by invoice date) (the “
Borrowing Base Reports
”);
(b)
Borrowing
Base Certificate
. Within thirty (30) days after the last day of each month and together with the Borrowing Base Reports, a
duly completed Borrowing Base Certificate signed by a Responsible Officer;
(c)
Monthly
Financial Statements
. As soon as available, but no later than thirty (30) days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified
by a Responsible Officer and in a form acceptable to Bank (the “
Monthly Financial Statements
”);
(d)
Monthly
Compliance Certificate
. Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements,
a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower
was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request;
(e)
Annual
Operating Budget and Financial Projections
. Within forty-five (45) days after the last day of each fiscal year of Borrower,
(i) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming
fiscal year of Borrower, and (ii) annual financial projections for the following fiscal year (on a quarterly basis) as approved
by Borrower’s board of directors, together with any related business forecasts used in the preparation of such annual financial
projections;
(f)
Annual
Audited Financial Statements
. As soon as available, but no later than one hundred fifty (150) days after the last day of Borrower’s
fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified
opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion;
(g)
Other
Statements
. Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s
security holders or to any holders of Subordinated Debt;
(h)
SEC
Filings
. In the event that Borrower becomes subject to the reporting requirements under the Exchange Act within five (
5)
days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC,
any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed
to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such
documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be
deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’
s website on the Internet at Borrower’s website address; provided, however, Borrower shall promptly notify Bank in writing
(which may be by electronic mail) of the posting of any such documents;
(i)
Legal
Action Notice
. A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries
that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred
Thousand Dollars ($100,000) or more; and
(j)
Other
Financial Information
. Other financial information reasonably requested by Bank.
6.3 Inventory;
Returns
. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower
and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly
notify Bank of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000).
6.4 Taxes;
Pensions
. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely
pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and
contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the
terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay
all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
6.5 Insurance
.
(a) Keep
its business and the Collateral insured tor risks and in amounts standard for companies in Borrower’s industry and location
and as Bank may reasonably request. Insurance policies shall be in a form, with financially sound and reputable insurance companies
that are not Affiliates of Borrower, and in amounts that are satisfactory to Bank. All property policies shall have a lender’s
loss payable endorsement showing Bank as lender loss payee. All liability policies shall show, or have endorsements showing, Bank
as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance
providing coverage in respect of any Collateral.
(b) Proceeds
payable under any property policy are, at Bank’s option, payable to Bank on account of the Obligations. Notwithstanding the
foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds
of any casualty policy up to One Hundred Thousand Dollars ($100,000) in the aggregate for all losses under all casualty policies
in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired
property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which
Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of
Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations.
(c) At
Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments. Each
provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by
it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice before any such
policy or policies shall be materially altered or canceled. If Borrower fails to obtain insurance as required under this Section
6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such
payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.
6.6 Operating
Accounts.
(a) Maintain
all of its operating and other deposit accounts and securities accounts with Bank and Bank’s Affiliates. Notwithstanding
the foregoing, Borrower shall have sixty (60) days from the Effective Date to transition its banking activity from Bank of America
to Bank through the Payability platform or a similar solution.
(b) Provide
Bank five (5) days prior written notice before establishing any Collateral Account at or with any Bank Affiliate. For each Collateral
Account that Borrower at any time maintains with a Bank Affiliate, Borrower shall cause the applicable Bank Affiliate at or with
which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect
to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which
Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower ‘s employees and identified to Bank by Borrower as such.
6.7 Financial
Covenants
. Maintain at all times, subject to periodic reporting as of the last day of each month:
(a)
Adjusted
Quick Ratio
. An Adjusted Quick Ratio of at least (i) from the Effective Date through June 30, 2013, 1.50 to 1.00, (ii) from
July 1, 2013 through June 30, 2014, 1.25 to 1.00, and (iii) from July 1, 2014 and thereafter, 1.50 to 1.00.
(b)
Minimum
Trailing 6-Month EBITDA
. Maintain, measured as of the end of each month during the following periods, EBITDA, measured on a
trailing six (6) month basis, of at least the following:
|
Month Ended
|
|
Minimum Trailing 6-Month EBITDA
|
|
|
December 31, 2012
|
|
|
$400,000
|
|
|
January 31, 2013
|
|
|
$300,000
|
|
|
February 28, 2013
|
|
|
$1.00
|
|
|
March 31, 2013
|
|
|
($200,000)
|
|
|
April 30, 2013
|
|
|
($350,000)
|
|
|
May 31, 2013
|
|
|
($650,000)
|
|
|
June 30, 2013
|
|
|
($1,200,000)
|
|
|
July 31, 2013
|
|
|
($1,200,000)
|
|
|
August 31, 2013
|
|
|
($800,000)
|
|
|
September 30, 2013
|
|
|
($300,000)
|
|
|
October 31, 2013
|
|
|
($150,000)
|
|
|
November 30, 2013
|
|
|
$100,000
|
|
|
December 31, 2013 and each month thereafter
|
|
|
$500,000
|
|
6.8 Protection
of Intellectual Property Rights
.
(a) (i)
Protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing
of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of
its Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned,
forfeited or dedicated to the public without Bank’s written consent.
(b) Provide
written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter
software that is commercially available to the public). Borrower shall take such steps as Bank requests to obtain the consent of,
or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral”
and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such
Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation
of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the
other Loan Documents.
6.9 Litigation
Cooperation.
From the date hereof and continuing through the termination of this Agreement, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank
may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.
6.10 Access
to Collateral; Books and Records.
Allow Bank, or its agents, at reasonable times, on one (1) Business Day’s notice
(provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and
copy Borrower’s Books. Such inspections or audits shall be conducted no more often than once every fiscal year unless an
Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine
is necessary. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850
per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels
or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s
rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank
for the anticipated costs and expenses of the cancellation or rescheduling. Borrower hereby acknowledges that the such an audit
will be conducted within thirty (30) days after the Effective Date.
6.11 Further
Assurances
. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s
Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) days after the same are sent
or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance
with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect
on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.
Borrower shall not
do any of the following without Bank’s prior written consent:
7.1 Dispositions
.
Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “
Transfer
”), or permit any of
its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary
course of business; (b) of worn-out or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically
practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted
Investments; (d) consisting of the sale or issuance of any stock of Borrower permitted under Section 7.2 of this Agreement; (e)
consisting of Borrower’s use or transfer of money or Cash Equivalents in the ordinary course of its business for the payment
of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents;
and (f) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business.
7.2 Changes
in Business, Management, Ownership, or Business Locations
. (a) Engage in or permit any of its Subsidiaries to engage in any
business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto;
(b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed
by Borrower within five (5) days after his or her departure from Borrower; or (ii) enter into any transaction or series of related
transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own
more than 40% of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions
(other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors
so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to
the closing of the transaction and provides to Bank a description of the material terms of the transaction).
Borrower shall not, without at least thirty
(30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices
or business locations contain less than Ten Thousand Dollars ($10,000) in Borrower’s assets or property) or deliver any portion
of the Collateral valued, individually or in the aggregate, in excess of Ten Thousand Dollars ($10,000) to a bailee at a location
other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization,
(3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned
by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the
aggregate, in excess of Ten Thousand Dollars ($10,000) to a bailee, and Bank and such bailee are not already parties to a bailee
agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will
first notify Bank in writing, and such bailee shall execute and deliver a bailee agreement inform and substance satisfactory to
Bank.
7.3 Mergers
or Acquisitions
. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person
(including, without limitation, by the formation of any Subsidiary). A Subsidiary may merge or consolidate into another Subsidiary
or into Borrower.
7.4 Indebtedness
.
Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance
.
Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the
sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject
to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement
(except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower
or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’
s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of
“Permitted Liens” herein.
7.6 Maintenance
of Collateral Accounts
. Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.
7.7 Distributions;
Investments
. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; provided
that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange thereof; and (ii) Borrower may pay dividends solely in common stock; or (b) directly or indirectly
make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit
any of its Subsidiaries to do so. Notwithstanding the foregoing, Borrower may make advances to each of its members (collectively,
the “
Member Advances
”) in an amount sufficient to cover that member’ s estimated tax liability due and
payable as a result of income of Borrower attributed to the member during any period that Borrower remains a limited liability
company; provided, however, that no Member Advances may be made if, at the time or as a result thereof, an Event of Default could
occur.
7.8 Transactions
with Affiliates
. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower,
except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no
less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
7.9 Subordinated
Debt
. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the
Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments
thereon, or adversely affect the subordination thereof to Obligations owed to Bank.
7.10 Compliance
.
Become an “investment company” or a company controlled by an “investment company”, under the Investment
Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock
(as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension
for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction,
as defined in BRISA, from occurring, or (c) comply with the Federal Fair Labor Standards Act, the failure of any of the conditions
described in clauses (a) through (c) which could reasonably be expected to have a material adverse effect on Borrower’ s
business; or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect
on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation
in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension,
profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including
any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
Any one of the following
shall constitute an event of default (an “
Event of Default
”) under this Agreement:
8.1 Payment
Default
. Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period
shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment
specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);
8.2 Covenant
Default
.
(a) Borrower
fails or neglects to perform any obligation in Sections 2.2, 6.2, 6.4, 6.5, 6.6, 6.7, 6.8(b), or 6.10 or violates any covenant
in Section 7; or
(b) Borrower
fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement
or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall
be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants
or any other covenants set forth in clause (a) above;
8.3
Material
Adverse Change. A Material Adverse Change occurs;
8.4
Attachment;
Levy; Restraint on Business.
(a) (i)
The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control
of Borrower (including a Subsidiary) in excess of Fifty Thousand Dollars ($50,000), or (ii) a notice of lien or levy is filed against
any of Borrower’s assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within
ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided,
however, no Credit Extensions shall be made during any ten (10) day cure period; or
(b) (i)
any material portion of Borrower’ s assets is attached, seized, levied on, or comes into possession of a trustee or receiver,
or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;
8.5 Insolvency
.
(a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five
(45) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency
Proceeding is dismissed);
8.6 Other
Agreements
. There is, under any agreement to which Borrower or any Guarantor is a party with a third party or parties,
(a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any breach
or default by Borrower or Guarantor, the result of which could have a material adverse effect on Borrower’s or any Guarantor’
s business;
8.7 Judgments;
Penalties
. One or more fines, penalties or final judgments, orders, or decrees for the payment of money in an amount, individually
or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to
which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority,
and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or
after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such
stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine,
penalty, judgment, order, or decree);
8.8 Misrepresentations
.
Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement,
any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated
Debt
. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated
or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity
or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any
reason be subordinated or shall not have the priority contemplated by this Agreement or the applicable subordination or intercreditor
agreement;
8.10 Guaranty
.
(a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does
not perform any obligation or covenant under any guaranty of the Obligations subject to applicable cure periods; (c) any circumstance
described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8 occurs with respect to any ·Guarantor; or (d) the liquidation, winding
up, or termination of existence of any Guarantor; or
8.11 Governmental
Approvals
. Any material Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner
or not renewed in the ordinary course for a full term or
(a) subject
to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such
Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above,
and such decision or such revocation, rescission, suspension, modification or non-renewal (i) causes, or could reasonably be expected
to cause, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries
to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or
non-renewal could reasonably be expected to affect the status of or legal qualifications of Borrower or any of its Subsidiaries
to hold any Governmental Approval in any other jurisdiction .
|
|
9
|
BANK’S RIGHTS AND REMEDIES
|
9.1 Rights
and Remedies
. Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do
any or all of the following:
(a) declare
all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) stop
advancing money or extending credit for Borrower’ s benefit under this Agreement or under any other agreement between Borrower
and Bank;
(c) for
any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to at least 105% (if the Letter of Credit
is denominated in U.S. Dollars) or 110% (if the Letter of Credit is denominated in a Foreign Currency) of the Dollar Equivalent
of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due
in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating
to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable
over the remaining term of any Letters of Credit;
(d) terminate
any FX Contracts;
(e) verify
the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes
and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person
owing Borrower money of Bank’s security interest in such funds;
(f) make
any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the
Collateral;
(g) apply
to the Obligations (i) any balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit
or the account of Borrower;
(h) ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby
granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights,
mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property
as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection
with Bank ‘s exercise of its rights under this Section, Borrower’ s rights under all licenses and all franchise agreements
inure to Bank ‘s benefit;
(i) place
a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or
other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(j) demand
and receive possession of Borrower’s Books; and
(k) exercise
all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the
Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 Power
of Attorney
. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and
during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or
security; (b) sign Borrower ‘s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines
reasonable; (d) make, settle, and adjust all claims under Borrower ‘s insurance policies; (e) pay, contest or settle any
Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise
take any action to terminate or discharge the same; and (t) transfer the Collateral into the name of Bank or a third party as the
Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary
to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default
has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions
hereunder. Bank’s foregoing appointment as Borrower’ s attorney in fact, and all of Bank’s rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation
to provide Credit Extensions terminates.
9.3 Protective
Payments
. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails
to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required
to preserve the Collateral Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses
and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.
Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s
waiver of any Event of Default.
9.4 Application
of Payments and Proceeds Upon Default
. If an Event of Default has occurred and is continuing, Bank shall have the right to
apply in any order any funds in its possession , whether from Borrower account balances, payments, proceeds realized as the result
of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus
to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable
to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by
the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash
therefor.
9.5 Bank’s
Liability for Collateral
. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral
in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral;
(b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6 No
Waiver; Remedies Cumulative
. Bank’s failure, at any time or times, to require strict performance by Borrower of any provision
of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict
performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the
waiver and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies
under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by
law, or in equity. Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising
any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default
is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand
Waiver
. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment
at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees
held by Bank on which Borrower is liable.
All notices, consents,
requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing
and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business
Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid;(b)
upon transmission, when sent by electronic mail or facsimile transmission ; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid ; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed
to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change
its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with
the terms of this Section 10.
|
If to Borrower:
|
|
Sensus Healthcare, LLC
|
|
|
|
851 Broken Sound Parkway NW, Suite 215
|
|
|
|
Boca Raton, FL 33487
|
|
|
|
Attn: ______________________
|
|
|
|
Fax: ______________________
|
|
|
|
Email: ______________________
|
|
|
|
Website URL: ________________
|
|
|
|
|
|
If to Bank:
|
|
Silicon Valley Bank
|
|
|
|
3353 Peachtree Road NE, North Tower
|
|
|
|
Suite M-10
|
|
|
|
Atlanta, GA 30326
|
|
|
|
Attn: Scott McCarty
|
|
|
|
Fax: 404-467-4467
|
|
|
|
Email: smccarty@svb.com
|
|
|
11
|
CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE
|
Georgia law governs
the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Georgia; provided, however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security
for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in
advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting
of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons,
complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process
may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower
in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of
Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT
OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND
ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS
WAIVER WITH ITS COUNSEL.
This Section 11 shall
survive the termination of this Agreement.
12.1 Termination
Prior to Revolving Line Maturity Date; Survival
. All covenants, representations and warranties made in this Agreement continue
in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied. So long as Borrower
has satisfied the Obligations (other than inchoate indemnity obligations, any other obligations which, by their terms, are to survive
the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance
with Section 4.1 of this Agreement), this Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective
three (3) Business Days after written notice of termination is given to Bank. Those obligations that are expressly specified in
this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’
s termination .
12.2 Successors
and Assigns
. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may
not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted
or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under
this Agreement and the other Loan Documents.
12.3 Indemnification
.
Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person
affiliated with or representing Bank (each, an “Indemnified Person”) harmless against: (i) all obligations, demands,
claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or
paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and
Borrower contemplated by the Loan Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or
losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.
This Section 12.3 shall
survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have
run.
12.4 Time
of Essence
. Time is of the essence for the performance of all Obligations in this Agreement.
12.5 Severability
of Provisions
. Each provision of this Agreement is severable from every other provision in determining the enforceability of
any provision.
12.6 Correction
of Loan Documents
. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement
of the parties so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) days
to object to such correction. In the event of such objection , such correction shall not be made except by an amendment signed
by both Bank and Borrower.
12.7 Amendments
in Writing; Waiver; Integration
. No purported amendment or modification of any Loan Document, or waiver, discharge or termination
of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth
in a writing signed by the party against which enforcement or admission is sought Without limiting the generality of the foregoing,
no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate
as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be
limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether
similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements,
understandings, representations , warranties, and negotiations between the parties about the subject matter of the Loan Documents
merge into the Loan Documents.
12.8 Counterparts
.
This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, is an original, and all taken together, constitute one Agreement.
12.9 Confidentiality
.
In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates,
together with Bank, collectively, “
Bank Entities
”); (b) to prospective transferees or purchasers of any interest
in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators
or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising
remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed
a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does
not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes
part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to
Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the
information.
Bank Entities may use
anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower. The provisions of the immediately preceding sentence shall survive termination of this Agreement.
12.10 Attorneys’
Fees, Costs and Expenses
. In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents,
the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in
addition to any other relief to which it may be entitled.
12.11 Electronic
Execution of Documents
. The words “execution,” “signed,” “signature” and words of like
import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based
recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation,
any state law based on the Uniform Electronic Transactions Act.
12.12 Captions
.
The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.
12.13 Construction
of Agreement
. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation
of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the
uncertainty to exist.
12.14 Relationship
.
The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not
intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different
from those of parties to an arm’s-length contract.
12.15 Third
Parties
. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies
under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors
and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c)
give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
12.16 No
Novation
. Nothing contained herein shall in any way impair the Prior Loan Agreement and other Loan Documents now held for the
Obligations, nor affect or impair any rights, powers, or remedies under the Prior Loan Agreement or any Loan Document, it being
the intent of the parties hereto that this Agreement shall not constitute a novation of the Prior Loan Agreement or an accord and
satisfaction of the Obligations. Borrower hereby ratifies and reaffirms the validity and enforceability of all of the liens and
security interests heretofore granted pursuant to the Loan Documents, as collateral security for the Obligations, and acknowledges
that all of such liens and security interests, and all Collateral heretofore pledged as security for the Obligations, continues
to be and remains Collateral for the Obligations from and after the date hereof.
13.1 Definitions
.
As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or”
is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural,
and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms
have the following meanings:
“
Account
”
is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without
limitation, all accounts receivable and other sums owing to Borrower.
“
Account Debtor
”
is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.
“
Adjusted
Quick Ratio
” is the ratio of Borrower’ s Quick Assets to its Current Liabilities minus the current portion of its
Deferred Revenue.
“
Advance
”
or “
Advances
” means a revolving credit loan (or revolving credit loans) under the Revolving Line.
“
Affiliate
”
is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls
or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors,
partners and, for any Person that is a limited liability company, that Person’s managers and members.
“
Agreement
”
is defined in the preamble hereof.
“
Availability
Amount
” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the
outstanding principal balance of any Advances.
“
Bank
”
is defined in the preamble hereof. “Bank Entities” is defined in Section 12.9.
“
Bank Expenses
”
are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending,
negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection
with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
“
Bank Services
”
are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of
its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services
(including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services),
interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s
various agreements related thereto (each, a “
Bank Services Agreement
”).
“
Borrower
”
is defined in the preamble hereof.
“
Borrower’s
Books
” are all Borrower’ s books and records including ledgers, federal and state tax returns, records regarding
Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or
storage or any equipment containing such information.
“
Borrowing
Base
” is eighty percent (80%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing
Base Certificate; provided, however, that Bank has the right to decrease the foregoing percentage in its good faith business judgment
to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the Collateral or its value.
“
Borrowing
Base Certificate
” is that certain certificate in the form attached hereto as
E
xhibit C. “Borrowing Base
Report” is defined in Section 6.2(a).
“
Borrowing
Resolutions
” are, with respect to any Person, those resolutions substantially in the form attached hereto as Exhibit
E.
“
Business
Day
” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“
Claims
”
is defined in Section 12.3.
“
Code
”
is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of Georgia; provided,
that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently
in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided
further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority
of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a
jurisdiction other than the State of Georgia, the term “Code” shall mean the Uniform Commercial Code as enacted and
in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority,
or remedies and for purposes of definitions relating to such provisions.
“
Collateral
”
is any and all properties, rights and assets of Borrower described on Exhibit A.
“
Collateral
Account
” is any Deposit Account, Securities Account, or Commodity Account.
“
Commodity
Account
” is any “commodity account” as defined in the Code with such additions to such term as may hereafter
be made.
“
Compliance
Certificate
” is that certain certificate in the form attached hereto as
Exhibit
D.
“
Contingent
Obligation
” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness,
lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed,
endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable;
(b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate,
currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect
a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined
amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any
guarantee or other support arrangement.
“
Control Agreement
”
is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank
pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity
Account.
“
Copyrights
”
are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship
and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
“
Credit Extension
”
is any Advance, Overadvance, or any other extension of credit by Bank for Borrower’s benefit under this Agreement.
“
Current Liabilities
”
are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total
Liabilities that mature within one (1) year.
“
Default Rate
”
is defined in Section 2.3(b).
“
Deferred
Revenue
” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.
“
Deposit Account
”
is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.
“
Designated
Deposit Account
” is the multicurrency account denominated in Dollars, account number *******____, maintained by Borrower
with Bank.
“
Dollars
,”
“
dollars
” or use of the sign “
$
” means only lawful money of the United States and not any
other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted
into lawful money of the United States.
“
Dollar Equivalent
”
is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated
in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing
rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign
Currency.
“
EBITDA
”
shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation
expense and amortization expense, plus (d) income tax expense, plus (e) reasonable add-backs for non-cash items (including, without
limitation, stock compensation).
“
Effective
Date
” is defined in the preamble hereof.
“
Eligible
Accounts
” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’
s representations and warranties in Section 5.3. Bank reserves the right at any time after the Effective Date to adjust any of
the criteria set forth below and to establish new criteria in its good faith business judgment. Unless Bank otherwise agrees in
writing, Eligible Accounts shall not include:
(a) Accounts
for which the Account Debtor is Borrower’ s Affiliate, officer, employee, or agent;
(b) Accounts
that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;
(c) Accounts
with credit balances over ninety (90) days from invoice date;
(d) Accounts
owing from an Account Debtor if fifty percent (50%) or more of the Accounts owing from such Account Debtor have not been paid within
ninety (90) days of invoice date;
(e) Accounts
owing from an Account Debtor which does not have its principal place of business in the United States;
(f) Accounts
billed from and/or payable to Borrower outside of the United States (sometimes called foreign invoiced accounts);
(g) Accounts
owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);
(h) Accounts
owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless
Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims
Act of 1940, as amended;
(i) Accounts
for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale
or return”, “sale on approval”, or other terms if Account Debtor ‘s payment may be conditional;
(j) Accounts
owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings
or pre-billings);
(k) Accounts
subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to
completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’
s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone
billings, or fulfillment contracts);
(l) Accounts
owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction
of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);
(m) Accounts
subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;
(n) Accounts
owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower,
and the Account Debtor have entered into an agreement acceptable to Bank wherein the Account Debtor acknowledges that (i) it has
title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment
for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);
(o) Accounts
for which the Account Debtor has not been invoiced;
(p) Accounts
that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;
(q) Accounts
for which Borrower has permitted Account Debtor’s payment to extend beyond 90 days;
(r) Accounts
arising from chargebacks, debit memos or other payment deductions taken by an Account Debtor;
(s) Accounts
arising from product returns and/or exchanges (sometimes called “warranty” or “RMA” accounts);
(t) Accounts
in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(u) at
all times that Borrower’s Adjusted Quick Ratio is less than 1.75 to 1.00, Accounts owing from an Account Debtor with respect
to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);
(v) Accounts
owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts
that exceed that percentage, unless Bank approves in writing; and
(w) Accounts
for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation, accounts
represented by ‘‘refreshed” or ‘‘recycled” invoices.
“
Equipment
”
is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without
limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
“
ERISA
”
is the Employee Retirement Income Security Act of 1974, and its regulations.
“
Event of Default
”
is defined in Section 8.
“
Exchange Act
”
is the Securities Exchange Act of 1934, as amended.
“
Foreign Currency
”
means lawful money of a country other than the United States.
“
Funding Date
”
is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.
“
FX Contract
”
is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank
a specific amount of Foreign Currency on a specified date.
“
GAAP
”
is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination.
“
General Intangibles
”
is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as
may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security
and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all
litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation
key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
“
Governmental
Approval
” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration,
filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
“
Governmental
Authority
” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government, any securities exchange and any self-regulatory organization.
“
Guarantor
”
is any Person providing a Guaranty in favor of Bank.
“
Guaranty
”
is any guarantee of all or any part of the Obligations, as the same may from time to time be amended, restated, modified or otherwise
supplemented.
“
Indebtedness
”
is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations
for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital
lease obligations, and (d) Contingent Obligations.
“
Indemnified Person
”
is defined in Section 12.3.
“
Insolvency Proceeding
”
is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“
Intellectual
Property
” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:
(a) its
Copyrights, Trademarks and Patents;
(b) any
and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating
manuals;
(c) any
and all source code;
(d) any
and all design rights which may be available to such Person;
(e) any
and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above;
and
(f) all
amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
“
Interest Expense
”
means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period
ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower,
including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with
respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap,
and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).
“
Inventory
”
is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter
be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work
in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody
or possession or in transit and including any returned goods and any documents of title representing any of the above.
“
Investment
”
is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance
or capital contribution to any Person.
“
Key Person
”
is each of Borrower’s (a) Chief Executive Officer, who is Joseph C. Sardano as of the Effective Date, and (b) Chief Financial
Officer, who is Stephen Arnold as of the Effective Date.
“
Letter of Credit
”
is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity,
or similar agreement.
“
Lien
”
is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily
incurred or arising by operation of law or otherwise against any property.
“
Loan Documents
”
are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement,
the subordination agreement, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed
by Borrower or any Guarantor, and any other present or future agreement by Borrower and/or any Guarantor with or for the benefit
of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.
“
Material Adverse
Change
” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value
of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower;
(c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information
available to it and in its reasonable judgment , that there is a reasonable likelihood that Borrower shall fail to comply with
one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.
“
Member Advances
”
is defined in Section 7.7.
“
Minimum Interest
”
is defined in Section 2.3(d).
“
Minimum Interest
Period
” is defined in Section 2.3(d).
“
Monthly Financial
Statements
” is defined in Section 6.2(c).
“
Net Income
”
means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination,
the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting
period.
“
Obligations
”
are Borrower’ s obligation to pay when due any debts, principal , interest, fees, Bank Expenses, and other amounts Borrower
owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, any
interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the
performance of Borrower’s duties under the Loan Documents.
“
Operating Documents
”
are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of
such Person’s jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date,
and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited
liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar
agreement), each of the foregoing with all current amendments or modifications thereto.
“
Overadvance
”
is defined in Section 2.2.
“
Patents
”
means all patents, patent applications and like protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
“
Payment/Advance
Form
” is that certain form attached hereto as Exhibit B. “Perfection Certificate” is defined in Section 5.1.
“
Permitted Indebtedness
”
is:
(a) Borrower’s
Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness
existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated
Debt;
(d) unsecured
Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness
incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(f) Indebtedness
secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;
(g) Indebtedness
wider corporate credit cards not exceeding $50,000 in the aggregate at any time; and
(h) extensions,
refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided
that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower
or its Subsidiary, as the case may be.
“
Permitted Investments
”
are:
(a) Investments
(including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate (but specifically
excluding any future Investments in any Subsidiaries unless otherwise permitted hereunder);
(b) Investments
consisting of Cash Equivalents;
(c) Investments
consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course
of Borrower;
(d) Investments
consisting of deposit accounts in which Bank has a first priority perfected security interest;
(e) Investments
accepted in connection with Transfers permitted by Section 7.1;
(f) Investments
consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;
(g) Investments
(including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement
of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; and
(h) Investments
consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates,
in the ordinary course of business; provided that this paragraph (h) shall not apply to Investments of Borrower in any Subsidiary.
“
Permitted Liens
”
are:
(a) Liens
existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens
for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good
faith and for which Borrower maintains adequate reserves on its Books,
provided
that no notice of any such Lien has been
filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) purchase
money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more
than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired,
if the Lien is confined to the property and improvements and the proceeds of the Equipment;
(d) Liens
of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business
so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand
Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and
by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens
to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations
incurred in the ordinary course of business (other than Liens imposed by ERISA);
(f) Liens
incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c),
but
any
extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness may not increase;
(g) leases
or subleases of real property granted in the ordinary course of Borrower’ s business (or, if referring to another Person,
in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal
property (other than Intellectual Property) granted in the ordinary course of Borrower’ s business (or, if referring to another
Person, in the ordinary course of such Person’s business), .if the leases, subleases, licenses and sublicenses do not prohibit
granting Bank a security interest therein;
(h) non-exclusive
license of Intellectual Property granted to third parties in the ordinary course of business;
(i) Liens
arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections
8.4 and 8.7; and
(j) Liens
in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at
such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts.
“
Person
”
is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
“
Prime Rate
”
is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor
publication thereto as the ‘‘prime rate” then in effect; provided that if such rate of interest, as set forth
from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank,
the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal
office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged
by Bank in connection with extensions of credit to debtors).
“
Prior Loan Agreement
”
is defined in the recitals hereto.
“
Quick Assets
”
is, on any date, Borrower’s unrestricted cash and Cash Equivalents maintained with Bank plus net accounts receivable.
“
Registered Organization
”
is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.
“
Requirement of
Law
” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common),
treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“
Responsible Officer
”
is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.
“
Restricted License
”
is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or
(b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.
“
Revolving Line
”
is an aggregate principal amount equal to Three Million Dollars ($3,000,000). “Revolving Line Maturity Date” is the
date two (2) years from the Effective Date.
“
SEC
”
shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.
“
Securities Account
”
is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.
“
Subordinated
Deb
t” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank
(pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to Bank.
“
Subsidiary
”
is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of
the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership
or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or
more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall
be a reference to a Subsidiary of Borrower.
“
Total Liabilities
”
is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet,
including all Indebtedness and current portion of Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all
other Subordinated Debt.
“
Trademarks
”
means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
“
Transfer
”
is defined in Section 7.1.
[Signature page follows.]
IN WITNESS WHEREOF
,
the parties hereto have caused this Agreement to be executed as of the Effective Date.
|
BORROWER:
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
By:
|
/s/ Stephen Arnold
|
|
|
|
|
|
|
Name:
|
Stephen Arnold
|
|
|
|
|
|
|
Title:
|
CFO
|
|
|
|
|
|
|
BANK:
|
|
|
|
|
|
SILICON VALLEY BANK
|
|
|
|
|
|
By:
|
/s/ M. Scott McCarty
|
|
|
|
|
|
|
Name:
|
M. Scott McCarty
|
|
|
|
|
|
|
Title:
|
Vice President
|
|
[Signature Page to Amended and Restated Loan
and Security Agreement]
EXHIBIT A -COLLATERAL DESCRIPTION
The Collateral consists of all of Borrower’s
right, title and interest in and to the following personal property:
All goods, Accounts (including
health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise
agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper
(whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit
is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether
now owned or hereafter acquired, wherever located; and
All Borrower’s Books
relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or
all of the foregoing.
Notwithstanding the foregoing,
the Collateral does not include any Intellectual Property; provided, however, the Collateral shall include all Accounts and all
proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest
in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds
of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual
Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property
of Borrower that are proceeds of the Intellectual Property.
EXHIBIT B -LOAN PAYMENT/ADVANCE REQUEST
FORM
Deadline
for Same Day Processing is Noon Pacific Time
|
Fax To: (404) 467-4467
|
|
Date:
|
|
|
Loan Payment:
|
|
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC
|
|
|
|
|
|
From Account # _____________________________
|
|
To Account # ________________________________
|
|
(Deposit Account #)
|
|
(Loan Account #)
|
|
|
|
|
|
Principal $ _________________________________
|
|
and/or Interest $. ______________________________
|
|
|
|
|
|
Authorized Signature: ________________________
|
|
Phone Number: ________________________________
|
|
Print Name/Title ____________________________
|
|
|
|
Loan Advance:
|
|
|
|
|
|
|
|
Complete
Outgoing Wire Request
section below if all or a portion of the funds from
this
loan advance are for an outgoing wire.
|
|
|
|
|
|
From Account # _____________________________
|
|
To Account # _________________________________
|
|
(Loan Account #)
|
|
(Deposit Account #)
|
|
|
|
|
|
Amount of Advance $ ________________________
|
|
|
|
|
|
All Borrower’s representations and warranties in the Amended and Restated Loan and Security Agreement arc true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:
|
|
|
|
|
|
Authorized Signature: _________________________
|
|
Phone Number: ______________________________
|
|
Print Name/Title _____________________________
|
|
|
|
Outgoing Wire Request:
|
|
|
|
|
|
|
|
Complete only if all or a portion of funds from the loan advance above is to be wired.
|
|
Deadline for same day processing is soon, Pacific Time
|
|
|
|
|
|
Beneficiary Name: _____________________________
|
|
Amount of Wire: $ ____________________________
|
|
Beneficiary Bank: _____________________________
|
|
Account Number
: _____________________________
|
|
City and State: _______________________________
|
|
|
|
|
|
|
|
Beneficiary Bank Transit (ABA) #: ________________
|
|
Beneficiary Bank Code (Swift, Sort, Chip, etc.): _______
|
|
|
|
(For International Wire Only)
|
|
|
|
|
|
Intermediary Bank: ____________________________
|
|
Transit (ABA #: ______________________________
|
|
For Further Credit to: ___________________________________________________________________________
|
|
|
|
Special Instruction: _____________________________________________________________________________
|
|
|
|
By signing below, I (we)acknowledge and agree that my (our)funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).
|
|
|
|
|
|
Authorized Signature: __________________________
|
|
2
nd
Signature (if required): ________________________
|
|
Print Name/Title ______________________________
|
|
Print Name/Title _______________________________
|
|
Telephone #: ________________________________
|
|
|
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Sensus Healthcare, LLC
Lender: Silicon Valley Bank
Commitment Amount: $3,000,000
ACCOUNTS RECEIVABLE
|
1.
|
|
Accounts Receivable (invoiced) Book Value as of ____________
|
|
$
|
_______
|
|
|
2.
|
|
Additions (Please explain on next page)
|
|
$
|
_______
|
|
|
3.
|
|
Less: Intercompany
I
Employee
I
Non-Trade Accounts
|
|
$
|
_______
|
|
|
4.
|
|
NET TRADE ACCOUNTS RECEIVABLE
|
|
$
|
_______
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
|
|
|
|
|
|
5.
|
|
90 Days Past Invoice Date
|
|
$
|
_______
|
|
|
6.
|
|
Credit Balances over 90 Days
|
|
$
|
_______
|
|
|
7.
|
|
Balance of 50% over 90 Day Accounts (Cross-Age or Current Affected)
|
|
$.
|
_______
|
|
|
8.
|
|
Foreign Account Debtor Accounts
|
|
$
|
_______
|
|
|
9.
|
|
Foreign Invoiced and/or Collected Accounts
|
|
$
|
_______
|
|
|
10.
|
|
Contra /
Customer Deposit Accounts
|
|
$
|
_______
|
|
|
11.
|
|
U.S. Government Accounts (w/o AOC)
|
|
$
|
_______
|
|
|
12.
|
|
Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts
|
|
$
|
_______
|
|
|
13.
|
|
Accounts with Memo or Pre-Billings
|
|
$
|
_______
|
|
|
14.
|
|
Contract Accounts; Accounts with Progress
I
Milestone Billings
|
|
$.
|
_______
|
|
|
15.
|
|
Accounts for Retainage Billings
|
|
$.
|
_______
|
|
|
16.
|
|
Trust /
Bonded Accounts
|
|
$
|
_______
|
|
|
17.
|
|
Bill and Hold Accounts
|
|
$
|
_______
|
|
|
18.
|
|
Unbilled Accounts
|
|
$
|
_______
|
|
|
19.
|
|
Non-Trade Accounts (If not already deducted above)
|
|
$
|
_______
|
|
|
20.
|
|
Accounts with Extended Term Invoices (Net 90+)
|
|
$
|
_______
|
|
|
21.
|
|
Chargebacks Accounts
I
Debit Memos
|
|
$
|
_______
|
|
|
22.
|
|
Product Returns/Exchanges
|
|
$
|
_______
|
|
|
23.
|
|
Disputed Accounts; Insolvent Account Debtor Accounts
|
|
$
|
_______
|
|
|
24.
|
|
Deferred Revenue (when AQR < 1.75:1.00)/ Other (Please explain on next page)
|
|
$
|
_______
|
|
|
25.
|
|
Concentration Limits
|
|
$
|
_______
|
|
|
26.
|
|
TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
|
|
$
|
_______
|
|
|
27.
|
|
Eligible Accounts (#4 minus #26)
|
|
$
|
_______
|
|
|
28.
|
|
ELIGIBLE AMOUNT OF ACCOUNTS (80% of #27)
|
|
$
|
_______
|
|
|
|
|
|
|
|
|
|
|
BALANCES
|
|
|
|
|
|
29.
|
|
Maximum Loan Amount
|
|
$
|
3,000,000
|
|
|
30.
|
|
Total Funds Available [Lesser of #29 or #28]
|
|
$
|
_______
|
|
|
31.
|
|
Present balance owing on Line of Credit
|
|
$
|
_______
|
|
|
32.
|
|
RESERVE POSITION (#30 minus #31)
|
|
$
|
_______
|
|
[Continued on following page.]
Explanatory comments from previous page:
The undersigned represents and warrants that
this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations
and warranties in the Amended and Restated Loan and Security Agreement between the undersigned and Silicon Valley Bank.
|
COMMENTS:
|
|
BANK USE ONLY
|
|
|
|
|
|
|
|
Received by: ________________________
|
|
|
|
AUTHORIZED SIGNER
|
|
By: ________________________________
|
|
Date: ______________________________
|
|
Authorized Signer
|
|
Verified: ___________________________
|
|
|
|
AUTHORIZED SIGNER
|
|
|
|
|
|
Date: ______________________________
|
|
Date: ______________________________
|
|
|
|
Compliance Status: Yes No
|
EXHIBIT D
COMPLIANCE CERTIFICATE
|
TO: SILICON VALLEY BANK
|
Date:
|
|
|
|
|
|
|
FROM: SENSUS HEALTHCARE, LLC
|
|
|
The undersigned authorized
officer of Sensus Healthcare, LLC (“Borrower”) certifies that under the terms and conditions of the Amended and Restated
Loan and Security Agreement between Borrower and Bank (the “Agreement”):
(1) Borrower is in complete
compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all
representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below;
provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly
referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each
of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms
of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating
to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required
documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently
applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that
no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of
the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but
not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling
Yes/No under “Complies” column.
|
Reporting Covenant
|
|
Required
|
|
Complies
|
|
|
|
|
|
|
|
Monthly financial statements with Compliance Certificate
|
|
Monthly within 30 days
|
|
Yes No
|
|
Annual financial statement (CPA Audited) + CC
|
|
FYE within 150 days
|
|
Yes No
|
|
10-Q, 10-K and 8-K
|
|
Within
5
days after filing with SEC
|
|
Yes No
|
|
Borrowing Base Certificate, A/R & A/P
Agings
|
|
Monthly within 30 days
|
|
Yes No
|
|
Annual Financial Projections
|
|
Within 45 days after FYE
|
|
Yes No
|
|
Financial Covenant
|
|
Required
|
|
Actual
|
|
Complies
|
|
|
|
|
|
|
|
|
|
Maintain on a Monthly Basis:
|
|
|
|
|
|
|
|
Minimum Adjusted Quick Ratio:
|
|
|
|
|
|
|
|
Effective Date through 6/30/13
|
|
1.50:1.00
|
|
_____:1.00
|
|
Yes No
|
|
7/1/13 through 6/30/14
|
|
1.25:1.00
|
|
_____:1.00
|
|
Yes No
|
|
7/1/14 and thereafter
|
|
1.50:1.00
|
|
_____:1.00
|
|
Yes No
|
|
Minimum Trailing 6-Month EBITDA:
|
|
|
|
|
|
|
|
12/31/12
|
|
$400,000
|
|
$_______
|
|
Yes No
|
|
1/31/13
|
|
$300,000
|
|
$_______
|
|
Yes No
|
|
2/28/13
|
|
$1.00
|
|
$_______
|
|
Yes No
|
|
3/31/13
|
|
($200,000)
|
|
$_______
|
|
Yes No
|
|
4/30/13
|
|
($350,000)
|
|
$_______
|
|
Yes No
|
|
5/31/13
|
|
($650,000)
|
|
$_______
|
|
Yes No
|
|
6/30/13
|
|
($1,200,000)
|
|
$_______
|
|
Yes No
|
|
7/31/13
|
|
($1,200,000)
|
|
$_______
|
|
Yes No
|
|
8/31/13
|
|
($800,000)
|
|
$_______
|
|
Yes No
|
|
9/30/13
|
|
($300,000)
|
|
$_______
|
|
Yes No
|
|
10/31/13
|
|
($150,000)
|
|
$_______
|
|
Yes No
|
|
11/30/13
|
|
$100,000
|
|
$_______
|
|
Yes No
|
|
12/31/13 and thereafter
|
|
$500,000
|
|
$_______
|
|
Yes No
|
The following financial
covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.
The following are the exceptions
with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)
|
Sensus Healthcare, LLC
|
|
BANK USE ONLY
|
|
|
|
|
|
|
|
Received by: _______________________
|
|
|
|
AUTHORIZED SIGNER
|
|
By: _____________________________
|
|
Date: _____________________________
|
|
Name: ___________________________
|
|
Verified: __________________________
|
|
Title: ____________________________
|
|
AUTHORIZED SIGNER
|
|
|
|
Date: _____________________________
|
|
|
|
|
|
|
|
Compliance Status: Yes No
|
Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
In the event of a conflict
between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.
Dated: ___________________________
|
|
I.
|
Adjusted Quick Ratio
(Section 6.7(a))
|
Required:
|
Period
|
|
Adjusted Quick Ratio
|
|
|
|
|
|
Effective Date through June 30, 2013
|
|
1.50:1.00
|
|
|
|
|
|
July 1, 2013 through June 30, 2014
|
|
1.25:1.00
|
|
|
|
|
|
July 1, 2014 and thereafter
|
|
1.50:1.00
|
|
A.
|
Aggregate value of the unrestricted cash and Cash Equivalents of Borrower maintained
with Bank
|
$ _______
|
|
|
|
|
|
B.
|
Aggregate value of the net accounts receivable of Borrower
|
$ _______
|
|
|
|
|
|
C.
|
Quick Assets (the sum of lines A and B)
|
$ _______
|
|
|
|
|
|
D.
|
Aggregate value of Obligations to Bank
|
$ _______
|
|
|
|
|
|
E.
|
Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s
consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line D above that matures within one
(1) year
|
$ _______
|
|
|
|
|
|
F.
|
Current Liabilities (the sum of lines D and E)
|
$ _______
|
|
|
|
|
|
G.
|
Aggregate value of all amounts received or invoiced by Borrower in advance
of performance under contracts and not yet recognized as revenue
|
$ _______
|
|
|
|
|
|
H.
|
Line F minus line G
|
$ _______
|
|
|
|
|
|
I.
|
Adjusted Quick Ratio (line C divided by line H)
|
$ _______
|
Is line I equal to or greater than the appropriate
ratio set forth above?
|
|
_______ No, not incompliance
|
_______ Yes, in compliance
|
|
|
II.
|
Minimum Trailing 6-Month EBITDA (Section 6.7(b))
|
|
Required:
|
See chart below
|
|
Month Ended
|
Minimum Trailing 6-Month EBITDA
|
|
|
|
|
December 31, 2012
|
$400,000
|
|
|
|
|
January 31, 2013
|
$300,000
|
|
|
|
|
February 28, 2013
|
$1.00
|
|
|
|
|
March 31, 2013
|
($200,000)
|
|
|
|
|
April 30, 2013
|
($350,000)
|
|
|
|
|
May 31, 2013
|
($650,000)
|
|
|
|
|
June 30, 2013
|
($1,200,000)
|
|
|
|
|
July 31, 2013
|
($1,200,000)
|
|
|
|
|
August 31, 2013
|
($800,000)
|
|
|
|
|
September 30, 2013
|
($300,000)
|
|
|
|
|
October 31, 2013
|
($150,000)
|
|
|
|
|
November 30, 2013
|
$100,000
|
|
|
|
|
December 31, 2013 and each month thereafter
|
$500,000
|
Actual:
|
A.
|
Net Income of Borrower for the trailing 6-month period most recently ended
|
$ ______
|
|
|
|
|
|
B.
|
To the extent included in the determination of Net Income
|
|
|
|
|
|
|
|
|
1.
|
The provision for income taxes
|
$
______
|
|
|
|
|
|
|
|
2.
|
Depreciation expense
|
$ ______
|
|
|
|
|
|
|
|
3.
|
Amortization expense
|
$ ______
|
|
|
|
|
|
|
|
4.
|
Net Interest Expense
|
$ ______
|
|
|
|
|
|
|
|
5.
|
Reasonable add-backs for non-cash items (including, without limitation, stock compensation
|
$ ______
|
|
|
|
|
|
|
|
6.
|
The sum of lines 1 through
5
|
$ ______
|
|
|
|
|
|
|
C.
|
Minimum Trailing 6-Month EBITDA (line A plus line B.6)
|
$ ______
|
Is line C equal to or greater than the appropriate
amount set forth above?
|
|
_______ No, not incompliance
|
_______ Yes, in compliance
|
EXHIBIT E
BORROWING RESOLUTIONS
Exhibit 10.3
DEFAULT WAIVER AND FIRST AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT
BY AND BETWEEN SENSUS HEALTHCARE, LLC
AND SILICON VALLEY BANK, DATED MAY 12,
2015
DEFAULT WAIVER AND FIRST AMENDMENT
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Default Waiver
and First Amendment to Amended and Restated Loan and Security Agreement (this “Amendment”) is entered into this 12th
day of May, 2015, and made effective as of March 12, 2015, by and between Silicon Valley Bank (“Bank”) and Sensus Healthcare,
LLC, a Delaware limited liability company (“Borrower”) whose address is 851 Broken Sound Parkway NW, Suite 215, Boca
Raton, FL 33487.
RECITALS
A. Bank
and Borrower have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 12, 2013 (as the
same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”). Bank has extended
credit to Borrower for the purposes permitted in the Loan Agreement.
B. Borrower
is currently in default of the Loan Agreement for failing to comply with the financial covenant set forth in Section 6.7(b) of
the Loan Agreement for each month during Borrower’s 2014 fiscal year (the “Existing Defaults”).
C. Borrower
has requested that Bank waive its rights and remedies against Borrower, limited specifically to the Existing Defaults. Although
Bank is under no obligation to do so, Bank is willing to not exercise its rights and remedies against Borrower related to the specific
Existing Defaults on the terms and conditions set forth in this Amendment, so long as Borrower complies with the terms, covenants
and conditions set forth in this Amendment.
D. Borrower
has further requested that Bank amend the Loan Agreement to (i} reduce the amount available to be borrowed under the Revolving
Line, (ii) extend the maturity date, (iii) lower the interest rate payable on Advances, and (iv) make certain other revisions to
the Loan Agreement as more fully set forth herein. Bank has agreed to so amend certain provisions of the Loan Agreement, but only
to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties
set forth below.
AGREEMENT
Now, THEREFORE, in
consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1.
Definitions
.
Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2.
Waiver
of Covenant Defaults
.
Bank hereby waives
Borrower’s Existing Defaults under the Loan Agreement. Bank’s waiver of Borrower’s compliance of these covenants
shall apply only to the foregoing periods. Accordingly, hereinafter, Borrower shall be in compliance with these covenants, as amended
by this Amendment.
Bank’s agreement
to waive the above-described defaults (1) in no way shall be deemed an agreement by the Bank to waive Borrower’s compliance
with the above-described covenants as of all other dates and (2) shall not limit or impair the Bank’s right to demand strict
performance of these covenants as of all other dates and (3) shall not limit or impair the Bank’s right to demand strict
performance of all other covenants as of any date.
3.
Amendments
to Loan Agreement
.
3.1
Section
2.3 (Payment of Interest on Credit Extensions)
. Clauses (a) and (d) of Section 2.3 are amended in their entirety and replaced
with the following:
(a)
Interest
Rate
. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating
per annum rate equal to one and three quarters percentage points (1.75%) above the Prime Rate, which interest shall be payable
monthly in accordance with Section 2.3(e) below.
(b)
Reserved
.
3.2
Section
2.4 (Fees)
. The following new clauses (e) and (f) are hereby added to Section 2.4:
(a)
Loan
Fee
. A fully earned, non-refundable loan fee of Ten Thousand Dollars ($10,000) which shall be payable as follows: Five Thousand
Dollars shall be due on the First Amendment Date, and an additional Five Thousand Dollars ($5,000) shall be due on the first anniversary
of the First Amendment Date.
(b)
Unused
Revolving Line Facility Fee
. Payable quarterly in arrears, on the first day of each calendar quarter prior to the Revolving
Line Maturity Date, and on the Revolving Line Maturity Date, a fee (the “Unused Revolving Line Facility Fee”) in an
amount equal to one quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line, accruing from
and after the First Amendment Date. The unused portion of the Revolving Line, for purposes of this calculation, shall be calculated
on a calendar year basis and shall equal the difference between (x) the Revolving Line, and (y) the average for the period of the
daily closing balance of the Revolving Line outstanding.
3.3
Section
6.2 (Financial Statements, Reports, Certificates)
. Section 6.2(a) is amended in its entirety and replaced with the following:
(a)
Borrowing
Base Reports
. Within thirty (30) days after the last day of each month, (i) aged listings of accounts receivable and accounts
payable (by invoice date); and (ii) a Deferred Revenue report (the “Borrowing Base Reports”);
3.4
Section
6.7 (Financial Covenants)
. Section 6.7 is amended in its entirety and replaced with the following:
3.5
Financial
Covenants
. Maintain at all times, subject to periodic reporting as of the last day of the applicable month or quarter:
(a)
Adjusted
Quick Ratio
. As of the last day of each month, an Adjusted Quick Ratio of at least 1.75 to 1.00.
(b)
Minimum
Trailing 3-Month EBITDA
. As of the last day of each quarter set forth below, EBIIDA during such quarter of at least the following:
|
Quarter Ended
|
EBITDA
|
|
|
|
|
June 30, 2015
|
($700,000)
|
|
December 31, 2015
|
($500,000)
|
|
March 31, 2015
|
$1,000
|
|
September 30, 2015
|
$500,000
|
|
March 31, 2016, and each quarter thereafter
|
To be determined based on review of Borrower’s 2016 board approved plan
|
3.6
Section
13 (Definitions)
. Clause (e) of the definition of Eligible Accounts is amended in its entirety and replaced with the following:
(e) Accounts
owing from an Account Debtor which does not have its principal place of business in the United States, other than Accounts owing
from Eckert & Ziegler;
3.7
Section
13 (Definitions)
. The following terms and their respective definitions set forth in Section 13.l are amended in their entirety
and replaced with the following:
“
Revolving Line
”
is an aggregate principal amount equal to One Million Five Hundred Thousand Dollars ($1,500,000).
“
Revolving Line
Maturity Date
” is the date two (2) years from the First Amendment Date.
3.8
Section
13 (Definitions)
. The following terms and their respective definitions are hereby added to Section 13.1 in their appropriate
alphabetical order:
“
First Amendment
Date
” is May 12, 2015.
“
Unused Revolving
Line Facility Fee
” is defined in Section 2.4(f).
3.9
Section
13 (Definitions)
. The following terms and their respective definitions are hereby deleted from Section 13.1 in their entirety:
“
Minimum Interest
”
“
Minimum Interest
Period
”
3.10
Exhibit
C (Borrowing Base Certificate)
. Exhibit C to the Loan Agreement is amended in its entirety and replaced with Exhibit C
attached hereto.
3.11
Exhibit
D (Compliance Certificate)
. Exhibit D to the Loan Agreement is amended in its entirety and replaced with Exhibit D attached
hereto.
4.
Limitation
of Amendments
.
4.1
The
amendments set forth in Section 3, above, are effective for the purposes set forth herein and shall be limited precisely as written
and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan
Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection
with any Loan Document.
4.2
This
Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties,
covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall
remain in full force and effect.
5.
Representations
and Warranties
. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
5.1
Immediately
after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate
and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to
an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default other than the Existing
Defaults has occurred and is continuing;
5.2
Borrower
has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended
by this Amendment;
S.3 The organizational documents of Borrower
most recently delivered to Bank remain true, accurate and complete and have not been amended, supplemented or restated and are
and continue to be in full force and effect;
5.3
The
execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement,
as amended by this Amendment, have been duly authorized by all necessary action on the part of Borrower;
5.4
The
execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement,
as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any
contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental
or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
5.5
The
execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement,
as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on
Borrower, except as already has been obtained or made; and
5.6
This
Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower
in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation,
moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
6.
Prior
Agreement
. Except as expressly provided for in this Amendment, the Loan Documents are hereby ratified and reaffirmed and
shall remain in full force and effect. This Amendment is not a novation and the terms and conditions of this Amendment shall be
in addition to and supplemental to all terms and conditions set forth in the Loan Documents. In the event of any conflict or inconsistency
between this Amendment and the terms of such documents, the terms of this Amendment shall be controlling, but such document shall
not otherwise be affected or the rights therein impaired.
7.
Release
by Borrower
7.1
For
good and valuable consideration, Borrower hereby forever relieves, releases, and discharges Bank and its present or former employees,
officers, directors, agents, representatives, attorneys, and each of them, from any and all claims, debts, liabilities, demands,
obligations, promises, acts, agreements, costs and expenses, actions and causes of action, of every type, kind, nature, description
or character whatsoever, whether known or unknown, suspected or unsuspected, absolute or contingent, arising out of or in any manner
whatsoever connected with or related to facts, circumstances, issues, controversies or claims existing or arising from the beginning
of time through and including the date of execution of this Amendment (collectively “Released Claims”). Without limiting
the foregoing, the Released Claims shall include any and all liabilities or claims arising out of or in any manner whatsoever connected
with or related to the Loan Documents, the Recitals hereto, any instruments, agreements or documents executed in connection with
any of the foregoing or the origination, negotiation, administration, servicing and/or enforcement of any of the foregoing.
7.2
In
furtherance of this release, Borrower expressly acknowledges and waives any and all rights under Section 1542 of the California
Civil Code, which provides as follows:
“
A general release
does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the debtor.” (Emphasis added.)
7.3
By
entering into this release, Borrower recognizes that no facts or representations are ever absolutely certain and it may hereafter
discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention
of Borrower hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected
or unsuspected; accordingly, if Borrower should subsequently discover that any fact that it relied upon in entering into this release
was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release by reason
thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges that it
is not relying upon and has not relied upon any representation or statement made by Bank with respect to the facts underlying this
release or with regard to any of such party’s rights or asserted rights.
7.4
This
release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or
other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower acknowledges that the release
contained herein constitutes a material inducement to Bank to enter into this Amendment, and that Bank would not have done so but
for Bank’s expectation that such release is valid and enforceable in all events.
7.5
Borrower
hereby represents and warrants to Bank, and Bank is relying thereon, as follows:
(a) Except
as expressly stated in this Amendment, neither Bank nor any agent, employee or representative of Bank has made any statement or
representation to Borrower regarding any fact relied upon by Borrower in entering into this Amendment.
(b) Borrower
has made such investigation of the facts pertaining to this Amendment and all of the matters appertaining thereto, as it deems
necessary.
(c) The
terms of this Amendment are contractual and not a mere recital.
(d) This
Amendment has been carefully read by Borrower, the contents hereof are known and understood by Borrower, and this Amendment is
signed freely, and without duress, by Borrower.
(e) Borrower
represents and warrants that it is the sole and lawful owner of all right, title and interest in and to every claim and every other
matter which it releases herein, and that it has not heretofore assigned or transferred, or purported to assign or transfer, to
any person, firm or entity any claims or other matters herein released. Borrower shall indemnify Bank, defend and hold it harmless
from and against all claims based upon or arising in connection with prior assignments or purported assignments or transfers of
any claims or matters released herein.
8.
Integration
.
1bis Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations
or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties
about the subject matter of this Amendment
and the Loan Documents merge into this Amendment and the Loan Documents.
9.
Counterparts
.
This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute
one and the same instrument.
10.
Effectiveness
.
This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto,
(b) payment of the loan fee of Five Thousand Dollars ($5,000) due on the First Amendment Date in accordance with Section 2.4(e},
(c) the due execution and delivery to Bank of a completed Perfection Certificate of Borrower, and (d) payment of Bank’s legal
fees and expenses in connection with the negotiation and preparation of this Amendment.
11.
Governing
Law
. This Amendment and the rights and obligations of the parties hereto shall be governed by and construed in accordance
with the laws of the State of Georgia.
[Signature page follows.]
IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be duly executed and delivered as of the date first written above.
|
BANK
|
|
BORROWER
|
|
|
|
|
|
Silicon Valley Bank
|
|
Sensus Healthcare, LLC
|
|
|
|
|
|
|
|
By:
|
/s/ Ryan Roller
|
|
By:
|
/s/ Arthur Levine
|
|
Name:
|
Ryan Roller
|
|
Name:
|
Arthur Levine
|
|
Title:
|
VP
|
|
Title:
|
CFO
|
[signature page of Default Waiver and
First Amendment to Amended and Restated Loan and Security Agreement]
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Sensus Healthcare, LLC
Lender: Silicon Valley Bank
Commitment Amount: $1,500,000
|
ACCOUNTS RECEIVABLE
|
|
|
1.
|
Accounts Receivable (invoiced) Book Value as of
|
$
|
|
2.
|
Additions (Please explain on next page)
|
$
|
|
3.
|
Less: Intercompany I Employee I Non-Trade Accounts
|
$
|
|
4.
|
NET TRADE ACCOUNTS RECEIVABLE
|
$
|
|
|
|
|
|
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
|
|
|
5.
|
90 Days Past Invoice Date
|
$
|
|
6.
|
Credit Balances over 90 Days
|
$
|
|
7.
|
Balance of 50% over 90 Day Accounts (Cross-Age or Current Affected)
|
$
|
|
8.
|
Foreign Account Debtor Accounts (other than Eckert & Ziegler)
|
$
|
|
9.
|
Foreign Invoiced and/or Collected Accounts Contra I Customer Deposit Accounts
|
$
|
|
10.
|
U.S. Government Accounts .(w/o AOC)
|
$
|
|
11.
|
Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts
|
$
|
|
12.
|
Accounts with Memo or Pre-Billings
|
$
|
|
13.
|
Contract Accounts; Accounts with Progress I Milestone Billings
|
$
|
|
14.
|
Accounts for Retainage Billings
|
$
|
|
15.
|
Trust I Bonded Accounts
|
$
|
|
16.
|
Bill and Hold Accounts
|
$
|
|
17.
|
Unbilled Accounts
|
$
|
|
18.
|
Non-Trade Accounts (If not already deducted above)
|
$
|
|
19.
|
Accounts with Extended Term Invoices (Net 90-I-)
|
$
|
|
20.
|
Chargebacks Accounts I Debit Memos
|
$
|
|
21.
|
Product Returns/Exchanges
|
$
|
|
22.
|
Disputed Accounts; Insolvent Account Debtor Accounts
|
$
|
|
23.
|
Deferred Revenue (when AQR < 1.75:1.00)/ Other (Please explain on next page)
|
$
|
|
24.
|
Concentration Limits
|
$
|
|
25.
|
TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
|
$
|
|
26.
|
Eligible Accounts (#4 minus #26)
|
$
|
|
27.
|
ELIGIBLE AMOUNT OF ACCOUNTS (80% of #27)
|
$
|
|
|
|
|
|
BALANCES
|
|
|
|
28.
|
Maximum Loan Amount
|
$ 1,500,000
|
|
29.
|
Total Funds Available [Lesser of #29 or #28]
|
$
|
|
30.
|
Present balance owing on Line of Credit
|
$
|
|
31.
|
RESERVE POSITTON (#30 minus #31)
|
$
|
[Continued
on following page.]
Explanatory comments from previous page:
The undersigned represents and warrants
that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations
and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.
|
COMMENTS:
|
|
BANK USE ONLY
|
|
|
|
|
|
|
|
|
Received by:
|
|
|
|
|
|
AUTIIORIZED SIGNER
|
|
By:
|
|
|
Date:
|
|
|
|
Authorized Signer
|
|
Verified:
|
|
|
Date:
|
|
|
|
AUTHORIZED SIGNER
|
|
|
|
|
|
|
|
|
Date:
|
|
|
|
|
Compliance Status: Yes No
|
EXHIBIT D
COMPLIANCE CERTIFICATE
|
TO:
|
SILICON VALLEY BANK
|
Date:
|
|
FROM: SENSUS HEALTHCARE, LLC
The undersigned authorized
officer of Sensus Healthcare, LLC (“Borrower”) certifies that under the terms and conditions of the Amended and Restated
Loan and Security Agreement between Borrower and Bank (the “Agreement”):
(1) Borrower
is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default;
(3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted
below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already
are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly
referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each
of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms
of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims
made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously
provided written notification to Bank.
Attached are the required
documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently
applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that
no borrowings may be requested at any time or date of determination that Borrower is not incompliance with any of the terms of
the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but
not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling
Yes/No under “Complies” column.
|
Renortin2 Covenant
|
|
Required
|
|
Complies
|
|
|
|
|
|
|
|
Monthly financial statements with Compliance Certificate
|
|
Monthly within 30 days
|
|
Yes No
|
|
Annual financial statement (CPA Audited) + CC
|
|
FYE within 150 days
|
|
Yes No
|
|
10-Q, 10-K and 8-K
|
|
Within 5 days after filing with SEC
|
|
Yes No
|
|
Borrowing Base Certificate, NR & A/P Agings, Deferred Revenue Report
|
|
Monthly within 30 days
|
|
Yes No
|
|
Annual Financial Projections
|
|
Within 45 days after FYE
|
|
Yes No
|
|
Financial Covenant
|
|
Required
|
|
Actual
|
|
Complies
|
|
|
|
|
|
|
|
|
|
Maintain:
|
|
|
|
|
|
|
|
Minimum Adjusted Quick Ratio (tested monthly);
|
|
1.75:1.00
|
|
______:1.00
|
|
Yes No
|
|
Minimum Quarterly EBITDA (tested quarterly}:
|
|
|
|
|
|
|
|
3/31/15
|
|
($700,000)
|
|
$
|
|
Yes No
|
|
6/30/15
|
|
($500,000)
|
|
$
|
|
Yes No
|
|
9/30/15
|
|
$1,000
|
|
$
|
|
Yes No
|
|
12/31/15
|
|
$500,000
|
|
$
|
|
Yes No
|
|
3/31/16 and thereafter
|
|
TBD
|
|
|
|
|
The following financial
covenant analyses and information set forth in Schedule I attached hereto are true and accurate as of the date of this Certificate.
The following are the
exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)
|
Sensus Healthcare, LLC
|
|
BANK USE ONLY
|
|
|
|
By:
|
|
|
|
|
|
Received by:
|
|
|
|
|
|
|
AUTHORIZED SIGNER
|
|
By:
|
|
|
Name:
|
|
|
Name:
|
|
|
Title:
|
|
|
Title:
|
|
|
Date:
|
|
|
|
|
Verified:
|
|
|
|
|
|
AUTHORIZED SIGNER
|
|
|
|
Date:
|
|
|
|
|
Compliance Status: Yes No
|
Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
In the event of a conflict
between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.
Dated:____________________________
I. Adjusted
Quick Ratio (Section 6.7(a))
|
Required:
|
1.75:1.00
|
|
|
|
|
Actual:
|
____:1.00
|
|
A.
|
Aggregate value of the unrestricted cash and Cash Equivalents of Borrower maintained with Bank
|
|
$___________
|
|
|
|
|
|
|
B.
|
Aggregate value of the net accounts receivable of Borrower
|
|
$___________
|
|
|
|
|
|
|
c.
|
Quick Assets (the sum of lines A and B)
|
|
$___________
|
|
|
|
|
|
|
D.
|
Aggregate value of Obligations to Bank
|
|
$___________
|
|
|
|
|
|
|
E.
|
Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line D above that matures within one (1) year
|
|
$___________
|
|
|
|
|
|
|
F.
|
Current Liabilities (the sum of lines D and E)
|
|
$___________
|
|
|
|
|
|
|
G.
|
Aggregate value of all amounts received or invoiced by Borrower in advance of performance under contracts and not yet recognized as revenue
|
|
$___________
|
|
|
|
|
|
|
H.
|
Line F minus line G
|
|
$___________
|
|
|
|
|
|
|
I.
|
Adjusted Quick Ratio (line C divided by line H)
|
|
____:1.00
|
Is line
I equal to or greater than 1.75:1:00?
|
|
____ No, not in compliance
|
_____ Yes, in compliance
|
II. Minimum
Quarterly EBITDA (Section 6.7(b))
Required: See chart below
|
Quarter Ended
|
EBITDA
|
|
March 31, 2015
|
($700,000)
|
|
June 30, 2015
|
($500,000)
|
|
September 30, 2015
|
$1,000
|
|
December 31, 2015
|
$500,000
|
|
March 31, 2016, and each quarter thereafter
|
To be determined based on review of Borrower’ s 2016 board-approved plan
|
Actual:
|
A.
|
Net Income of Borrower for the quarter most recently ended
|
$
|
|
|
|
|
|
|
B.
|
To the extent included in the determination of Net Income
|
|
|
|
|
|
|
|
|
1.
|
The provision for income taxes
|
$
|
|
|
|
|
|
|
|
2.
|
Depreciation expense
|
$
|
|
|
|
|
|
|
|
3.
|
Amortization expense
|
$
|
|
|
|
|
|
|
|
4.
|
Net Interest Expense
|
$
|
|
|
|
|
|
|
|
5.
|
Reasonable add-backs for non-cash items (including, without limitation, stock compensation
|
$
|
|
|
|
|
|
|
|
6.
|
The sum of lines 1 through 5
|
$
|
|
|
|
|
|
|
|
c.
|
Quarterly EBITDA (line A plus line B.6)
|
$________
|
Is line C equal to or greater than the
appropriate amount set forth above?
|
|
_____ No, not in compliance
|
_____ Yes, in compliance
|
Exhibit 10.4
ASSET PURCHASE AGREEMENT
BY AND BETWEEN SENSUS HEALTHCARE, LLC
AND TOPEX, INC.,
DATED AS OF APRIL 16, 2010
ASSET PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, as dated
below, is made and entered into, by and between
TOPEX, INC.
, a Connecticut corporation, located at 10 Precision Road, Danbury,
Connecticut, hereinafter referred to as “Seller” and
SENSUS HEALTHCARE, LLC
, a Florida limited liability company
located at 18659 Ocean Mist Drive, Boca Raton, Florida, hereinafter referred to as “Purchaser.” The Seller and Purchaser
are sometimes hereinafter collectively referred to as the “Parties.”
RECITALS:
Seller owns and operates
a medical product business that manufactures, markets and distributes the SRT-100, a superficial radio therapy system.
Seller has agreed to sell
to Purchaser and Purchaser has agreed to purchase from Seller the assets which are used or useful in connection with the business
associated with the SRT-100 (the “SRT-100 Business”), which assets are specifically itemized below, upon the terms
and subject to the conditions set forth herein.
Seller has agreed to continue
to manufacture SRT-100 systems for Purchaser and Purchaser has agreed to purchase SRT-100 system units from Seller after the Closing
as set forth herein, pursuant to the terms and conditions contained herein.
NOW THEREFORE, in consideration
of the mutual benefits accruing to the Parties under the provisions of this Agreement, the Parties hereby agree as follows:
1.
PURCHASE
AND SALE OF ASSETS
. Subject to the terms and conditions contained herein and in reliance upon the warranties, representations
and obligations specifically set forth herein, Seller agrees to sell to Purchaser and Purchaser agrees to purchase from Seller,
Seller’s assets listed below pertaining to the SRT-100 Business, free from all liabilities, liens, encumbrances, and claims.
The assets to be sold hereby to Purchaser are limited to those items listed on the attached Schedule “A,” which may
hereinafter collectively be referred to as the “Assets.” Additionally, Purchaser acknowledges that it is not acquiring
any interest in any other asset of Seller not listed on Schedule “A.” Details concerning the support and guidance Seller
shall provide to Purchaser relative to the sale of the Assets and the SRT-100 Business are contained in Composite Exhibit “B.”
2.
PURCHASE
PRICE FOR ASSETS
.
2.01
Purchase
Price
.
The Parties have agreed that the aggregate purchase price for the sale of the Assets to be transferred by
Seller to Purchaser, shall be equal to the sum of One Million Three Hundred Thousand ($1,300,000) Dollars, which is hereinafter
referred to as the “Purchase Price.”
2.02
Allocation
of Purchase Price
.
It is acknowledged between the Parties that the Purchase Price, as defined above, shall be allocated
as follows:
|
Design Documents and Records
|
|
$
|
1,000,000
|
|
|
Parts inventory
|
|
|
60,000
|
|
|
2 SRT-100 Units
|
|
$
|
84,000
|
|
|
Contracts
|
|
|
6,000
|
|
|
Patents, approvals and marks
|
|
|
50,000
|
|
|
Goodwill
|
|
|
100,000
|
|
|
Total
|
|
$
|
1,300,000
|
|
Each of the Parties agrees
to utilize such allocations in reporting the consequences of this transaction on their Federal Income Tax Returns. In the event
the Closing occurs after April 30, 2010, the 2 SRT-100 Units referred to above will be excluded from the sale contemplated hereby
and the amount indicated above as allocated to those 2 Units shall be added to Goodwill.
3.
PAYMENT
OF PURCHASE PRICE
. The Purchase Price as provided for in Section 2 above shall be payable as follows:
3.01
Cash
Payable at Closing
.
At the Closing, the sum of Seven Hundred Seventy-Five Thousand ($775,000) Dollars, as may be
increased pursuant to Section 4 below, shall be paid by Purchaser’s delivery to Seller of a bank check or bank wire transfer
in such amount.
3.02
Balance
of Purchase Price Payable at Closing
.
At the Closing, the balance of the Purchase Price ($525,000 as may be decreased
pursuant to Section 4 below), shall be paid by Purchaser’s execution and delivery to Seller of a Promissory Note for such
amount, hereinafter referred to as the “Note.” The Note shall accrue interest at the annual interest rate of the LIBOR
1 year rate, plus 2.5% (but never lower than the IRS imputed interest rate applicable to long term notes for the month in which
the transaction occurs - for purposes of clarity that rate is 4.35% for the month of March 2010) and be payable annually in an
amount equal to 10% of the gross sales revenues of the Purchaser resulting from sale or lease of SRT- 100 system Units. The Promissory
Note shall be secured by a Security Agreement and related UCC-1 Financing Statement applicable to all of business assets of Purchaser,
including the Assets being sold to Purchaser pursuant to the Agreement. The first annual payment shall be due one (1) year from
the date of Closing and continue on the same day of each subsequent year until the principal and all accrued interest payable under
the Note has been paid in full.
3.03
Additional
Payments Payable after Closing
.
Seller agrees to continue to manufacture and deliver to Purchaser after Closing
SRT-100 system Units upon Purchaser ‘s request. In that connection, Seller shall be entitled to the following payments in
connection with each SRT-100 system Unit Seller delivers to Purchaser after Closing: (i) Twenty Thousand ($20,000) Dollars for
Seller’s labor costs; and (ii) reimbursement of Seller’s actual material costs (estimated at $23,500 per unit). Payment
shall be due by Purchaser thirty (30) days from the date of invoice by Seller. Seller shall invoice Purchaser for its material
costs upon the purchase of the materials and for the labor cost upon its completion of a Unit at Seller’s location. Seller
agrees to produce at least ten (10) SRT-100 Units annually upon Purchaser ‘s request. Any default by Purchaser with respect
to any payments due Seller after Closing with respect to the SRT-100 System Units made for and delivered to Purchaser by Seller
shall be deemed a default under the Note and related Security Agreement and entitle Seller to pursue the collateral to be granted
to Seller by Purchaser at Closing as security for the Note. Seller shall retain copies of any records, items or information necessary
for Seller to continue to manufacture the SRT-100 Units for Purchaser. The provisions of this Section 3.03 shall survive the Closing.
4.
CLOSING
AND CASH PAYABLE UPON SIGNING AGREEMENT
. This transaction shall close on or before June 30, 2010 (the “Closing”)
unless the Parties agree to extend the date of Closing. The Closing shall be held at the offices of Seller’s attorney on
the date of Closing, which shall be mutually agreed upon by the Parties but scheduled as soon as practicable after Purchaser indicates
to Seller that it has raised the funds necessary for Closing and is prepared to close. Time shall be of the essence with respect
to the date of Closing and the other dates set forth in this Section 4.
4.01
Cash
Payable upon Agreement execution
.
Upon Purchaser executing this Agreement, Purchaser shall arrange to deposit with
Seller a check in the sum of One Hundred Thousand ($100,000) Dollars, hereinafter referred to as the “Deposit,” which
shall under all circumstances (except as set forth below) be non-refundable and immediately available for use by Seller; however,
Seller agrees that it will apply the Deposit as needed toward the purchase of parts inventory, materials and other items related
to the SRT-100 Business to continue such SRT-100 Business as required in this Agreement through the Closing date. Notwithstanding
anything to the contrary set forth above, the Deposit shall be refundable (and be refunded) to Purchaser in the event Seller materially
breaches any of Seller’s representations and warranties set forth in this Agreement, or if Seller shall materially be or
become in material breach or default of this Agreement, or if Purchaser terminates this Agreement for cause.,
4.02
Closing
before June 1, 2010
.
If the Closing occurs on or before April 30, 2010, the amounts set forth above in Paragraphs
3.01 and 3.02 shall not change. However, if the Closing occurs between May 1. 2010, and May 31, 2010, the balance of the cash portion
of Purchase Price payable pursuant to paragraph 3.01 above shall be increased by One Hundred Thousand ($100,000) Dollars to Eight
Hundred Seventy-Five Thousand ($875,000) Dollars and the Note portion of the Purchase Price payable pursuant to paragraph 3.02
above shall be reduced by One Hundred Thousand ($100,00) Dollars to Four Hundred Twenty-Five Thousand ($425,000) Dollars.
4.03
Closing
after June 1, 2010
.
If the Closing occurs after June 1, 2010, the balance of the cash portion of the Purchase Price
payable pursuant to paragraph 3.01 above shall be increased to Nine Hundred Seventy-Five ($975,000) Dollars and the Note portion
of the Purchase Price payable pursuant to paragraph 3.02 above shall be reduced to Three Hundred Twenty-Five Thousand ($325,000)
Dollars.
4.04
2
SRT-100 Units
.
In the event the Closing occurs on a date after April 30, 2010, then the two (2) SRT-100 Units that
are listed on Schedule “A” as part of the Assets shall be excluded from the transaction contemplated by this Agreement.
4.05
Closing
after June 30, 2010
.
If Purchaser and Seller have not closed by June 30, 2010, and have not agreed to extend the
date of Closing, then this Agreement and the rights of Purchaser and Seller hereunder, except as noted herein, shall terminate.
Seller shall have no obligation to close after June 30, 2010 and shall have no obligation to return to Purchaser the Deposit under
any such circumstances.
5.
LIABILITIES
.
5.01
Assumption
of Liabilities
.
At the Closing, Purchaser shall assume all future obligations for warranty claims relating to the
SRT-100 Business which arise and relate to time periods prior to or following the date of Closing. Furthermore, Purchaser shall
be responsible for all taxes and all other obligations which arise out of Purchaser’s operation of the SRT-100 Business from
and after the Closing.
5.02
No
Assumption of Liabilities
.
Except as expressly provided for herein, Purchaser shall not be obligated and will not
assume or become liable for any obligations or liabilities of the Seller or which relate to the SRT-100 Business prior to closing
(except as to warranty claims).
6.
ADJUSTMENTS
.
The Purchase Price is not subject to adjustment irrespective of inventory levels or any other factor. Seller agrees, however, that
it will not sell inventory items to third parties separate and apart from sales of SRT-100 Units.
7.
REPRESENTATIONS
OF SELLER
. Seller represents and warrants to Purchaser that, the following statements, representations and conditions
are true and correct as of the date of this Agreement and shall continue to be true and correct as of the Closing:
7.01
Good
Title
.
Seller is the owner of the Assets being conveyed to Purchaser, free and clear of any liens, claims, security
interests or other encumbrances, and has the right to sell and convey the Assets, and that Purchaser shall acquire good, merchantable
and marketable title to the Assets at Closing.
7.02
Equipment
and Fixtures
.
The equipment of the SRT-100 Business identified on Schedule “A” is now, and will at Closing
be, in good working order.
7.03
No
Litigation, No Taxes Due, Etc
.
There are no judgments, liens, actions or proceedings pending against Seller in any
court or by any governmental agency, Seller is not in default with respect to any judgment, order, writ, injunction, decree, rule
or regulation of any court or administrative agency relating to the SRT-100 Business, and no party has threatened to make any claims
against Seller or the SRT-100 Business.
7.04
Carry
on Business in Ordinary Course
.
Seller will operate the SRT-100 Business in the ordinary course by and through Closing.
7.05
Corporate
Status
.
Seller is a corporation duly organized and existing in good standing under the laws of the State of Connecticut
and has the corporate power to own its assets and carry on its business as now conducted.
7.06
Compliance
with Agreements and Instruments
.
The execution and delivery of this Agreement by Seller and the consummation of
the transactions contemplated hereby do not conflict with or violate its Articles or Bylaws, or any contract or agreement to which
Seller is a party, or by which Seller may be bound, except as expressly herein provided where various consents may be required,
and is not contrary to any order of any court.
7.07
Financials
.
Seller has furnished Purchaser with a company prepared Income and Expense Statement related to the SRT-100 Business which Seller
represents is true and accurate.
7.08
Bill
of Sale
.
The bill of sale and instruments of assignment to be delivered at the Closing will transfer all of the
Assets, free of all encumbrances and liabilities, and will contain the usual warranties and affidavit of title (except as provided
for in Section 5.01 above). Itis expressly understood that specific instruments of assignment on the form required by the United
States Patent Office will be required in connection with the assignment of the patents listed on SCHEDULE “A” and Seller
expressly agrees to execute and assist in the filing of such separate assignment instruments.
7.09
Corporate
Actions
.
By the time of Closing, the Board of Directors and Stockholders of Seller will have approved Seller entering
into this Agreement and Seller’s performance thereunder, and will have authorized the execution and delivery hereof. This
Agreement constitutes a legal, valid and binding obligation of the Seller enforceable in accordance with its terms. On or prior
to the Closing, Seller shall provide Purchaser with copies of the resolutions by its Stockholders and Directors, authorizing this
Agreement and the transactions contemplated herein.
7.10
Patents
.
Insofar as the patents listed on SCHEDULE “A” (the “Patents”) are concerned, Seller expressly hereby
represents and warrants that:
(a) All
of the Patents are valid patents and are assignable to Purchaser;
(b) No
challenges to the validity of the Patents are currently pending or threatened;
(c) No
other party has made any claim that the Patents or any other part or element of the SRT-100 Business infringes upon any patent
or intellectual property rights of such party;
(d) Seller
has no knowledge of any other patent or product of any third party which infringes upon any of the Patents;
(e) Seller
has no knowledge of any defect in any Patent or any technology associated therewith that would permit any third party to circumvent
either of the Patents.
7.11
Leases
.
None of the Assets are leased.
7.12
Sales
Taxes
.
At and as of the Closing date, Seller shall have paid all sales taxes, interest and penalties due and unpaid
by the Seller with respect to the SRT-100 Business to all applicable governmental authorities through the date of Closing.
7.13
Books
and Records
.
All books, records, data, materials and other information provided or to be provided to Purchaser by
Seller in connection with this Agreement are and will be true, accurate and complete in all material respects.
7.14
Compliance
.
The SRT-100 Business as currently conducted to the knowledge of Seller is in compliance with all federal, state and local laws,
rules and regulations pertaining thereto.
7.15
Contracts
.
Seller is not to its knowledge a party to any contract or agreement which will adversely affect the conduct of the SRT-100
Business following closing.
7.16
Sales
of SRT-100 Units
.
Seller shall not sell any SRT-100 Unit to any person or party other than Purchaser subsequent
to the Closing date.
The Seller shall indemnify,
defend and hold harmless the Purchaser from and against any and all losses, judgments, awards, damages, settlements, costs and
expenses, including without limitation attorney’s fees, sustained or incurred by the Purchaser as a result of the Seller’s
breach of any representation, warranty or covenant of the Seller contained herein or in any document executed and delivered at
the Closing or as a result of or arising out of any debt, obligation or liability of Seller or the SRT-100 Business which accrues
and relates to periods of time prior to the Closing (except as to warranty claims).
8.
REPRESENTATIONS
OF PURCHASER
. Purchaser represents and warrants to Seller that, the following statements, representations and conditions
are true and correct as of the date of this Agreement and shall continue to be true and correct as of the Closing:
8.01
Limited
Liability Status
.
Purchaser is a limited liability company duly organized and existing in good standing under the
laws of the State of Florida, and by Closing will be authorized to do business in any state where it will carry on its business.
8.02
Compliance
with Agreements and Instruments
.
The execution and delivery of this Agreement by Purchaser and the consummation
of the transactions contemplated hereby by Purchaser will not conflict with or violate the Articles of Organization, Operating
Agreement or any contract or agreement to which Purchaser is a party, or by which Purchaser may be bound, except as herein provided
where various consents may be required, and is not contrary to any order of any court to which Purchaser is subject.
8.03
Limited
Liability Company Actions
.
By the time of Closing, the managers and members of Purchaser will have approved Purchaser
entering into this Agreement and the performance hereunder by Purchaser and will have authorized the execution and delivery hereof.
In that instance, on or prior to the Closing, Purchaser shall provide Seller with copies of the resolutions by its managers and
members authorizing the approval of this Agreement and the transactions contemplated herein.
8.04
Loss
of Business
.
Purchaser acknowledges that following the Closing or possibly even prior thereto, certain customers
of the SRT-100 Business may not wish to continue doing business with the SRT-100 Business or Purchaser. In that connection, Purchaser
acknowledges that Seller makes no warranty, guarantee or representation as to the SRT-100 Business’ ability to retain individual
customers after the Closing or prior to the Closing. Moreover, Purchaser acknowledges that the past performance of the SRT-100
Business with respect to sales may not be indicative of the future sales experienced by the SRT-100 Business and Purchaser after
the consummation of the transactions contemplated herein.
8.05
Information
to be held in Confidence
.
Until the Closing or in the event that the transaction contemplated by this Agreement
does not close, the Purchaser (1) will hold and will cause their members, managers, employees, accountants, representatives, affiliates,
agents, consultants and advisors to hold in strict confidence all information relating to the SRT-100 Business furnished to Purchaser
by Seller or its representatives in connection with the transaction contemplated by this Agreement as well as all information concerning
the SRT-100 Business or Seller contained in any analyses, computations, studies or other documents prepared by or on behalf of
Purchaser (collectively, the “Information”); provided that the Information shall not include any information which
can be shown to be or have become (i) generally available to the public other than as a result of a disclosure by Purchaser or
its members, managers, employees, accountants, representatives, agents, consultants or advisors or (ii) available to Purchaser
on a non-confidential basis from a source other than Seller; and (2) will not, release or disclose any Information to any other
party except in furtherance of the consummation of the transaction contemplated by this Agreement and so long as such parties are
informed of the confidential nature of the Information and agree to be bound by the terms and conditions of this paragraph 8.05.
8.06
Equipment
Used by Seller
.
Purchaser acknowledge that Seller utilizes certain equipment in manufacturing the SRT-100 Units
and such equipment is not included in the Assets being sold to Purchaser pursuant to this Agreement. Purchaser further acknowledges
that should Purchaser not request Seller to manufacture SRT-100 Units for it after Closing, it will need to acquire additional
equipment in order to manufacture the SRT-100 Units itself.
The Purchaser, shall indemnify,
defend and hold harmless the Seller from and against any and all losses, judgments, awards, damages, settlements, costs and expenses,
including without limitation attorney’s fees, sustained or incurred by the Seller as a result of the Purchaser’s breach
of any representation, warranty or covenant of the Purchaser contained herein or in any document executed and delivered at the
Closing or as a result of or arising out of any debt, obligation or liability of Purchaser or the SRT-100 Business which accrues
and relates solely to time periods (except for any warranty claims which shall be the responsibility of Purchaser) after Closing,
including but not limited to liabilities or obligations of the Seller specifically assumed by the Purchaser under or pursuant to
this Agreement.
9.
CONDITIONS
TO PURCHASER’S OBLIGATION TO CLOSE
. Each of the Parties agrees to take whatever actions as may be necessary
or desirable to carry out the terms of this Agreement following the Closing. This Agreement is contingent upon the existence or
satisfaction of various conditions, as hereinafter set forth. If all of the conditions do not exist or have not been satisfied
by the date of Closing (or as otherwise set forth with respect to any specific condition), Purchaser will have the right to either
(i) terminate this Agreement by written notice to Seller and thereafter the Parties shall be relieved of all further obligations
and liabilities hereunder; (ii) grant an additional period of time in accordance with Section 4 above in which to such conditions
may be satisfied; (iii) pursue any remedy provided for herein or in any other provision of this Agreement; or (iv) Purchaser may
waive any condition and proceed to close the transaction. The Parties shall cooperate with each other with respect to the satisfaction
of all conditions; shall not prevent or hinder the satisfaction of any conditions; and the Party responsible for the satisfaction
of any condition shall proceed with due diligence and use such Party’s best efforts to satisfy such condition. The conditions
upon which this Agreement is contingent are as follows:
9.01
Obligations
of Seller
.
All of the obligations of Seller and the documents required to be obtained and/or furnished by Seller
shall have been performed, obtained and furnished within the time period required pursuant to the terms of this Agreement.
9.02
Compliance
with Agreement
.
All of the terms and conditions of this Agreement to be complied with and performed by any party
on or before the date of Closing, shall have been complied with and performed.
9.03
Representations
and Warranties
.
All representations and warranties of Seller and Purchaser shall be deemed to have been made again
on the Closing date and shall be true and correct.
9.04
Financing
.
Purchaser shall have obtained the financing necessary to fully fund the Purchase Price; Purchaser shall use its reasonable
best efforts to obtain such financing.
9.05
Covenant
Not to Compete
.
In consideration of the sale hereby, and for no additional compensation, the Seller shall have executed
and entered into a NON-DISCLOSURE AND NON COMPETITION AGREEMENT in the form attached hereto as SCHEDULE “C”.
9.06
Consulting
Agreement
.
Anthony Pellegrino shall have entered into a satisfactory consulting Agreement with Purchaser to provide
Purchaser and Purchaser’s employees as needed, part-time with advisory and training services for a period of twenty-four
(24) months following the Closing for no compensation or remuneration. The Consulting Agreement shall further provide that Mr.
Pellegrino shall not be required to travel to perform any of his responsibilities under that Agreement. The precise duties and
level of services to be provided by Mr. Pellegrino are to be mutually agreed upon and are to be reasonable in consideration of
Mr. Pellegrino’s age and health, shall not be unduly burdensome upon him, and shall be subject to his final approval.
10.
SURVIVAL
OF REPRESENTATIONS
. All representations, warranties and agreements of the Parties contained in this Agreement shall
survive the Closing.
11.
DOCUMENTS
TO BE DELIVERED BY SELLER
. At the Closing, Seller shall deliver the following documents to Purchaser:
11.01
Bill
of Sale
.
A bill of sale, dated as of the Closing, covering all of the records, data, equipment, supplies, inventory
and other tangible property which comprises the Assets to be transferred hereunder, transferring all right, title and interest
in such property to Purchaser, and containing the usual warranties and affidavit of title.
11.02
Assignments
.
Assignments, dated as of the Closing, of Seller ‘s Patents and Seller’s transferable operating licenses and permits
and all other intellectual property rights and other intangible property comprising a portion of the Assets, containing customary
warranties and affidavits of title.
11.03
Control
.
Simultaneously with the delivery of such documents provided for above, Seller will take all such steps as may be requisite
to put Purchaser in actual possession, operation and control of the Assets and business to be transferred hereunder; and
11.04
Other
Documents
.
All other documents and instruments expressly or impliedly required by the terms of this Agreement.
Subsequent to the date
of Closing, and at the request of Purchaser, Seller will execute and deliver to Purchaser such other instruments of conveyance
and transfer and take such other action as Purchaser may reasonably require to more effectively convey, transfer to, invest in
Purchaser, and to put the Purchaser in possession of any of the properties or assets to be conveyed, transferred and delivered
to Purchaser hereunder.
12.
AMENDMENT
.
This Agreement may be amended at any time by a writing executed by both Seller and Purchaser.
13.
DATE
OF AGREEMENT
. The effective date of this Agreement shall be the last date the Agreement is signed by Seller and
Purchaser.
14.
BINDING
EFFECT
. This Agreement shall be binding upon the Parties, their successors, assigns and heirs.
15.
COUNTERPARTS
.
This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which, when taken together,
shall constitute one and the same document. The signature of either party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart. Signature pages which are transmitted by or on behalf of the Parties by facsimile or
email shall be deemed to be originals.
16.
ATTORNEYS’
FEES
. In the event either Party has to enforce its rights under this Agreement due to a breach by the other Party,
the prevailing Party in any such enforcement action shall be entitled to recover from the other Party, all costs it incurs in connection
with enforcing or defending, as the case may be, its rights hereunder, including but not limited to, all attorneys’ fees,
court costs and costs and fees of appeal.
17.
BROKER
.
Purchaser and Seller represent and warrant to each other that they have not dealt with any broker in connection with this Agreement,
and the transaction set forth herein, and that they know of no broker who has claimed, or who has a right to claim a commission
in connection with this transaction.
18.
CONDITIONS
TO SELLER’S OBLIGATIONS
. The obligations of Seller are subject to the delivery on or before the Closing of
the cash required to be paid and the execution as well as the delivery of the documents and fulfillment of other conditions by
Purchaser as outlined herein.
19.
CASUALTY
.
Seller assumes all risk of destruction, loss or damage due to fire or other casualty up to the date of Closing.
20.
EXPENSES
.
Each party hereto will pay the expenses incurred by it in connection with the preparation of and entering into this Agreement,
including counsel fees and expenses of their representatives, whether or not the transactions contemplated by this Agreement are
consummated.
21.
DEFAULT
.
In the event of any breach of, or default under, this Agreement, the non-breaching or defaulting Party shall have the right of pursuing
any and all legal or equitable remedies available to such Party pursuant to the laws of the State of Connecticut, including, without
limitation, the right of pursuing specific performance.
22.
PASSING
OF TITLE
. Legal title, equitable title and risk of loss with respect to the property and rights to be transferred
hereunder shall pass to Purchaser on the Closing, and risk of loss and opportunity for profit with respect to the operation of
the SRT-100 Business shall pass to Purchaser as of the Closing.
23.
GOVERNING
LAW
. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut.
24.
FURTHER
COOPERATION
. From and after the date of this Agreement, each of the Parties hereto agrees to execute whatever additional
documentation or instruments as are necessary to carry out the intent and purposes of this Agreement.
IN WITNESS WHEREOF the
Purchaser has executed this Agreement on this 16
th
day of April, 2010.
|
WITNESSES:
|
|
PURCHASER:
|
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC, a Florida Limited Liability Company
|
|
|
|
|
|
|
|
By:
|
/s/ Joseph
C. Sardano
|
|
|
|
|
Joseph C. Sardano, its Manager
|
IN WITNESS WHEREOF the
Purchaser has executed this Agreement on this 16
th
day of April, 2010.
|
WITNESSES:
|
|
SELLER:
|
|
|
|
|
|
|
|
TOPEX, INC., a Connecticut Corporation
|
|
|
|
|
|
|
|
By:
|
/s/ Anthony
Pellegrino
|
|
|
|
|
Anthony Pellegrino, Chairman of the Board
|
SCHEDULE “A”
|
|
o
|
(2) finished SRT 100 systems
|
|
|
·
|
Test fixtures for SRT 100 assemblies
|
|
|
·
|
Design Documentation and Records pertaining to the manufacture of the SRT 100 system
|
|
|
o
|
Radiation Therapy System with Risk Mitigation -US 7,372,940
|
|
|
o
|
Radiation Therapy System Featuring Rotatable Filter Assembly -US 7,263,170
|
|
|
·
|
All FDA and CE Mark approvals relating to the SRT 100 system
|
|
|
·
|
All FDA and ISO 13485 related approvals transferable with the SRT 100 system
|
|
|
·
|
All distributor agreements and customer related information
|
|
|
·
|
Applicable regulatory files
|
|
|
·
|
Goodwill associated with the SRT-100 Business
|
|
|
·
|
All manufacturers’, suppliers’ and other vendors’ warranties in effect with respect
to parts, equipment, systems and other aspects of the SRT-100 Business such that Purchaser shall have them available to utilize
in satisfying any warranty claim liabilities of Purchaser under Section 5.01 or otherwise
|
COMPOSITE
SCHEDULE “B”
SENSUS
Turnover Program
|
|
Tab 1
|
Purpose and Scope of Program
Production
Service
Ongoing Program Support
|
|
|
Tab 2
|
Documentation Transfer
Sales, Marketing,
Trade Show
Regulatory
Patents
Engineering and Production
External Documents
|
|
|
Tab 3
|
Software /Hardware needed to work with SRT 100 Electronic
Files
|
|
|
Tab 4
|
Special Equipment List - SRT 100 Calibration and Testing
|
SENSUS
Turnover Program - March 2010
Purpose
In order to allow for an
orderly turnover, the TOPEX infrastructure will be utilized as described during the “Transfer Period”.
The purpose of the turnover
program is to provide SENSUS all required training, ongoing sales, service and production continuity for an agreed to transfer
period and to provide SENSUS an orderly and timely transfer of information, documentation and any required training.
Program Scope
The following program scope
defines the key production and service activities that will be performed by TOPEX during the turnover transfer period.
Production
|
|
§
|
TOPEX will invoice SENSUS for parts received
|
|
|
§
|
System set-up testing and calibration
|
|
|
•
|
Perform daily warm-up procedure
|
|
|
•
|
Perform daily RAD Check
|
|
|
§
|
Prepare system for shipment
|
|
|
•
|
Purge coolant from heat exchanger container and coolant lines
|
|
|
•
|
Package all accessories and special kits
|
|
|
•
|
Prepare packing list and shipping documents for domestic international destinations
|
|
|
•
|
Disassemble the system x-ray treatment arm
|
|
|
•
|
Crate entire system for shipping
|
|
|
§
|
Create and maintain “Device History Files”
|
Service
|
|
·
|
Prepare service reports
|
|
|
·
|
Update the customer complaint file as required
|
|
|
·
|
Take corrective action as required
|
|
|
·
|
Provide installation assistance as required
|
|
|
·
|
Provide Physicist energy measurement support as required
|
|
|
·
|
Provide user training support as required
|
|
|
·
|
Provide on-going customer technical service support
|
|
|
·
|
Maintain adequate service inventory
|
Ongoing Program Support
- During
the “Transfer Period”
Purchasing
|
|
§
|
TOPEX to purchase parts for (10) ten systems plus additional spares where necessary
|
|
|
§
|
TOPEX to pay supplier invoices
|
|
|
§
|
TOPEX to invoice SENSUS for parts purchased at the invoice price
|
Manufacturing Support
|
|
§
|
TOPEX to manufacture (10) ten systems for SENSUS
|
|
|
§
|
TOPEX to invoice SENSUS a manufacturing charge of $20,000/system. Billable as agreed to.
|
|
|
§
|
Estimated time for first delivery is the end of June, 2010. This assumes a TOPEX/SENSUS agreement
closing no later than the end of April, 2010. The (9) nine additional systems must be taken by SENSUS on or before October 1, 2010.
TOPEX will provide (1) one system per week if required.
|
|
|
•
|
Training observations can begin with SENSUS engineers and manufacturing staff
|
|
|
•
|
TOPEX to build, train, test and ship systems during this period
|
|
|
§
|
SRT 100 Labeling change required -”Manufactured by TOPEX for SENSUS”
|
|
|
§
|
Logo change required for system branding purposes
|
Document Maintenance and Creation
Coordinated News Release
|
|
§
|
After final agreement completion
|
|
|
§
|
Public, dealer network, key customer sites
|
Documentation Transfer
Sales, Marketing, Trade Show Support
|
|
§
|
Provide all existing sales training materials and literature needed for transfer to SENSUS
|
|
|
•
|
Sales training power point CD
|
|
|
•
|
Product feature pictorial
|
|
|
•
|
Unique features and benefits
|
|
|
•
|
Company and product overview power point
|
|
|
•
|
Customer support business development materials
|
|
|
•
|
Radiation safety features summary
|
|
|
•
|
All clinical images showing
before
,
during
and
after
treatment
|
|
|
•
|
Trade show talking points - Physicists, Physicians, Therapists
|
|
|
•
|
Vertical graphic product display - 80” x 33”
|
|
|
§
|
ASRT applications training program -provides for CEU credit
|
|
|
§
|
Domestic/International installed base user list
|
|
|
§
|
List of dealer customer sites for short term sales closure
|
|
|
§
|
May -National Skin Cancer Awareness month - 2008/2009 media articles
|
|
|
§
|
CPT code reimbursement list
|
|
|
§
|
Dr. Hesselgesser user testimonial
|
Clinical Support Papers
|
|
•
|
Ionizing radiation therapy in Dermatology - H. Goldschmidt
|
|
|
•
|
Radiotherapy of carcinomas of the skin overlying the cartilage of the nose - M. Caccialanza
|
|
|
•
|
The role of kilovoltage x-rays in the treatment of skin cancers - European Oncological Disease
2006, V. Wolstenholme and JP Glees
|
|
|
•
|
Soft x-ray therapy for cutaneous basal cell and squamous cell carcinomas - American Academy of
Dermatology, Ludwig Suter
|
|
|
§
|
USA Government registrations - CCR, ORCA, CAGE, NACIS and FSC codes
|
|
|
§
|
Skin cancer treatments - Advantages/Disadvantages
|
|
|
§
|
World Geographic Skin Cancer projections through 2060
|
|
|
§
|
The Need for Superficial Radiation Therapy -ref: NIH, ACS
|
|
|
§
|
Media articles - Alternative to Surgery, Over 3,000 patients treated, MD Bylines, Auntminnie.com,
ASRT
|
|
|
§
|
Specially built trade show crate
|
Dealer Agreements
|
|
§
|
Provide dealer contact information
|
|
|
•
|
Exclusive and non-exclusive dealers and territory list
|
|
|
•
|
Provide list of independent representatives
|
Regulatory
|
|
•
|
FDA, TUV, Health Canada - Certifications
|
|
|
•
|
2010 FDA Certificate to Foreign Government - GMP Compliance
|
|
|
o
|
Complaint handling system
|
|
|
o
|
CAPA system - Corrective and Preventive Action
|
|
|
o
|
Non-conforming material system
|
|
|
o
|
All procedures required by QSRJGMP - Quality System Regulation
|
Patents
Engineering and Production
|
|
•
|
Two completed production systems
|
|
|
•
|
Production test fixtures - Heat exchanger, Input power, High voltage
|
|
|
•
|
List of required radiation test equipment and production test equipment
|
|
|
•
|
List of software programs required
|
|
|
•
|
Production - Assembly instructions, schematics
|
|
|
•
|
Engineering - All schematics, technical documentation, theory of operation, x-ray tube data
|
|
|
•
|
Mechanical detail drawings for custom fabricated parts
|
|
|
•
|
Editable source drawings for manual illustrations
|
|
|
•
|
Software - All released documents for the base unit, control console and timer
|
|
|
•
|
Special requirements software not for sale in the USA - South Africa, Switzerland
|
|
|
§
|
MRP System (Material Requirement Planning)
|
|
|
•
|
B.O.M. - Bill of Materials
|
|
|
•
|
Schematics and drawings
|
|
|
•
|
Component assembly family tree
|
External Documents
|
|
•
|
Unpacking and initial set-up instructions
|
|
|
•
|
Technical manual including service procedures, calibration procedures & electrical schematics
|
|
|
•
|
Preventive maintenance schedule
|
|
|
o
|
Rear Panel Fan Installation
|
|
|
•
|
Warranty and Out of Warranty Sites
|
SCHEDULE “C”
NON-DISCLOSURE AND NON-COMPETITION AGREEMENT
THIS AGREEMENT is made
and entered into as of the 16
th
day of April, 2010, by and among
TOPEX, INC.
(“Topex”), on the one
hand, and
SENSUS HEALTHCARE, LLC
(“Sensus”), on the other hand.
WHEREAS, Topex and Sensus
entered into that certain ASSET PURCHASE AND SALE AGREEMENT dated as of April 16,
2010 (“Purchase Agreement”);
and
WHEREAS, Topex has agreed
that it shall not compete with the SRT-100 Business operation (as defined in the aforesaid Purchase Agreement), nor shall it disclose
any Confidential Information pertaining to the SRT-100 Business in accordance with and pursuant to the provisions more particularly
set forth below;
NOW, THEREFORE,
in
consideration of the above, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto do hereby agree as follows:
1. The
foregoing WHEREAS clauses are by this reference incorporated into this Agreement and made a part hereof.
2. The
term “Confidential Information” as used herein shall mean all customer lists, distribution arrangements, customer contracts,
trade secrets, and other information and/or documentation utilized in connection with the SRT-100 Business.
3. Topex
acknowledges and agrees that the Confidential Information is essential to the operation of the SRT-100 Business and that any disclosure
or unauthorized use thereof will cause irreparable harm or loss to Sensus. As a consequence of the foregoing, Topex agrees with
Sensus that it shall not, and its offices shall not disclose any Confidential Information to any other person, firm, corporation,
association or other entity for any reason or purpose whatsoever, and covenants and agrees for itself that neither it nor its officers
will use any of the Confidential Information in any manner to compete with Sensus and/or the SRT-100 Business or which would have
a material adverse effect on Sensus and/or the SRT-100 Business. It is agreed, however, that Confidential Information shall not
include any information which can be shown to be or have become generally available to the public other than as a result of a disclosure
by Topex or its officers, directors, employees, accountants, representatives, agents, consultants or advisors.
4. Topex
further acknowledges and agrees that any competition by it or its officers with the SRT-100 Business or the activities of Sensus
relating thereto will also cause irreparable harm and loss to Sensus. As a consequence thereof, Topex agrees that for a period
of five (5) years from the date of the Closing of the purchase of Assets contemplated under the Purchase Agreement (the “Purchase
Agreement”), neither Topex nor its officers shall, either directly or indirectly, own, manage, operate, control, be employed
by, participate in, be an advisor or consultant to or be connected or involved in any manner whatsoever with the ownership, management,
operation or control of, any superficial radio therapy business, or any other business which is the same or similar to, or which
competes, or would be in competition with, the SRT-100 Business or any other business or activity of Sensus relating thereto or
connected therewith. Topex further covenants and agrees with Sensus that for the aforesaid time period neither Topex nor its officers
will directly or indirectly contact, either individually or on behalf of any other person, firm, company, limited liability company,
corporation or business entity, any current client or customer of the SRT-100 Business for the purpose of engaging in any activity
which would be competitive with or have an adverse effect upon the SRT-100 Business or the activities and operations of Sensus
relating thereto. Notwithstanding the foregoing, Topex may be requested to manufacture SRT-100 Units for Sensus pursuant to the
Purchase Agreement and no action or act of Topex, its officers, personnel, or other agents and representatives shall be considered
a violation of the terms hereof if such action or act was in furtherance of and/or necessary for Topex to fulfill its responsibilities
to Purchaser after the Closing contemplated by the Purchase Agreement.
5. In
addition to any other rights or remedies available to Sensus for any breach of this Agreement, Sensus shall be entitled to an immediate
injunction restraining the breaching or defaulting party from disclosing any Confidential Information or competing with the SRT-100
Business or Sensus in any manner prohibited hereby, or from rendering any services to any person, firm, corporation, limited liability
company, association or other entity in a manner which would violate the terms hereof, without the need for Sensus having to prove
irreparable damages in order to obtain such remedy, and without Sensus having to post any bond in order to obtain such injunctive
or other remedies.
6. This
Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns (provided
however, that nothing contained herein shall be construed as authorizing any party to assign any rights or obligations hereunder).
This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be amended,
modified or terminated (unless otherwise expressly permitted pursuant to the provisions hereinabove contained) except by a written
instrument signed by each of the parties hereto. In the event any party commences any action or proceeding to enforce its rights
hereunder, the prevailing party or parties in any such action shall be entitled to recover all of their costs and expenses, including
reasonable attorneys fees, incurred in connection therewith from the non-prevailing party or parties, both in connection with the
original action relating thereto and any and all appeals therefrom. No party shall be construed as having waived any of its rights
hereunder unless such waiver shall be in writing signed by the party against whom such waiver is being sought. Neither the failure
of any party to exercise any power given such party hereunder or to insist upon strict compliance by any other party with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of any party’s
right to demand exact compliance with the terms hereof. The parties agree that this Agreement is the result of negotiation by the
parties, each of whom was represented by counsel, and thus, this Agreement shall not be construed against any party hereto as the
drafter hereof. No representations, inducements, promises or agreements, oral or otherwise, between the parties relating to the
subject matter hereof not embodied herein or incorporated herein by reference shall be of any force or effect. This Agreement may
be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together,
shall constitute but one and the same instrument. Time shall be of the essence of this Agreement and each and every term and condition
hereof. All references herein to the singular shall include plural, and all references herein to the masculine gender shall include
the feminine and neuter genders, and vice versa.
IN WITNESS WHEREOF
,
the parties have executed this instrument as of the date first above written.
|
|
|
TOPEX, INC., a Connecticut Corporation
|
|
|
|
|
|
|
|
By:
|
/s/ Anthony
Pellegrino
|
|
|
|
|
Anthony Pellegrino, Chairman of the Board
|
|
|
|
SENSUS HEALTHCARE, LLC, a Florida Limited Liability Company
|
|
|
|
|
|
|
|
By:
|
/s/ Joseph
C. Sardano
|
|
|
|
|
Joseph C. Sardano, its Manager
|
SCHEDULE “D”
CONSULTING AGREEMENT
THIS AGREEMENT
is
made this 28th day of June, 2010, by and between
SENSUS HEALTHCARE, LLC
, a Florida limited liability company (hereinafter
referred to as the “Company”), and
ANTHONY PELLEGRINO
(hereinafter referred to as the “Consultant”).
WITNESSETH:
The Consultant is an officer,
director and stockholder of Topex, Inc., the Corporation which sold to Company the SRT-100 business now operated by Company, and
in such capacity became intimately informed as to the operation of the SRT-100 business; and
The Consultant, as a term
of the Asset Purchase and Sale Agreement entered into by and between Topex, Inc., and Company (hereinafter referred to as “Asset
Purchase Agreement”), is required to enter into this Consulting Agreement with Company; and
The Company has determined
to engage the Consultant as a consultant, and the Consultant has agreed to render consulting services to·the Company, subject
to all of the terms and conditions as set forth herein.
NOW, THEREFORE, in consideration
the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Company and Consultant hereto hereby agree as follows:
1.
Retention
.
Company hereby retains Consultant as a part-time business consultant, and the Consultant agrees to render such service to the Company
as an independent contractor in order to fulfill the condition of closing set forth in paragraph 9.06 of the Asset Purchase Agreement,
upon all of the terms and conditions as set forth herein.
2.
Term
.
The term of this Agreement shall commence on the date hereof and shall extend for a period of two (2) years thereafter, hereinafter
referred to as the (“Term”).
3.
Consideration
.
The closing of the transaction contemplated by the Asset Purchase Agreement is the consideration for Consultant providing the services
noted hereunder without change, in that Consultant benefited by the occurrence of such closing.
4.
Scope
of Services
. Consultant shall perform such advisory and consulting services, as are from time to time requested
by Company in order to assist Company in its transition with respect to operating the business acquired pursuant to the Asset Purchase
Agreement. However, all such services shall be on a part-time, as-needed basis and shall be reasonably related to transition the
Company faces relative to the operation of the acquired business. The Consultant shall not be required to become involved in or
to participate actively in day-to-day operations of Company, or to spend any minimum number of hours or days in performing such
services. The services of the Consultant may be performed over the telephone or at the business location of Consultant and Consultant
shall not be required to travel to meet his responsibilities hereunder. Any duties of consultant beyond what is described above
shall be subject to Consultant’s final approval and shall not be unreasonable in view of any health considerations relative
to Consultant that may arise during the term hereof.
5.
Independent
Contractor Status
. The Company and Consultant agree that Consultant is being retained hereby as an independent contractor,
and that he will not be considered under the provisions of this Agreement or otherwise as having an employee status or as being
entitled to participate in any plans, arrangements or distributions by Company.
6.
Death
or Disability of Consultant
. Notwithstanding anything contained herein to the contrary, in the event the Consultant
shall die or become disabled, such that he cannot perform his services as set forth in this Agreement for the remainder of the
term of this Agreement after such death or disability, the Company shall continue to make all payments provided for under the Asset
Purchase Agreement and shall not be entitled to any reduction in such payments as a result of Consultant not being able to complete
the term of this Agreement.
7.
Applicable
Law
. This Agreement shall be subject to and governed by the laws of the State of Connecticut.
8.
Void
Provisions
. In the event any part of this Agreement is found to be void, the remaining provisions of this Agreement
shall nevertheless be binding with the same effect as though the void parts were deleted.
9.
Amendment
.
No modification of this Agreement shall be valid unless such modification is in writing and signed by the person or party against
whom charged.
10.
Waiver
.
No waiver of any provision of this Agreement shall be valid unless in writing and signed by the person or party against whom charged.
11.
Entire
Agreement
. This Agreement constitutes the entire agreement of the parties upon the subject matter covered herein.
All previous agreements, whether written or oral, shall be of no force or effect.
Company and Consultant
hereto have executed this agreement on the day and year first above written.
|
|
Company:
|
|
|
|
|
|
SENSUS HEALTHCARE, LLC, a Florida Limited Liability Company
|
|
|
|
|
|
By:
|
/s/ Joseph
C. Sardano
|
|
|
|
Joseph C. Sardano, its Manager
|
|
|
Consultant:
|
|
|
|
|
|
By:
|
/s/ Anthony
Pellegrino
|
|
|
|
Anthony Pellegrino
|
Exhibit 10.6
OFFICE LEASE AGREEMENT,
DATED AS OF JULY 26, 2010,
BY AND BETWEEN REXALL SUNDOWN, INC.
AND SENSUS HEALTHCARE, LLC
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT
is made, entered into and executed this the 26th
day of July, 2010, by and between
REXALL SUNDOWN, INC.,
a Florida
corporation, with offices c/o NBTY, Inc., at 90 Orville Drive, Bohemia, NY 11716, hereinafter called “Landlord”, and
SENSUS HEALTHCARE, LLC, with offices at 851 Broken sound Pkwy, NW, #215 B.R., FL, hereinafter called “Tenant”. Landlord
and Tenant contract and agree as follows.
Landlord hereby leases unto Tenant the
following premises. Suites 210 and 21 5 (the “Leased Premises”) in the building known as 851 Broken Sound Parkway,
Boca Raton, FL 33487, (the “Building”), for purposes of this Lease, the Leased Premises shall be deemed to consist
of 4,551 rentable square feet of office space (which includes a 10% add-on factor), as shown on Exhibit “A” annexed
hereto, together with easements and improvements appurtenant thereto, but subject to easements, restrictions and other matters
of record. The terms “Premises” and “Leased Premises” are used interchangeably in this Lease.
The term of this Lease shall be for a primary
term of four (4) years, commencing on August l, 2010 (the “Lease Commencement Date”), and expiring at midnight on July
31, 2014 (the “Termination Date”), unless extended by the parties by written agreement.
If Landlord is unable to give possession
of the Leased Premises on the Lease Commencement Date by reason of the holding over of any Tenant, or because construction, repairs
or improvements are not completed, all Rent and other payments due as of the Lease Commencement Date shall abate for the period
that possession by Tenant is delayed. Notwithstanding the foregoing, Landlord shall not be responsible for damages, including but
not limited to direct or consequential damages because of its inability to deliver possession to Tenant by any particular date.
In the event of any such delay, the Termination Date shall be extended the number of days which Landlord was delayed in giving
Possession of the Leased Premises to Tenant. If Tenant, its agent, employee, contractor or the like is the cause of such delay,
Rent and such other payments shall not abate. “Possession” shall be defined as delivery of the Leased Premises by Landlord
to Tenant with all of Landlord’s work outlined in Paragraph 44 herein completed. If Landlord is unable to deliver possession
of the Leased Premises with Landlord’s Work substantially complete within sixty (60) days of the Lease Commencement Date,
then either party shall have the right to terminate this Lease.
A. Tenant
shall pay to Landlord, as “Base Rental”, the following:
|
Months 1-12
|
$6,068.00 per month ($72,816 per year; $16.00 per sq. ft.)
|
|
Months 13-24
|
$6,250.00 per month ($75,000 per year; $16.48 per sq. ft.)
|
|
Months 25-36
|
$6,438.00 per month ($77,250 per year; $16.98 per sq. ft.)
|
|
Months 37-48
|
$6,630.00 per month ($79,568 per year; $17.49 per sq. ft.)
|
plus applicable (6.5%) sales tax, per month
for each month of the primary term, in advance, on or before the first day of each month during the term hereof, commencing on
the date Landlord notifies Tenant the Leased Premises are to be delivered to Tenant with Landlord’s Work, if any, substantially
complete (hereinafter the “Rent Commencement Date”). All rent checks and other amounts due under this Lease shall be
payable to Rexall Sundown, Inc. and sent to P. 0. Box 9010, Ronkonkoma, NY 11779. Landlord shall not be obligated to issue invoices
to Tenant.
Base Rental shall include Tenant’s
pro-rata share of base real estate taxes, base cost of Landlord’s insurance and common area maintenance. For the purposes
of this Lease, the Base Year shall be 2010.
In the event the Rent Commencement Date
shall be a day other than the first of the month, the rent and any other shall be computed based on a 30 day month and proportionately
adjusted.
B.
Electric
.
(a) Included in Tenant’s Base Rental shall be a base electric service factor (hereinafter called “BESF”) for
electric energy. Tenant acknowledges that Landlord will be providing electricity for the following items without additional cost
to Tenant (except a provided below). (i) heating, ventilating and air conditioning services (hereinafter called “HVAC”)
to the Leased Premises during 8.00 am to 6.00 pm Monday through Friday and 9.00 am to 12.00 pm Saturday (hereinafter “Business
Hours” on “Business Days”); (b) In the event the Landlord determines Tenant is using the Leased Premises at times
other than the Business Hours or Business Days or in excess of 4 watts per usable square foot, Landlord may charge Tenant and Tenant
shall pay a sum determined by Landlord in its sole reasonable discretion, based on Landlord’s actual electric bills, for
Tenant’s excess use of electricity (hereinafter “Excess Electricity Charge”). The Excess Electricity Charge shall
be due and payable within ten (10) days of the date Tenant is billed for same. Tenant shall submit to Landlord plans and information
regarding electrical connected load within the Leased Premises.
C.
Insurance
.
Tenant shall pay its pro-rata share of Landlord’s cost of insurance for the Premises over a base year. Tenant’s pro-rata
share is eight (8%) percent. For the purposes of this Lease, the base year shall be 2010. Tenant shall reimburse Landlord within
ten (10) days of receipt of bill for same.
If Landlord fails to receive all or any
portion of a rent payment within ten (10) days after it becomes due, Tenant shall pay Landlord, as additional rental, a late charge
equal to ten percent (10%) of the overdue payment. In addition, payments of rent or other sums due Landlord from Tenant not received
by Landlord when due accrue interest at the prevailing Prime Rate plus three (3%) percent, except if such rate exceeds the maximum
interest rate permitted by law, such rate shall be reduced to the highest rate allowed by law. Interest shall accrue from the date
on which it was due until the date full payment is received by Landlord. Tenant shall be liable for Landlord’s reasonable
attorney’s fees, accounting and administrative fees incurred in collecting any sums due by Tenant to Landlord hereunder.
(a) Tenant
shall pay all personal property taxes duly assessed against Tenant’s personal property and business located on the premises,
including rent tax, and shall also pay all privilege, excise and other taxes duly assessed, including state and local sales taxes
charged on the rent and other amounts due under this Lease. Tenant shall pay said taxes when due so as to prevent the assessment
of any late fees or penalties and furnish evidence to Landlord of the payment of same.
(b) Tenant
shall pay its pro-rata share of the real estate taxes for the Premises over a base year. Tenant’s pro-rata share is eight
(8%) percent. For the purposes of this Lease, the base year shall be 2010. Tenant shall reimburse Landlord within ten (I0) days
of receipt of a bill for same.
The Leased Premises shall be used solely
for corporate and administrative offices and for no other purpose whatsoever. No other use may be made of the Leased Premises without
the prior written consent of the Landlord, which Landlord may grant or withhold in its sole business judgment. The Leased Premises
shall not be used in any manner to create any nuisance or trespass, nor for warehousing, manufacturing or production purposes,
nor in any manner to vitiate the insurance or increase the rate of insurance on the Leased Premises. During the Term, Tenant shall,
at its own expense, comply with all laws, ordinances, orders, rules and regulations of Arvida Park of Commerce Association and
any municipality or governmental authority having jurisdiction over the Leased Premises and the Building. The occupancy of the
Leased Premises shall not exceed more than 200 square feet per person.
Tenant shall deposit with Landlord upon
execution of this Lease the sum of
$36,408.00
as a security deposit which shall be held by Landlord, without liability to
Tenant for any interest thereon, as security for the full and faithful performance by Tenant of each and every term, covenant and
condition of this Lease of Tenant. If Tenant is not in default under any of the terms of this Lease at the end of twelve (12) full
calendar months, Landlord shall refund the amount of $6,068.00 from the security deposit to Tenant. If Tenant is not in default
under the terms of this Lease at the end of twenty-four (24) full calendar months, Landlord shall refund the amount of $6,068.00
from the security deposit to Tenant. If any of the rents or other charges or sums payable by Tenant to Landlord shall be overdue
and unpaid or should Landlord make payments on behalf of Tenant, or should Tenant fail to perform any of the terms of this Lease,
then Landlord may, at its option, appropriate and apply the security deposit, or so much thereof as may be necessary to compensate
Landlord toward the payment of the rents, charges or other sums due from Tenant, or towards any loss, damage or expense sustained
by Landlord resulting from such default on the part of Tenant; and in such event Tenant shall upon demand restore the security
deposit to the original sum deposited. In the event Tenant performs all of Tenant’s other obligations under this Lease including
return the Leased Premises to Landlord in the same condition as Landlord initially delivered possession, ordinary wear and tear
excepted, the security deposit shall be returned in full to Tenant within thirty (30) days after the date of the expiration and
surrender of the Leased Premises or sooner termination of the term of this Lease and the surrender of the Premises by Tenant in
compliance with the provisions of this Lease.
Landlord shall provide electricity, heating
and air conditioning for the Leased Premises. Tenant shall install and maintain telephone equipment and services and computer lines
at its own cost and expense; however, same shall require Landlord’s prior approval, which shall not be unreasonably withheld
or denied and Tenant shall use a contractor designated or approved by Landlord. Tenant shall obtain permits or other approvals
as required by law. Landlord shall not be responsible for any interruption of electricity, telephone or computer services, heating
or air conditioning nor any damages resulting therefrom.
|
|
9.
|
Common Areas/Access to Premises
|
In addition to the Leased Premises, Tenant
shall have the right to the non-exclusive use, in common with Landlord, other Tenants, and the guests, employees and invitees of
same, of the Common Areas of the Building for their intended purposes, and in accordance but not limited to the Rules and Regulations
annexed hereto. Landlord shall provide Tenant with the non-exclusive use of the courtyard, common restroom facilities, parking facilities,
mail receiving facilities and garbage collection facilities. In the event Tenant’s use of the dumpster is deemed excessive
by the Landlord, Landlord reserves the right to add an additional dumpster and charge Tenant for same. The Common Areas shall be
subject to the exclusive control and management of Landlord. Tenant, its employees, contractors or guests may not use more than
fourteen (14) unreserved parking spaces at one time. Landlord reserves its right at its sole discretion to designate reserved parking
spaces at any time and to issue warnings to violators or to have towed at vehicle owner’s expense any vehicle parked illegally
or in violation of Landlord’s designations of Tenant’s specific parking area. Tenant is responsible for advising its
employees, contractors or guests of the parking regulations set forth herein and shall indemnify Landlord of any claims related
to towing costs, damages and the like. Tenant shall upon the request of Landlord provide Landlord with the license plate numbers
of Tenant’s employees’ automobiles.
Landlord shall provide Tenant’s employees
with security badges to allow access to the Leased Premises. Tenant shall pay a fee of $25 per security badge issued. Tenant shall
have no more than one (1) employee or consultant per 200 sq. ft. working in the Leased Premises.
Tenant is responsible for access control
to the Leased Premises. Landlord shall not be liable to Tenant, and Tenant shall not make any claim against Landlord, for any loss
Tenant may incur by reason of theft, burglary, acts of vandalism, etc. Tenant shall ensure Landlord has 24 hour access to the Premises
for the purposes of maintenance, management, repairs, leasing or emergencies.
Landlord shall be responsible for all maintenance
of the grounds and improvements on the Building (excluding the Leased Premises) including but not limited to landscaping, roof,
exterior doors and walls, plumbing, heating, air conditioning, and electrical system associated with the Leased Premises, unless
caused by the acts or negligence of Tenant, it’s employees, agents, invitees, or contractors in which case Tenant shall reimburse
Landlord the cost of such repair plus a twenty (20%) percent administration fee.
Tenant shall be responsible for maintenance
of the interior of the Leased Premises including walls, doors, floors, ceilings, light bulbs, fluorescent tubes and cabinets. If
Tenant fails to perform necessary maintenance as provided for herein Landlord may perform said maintenance and bill Tenant the
cost thereof plus a service charge of twenty (20%) percent as additional rental. Tenant agrees to return the Leased Premises to
Landlord at the expiration hereof in the same as the present condition, reasonable wear and tear excepted. Tenant shall promptly
report in writing to Landlord any defective condition known to in which Landlord is required to repair. Failure to report such
conditions shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such condition(s).
Tenant shall be responsible for the cost
of repairs or replacements for any damage done to the common areas, the Building or any part thereof, including the Leased Premises,
caused by Tenant or Tenant’s agents, employees, invitees or visitors.
Tenant shall be responsible for cleaning
and maintaining the Leased Premises at its own cost and expense and shall keep the Premises in a first class attractive manner.
In the event Tenant fails to keep the premises in a clean, attractive manner in Landlord's reasonable discretion, Landlord may
have the Premises cleaned at Tenant’s expense plus a twenty (20%) percent administrative fee. Landlord shall not be responsible
for any damages caused thereby, unless due to Landlord’s negligence. In the event that using non-union janitors would cause
in Landlord’s reasonable discretion a possible disturbance Landlord may require Tenant to use unionized janitorial workers.
|
|
12.
|
Condition of Premises
|
Tenant has inspected the Leased Premises
and finds them to be in a safe, satisfactory, and acceptable condition. The Tenant accepts the Leased Premises in their present
“as is”, “where is” condition, subject to Landlord’s Work contained in Paragraph 44 herein, and without
any representations on the part of Landlord or it’s agents as to the present or future condition of said premises, except
Landlord will warranty its Work for the first thirty (30) days of the Lease Term provided any such need for repairs is not caused
by Tenant, its employees, agents, invitees or visitors.
Tenant will keep the Leased Premises in
a clean and wholesome condition and will comply at all times with all lawful health and governmental, quasi-governmental or insurance
requirements or regulations and will keep the Leased Premises, the furnishings therein and improvements thereon and the areas adjacent
thereto in a safe, secure and attractive condition.
Tenant shall not make any alterations,
additions, or improvements to the Leased Premises without Landlord’s prior written consent. Tenant shall promptly remove
any alterations, additions, or improvements constructed in violation of this paragraph upon Landlord’s written request. All
approved alterations, additions, and improvements will be accomplished in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Tenant shall apply for and obtain all requisite approvals,
consents or permits for such work, at Tenant’s sole cost and expense. Landlord may require Tenant to remove any alterations,
additions or improvements (whether or not made with Landlord’s consent) at the termination of this Lease and to restore the
Premises to its prior condition, all at Tenant’s expense. All alterations, additions and improvements which Landlord has
not required Tenant to remove shall become Landlord’s property and shall be surrendered to Landlord upon the termination
of this Lease, except that Tenant may remove any of Tenant’s furniture and equipment which can be removed without material
damage to the Leased Premises. Tenant shall repair, at Tenant’s expense, any damage to the Leased Premises caused by the
removal of any such furniture or equipment.
Tenant shall keep the property free from
any and all liens arising out of the work performed or materials furnished in making improvements to the Leased Premises, and if
a lien shall be filed will post a bond or otherwise cause same to be removed within five (5) days of notice thereof. Tenant shall
not have the right to encumber the Leased Premises, including any covenants and restrictions or liens of any kind whatsoever. Tenant
shall strictly comply with the Construction Lien Law of the State of Florida. Tenant agrees to obtain and deliver to Landlord prior
to the commencement of any work or alteration or the delivery of any materials, a written and unconditional waiver of contractors’
liens with respect to the Leased Premises, the Building and the parcel for all work, service or materials to be furnished at the
request or for the benefit of Tenant to the Premises.
At the end of the Term or upon earlier
termination of this Lease, Tenant shall surrender the Leased Premises (including Landlord’s office furniture and furnishings
in the Leased Premises) in good condition and repair, reasonable wear and tear excepted, and in a broom-clean condition with all
glass, walls, windows and doors intact. In the event of Tenant’s failure to surrender the Leased Premises in the condition
required, Landlord may restore the Leased Premises to such condition, and Tenant shall pay the cost thereof on demand. Any security
deposit held pursuant to Paragraph 7 hereof may be credited against any amount payable by Tenant under this paragraph.
Tenant agrees to and hereby does indemnify
and save Landlord harmless against all claims for damages to persons or property by reason of Tenant’s use or occupancy of
the Leased Premises, and all expenses incurred by Landlord because thereof, including attorney’s fees and court costs. During
the term of this Lease, Tenant shall, at its sole expense, provide and keep in force insurance in the following minimum amounts.
(a) comprehensive general liability insurance coverage in an amount of not less than $2,000,000 combined single limit coverage
for bodily injury, property damage or a combination thereof; (b) full replacement value coverage on all of its personal property,
including removable trade fixtures and office equipment located in the Leased Premises; (c) worker’s compensation coverage
for all of its employees as required in statutory amounts; (d) umbrella or excess liability insurance in excess of all primary
liability with limits of liability of not less than $5,000,000. Landlord shall not be liable for any losses suffered to Tenant’s
property. Landlord may from time to time increase the limits of the insurance Tenant is required to carry pursuant to this Lease
or may change the type of insurance required and Tenant shall immediately comply. Tenant shall name Rexall Sundown, Inc., its parent,
subsidiaries and affiliates as additional insureds or as may be otherwise instructed by Landlord or its representatives and shall
provide evidence of such insurance to Landlord prior to the commencement of the term of this Lease. Said policies shall contain
an agreement by the insurer(s) that such policies shall not be cancelled without at least twenty (20) days prior written notice
to the Landlord. Landlord and Tenant each hereby release and relieve the other, and waive its right of recovery, for loss or damage
arising out of or incident to the perils insured against which perils occur in, or about the Leased Premises, whether due to the
negligence of Landlord or Tenant or their employees, contractors and/or invitees, to the extent that such loss or damage is within
the policy limits of said comprehensive general liability insurance.
All contractors hired by Tenant to perform
work in the Leased Premises must provide Landlord with satisfactory evidence of the minimum insurance coverage required of Tenant
and outlined above prior to commencing work in the Leased Premises. All certificates of insurance must name Tenant and Landlord
as additional insureds.
|
|
16.
|
Destruction or Damage to Premises/Eminent Domain
|
In the event all or a portion of the Leased
Premises is damaged or destroyed by fire or other casualty or taken by eminent domain, to the extent that Tenant is unable to conduct
its reasonable and ordinary business operations, Landlord shall have the option to terminate the lease or restore the Leased Premises
to its former condition as soon as practical, during which time the rental shall be abated from the date of such damage until the
Leased Premises is restored. All insurance proceeds and eminent domain damages, compensation or award shall be the property of
Landlord.
|
|
17.
|
Assignment and Subletting
|
Tenant shall not assign this Lease or any
interest hereunder, or sublet the Leased Premises or any part thereof, or permit the use of the Leased Premises by any party other
than the Tenant.
The happening of any one or more of the
following events (hereinafter any one of which may be referred to as an “Event of Default”) during the term of this
Lease, or any renewal or extension thereof, shall constitute a breach of this Lease on the part of the Tenant. (a) Tenant fails
to pay the rental as provided for herein; (b) Tenant abandons or vacates the Leased Premises; (c) Tenant fails to comply with or
abide by and perform any other obligation imposed upon Tenant under this Lease; (d) Tenant files a petition seeking bankruptcy
protection or is adjudicated bankrupt; (e) a permanent receiver is appointed for Tenant’s property and such receiver is not
removed within sixty (60) days after written notice from Landlord to Tenant to obtain such removal; (f) Tenant, either voluntarily
or involuntarily, takes advantage of any debt or relief proceedings under the present or future law, whereby the rent or any part
thereof is, or is proposed to be reduced or payment thereof deferred; (g) Tenant makes an assignment for benefit of creditors;
(h) Tenant’s effects are levied upon or attached under process against Tenant, which is not satisfied or dissolved within
twenty (20) days after written notice from Landlord to Tenant to obtain satisfaction thereof (or) (i) Tenant has assigned this
Lease or sublet all or a portion of the Leased Premises without the prior consent of Landlord.
|
|
19.
|
Remedies Upon Default
|
Upon the occurrence of an Event of Default,
Landlord, in addition to any and all other rights or remedies it may have at law or in equity, shall have the option of pursuing
any one or more of the following remedies.
(a) Landlord
may terminate this Lease by giving notice of termination, in which event this Lease shall expire and terminate on the date specified
in such notice of termination, with the same force and effect as though the date so specified were the date herein originally fixed
as the termination date of the term of this Lease, and all rights of Tenant under this Lease and in and to the Leased Premises
shall expire and terminate, and Tenant shall remain liable for all obligations under this Lease arising up to the date of such
termination and Tenant shall surrender the Leased Premises to Landlord on the date specified in such notice;
(b) Landlord
may terminate this Lease and recover from Tenant all damages Landlord may incur by reason of Tenant’s default, including,
without limitation, a sum which, at the date of such termination, represents the then value of the excess, if any, of (i) the monthly
rental and additional rent for the period commencing with the day following the date of such termination and ending with the date
hereinbefore set for the expiration of the full term hereby granted, or (ii) the aggregate reasonable rental value of the Leased
Premises (less reasonable brokerage commissions, attorneys’ fees and other costs relating to the reletting of the Leased
Premises) for the same period, all of which excess sum shall be deemed immediately due and payable;
(c) Landlord
may, without terminating this Lease, declare immediately due and payable all monthly rental and additional rent due and coming
due under this Lease for the entire remaining term hereof, together with all other amounts previously due, at once; provided, however,
that such payment shall not be deemed a penalty or liquidated damages but shall merely constitute payment in advance of rent for
the remainder of said term; upon making such payment, Tenant shall be entitled to receive a credit from Landlord for all rents
received by Landlord from other assignees, Tenants and subtenants on account of the Premises during the term of this Lease, provided
that the monies to which Tenant shall so become entitled shall in no event exceed the entire amount actually paid by Tenant to
Landlord pursuant to this clause (C) less all costs, expenses and attorneys’ fees of Landlord incurred in connection with
the reletting of the Leased Premises; or
(d) Landlord
may, from time to time without terminating this Lease, and without releasing Tenant in whole or in part from Tenant’s obligation
to pay monthly rental and additional rent and perform all of the covenants, conditions and agreements to be performed by Tenant
as provided in this Lease, make such alterations and repairs as may be necessary in order to relet the Leased Premises, and, after
making such alterations and repairs, Landlord may, but shall not be obligated to, relet the Leased Premises or any part thereof
for such term or terms (which may be for a term extending beyond the term of this Lease) at such rental or rentals and upon such
other terms and conditions as Landlord in its sole discretion may deem advisable or acceptable; upon each reletting, all rentals
received by Landlord from such reletting shall be applied first, to the payment of any indebtedness other than rent due hereunder
from Tenant to Landlord, second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorneys’
fees, and of costs of such alterations and repairs, third, to the payment of the monthly rental and additional rent due and unpaid
hereunder, and the residue, if any, shall be held by Landlord and applied against payments of future monthly rental and additional
rent as the same may become due and payable hereunder; in no event shall Tenant be entitled to any excess rental received by Landlord
over and above charges that Tenant is obligated to pay hereunder, including monthly rental and additional rent; if such rentals
received from such reletting during any month are less than those to be paid during the month by Tenant hereunder, including monthly
rental and additional rent, Tenant shall pay any such deficiency to Landlord, which deficiency shall be calculated and paid monthly;
Tenant shall also pay Landlord as soon as ascertained and upon demand all costs and expenses incurred by Landlord in connection
with such reletting and in making any alterations and repairs which are not covered by the rentals received from such reletting;
notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such
previous breach.
Tenant shall place no signs upon the Leased
Premises except with the written consent of the Landlord. Any and all signs placed on the Leased Premises by Tenant shall be maintained
in compliance with governmental rules and regulations governing such signs, and Tenant shall be responsible to Landlord for any
damage caused by installation, use or maintenance of said signs, and all damage incident to such removal. Tenant shall remove all
signs from the Leased Premises upon termination of the Lease and repair all damage resulting from such removal.
|
|
21.
|
Landlord’s Entry of Premises
|
Landlord or its agent(s) may enter the
Leased Premises at reasonable hours to exhibit the Premises to prospective purchasers or Tenants, to inspect the Premises to see
that Tenant is complying with all of its obligations hereunder, and to make repairs required of Landlord under the terms hereof
or to make repairs to Landlord’s adjoining property, if any. Tenant will permit the Landlord, and/or its agents or authorized
representatives to enter upon the Leased Property at all times during reasonable business hours for the purpose of inspecting same.
Landlord and Landlord’s agents and representatives shall be permitted to enter the Leased Premises at any time in emergencies.
|
|
22.
|
Effect of Termination of Lease
|
No termination of this Lease prior to the
normal ending thereof, by lapse of time or otherwise, shall affect Landlord’s right to collect rent for the period prior
to termination thereof.
Tenant agrees that this Lease shall remain
subject and subordinate to all present and future mortgages, deeds to secure debt or other security instruments (the “Security
Deeds”) affecting the Building or the Leased Premises, and Tenant shall promptly execute and deliver to Landlord such certificate
or certificates in writing as Landlord may request, showing the subordination of the Lease to such Security Deeds, and in default
of Tenant so doing, Landlord shall be and is hereby authorized and empowered to execute such certificate in the name of and as
the act and deed of Tenant, this authority being hereby declared to be coupled with an interest and to be irrevocable. Tenant shall
upon request from Landlord at any time and from time to time and within five (5) business days request therefor execute, acknowledge
and deliver to Landlord a written statement certifying as follows. (a) that this Lease is unmodified and in full force and effect
(or if there has been modification thereof, that the same is in full force and effect as modified and stating the nature thereof);
(b) that to the best of its knowledge there are no uncured defaults on the part of Landlord (or if any such default exists, the
specific nature and extent thereof); (c) the date to which any rent and other charges have been paid in advance, if any; and (d)
such other matters as Landlord may reasonably request. Tenant irrevocably appoints Landlord as its attorney-in-fact, coupled with
an interest, to execute and deliver, for and in the name of Tenant, any document or instrument provided for in this paragraph.
Notwithstanding the foregoing, in the event Landlord mortgages the Building, Landlord shall request a non-disturbance certificate
from its lender in the form typically provided in similar transactions.
So long as Tenant observes and performs
the covenants and agreements contained herein, it shall at all times during the Lease term peacefully and quietly have and enjoy
possession of the Leased Premises, but always subject to the terms hereof.
This Lease shall create the relationship
of Landlord and Tenant between the parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct not subject
to levy and sale, and not assignable by Tenant except by Landlord’s consent.
If Tenant remains in possession of the
Leased Premises after expiration of the term hereof, with Landlord’s approval and without any express agreement of the parties,
Tenant shall be a Tenant at will at the rental rate which is in effect at end of this Lease and there shall be no renewal of this
Lease by operation of law. If Tenant remains in possession of the Leased Premises after expiration of the term hereof without Landlord’s
approval, Tenant shall be a Tenant at sufferance and commencing on the date following the date of such expiration, the monthly
rental payable under Paragraph 3 above shall for each month, or fraction thereof during which Tenant so remains in possession of
the Leased Premises, be
twice
the monthly rental otherwise payable under Paragraph 3 above.
In the event Tenant fails to surrender
the Leased Premises at the end of the term or fails to so surrender in the condition required herein or as sooner terminated consistent
with the terms hereof, Landlord shall be entitled to seek any and all damages for such hold-over, including but not limited to,
consequential damages, legal fees, accounting fees, administrative fees, court costs, rents, fees incurred as a result of claims,
etc.
In the event that any action or proceeding
is brought by Landlord to enforce any term, covenant or condition of this Lease, and Landlord shall prevail, Landlord shall be
entitled to recover from Tenant or Guarantor its actual attorney’s fees.
All rights, powers and privileges conferred
hereunder upon parties hereto shall be cumulative and not restrictive of those given by law.
No failure of Landlord to exercise any
power given Landlord hereunder or to insist upon strict compliances by Tenant of its obligations hereunder and no custom or practice
of the parties at variance with the terms hereof shall constitute a waiver of Landlord’s right to demand exact compliance
with the terms hereof.
Landlord and Tenant hereby acknowledge
that Jeffrey Kelly of CB Richard Ellis Brokerage has acted as an agent for Landlord in this transaction and will be paid a real
estate commission by Landlord.
Landlord shall pay Landlord’s broker
a commission pursuant to a separate agreement. Landlord and Tenant shall indemnify and hold harmless the other from claims arising
from any other broker or agent claiming to be entitled to a commission and to have done business with such party.
Tenant represents and warrants that Tenant
shall at its sole expense comply with all applicable environmental laws and that Tenant shall not permit any of his employees,
brokers, contractors or subcontractors, or any person present on the premises to generate, manufacture, store, dispose or release
on, about, or under the premises any toxic waste or hazardous substances which would result in the premises not complying with
any applicable environmental laws. Tenant shall indemnify and defend Landlord, its successors and/or assigns, against (a) all claims
and liabilities for cleanup of any environmental condition on the premises resulting from, or arising out of Tenant’s activities,
or the activities of Tenant’s agents or employees; (b) all claims and liabilities for fines or penalties for violation of
any environmental laws to the extent that such violation arises from Tenant’s leasing, occupancy, use or operation of the
premises from and after the Commencement Date of this Lease or prior thereto if the violation resulted from or arose out of Tenant’s
activities or the activities of Tenant’s agents or employees; (c) all claims and liabilities to the extent arising from Tenant’s
leasing, occupancy, use or operation of the premises by Tenant, its employees, contractors, subcontractors, agents, including but
not limited to liabilities arising from any accident, fire, collapse, mechanical failure or release of any hazardous substance,
including claims and liabilities for offsite contamination and third party claims, and (d) all claims and liabilities arising under
any federal, state or local laws based on disposal or arrangement for disposal of any hazardous substance by Tenant, its agents
or employees, at a location other than the premises.
Time is of the essence in the performance
of all duties obligations, and responsibilities under the terms of this lease.
“Landlord” as used in this
Lease shall include the undersigned, its heirs, representatives, assigns and successors in title to the Premises, “Tenant”
shall include the undersigned and its heirs, representatives, assigns and successors “Landlord” and ‘Tenant”
include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. The terms
“Premises” and “Leased Premises” are used interchangeably in this Lease.
This Lease contains the entire agreement
of the parties hereto, and no representations, inducements, promises or agreement, oral or otherwise, between the parties, not
embodied herein, shall be of any force or effect. No subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant.
This Lease shall be governed by and construed
in accordance with the Laws of the State of Florida.
If any section, paragraph, sentence or
portion of this Lease or the application thereof to any party or circumstance shall, to any extent, be or become invalid or illegal,
such provision is and shall be null and void, but to the extent that said null and void provisions do not materially change the
overall agreement and intent of this entire agreement, the remainder of this Lease shall not be affected thereby and each remaining
provision of this Lease shall be valid and enforceable to the fullest extent provided by law.
All notices given pursuant to the terms
of this lease and under applicable law, shall be deemed given and received five (5) days after mailing if mailed postage prepaid,
certified mail, return receipt requested, or if via overnight carrier upon actual receipt and to the following addresses.
|
If to Landlord
:
|
If to Tenant
:
|
|
|
|
|
Nancy Shores, Esq.
|
Kal Fishman
|
|
NBTY, Inc. Real Estate Department
|
851 Broken Sound Pkwy, NW #215
|
|
90 Orville Drive
|
Boca Raton, FL 33487
|
|
Bohemia, NY 11716
|
|
|
|
|
|
And
|
|
|
Irene Fisher, Esq.
|
|
|
NBTY, Inc. Legal Department
|
|
|
2100 Smithtown Avenue
|
|
|
Ronkonkoma, NY 11779
|
|
|
|
36.
|
Rules and Regulations
|
Tenant shall comply with the Rules and
Regulations applicable to the Building, the Leased Premises and the common areas adopted and amended by the Landlord from time
to time and shall cause all of its agents, employees, invitees and visitors to do so. All changes to the Rules and Regulations
will be sent by Landlord to Tenant in writing. The initial Rules and Regulations, which have been reviewed and approved by Tenant,
are attached hereto as Exhibit “B”.
Whenever a period of time is herein prescribed
for the taking of any action by Landlord, Landlord shall not be liable or responsible for, and there shall be excluded from the
computation of such period of time, any delays due to any condition, matter or circumstance beyond the reasonable control of Landlord,
including without limitation, the following. strikes; defaults or failures to perform by contractors or subcontractors; unavailability
of materials; lockouts; acts of God; governmental restrictions; war or enemy action or invasion; civil commotion; insurrection;
riot; mob violence; malicious mischief or sabotage; fire or any other casualty; adverse weather conditions or unusual inclement
weather; a condemnation; failure of a governmental instrumentality to act in a timely fashion; any litigation or other legal proceeding
which delays the approval of plans or the issuance of any grading or building permit for construction including the issuance of
an injunction enjoining such approval and/or issuance; any law, order or regulation of any governmental, quasi-governmental, judicial
or military authority; or other similar cause. Without limiting the generality of the foregoing, in the event a Force Majeure matter
affects Landlord’s delivery obligation(s) relative to the Leased Premises under this Lease, at Landlord’s option, the
Commencement Date shall be extended by the same number of days as the number of days of delay caused by such Force Majeure matter
on the delivery obligation(s).
|
|
38.
|
Transfers by Landlord
|
Landlord shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and in the Building and property referred to herein,
and in such event and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to
look solely to such successor in interest of Landlord for the performance of such obligations, except those obligations of Landlord
with respect to which a default exists as of the effective date of such transfer or assignment. Tenant shall recognize and attorn
to such transfers and/or successor to Landlord’s interest in the Building and property referred to herein.
|
|
39.
|
Survival of Obligations
|
Notwithstanding any term or provision in
this Lease to the contrary, any liability or obligation of Landlord or Tenant arising during or accruing with respect to the Lease
term shall survive the expiration or earlier termination of this Lease, including without limitation, obligations and liabilities
relating to (i) rent payments, (ii) the condition of the Leased Premises and the removal of Tenant’s property, and (iii)
indemnity and hold harmless provisions in this Lease.
Tenant agrees, on behalf of Tenant and
Tenant’s employees, agents, contractors, consultants, partners and affiliates, not to disclose the terms of this Lease or
the results of any audit of Landlord’s books and records under this Lease to any third party except (i) legal counsel, (ii)
as required by applicable law or by subpoena or other similar legal process, or (iii) for financial reporting purposes.
The parties hereto shall, and they hereby
do, waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on
any matters whatsoever arising out of, or in any way connected with, this Lease, the relationship of Landlord and Tenant, Tenant’s
use or occupancy of the Leased Premises and/or Building and/or claim or injury or damage. In the event Landlord commences any proceedings
to enforce this Lease or the Landlord/Tenant relationship between the parties or for non-payment of rent of any nature whatsoever,
or additional monies due Landlord from Tenant under this Lease, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceedings. In the event Tenant must, because of applicable court rules, interpose any counterclaim or
other claim against such proceeding, the Landlord and Tenant covenant and agree that, in addition to any other lawful remedy of
Landlord, upon motion of Landlord such counterclaim or other claim asserted by Tenant shall be severed out of the proceedings instituted
by Landlord and, if necessary, transferred to a court of different jurisdiction, and the proceedings instituted by Landlord may
proceed to final judgment separately and apart from and without consolidation with or reference to the status of each counterclaim
or any claim asserted by Tenant.
Radon is a naturally occurring radioactive
gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health unit.
|
|
43.
|
Landlord’s Right of Relocation
|
Landlord shall have the right to relocate
Tenant, at Landlord’s expense, to another space in the Building which is comparable in size, quality and condition to each
of the offices and other areas in the Leased Premises and contains the same amenities and furnishings as the Leased Premises. Upon
such relocation, the relocation space shall be deemed to be the Leased Premises and the terms and conditions of this Lease shall
remain in full force and effect.
|
|
44.
|
Landlord’s Improvements
|
Landlord shall install new VCT flooring
in standard colors in the entrances of Suites 210 and 215, and replace all existing carpet. Landlord shall remove all wallpaper,
boards and displays from all walls and replace with new paint. Conference room ceiling only to be painted. Paint color shall be
selected by Tenant from Landlord’s standard paint colors with one wall in each office to be painted with an accent color.
All trim, moldings and door frames shall be touched up as needed. The existing dishwasher and refrigerator shall be removed by
Landlord and left in appropriate condition for installation of Tenant’s new appliances at Tenant’s sole cost and expense.
All existing office furniture currently in the Leased Premises (identified on Schedule C annexed hereto) shall remain within the
Leased Premises for Tenant’s use so long as Tenant is not in Default under this Lease, but shall continue to be Landlord’s
property. Landlord shall supply and install free standing 5’ wire shelf unit in the one (I) executive office closet, supply
and install three (3) quad electrical outlets in the conference room floor close to the inside legs of the conference room table,
remove the two (2) tube TV’s and stands in the conference room, remove the glass from the conference room table and clean
and polish the table top. Landlord shall clean & buff the break room floor and adjust/balance/tighten all break room cabinet
and drawer hinges.
Tenant will be provided with one (1) key
to each exterior door and one (1) key to each interior door which contains a lock. Landlord’s work shall be to building standard
specifications.
The following individuals shall be Guarantors
of this Lease and shall guaranty the payment of rent and all obligations of the Tenant under this Lease through the return of the
Leased Premises to Landlord, in the condition required pursuant to this Lease, in accordance with all of the terms and conditions
set forth in the Guaranty(s). Joseph C. Sardano, Stephen Cohen and Kalman Fishman. The executed Guaranty of each of the Guarantors
shall be annexed hereto and made a part hereof.
* * *
WITNESS the signatures of the
parties, this 26
th
day of July, 2010.
|
|
Rexall Sundown, Inc., Landlord
|
|
|
|
|
|
|
By:
|
/s/ Joseph Looney, Vice President
|
|
|
|
|
|
|
Sensus Healthcare, LLC, Tenant
|
|
|
|
|
|
|
By:
|
/s/ Joseph Sardano
|
|
|
|
President and CEO
|
|
|
|
|
|
|
By:
|
/s/ Kal Fishman
|
|
|
|
Kal Fishman, COO
|
|
|
|
|
|
|
By:
|
/s/ Stephen Cohen
|
|
|
|
Stephen Cohen
|
Signed before me by Stephen Cohen, Kalman
Fishman, and Joseph Sardano who has all provided me with Driver’s Licenses or ID on July 26
th
2010.
|
|
ANDREA CRUZ
|
|
|
MY COMMISION #DD 859620
|
|
|
EXPIRES: February 10, 2013
|
|
|
Bonded Thru Notary Public Underwriters
|
EXHIBIT “A”
EXHIBIT “B”
RULES AND REGULATIONS FOR THE BUI LDING
851 BROKEN SOUN D PARKWAY, BOCA RATON, FL 33487
1.
The
sidewalks, entrances, passages, courtyards, elevators, vestibules, stairways, corridors or halls of the Building shall not be obstructed
or encumbered, nor shall they be used for any purpose other than ingress and egress to and from the Leased Premises or Common Areas
.
2.
Tenant
identification shall be provided by Landlord at each tenant’s expense in conformance to the signage standards for the Building
and local codes
. No additional signage shall be installed by a tenant. No signs, directories, posters, advertisements
or notices shall be painted or affixed on or to any of the windows or doors, or in the corridors, courtyards or other parts of
the Building, except as and where designated and approved in writing by Landlord in its discretion. Landlord shall have the right
to remove all unapproved signs without notice to any tenant, at the expense of the responsible tenant.
3.
Parking
spaces associated with the Building are intended for the exclusive use of passenger vehicles
. Tenants shall comply with
reasonable parking rules and regulations as may be posted and distributed by Landlord from time to time. Except for intermittent
deliveries, no vehicles other than passenger vehicles may be parked in a parking space without the express written permission of
Landlord. Parking spaces designated for a specific tenant shall not be used by any other tenant.
4.
Landlord
shall provide trash receptacles or dumpsters at predetermined locations; it is each tenant’s obligation to place all trash
and debris within those containers
. Should a tenant generate more than a normal amount of trash or debris or create
a special type of waste calling for special treatment, then Land lord reserves the right to bill additional amounts to the tenant
to cover any or all expenses incurred by Landlord in dealing with this problem.
5.
Tenant
shall not bum any trash of any kind i n or about the Premises, nor shall tenant permit rubbish, refuse or garbage to accumulate
or any fire or health hazard to exist upon or about the Premises
.
6.
The
toilets and urinals and other plumbing fixtures in Common Areas or in tenant spaces shall not be used for any purpose other than
those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown into them
.
All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors
or licensees, shall have caused the same. Waste and excessive or unusual use of water shall not be allowed.
7.
Tenant
and tenant’s employees shall not make disturbing noises, permit a nuisance about the Premises, keep birds or animals in the
Premises or use such Premises for lodging, sleeping, immoral or illegal purposes or commit any act on the Premises or other parts
of the Building which Land lord deems an interference with the rights, comforts and convenience of other tenants
. Business
machines and mechanical equipment belonging to tenant which cause noise or vibration that may be transmitted to the structure of
the Building or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant’s expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration.
Included herein is any device that emits
electro-mechanical waves or radio frequencies which interfere with any other tenant’s devices or equipment.
8.
No
bicycles, vehicles or animals of any kind shall be brought into or kept in or about the Building, and no cooking shall be done
or permitted by any tenant in the Building without written consent of Landlord, which consent may be withheld for any reason
.
Notwithstanding the foregoing, if tenant’s Premises contain a kitchen, tenant shall not cause, suffer or permit any unusual
or objectionable odors or any nuisance, to be produced upon or permeate from any premises demised to him or it.
9.
Canvassing,
soliciting and peddling in the Building are prohibited and tenant shall cooperate to prevent such activity
.
I 0. No
curtains, blinds, shades, or awnings, interior window treatments or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises, without the prior written consent of the Landlord. Should such permission be granted,
fixtures must be of a quality, type, design and color, and must be attached in the manner approved by the Landlord.
1 1. Tenant
shall see that all doors are securely locked, water faucets, electric lights and air conditioning thermostats turned off before
leaving the Building. Tenant shall be responsible for any damage to the Premises or the Building and for all damage or injuries
sustained by other tenants or occupants of the Building arising out of tenant’s failure to observe this rule.
10.
No
space on or in the Building shall be used for manufacturing or retail sale of tangible personal property of any kind
.
11.
No
tenant shall overload the floors of the Building, and each shall obtain approval from Landlord before installing any iron safe
or other heavy equipment or machines
. No safes, bulky or heavy articles, furniture or freight, shall be carried into
the main entranceway of the Building unless arrangements are first made with Landlord. All furniture, building supplies and materials,
safes and other heavy property, equipment, machinery and other freight must be moved into, within and out of the Building under
the Landlord’s supervision, but Landlord will not be responsible for loss of or damage to such freight from any cause. Landlord
shall prescribe the time and manner for the carrying in and removal of such articles, also the right and proper position of safes
and other weighty articles before they are admitted to the Building, and each tenant shall be responsible for all injury to person
or property caused by the installing, maintaining or removing of such articles. Tenant will not locate any furniture or cabinets
adjacent to mechanical or electrical access panels or over air conditioning outlets or vents.
12.
When
electric wiring of any kind is introduced it must be connected as directed by the Landlord and no boring or cutting for wires will
be allowed except with the Landlord’s consent
. The location of telephones, computer lines, electric appliances,
call boxes, etc., shall be prescribed by the Landlord. No apparatus of any kind shall be connected with the electric wiring without
the written consent of the Land lord except by normal electrical plugs and outlets. The tenants agree not to use or connect with
the electric wires any more lights than are provided for in each room, or any electric lamp of higher candle power than provided,
or any fan, motor or other apparatus without the Landlord’s written consent. The tenants agree not to connect with the water
pipes any apparatus using water, without the express prior written consent of the Landlord. Tenant shall pay for all light bulbs
replaced by reason of breaking or burning out during Tenant’s occupancy and surrender the Premises fully equipped with operative
light bulbs.
13.
No
tenant shall bore, cut or string wires, except with the prior written consent of the Landlord, and as the Landlord may direct
.
The expense of any breakage, stoppage or damage resulting from a violation of this Rule shall be borne by the tenant who has caused
such breakage, stoppage or damage. Tenant may place nails or screws in the walls of the Premises necessary to secure artwork on
such walls. Notwithstanding the foregoing, Tenant shall be responsible for fully repairing damage to the Premises resulting from
such nails or screws prior to termination of the Lease.
14.
The
requirements of the tenants will be attended to only upon application at the management office of the Building
. Building
management employees and contractors shall not perform any work or do anything outside of their regular duties, unless under special
instructions from the Landlord.
15.
No
tenant, nor any of the servants, employees, agents, visitors or licensees of a tenant, shall at any time bring or keep upon the
Building any flammable, combustible or explosive fluid, firearms, chemical or substance, or any matter forbidden or regulated by
any insurance company at risk with respect to all or any part of the Building
. Tenant shall not make any use of the
Premises which would make void or voidable any policy of fire or extended coverage insurance covering the Premises, the Building
or the Project. Tenant, at its own cost and expense, shall comply with any reasonable request relating to the Premises or tenant’s
use and occupation thereof, of any insurance company insuring the Premises, the Building or the Project, or Landlord with respect
thereto.
16.
Tenant
shall not use or do, or allow anything to be used or done, upon the Premises which may be dangerous, explosive or damaging to life
or limb
.
17.
No
auction, fire or bankruptcy sale may be conducted on the Premises
.
18.
The
Landlord may waive or modify any one or more of these rules for the benefit of any particular tenant of the Building, but no such
waiver by the Landlord of any such rules shall be construed as a waiver or modification of such rule in favor of any other tenant
or tenants of the Building, nor prevent the Landlord from thereafter enforcing any such rule against any or all of the tenants
of the Building
. Landlord reserves the right to make such other and further rules and regulations as in its judgment
may from time to time be necessary for the safety and cleanliness of, and for the preservation of good order in the Building and
the Common Areas. These rules shall be applied to each tenant on a non-discriminatory basis.
19.
There
is NO SMOKING permitted in any part of the building, including offices, hallways, restrooms and the Courtyard
.
20.
Tenants
shall keep the Leased premises and all common areas of the Building neat and clean and shall dispose of all trash in designated
receptacles
.
21.
Landlord
has the right to evacuate the Building in the event of an emergency or catastrophe
.
22.
No
additional locks shall be placed upon any doors without the prior written consent of Landlord
. All necessary keys or
access cards or codes shall be furnished by landlord as per the Lease, and the same shall be surrendered upon termination of the
Lease.
Exhibit “C”
|
Description
|
|
Qty
|
|
Location (s)
|
|
Chair, conf. room
|
|
20
|
|
210 Conf room
|
|
Console, mahogany, 6’, 9 drawer 2 cabinets
|
|
1
|
|
210 Conf room
|
|
Easel, paper flip chart
|
|
1
|
|
210 Conf room
|
|
Table, mahogany, 30’, conf with glass too
|
|
1
|
|
210 Conf room
|
|
Small mahogany trash cans
|
|
3
|
|
210 Conf room
|
|
Chair, mahogany, 42”, bar
|
|
3
|
|
210-60 Kitchen
|
|
Chairs, office
|
|
2
|
|
210 1obby
|
|
Chair, office
|
|
1
|
|
21O next to kitchen
|
|
File cabinet, metal, 4 drawer
|
|
1
|
|
210 next to kitchen
|
|
Desk, mahogany, 6’
|
|
2
|
|
210 next to kitchen
|
|
File cabinet, metal, 3 drawer
|
|
1
|
|
210-15
|
|
File cabinet, metal, 5 drawer
|
|
3
|
|
210-15
|
|
File cabinet, metal, 2 drawer
|
|
2
|
|
210-20
|
|
Bookcase, mahogany, 6’
|
|
1
|
|
210-25
|
|
Desk, mahogany, 6’
|
|
1
|
|
210-25
|
|
Credenza, mahogany, 6’
|
|
1
|
|
210-25
|
|
Chair, office
|
|
4
|
|
210-30
|
|
Couch, mauve cloth
|
|
1,
|
|
210-30
|
|
Credenza, mahogany, 6’
|
|
1
|
|
210-30
|
|
Desk, mahogany, 6’
|
|
1
|
|
210-30
|
|
Lamp, tall
|
|
1
|
|
210-30
|
|
Table, mahogany, 3 1/2’, coffee
|
|
1
|
|
210-30
|
|
Table, mahogany, 4’, round office
|
|
2
|
|
210-30
|
|
Chair, office
|
|
4
|
|
210-35
|
|
Credenza, mahogany, 6’
|
|
1
|
|
210-35
|
|
Desk, mahogany, 6’
|
|
1
|
|
210-35
|
|
Table, mahogany, 4’, round office
|
|
1
|
|
210-35
|
|
Bookcase, mahogany, 6’
|
|
3
|
|
210-40
|
|
Chair, office
|
|
4
|
|
210-40
|
|
Credenza, mahogany, 6’
|
|
1
|
|
210-40
|
|
Desk, mahogany, 6’
|
|
1
|
|
210-40
|
|
Cabinet, mahogany, 5’, wall mounted
|
|
2
|
|
215-00
|
|
Small File Cabinet 2 drawer
|
|
1
|
|
215-00
|
|
Credenza, mahogany, 5’
|
|
2
|
|
215-00
|
|
Desk, mahogany, 5’
|
|
1
|
|
215-00
|
|
Chair, sled
|
|
1
|
|
215-10
|
|
Bookcase, mahogany, 6’
|
|
1
|
|
215-10
|
|
Credenza, mahogany, 5’
|
|
1
|
|
215-10
|
|
Desk, mahogany, 5’
|
|
1
|
|
215-10
|
|
Chair, office
|
|
1
|
|
215-15
|
|
Credenza, mahogany, 6’
|
|
1
|
|
215-15
|
|
Desk, mahogany, 6’
|
|
1
|
|
215-15
|
|
Table, mahogany, 4’, round office
|
|
1
|
|
215-15
|
|
Chair, sled
|
|
1
|
|
215-20
|
|
Desk, mahogany, 6’
|
|
1
|
|
215-20
|
|
Credenza, mahogany, 6’
|
|
1
|
|
215-20
|
|
Chair, sled
|
|
1
|
|
215-25
|
|
Desk, mahogany, 5’
|
|
1
|
|
215-25
|
7/25/2010
Exhibit 10.7
AMENDMENT TO LEASE,
DATED AS OF JANUARY 27, 2014,
BY AND BETWEEN REXALL SUNDOWN, INC.
AND SENSUS HEALTHCARE, LLC
AMENDMENT TO LEASE
between
REXALL SUNDOWN, INC., Landlord
and
SENSUS HEALTHCARE, LLC, Tenant
TIDS AMENDMENT dated the 27th day of January,
2014, between REXALL SUNDOWN,INC., with offices at 90 Orville Drive, Bohemia, New York 11716 (“Landlord”) and SENSUS
HEALTHCARE, LLC, with offices at 851 Broken Sound Parkway, Suites 210 & 215, Boca Raton, Florida 33487 (“Tenant”).
WITNESSETH:
WHEREAS, by Lease dated July 26, 2010, (the
“Lease”), Landlord leased to Tenant certain premises being identified in said Lease as 4,551 square feet at Suites
210 & 215, 851 Broken Sound Parkway, Boca Raton, Florida (the “Premises”), and WHEREAS, Landlord and Tenant now
desire to amend and modify the Lease to extend the Lease Term and adjust the Base Rental.
NOW, THEREFORE, inconsideration of the mutual
covenants contained herein and in the Lease, and other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties, it is hereby mutually agreed as follows:
1.
Term
.
Notwithstanding any provisions contained in the Lease to the contrary, said Lease Term is hereby extended period of three (3) years
commencing on August 1, 2014 and ending on July 31, 2017 (the “Extended Lease Term”).
2.
Base
Rental
. The Base Rental during the Extended Lease Term shall be as follows:
8/1/14 through 7/31/15
- $1,585.00/month;
$91,020.00/year; $20.00/square foot plus applicable (6%) sales tax, payable in accordance with the Lease;
8/1/15 through 7/31/16
- $7,812.SO/month;
$93,750.00/year; $20.60/square foot plus applicable (6%) sales tax, payable in accordance with the Lease;
8/1/16 through 7131/17
- $8,046.80/month;
$96,562.00/year; $21.22/square foot plus applicable (6%) sales tax, payable in accordance with the Lease.
3.
Broker
.
Landlord and Tenant hereby 1ep1cswt to each other that other than CBRE, Inc., specifically Jeffrey Kelly on behalf of the Landlord,
no other broker or finder is entitled to a fee or commission in connection with this transaction. Landlord and Tenant each agree
to indemnify, protect, hold harmless and defend the other from and against any such claims if they shall be based upon any statement,
representation or agreement made by Landlord or Tenant. The Landlord shall pay any and all brokerage commissions due as per separate
agreement.
4.
Full
Force and Effect
. Except as modified herein, all of the other terms, covenants and conditions of the Lease shall remain
in full force and effect.
This Amendment to Lease shall bind mid inure
to the benefit of not only the parties hereto, but also their successors and assigns.
IN WITNESS WHEREOF, Landlord and Tenant have
executed this Amendment to Lease as of the day and year first above written.
|
|
REXALL SUNDOWN, INC., Landlord
|
|
|
|
|
|
|
By:
|
/s/ Joseph Looney
|
|
|
|
Joseph Looney, Vice President
|
|
|
|
|
|
|
SENSUSHEALTHCARE, LLC, Tenant
|
|
|
|
|
|
|
By:
|
/s/ Stephen Arnold
|
|
|
|
Stephen Arnold, CFO
|
Exhibit 10.8
FORM OF NON-QUALIFIED OPTION GRANT AGREEMENT
NON-QUALIFIED
OPTION GRANT AGREEMENT
THIS NON-QUALIFIED
OPTION GRANT AGREEMENT
("
Agreement
"), is made and effective as of _____________________ (the "
Grant
Date
"), by and between Sensus Healthcare, LLC, a Delaware limited liability company ("
Sensus
"), and ________________
("
Participant
").
RECITALS
:
WHEREAS
, Sensus
is desirous of increasing the incentive of Participant whose contributions are important to the continued success of Sensus.
NOW, THEREFORE,
in consideration of the foregoing, and for other good and valuable consideration, Sensus hereby grants Participant options to purchase
membership interests of Sensus pursuant to the Sensus 2013 Option Plan (the "
Plan
"), upon the following terms
and conditions. Capitalized terms not defined herein shall have the meaning ascribed thereto in the Plan. A copy of which has been
provided to Participant.
Subject to the terms
and conditions of this Agreement and the Plan, Sensus hereby grants to Participant an option ("
Option
") to purchase
an aggregate of
_______________ (_____)
units of membership interests of Sensus (an “
Option Interest
”).
This Option is intended to be a non-qualified stock option and is not intended to qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code (the “
Code
”).
The Exercise Price
of this Option shall be
_______________ ($_____)
per Option Interest.
|
|
3.
|
TERM AND VESTING OF OPTION
|
(a)
Option
Period
. Subject to the provisions of this
Section 3
hereof and the Plan, this Option shall terminate and all rights
to purchase shares hereunder shall cease on the
________ (___)
anniversary of the Grant Date.
(b)
Vesting
and Exercisability
. Subject to the provisions of
Section 5
hereof and the Plan, this Option shall become vested and
exercisable on the
______
anniversary of the Grant Date, provided that Participant is, and has been, continuously
employed by Sensus as of the
_______
anniversary of the Grant Date, as determined by the Committee in its sole discretion.
No portion of the Option shall vest prior to the
___________
anniversary of the Grant Date, except as provided in
Section 3(c)
.
(c)
Acceleration
of Vesting Upon Change in Control
. Notwithstanding
Section 3(b)
above, the Option shall fully vest at the time of a
Change in Control if the Participant is, and has been, continuously employed by Sensus (i) as of such time, or (ii) as of the date
that is within ninety (90) days prior to a Change in Control and Participant’s employment with Sensus was terminated by Sensus
without Cause.
|
|
4.
|
MANNER OF EXERCISE AND PAYMENT
|
(a)
Notice
.
This Option may be exercised to the extent vested as provided in
Section 3
. Prior to exercise of the Option, Participant
shall deliver to Sensus a written notice, in the form acceptable to Sensus, stating that Participant is exercising the Option and
specifying the number of Option Interests which are to be purchased pursuant to the Option. An attempt to exercise any Option granted
hereunder other than as set forth herein shall be invalid and of no force and effect.
(b)
Payment
.
Unless otherwise provided by the Committee, the Exercise Price as well as any tax that Sensus may be required to transmit to any
government entity/agency in connection with Option exercise (the amount to be paid with respect to such tax to be determined by
the Committee in its sole discretion) must be paid to Sensus before the applicable exercise date. Payment of the Exercise Price
for the Option Interests pursuant to the exercise of an Option shall be made by one of the following methods: (i) by wire transfer,
certified or cashier’s check, bank draft or money order; or (ii) by any other method which the Committee, in its sole and
absolute discretion and to the extent permitted by applicable law and the LLC Agreement, may permit.
|
|
5.
|
TERMINATION OF EMPLOYMENT
|
(a)
Expiration
of Unvested Options
. Upon termination of Participant’s employment with Sensus for any reason, Participant’s unvested
options shall expire.
(b)
Cause;
Death; Disability
. In the event Participant's employment with Sensus is terminated for Cause, death, or disability, this Option,
whether vested or unvested, (i) shall be deemed to have expired upon termination of employment, and (ii) any Option Interests acquired
by Participant through Option exercise that took place within thirty (30) days immediately preceding the date of such termination
of employment shall be forfeited to Sensus and the Exercise Price paid by Participant shall be returned to Participant or his/her
estate.
(c)
Without
Cause
. If Participant's employment or service with Sensus is terminated without Cause (including retirement), Participant shall
have the right at any time within the period not to exceed thirty (30) days after such termination without Cause and prior to termination
of this Option pursuant to its terms, to exercise, in whole or in part, any vested portion of this Option held by Participant at
the date of such termination.
|
|
6.
|
COMPANY'S RIGHT TO PURCHASE AWARD INTERESTS
|
Unless otherwise provided
in this Agreement, the Sensus shall have the right to repurchase the Option Interests issued with respect to any Participant following
such Participant's termination of employment and service with the Company, at a price for the Option Interests equal to the lesser
of: (i) the Fair Market Value of such Option Interests, as determined on the day of such termination, or (ii) Exercise Price paid
by the Participant (other than the Exercise Price paid by virtue of the Grantor withholding Option Interests) for such Option Interests,
provided that the Grantor notifies the Participant of its intent to exercise such right within 90 days of termination. The right
of the Grantor to repurchase the Option Interests pursuant to this Section shall terminate upon the occurrence of a Change in Control.
"Fair Market Value"
means, unless otherwise required by the Code or the Plan, as of any date, the value determined in good faith by the Committee in
its sole discretion. Notwithstanding anything in the foregoing paragraph, Fair Market Value shall be determined consistent with
Section 409A of the Code.
(a)
Incorporation
of Recitals
. All of the Recitals set forth above are incorporated into this Agreement by this reference.
(b)
No
Right to Continued Employment; No Rights as Member
. Neither the Plan nor this Agreement shall confer upon Participant any right
to be retained as an employee of Sensus. Further, nothing in the Plan or this Agreement shall be construed to limit the discretion
of the Sensus to terminate the Participant’s employment at any time, with or without Cause. Participant shall not have any
rights as a Member with respect to any Interests subject to the Option prior to the date of exercise of the Option and execution
of a joinder to Sensus’ Limited Liability Company Agreement in form and substance acceptable to Sensus, in its sole discretion.
(c)
Indulgences,
Etc.
Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted
to have granted such waiver.
(d)
Controlling
Law
. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida,
without application of the principles of conflict of laws thereof.
(e)
Binding
Nature of Agreement; Transferability
. This Agreement shall be binding upon all successors of Sensus and all permitted successors
and assigns of Participant. This Agreement shall not be assignable or transferable by Participant.
(f)
Severability
.
If any provision of this Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction,
the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
(g)
Section
Headings
. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
(h)
Number
of Days; Time of Essence
. In computing the number of days for purposes of this Agreement, all days shall be counted, including
Saturdays, Sundays and holidays;
provided
,
however
that if the final day of any time period falls on a Saturday,
Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday. Time is of the essence with respect to all time periods provided herein.
(i)
No
Third-Party Beneficiaries
. This Agreement shall not confer any rights or remedies upon any person other than the parties and
their respective successors and permitted assigns.
(j)
Entire
Agreement; Amendments
. This Agreement, including the Plan and any other documents and exhibits referred to herein and therein,
constitutes the entire agreement among the parties and supersedes any prior understandings, agreements, or representations by or
among the parties, written or oral, that may have related in any way to the subject matter hereof. Except as expressly provided
herein or in the Plan, this Agreement may not be amended, supplemented or modified in whole or in part except by an instrument
in writing signed by the party or parties against whom enforcement of any such amendment, supplement or modification is sought.
(k)
Construction
.
The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and,
therefore, strict construction shall not be applied against any party. Any reference to any federal, state, local or foreign statute
or law shall be deemed also to refer to the rules and regulations promulgated thereunder, unless the context requires otherwise.
If any provision of this Agreement conflicts with the terms of the Plan, the Plan shall govern.
(l)
Counterparts
.
This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument. Delivery of an executed counterpart by facsimile or portable document format (.pdf)
shall be effective as delivery of a manually executed counterpart of this Agreement.
[Signature Page
Follows]
IN WITNESS WHEREOF
,
the parties have executed this Agreement as of the date first written above.
|
|
SENSUS HEALTHCARE, LLC
, a Delaware limited liability company
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Its:
|
|
|
|
|
|
|
[ ]
|
|
|
|
|
|
|
By:
|
|
Exhibit 10.9
EQUITY GRANT AGREEMENT
DATED AS OF JULY 30, 2015,
BY AND AMONG ARTHUR LEVINE, SENSUS HEALTHCARE,
LLC
AND CERTAIN CONTRIBUTING
MEMBERS NAMED THEREIN
July 30, 2015
Arthur Levine
Dear Arthur,
On behalf of the Board of Directors and senior management of
Sensus Healthcare LLC (“the Company”), we want to congratulate you in accepting the position of Chief Financial Officer.
A key component of your employment package is in the form of company equity. The below members (“the Contributing Members”)
agree to reduce their aggregate interest in the Company by 435 units (87 units per Contributing Member) and to increase your aggregate
interest by 435 units. Such units shall vest immediately upon a “Liquidity Event”, defined as sale of more than 50%
of the outstanding units of the Company or the expiration of a lock-up period following an IPO. Please note that 435 units currently
represent approximately 1% of Sensus Healthcare on a fully diluted basis. If you voluntarily leave the Company before a Liquidity
Event any unvested units shall be returned to the Contributing Members. If you are terminated without cause, any unvested units
shall become vested and in such event, the Company shall purchase from you a sufficient number of units to cover any resulting
tax liability on such vesting (the same fair market value per unit shall be used for the determination of the taxable amount and
the repurchase of units by the Company). If you are terminated with cause, defined as a criminal conviction of fraud or other criminal
conduct in connection with your employment, units shall be returned to the Contributing Members.
Sincerely,
SENSUSHEALTHCARE LLC
Joseph C. Sardano, President and CEO
“Contributing Members”:
|
/s/ Joseph C. Sardano
|
|
|
1. Joseph C. Sardano
|
|
|
|
|
|
/s/ Stephen Cohen
|
|
|
2. Stephen / Vicki Cohen
|
|
|
|
|
|
/s/ Richard Golin
|
|
|
3. Richard Golin
|
|
|
/s/ Kalman / Michal Fishman
|
|
|
4. Kalman / Michal Fishman
|
|
|
|
|
|
/s/ Stephen Arnold
|
|
|
5. Stephen Arnold
|
|
|
|
|
|
Acknowledged and Agreed:
|
|
|
|
|
|
/s/ Arthur Levine
|
|
|
Arthur Levine
|
|
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement
(this “Agreement”) is made as of February 8, 2016, between Sensus Healthcare, Inc., a Delaware corporation (together
with its subsidiaries, the “Company”) and Joseph C. Sardano (the “Executive”).
WHEREAS, the Company
desires to employ the Executive and the Executive desires to be employed by the Company, on the terms and conditions provided below;
and
WHEREAS, this Agreement
shall govern the employment relationship between Executive and the Company and supersedes all previous agreements and understandings
with respect to such employment relationship.
The parties agree as
follows:
The Company agrees
to employ the Executive, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement, unless
and until such employment shall have been terminated as provided in this Agreement.
During his employment
by the Company, the Executive shall render his services as President and Chief Executive Officer of the Company, reporting
only to the Board of Directors (“Board”), shall perform duties consistent with this position as the Board shall request,
shall abide by Company policies in effect from time to time, and shall devote his full business time and best efforts to his duties
hereunder and the business and affairs of the Company (except during vacation periods and periods of illness or other incapacity).
The Executive may engage in such other pursuits, including, without limitation, personal legal and personal financial affairs,
as shall not interfere with the proper performance of his duties and obligations hereunder, provided the Executive shall not serve
on any other board of directors of a public or private “for profit” company without the prior consent of the Board.
Executive will be based at the Company’s principal headquarters facility currently located in Boca Raton, Florida, subject
to customary travel and business requirements. While the Executive is employed as President and Chief Executive Officer under this Agreement, the Board shall nominate the Executive
for re-election as a member of the Board at each annual stockholders meeting during the term, including any extension
thereof. Executive shall serve on the Board without additional compensation.
(a) This
Agreement shall commence as of February 8, 2016 and shall continue in effect up through and including the last day of the Company’s
2020 fiscal year (currently expected to be on or about December 31, 2020); provided that the term of this Agreement shall automatically
be extended for additional successive one (1) year renewal terms unless at least six (6) months prior to the expiration of the
then current term, the Company or the Executive shall have given written notice to the other party that this Agreement shall not
be extended beyond the then current term.
(b) It
is acknowledged and agreed that if this Agreement is not renewed by the Company pursuant to Section 3(a) above, and not as a result
of Executive’s death, Disability, or Cause pursuant to Section 6(a) or 6(b) below, such non-renewal by the Company will be
deemed a termination without Cause pursuant to Section 6(c) or 6(d) below (as applicable). In the event that Executive’s
employment with the Company ceases at the end of any term because Executive (and not the Company) has given a non-renewal notice
set forth in Section 3(a) above, and not as a result of the occurrence of Good Reason pursuant to Section 6(c) or 6(d) below, then
such termination of employment shall be treated as a voluntary termination by Executive without Good Reason.
(a)
Base
Salary
. Executive’s base salary as it may be increased from time to time (“Base Salary”) shall be paid in
accordance with the Company’s normal payroll practices in effect from time to time. Executive’s Base Salary shall initially
be $300,000 per annum. Base Salary may be increased during the term but may not be decreased, and the Board or the Compensation
Committee of the Board (the “Compensation Committee”) shall consider, on an annual basis, the nature, extent and advisability,
if any, of an increase in the Executive’s Base Salary.
(b)
Annual
Incentive Bonus
. For each fiscal year of the Company that ends during the term, Executive will be eligible to participate in
the Company’s annual incentive plan established and developed by the Compensation Committee, as it may then be in effect
(the “AIP”). Executive’s target annual bonus opportunity (“Target Bonus”) will be $100,000 which
Target Bonus may be increased but not decreased from time to time in the Compensation Committee’s sole discretion. Annual incentive payments will be based on achievement against goals established for the senior executive officer group including
Executive by the Compensation Committee, in consultation with Executive.
(c)
Executive
Stock Based Incentive Plan
.
(i)
Genera
l.
The Executive shall be eligible to participate in and receive such equity incentive compensation as may be granted by the Compensation
Committee from time to time pursuant to the Company’s Executive Stock Based Incentive Plan as such plan may then be in effect
and as it may be amended or superseded from time to time (the “Equity Plan”) and any other long-term incentive plan
for senior Company executives that the Board or Compensation Committee may adopt in consultation with Executive.
(d)
Other
.
Future annual-cycle equity awards (which may include performance conditions) to be granted to Executive under the Equity Plan will
be determined by the Compensation Committee in its discretion but will be on a basis at least as favorable to the Executive as
the annual equity grants being made at the same time to the other senior executives of the Company (excluding for this purpose
any special one-off grants for retention, promotion, hiring or other unique purposes).
(a)
Employer
Benefit Plans
. During the term, Executive will be eligible to participate, on terms which are generally available to the other
senior executives of the Company and subject to the eligibility requirements of the applicable Company plans as in effect from
time to time, in the Company’s, deferred compensation, medical, dental, vacation, and disability programs, and other benefits,
including a car allowance, generally available to the Company’s senior executives from time to time.
(b)
Business
Expenses
. The Executive is authorized to incur and the Company shall either pay directly or reimburse the Executive for ordinary
and reasonable expenses in connection with the performance of his duties hereunder, including, without limitation, expenses for
(A) transportation, (B) business meals, (C) travel and lodging, and (D) similar items. The Executive agrees to comply with Company
policies with respect to reimbursement and record keeping in connection with such expenses.
|
|
6.
|
TERMINATION OF EMPLOYMENT
.
|
The employment of the
Executive hereunder may be terminated by the Company at any time, subject to the company providing the compensation and benefits
in accordance with the terms of this Section 6, which shall constitute the Executive’s sole and exclusive remedy and legal
recourse upon any such termination of employment (and the Executive hereby waives and releases any and all other claims against
the Company and its parent entities, affiliates, officers, directors and employees in such event).
(a)
Termination
Due To Death Or Disability
. In the event of the Executive’s death, Executive’s employment shall automatically cease
and terminate ‘as of the date of death. If Executive becomes Disabled, the Company may terminate Executive’s employment
upon thirty (30) days written notice to Executive. For purposes of this Agreement, the terms “Disabled” or “Disability”
means Executive’s inability, because of physical or mental illness or injury, substantially to perform his duties hereunder
as a result of physical incapacity for a continuous period of at least four (4) months, and any dispute as to the Executive’s
incapacitation shall be resolved by an independent physician selected by the Board and reasonably acceptable to the Executive,
whose determination shall be final and binding upon both the Executive and the Company. In the event of the termination of employment
due to Executive’s death or Disability, Executive or his estate or legal representatives shall be entitled to receive:
(i) payment
for all accrued but unpaid Base Salary as of the date of Executive’s termination of employment;
(ii) reimbursement
for expenses incurred by the Executive pursuant to Sections 5(b) hereof up to and including the date on which employment is terminated;
(iii) any
earned benefits to which the Executive may be entitled as of the date of termination pursuant to the terms of any compensation
or benefit plans to the extent permitted by such plans (with the payments described in subsections (i) through (iii) above collectively
called the “Accrued Payments”);
(iv) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(v) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by the total annual business days) determined and paid based on actual performance achieved for that fiscal year against the performance
goals for that fiscal year; and
(b)
Termination
For Cause
. The Company may, by providing written notice to Executive, terminate Executive’s employment for Cause. The
term “Cause” for purpose of this Agreement shall mean:
(i) Executive’s
conviction of, or entrance of a plea of guilty or nolo contendere to, a felony under federal law or state law; or
(ii) fraudulent
conduct by Executive in connection with the business affairs of the Company; or
(iii) theft,
embezzlement, or other criminal misappropriation of funds by Executive (other than good faith expense account disputes or de minimis
amounts); or
(iv) Executive’s
willful refusal to materially perform his executive duties hereunder; or
(v) Executive’s
willful misconduct, which has, or would have if generally known, a materially adverse effect on the business or reputation of the
Company; or
(vi) The
Executive’s willful breach of any material employment policy of the Company, including, but not limited to, conduct relating
to falsification of business records, violation of the Company’s Code of Business Conduct and Ethics, harassment, creation
of a hostile work environment, excessive absenteeism, insubordination, violation of the Company’s policy on drug and alcohol
use, or violent acts or threats of violence; or
(vii) Executive’s
material breach of a covenant, representation, warranty or obligation of Executive under this Agreement.
For purposes of this
Section 6(b), an act or failure to act shall be considered “willful” only if done or omitted to be done without a good
faith reasonable belief that such act or failure to act was in the best interests of the Company.
Any determination of
Cause by the Company will be made by a resolution approved by a majority of the members of the Board, provided that no such determination
may be made until Executive has been given written notice detailing the specific event constituting such Cause and a period of
thirty (30) days following receipt of such notice to cure such event (if susceptible to cure), and, if such event is not curable
or is not cured, an opportunity to appear before the Board (with legal counsel if so requested in writing by Executive) to discuss
the specific circumstances alleged to give rise to the Cause event. Subject to Executive’s right to cure and/or appear before
the Board, if Executive’s employment is terminated for Cause, the termination shall take effect on the effective date of
such termination as specified in the written notice of such termination delivered to Executive.
In the event of the
termination of Executive’s employment hereunder by the Company for Cause, then Executive shall be entitled to receive payment
of the Accrued Payments.
If the Company attempts
to terminate Executive’s employment pursuant to this Section 6(b) and it is ultimately determined that the Company lacked
Cause, the provisions of Section 6(c) or Section 6(d) (as applicable) shall apply and Executive shall be entitled to receive the
payments set forth under Section 6(c) or Section 6(d) (as applicable).
(c)
Termination
without Cause or for Good Reason
. The Company may terminate Executive’s employment hereunder without Cause at any time,
by providing Executive 30 days’ prior written notice of such termination. Such notice shall specify the effective date of
the termination of Executive’s employment. The Executive may terminate his employment for Good Reason by providing 30 days’
prior written notice to the Company. In the event of the termination of Executive’s employment under this Section 6(c) without
Cause or by the Executive for Good Reason, in each case prior to or more than 12 months following a Change-in-Control (as defined
in the Company’s Equity Plan), then Executive shall be entitled to:
(i) payment
of the Accrued Payments;
(ii) a
separation allowance, payable in equal installments in accordance with normal payroll practices over a 12 month period beginning
immediately following the date of termination, equal to one (1) times the sum of (x) Executive’s then Base Salary and (y)
the Executive’s then Target Bonus;
(iii) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(iv) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by total the annual business days) determined and paid based on actual performance achieved for such fiscal year against the performance
goals for that fiscal year;
(v) the
Company shall arrange for the Executive to continue to participate (through COBRA or otherwise), on substantially the same terms
and conditions as in effect for the Executive (including any required contribution) immediately prior to such termination, in the
medical, dental, disability and life insurance programs provided to the Executive pursuant to Section 5(a) hereof until the earlier
of (i) the end of the 12 month period beginning on the effective date of the termination of Executive’s employment hereunder,
or (ii) such time as the Executive is eligible to be covered by comparable benefit(s) of a subsequent employer. The foregoing of
this Section 6(c)(v) is referred to as “Benefits Continuation”. The Executive agrees to notify the Company promptly
if and when he begins employment with another employer and if and when he becomes eligible to participate in any benefit or other
welfare plans, programs or arrangements of another employer;
(vi) all
of Executive’s then-outstanding equity awards in any Equity Plan will vest in full.
For purposes of this
Agreement, the term “Good Reason” means, without Executive’s written consent:
(i) a
reduction by the Company in Executive’s Base Salary or Target Bonus as in effect from time to time; or
(ii) the
Board materially reduces (including as a result of any co-sharing of responsibilities arrangement), other than during any period
of illness or incapacity, Executive’s authority, responsibilities. or duties such that Executive no longer has the title
of, or serves or functions as the Chief Executive Officer of the Company (provided that it is understood that a Change-in-Control
or going private event will not constitute Good Reason); or
(iii) failure
of the Board to nominate Executive for election as Chairman to the Board of Directors at an annual meeting of shareholders or failure
of the Executive to have been elected by the shareholders to the Board at any time (in each case other than solely due to any future
stock exchange or other legal requirement prohibiting management directors); or
(iv) the
Company requiring Executive to be based at a location in excess of fifty (50) miles from the location of the Company’s principal
executive office as of the effective date of this Agreement, except for required travel on Company business; or
(v) the
Company fails to obtain the written assumption of its obligations under this Agreement by a successor not later than the consummation
of a merger, consolidation or sale of the Company; or
(vi) a
material breach by the Company of its obligations under this Agreement, which, in each of subsections (i) through (vi) above, is
not remedied by the Company within 30 days of receipt of written notice of such event or breach delivered by Executive to the Company;
provided, that the Executive may only exercise his right to terminate this Agreement for Good Reason within the 120 day period
immediately following the occurrence of any of the events described in subsections (i) through (vi) above.
(d)
Termination
of Employment without Cause or for Good Reason following a Change-in-Control
. If the Company terminates Executive’s employment
without Cause upon 30 days’ prior written notice or Executive terminates his employment for Good Reason by providing 30 days’
prior written notice to the Company, in each case within 12 months following a Change-in-Control (as defined in the Company’s
Equity Plan), the Company will provide to Executive:
(i) payment
of the Accrued Payments;
(ii) a
lump sum separation allowance equal to two (2) times the sum of (x) Executive’s then Base Salary and (y) Executive’s
then Target Bonus;
(iii) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(iv) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by the total annual business days) determined and paid based on actual performance achieved for such fiscal year against the performance
goals for that fiscal year;
(v) Benefit
Continuation until the earlier of 24 months after termination of employment or such time as Executive is eligible to be covered
by comparable benefit(s) of a subsequent employer. The Executive agrees to notify the Company promptly if and when he begins employment
with another employer and if and when he becomes eligible to participate in any benefit or other welfare plans, programs or arrangements
of another employer;
(vi) all
of Executive’s then-outstanding equity awards in any Equity Plan will vest in full.
(e)
Voluntary
Termination by the Executive without Good Reason
. In the event Executive terminates his employment without Good Reason, he
shall provide 90 days’ prior written notice of such termination to the Company. Upon such voluntary termination, the Executive
will be entitled to the Accrued Payments. Without limiting all other rights and remedies of the Company under this Agreement, a
termination of employment by the Executive without Good Reason will not constitute a breach by the Executive of this Agreement.
(f)
Resignation
from all Boards
. Upon any termination or cessation of Executive’s employment with the Company, for any reason, Executive
agrees immediately to resign, and any notice of termination or actual termination or cessation of employment shall act automatically
to effect such resignation, from any position on the Board and on any board of directors of any subsidiary or affiliate of the
Company.
(g)
Release
of Claims as Condition
. The Company’s obligation to pay the separation allowance and provide all other benefits and rights
referred to in this Section 6 and in Section 4(d) above shall be conditioned upon the Executive having delivered to the Company
an executed full and unconditional release (that is not subject to revocation) of claims against the Company, its parent entities,
affiliates, employee benefit plans and fiduciaries, officers, employees, directors, agents and representatives satisfactory in
form and content to the Company’s counsel.
(h)
No
Mitigation
. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder
be reduced by any compensation earned by Executive as a result of subsequent employment.
(a) Provided
that the Executive has not been terminated for “Cause” as defined herein, the Company shall indemnify, defend and hold
the Executive harmless, to the maximum extent permitted by law, against all judgments, fines, amounts paid in settlement and all
reasonable expenses, including attorneys’ fees incurred by the Executive, in connection with the defense of, or as a result
of, any action or proceeding (or any appeal from any action or proceeding) in which the Executive is made or is threatened to be
made a party by reason of the fact that the Executive is or was an officer or director of the Company, regardless of whether such
action or proceeding is one brought by or in the right of the Company. Each of the parties hereto shall give prompt notice to the
other of any action or proceeding from which the Company is obligated to indemnify, defend and hold harmless the Executive of which
it or he (as the case may be) gains knowledge.
(b) The
Company agrees that the Executive shall be covered and insured up to the full limits provided by all directors’ and officers’
insurance which the Company then maintains to indemnify its directors and officers (and to indemnify the Company for any obligations
which it incurs as a result of its undertaking to indemnify its officers and directors), subject to applicable deductibles and
to the terms and conditions of such policies.
It is the intention
of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public
policies of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification
to conform with such laws or public policies) of any provisions hereof, shall not render unenforceable or impair the remainder
of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter
the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible.
This Agreement is personal
in nature to the Company and the rights and obligations of the Executive under this Agreement shall not be assigned or transferred
by the Executive. This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties
hereto and their successors (including successors by merger, consolidation, sale or similar transaction, permitted assigns, executors,
administrators, personal representatives, heirs and distributees).
|
|
10.
|
NON-DISCLOSURE; NON-SOLICITATION; COOPERATION
.
|
(a) The
Executive shall not, at any time during or following the period of employment, disclose, use, transfer or sell, except in the course
of such employment, any confidential information or proprietary data of the Company or its affiliates so long as such information
or data remains confidential and has not been disclosed or is not otherwise in the public domain, except as required by law or
pursuant to legal process or in connection with an administrative proceeding before a governmental agency. The Company and the
Executive agree that the Executive’s obligations under this Section 10 (a) shall not apply if (1) any disclosure by the Executive
is made with the express written permission of the Company or (2) if the Executive can show by legal evidence that it was lawfully
received by the Executive from a third party who is not or was not bound, at the time the information was conveyed to Executive,
by any confidential relationship or obligation to the Company.
(b) The
Executive agrees that, for a period of twelve (12) months after the termination or cessation of the Executive’s
employment with the Company for any reason, the Executive will not:
(i) directly
or indirectly solicit, attempt to hire, or hire any employee of the Company (or any person who may have been employed by the Company
during the last year of the Executive’s employment with the Company), or assist in such hiring by any other person or business
entity or encourage, induce or attempt to induce any such employee to terminate his or her employment with the Company; or
(ii) take
action intended to encourage any vendor or supplier of the Company to cease to do business with the Company or materially reduce
the amount of business the vendor or supplier does with the Company; or
(iii) materially
disparage the Company.
(c) Executive
agrees to cooperate with the Company, during the term of this Agreement and at any time thereafter (including following Executive’s
termination of employment for any reason), by making himself reasonably available to testify on behalf of the Company in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, in any such action,
suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives
or counsel to the Company, as requested; provided, however that it does not materially interfere with his then current professional
activities. The Company agrees to reimburse Executive for all reasonable expenses actually incurred in connection with his provision
of testimony or assistance.
|
|
11.
|
NON-COMPETITION AGREEMENT
.
|
The Executive agrees
that throughout the term of his employment, and for a period of twelve (12) months after termination or cessation of employment
for any reason, he will not engage in, participate in, carry on, own, or manage, directly or indirectly, either for herself or
as a partner, stockholder, investor, officer, director, employee, agent, independent contractor, representative or consultant of
any person, partnership, corporation or other enterprise, in any “Competitive Business” in any jurisdiction in which
the Company actively conducts business. For purposes of this Section 11, “Competitive Business” means “Any and
all Therapeutic Devices treating various skin disorders such as skin cancer, keloids and psoriasis.”
The Executive’s
engaging in the following activities will not be deemed to be engaging or participating in a Competitive Business: (i) passive
ownership of less than 2% of any class of securities of a company; and (ii) engaging or participating solely in a noncompetitive
business of an entity which also separately operates a business which is a “Competitive Business”.
The Executive acknowledges,
with the advice of legal counsel, that he understands the foregoing provisions of this Section 11 and that these provisions are
fair, reasonable, and necessary for the protection of the Company’s business.
(a) All
payments to be made to and on behalf of the Executive under this Agreement will be subject to required withholding of federal,
employment and excise taxes, and to related reporting requirements.
(b)
Limitation
on Parachute Payments
. In the event that the payment and other benefits provided for in this Agreement or otherwise payable
to Executive (i) constitute "parachute payments" within the meaning of Section 280G of the Code and (ii) but for this
Section 12(b), would be subject to the excise tax imposed by Section 4999 of the Code, then Executive's payments and benefits will
be either:
(i) delivered
in full, or
(ii) delivered
as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section
4999 of the Code,
whichever of the foregoing
amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the Code.
If a reduction in severance
and other payments and benefits constituting "parachute payments" is necessary so that benefits are delivered to a lesser
extent, reduction will occur in the following order: (i) reduction of cash payments; (ii) cancellation of awards granted "contingent
on a change in ownership or control" (within the meaning of Code Section 280G), (iii) cancellation of accelerated vesting
of equity awards, and (iv) reduction of employee benefits. Within any such category of payments and benefits (that is, (i), (ii),
(iii) or (iv)), a reduction shall occur first with respect to amounts that are not Deferred Payments and then with respect to amounts
that are. In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting
will be cancelled in the reverse order of the date of grant of Executive's equity awards.
Any determination required
under this Section 12(b) will be made in writing by the Company’s independent public accountants engaged by the Company for
general audit purposes immediately prior to the Change in Control (the "Accountants"), whose good faith determination
will be conclusive and binding upon Executive and the Company for all purposes. If the independent registered public accounting
firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in
Control, or if such firm otherwise cannot perform the calculations, the Company shall appoint a nationally recognized independent
registered public accounting firm to make the determinations required hereunder. For purposes of making the calculations required
by this Section 12(b), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely
on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive
will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination
under this Section. The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated
by this section.
(c)
Section
409A
. If any provision of this Agreement (or any award of compensation or benefits provided under this Agreement) would cause
Executive to incur any additional tax or interest under Section 409A of the Code, the Company shall reform such provision to comply
with Section 409A and agrees to maintain, to the maximum extent practicable without violating Section 409A of the Code, the original
intent and economic benefit to Executive of the applicable provision. The Company shall not accelerate the payment of any deferred
compensation in violation of Section 409A of the Code and, to the extent required under Section 409A, the Company shall delay the
payment of any deferred compensation for six months following Executive's termination of employment. When used in connection with
any payments subject to Section 409A required to be made hereunder, the phrase "termination of employment" and correlative
terms shall mean separation from service as defined in Section 409A. Unless such payments are otherwise exempt from Section 409A,
any reimbursements or in-kind benefits provided under this Agreement shall be administered in accordance with Section 409A, such
that: (a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during one year shall not affect the
expenses eligible for reimbursement or the in-kind benefits provided in any other year; (b) reimbursement of eligible expenses
shall be made on or before December 31 of the year following the year in which the expense was incurred; (c) Executive's right
to reimbursement or in-kind benefits shall not be subject to liquidation or to exchange for another benefit; and, (d) if the payment
of any deferred compensation shall be payable at any time within a period that overlaps two calendar years, payment shall be made
in the second of the two years. For purposes of Section 409A, Executive's right to receive any installment payments pursuant to
this Agreement shall be treated as a right to receive a series of separate and distinct payments..
Anything in Section
6 hereof to the contrary notwithstanding, the provisions of Section 7 through 15 shall survive the expiration or termination of
this Agreement, regardless of the reasons therefor.
|
|
14.
|
NO CONFLICT: REPRESENTATIONS AND WARRANTIES
.
|
The Executive represents
and warrants that (i) the information (written and oral) provided by the Executive to the Company in connection with obtaining
employment with the Company or in connection with the Executive’s former employments, work history, circumstances of leaving
former employments, and educational background, is true and complete, (ii) he has the legal capacity to execute and perform this
Agreement, (iii) this Agreement is a valid and binding obligation of the Executive enforceable against him in accordance with its
terms, (iv) the Executive’s execution, delivery or performance of this Agreement will not conflict with or result in a breach
of any agreement, understanding, order, judgment or other obligation to which the Executive is a party or by which he may be bound,
written or oral, and (v) the Executive is not subject to or bound by any covenant against competition, non-disclosure or confidentiality
obligation, or any other agreement, order, judgment or other obligation, written or oral, which would conflict with, restrict or
limit the performance of the services to be provided by him hereunder. The Executive agrees not to use, or disclose to anyone within
the Company, at any time during his employment hereunder, any trade secrets or any confidential information of any other employer
or other third party. Executive has provided to the Company a true copy of any non-competition obligation or agreement to which
he may be subject.
(a)
Notices
.
All notices hereunder shall be given in writing, by personal delivery, nationally-recognized overnight courier (such as UPS or
Federal Express), or prepaid registered or certified mail, return receipt requested, to the addresses of the proper parties as
set forth below:
TO THE EXECUTIVE:
Joseph C. Sardano
Sensus Healthcare, Inc.
851 Broken Sound Parkway NW #215
Boca Raton, FL 33487
TO THE COMPANY:
Sensus Healthcare, Inc.
851 Broken Sound Parkway NW #215
Boca Raton, FL 33487
Attention: Chief Financial Officer
Any notice given as
set forth above will be deemed given on the business day sent when delivered by hand during normal business hours, on the business
day after the business day sent if delivered by a nationally recognized overnight courier, or on the third business day after the
business day sent if delivered by registered or certified mail, return receipt requested.
(b)
Law
Governing
. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable
to contracts made and to be wholly performed in that state without regard to its conflicts of laws provisions or principles.
(c)
Jurisdiction
.
(i) In any suit, action or proceeding seeking to enforce any provision of this Agreement or for purposes of resolving any dispute
arising out of or related to this Agreement, the Company and the Executive each hereby irrevocably consents to the exclusive jurisdiction
of any federal court located in the State of Florida, Palm Beach County, or any of the state courts of the State of Florida located
in Palm Beach County; (ii) the Company and the Executive each hereby waives, to the fullest extent permitted by applicable law,
any objection which it or he may now or hereafter have to the laying of venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum; (iii) process
in any such suit, action or proceeding may be served on either party anywhere in the world, whether within or without the jurisdiction
of such court, and, without limiting the foregoing, each of the Company and the Executive irrevocably agrees that service of process
on such party, in the same manner as provided for notices in Section 15(a) above, shall be deemed effective service of process
on such party in any such suit; action or proceeding; (iv) WAIVER OF JURY TRIAL: EACH OF THE COMPANY AND THE EXECUTIVE HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT; and (v) Limitation on Damages: the parties agree that there will be no punitive damages payable
as a result of or in connection with any claim, matter or breach under or related to this Agreement or the transactions contemplated
by this Agreement, and each of the parties agrees not to request punitive damages. Notwithstanding the foregoing of this Section,
each of the parties agrees that prior to commencing any claims for breach of this Agreement (except to pursue injunctive relief)
to submit, for a period of sixty (60) days, to voluntary mediation before a jointly selected neutral third party mediator under
the auspices of JAMS, Miami, Florida, Resolutions Center (or any successor location), pursuant to the procedures of JAMS Mediation
Rules conducted in the State of Florida (however, such mediation or obligation to mediate shall not suspend or otherwise delay
any termination or other action of the Company or affect the Company’s other rights).
(d)
Headings
.
The Section headings contained in this Agreement are for convenience of reference only and are not intended to determine, limit
or describe the scope or intent of any provision of this Agreement.
(e)
Number
and Gender
. Whenever in this Agreement the singular is used, it shall include the plural if the context so requires, and whenever
the feminine gender is used in this Agreement, it shall be construed as if the masculine, feminine or neuter gender, respectively,
has been used where the context so dictates, with the rest of the sentence being construed as if the grammatical and terminological
changes thereby rendered necessary have been made.
(f)
Entire
Agreement
. This Agreement contains the entire agreement and understanding between the parties with respect to the subject matter
hereof and supersedes any prior or contemporaneous understandings and agreements, written or oral, between and among them respecting
such subject matter.
(g)
Counterparts
.
This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which taken together shall
constitute one instrument.
(h)
Amendments
.
This Agreement may not be amended except by a writing executed by each of the parties to this Agreement.
(i)
No
Waiver
. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board, No waiver
by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
IN WITNESS WHEREOF,
the parties hereto have duly executed this Agreement as of the date first written above.
|
JOSEPH C. SARDANO
|
|
SENSUS HEALTHCARE, INC.
|
|
|
|
|
|
|
/s/ Joseph C. Sardano
|
|
By:
|
/s/ Arthur Levine
|
|
|
|
Name:
|
Arthur Levine
|
|
Date: February 8, 2016
|
|
Title:
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
Date: February 8, 2016
|
Exhibit 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement
(this “Agreement”) is made as of February 8, 2016, between Sensus Healthcare, Inc., a Delaware corporation (together
with its subsidiaries, the “Company”) and Kalman Fishman (the “Executive”).
WHEREAS, the Company
desires to employ the Executive and the Executive desires to be employed by the Company, on the terms and conditions provided below;
and
WHEREAS, this Agreement
shall govern the employment relationship between Executive and the Company and supersedes all previous agreements and understandings
with respect to such employment relationship.
The parties agree as
follows:
The Company agrees
to employ the Executive, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement, unless
and until such employment shall have been terminated as provided in this Agreement.
During his employment
by the Company, the Executive shall render his services as the Chief Technology Officer and Chief Operating Officer of the Company,
reporting directly to the Chief Executive Officer, shall perform duties consistent with this position as the Board shall request,
shall abide by Company policies in effect from time to time, and shall devote his full business time and best efforts to his duties
hereunder and the business and affairs of the Company (except during vacation periods and periods of illness or other incapacity).
The Executive may engage in such other pursuits, including, without limitation, personal legal and personal financial affairs,
as shall not interfere with the proper performance of his duties and obligations hereunder, provided the Executive shall not serve
on any other board of directors of a public or private “for profit” company without the prior consent of the Board.
Executive will be based at the Company’s principal headquarters facility currently located in Boca Raton, Florida, subject
to customary travel and business requirements.
(a) This
Agreement shall commence as of February 8, 2016 and shall continue in effect up through and including the last day of the Company’s
2020 fiscal year (currently expected to be on or about December 31, 2020); provided that the term of this Agreement shall automatically
be extended for additional successive one (1) year renewal terms unless at least six (6) months prior to the expiration of the
then current term, the Company or the Executive shall have given written notice to the other party that this Agreement shall not
be extended beyond the then current term.
(b) It
is acknowledged and agreed that if this Agreement is not renewed by the Company pursuant to Section 3(a) above, and not as a result
of Executive’s death, Disability, or Cause pursuant to Section 6(a) or 6(b) below, such non-renewal by the Company will be
deemed a termination without Cause pursuant to Section 6(c) or 6(d) below (as applicable). In the event that Executive’s
employment with the Company ceases at the end of any term because Executive (and not the Company) has given a non-renewal notice
set forth in Section 3(a) above, and not as a result of the occurrence of Good Reason pursuant to Section 6(c) or 6(d) below, then
such termination of employment shall be treated as a voluntary termination by Executive without Good Reason.
(a)
Base
Salary
. Executive’s base salary as it may be increased from time to time (“Base Salary”) shall be paid in
accordance with the Company’s normal payroll practices in effect from time to time. Executive’s Base Salary shall initially
be $200,000 per annum. Base Salary may be increased during the term but may not be decreased, and the Board or the Compensation
Committee of the Board (the “Compensation Committee”) shall consider, on an annual basis, the nature, extent and advisability,
if any, of an increase in the Executive’s Base Salary.
(b)
Annual
Incentive Bonus
. For each fiscal year of the Company that ends during the term, Executive will be eligible to participate in
the Company’s annual incentive plan established and developed by the Compensation Committee, as it may then be in effect
(the “AIP”). Executive’s target annual bonus opportunity (“Target Bonus”) will be $50,000 which Target
Bonus may be increased but not decreased from time to time in the Compensation Committee’s sole discretion. Annual
incentive payments will be based on achievement against goals established for the senior executive officer group including Executive
by the Compensation Committee, in consultation with Executive.
(c)
Executive
Stock Based Incentive Plan
.
(i)
Genera
l.
The Executive shall be eligible to participate in and receive such equity incentive compensation as may be granted by the Compensation
Committee from time to time pursuant to the Company’s Executive Stock Based Incentive Plan as such plan may then be in effect
and as it may be amended or superseded from time to time (the “Equity Plan”) and any other long-term incentive plan
for senior Company executives that the Board or Compensation Committee may adopt in consultation with Executive.
(d)
Other
.
Future annual-cycle equity awards (which may include performance conditions) to be granted to Executive under the Equity Plan will
be determined by the Compensation Committee in its discretion.
(a)
Employer
Benefit Plans
. During the term, Executive will be eligible to participate, on terms which are generally available to the other
senior executives of the Company and subject to the eligibility requirements of the applicable Company plans as in effect from
time to time, in the Company’s, deferred compensation, medical, dental, vacation, and disability programs, and other benefits,
including a car allowance, generally available to the Company’s senior executives from time to time.
(b)
Business
Expenses
. The Executive is authorized to incur and the Company shall either pay directly or reimburse the Executive for ordinary
and reasonable expenses in connection with the performance of his duties hereunder, including, without limitation, expenses for
(A) transportation, (B) business meals, (C) travel and lodging, and (D) similar items. The Executive agrees to comply with Company
policies with respect to reimbursement and record keeping in connection with such expenses.
|
|
6.
|
TERMINATION OF EMPLOYMENT
.
|
The employment of the
Executive hereunder may be terminated by the Company at any time, subject to the company providing the compensation and benefits
in accordance with the terms of this Section 6, which shall constitute the Executive’s sole and exclusive remedy and legal
recourse upon any such termination of employment (and the Executive hereby waives and releases any and all other claims against
the Company and its parent entities, affiliates, officers, directors and employees in such event).
(a)
Termination
Due To Death Or Disability
. In the event of the Executive’s death, Executive’s employment shall automatically cease
and terminate ‘as of the date of death. If Executive becomes Disabled, the Company may terminate Executive’s employment
upon thirty (30) days written notice to Executive. For purposes of this Agreement, the terms “Disabled” or “Disability”
means Executive’s inability, because of physical or mental illness or injury, substantially to perform his duties hereunder
as a result of physical incapacity for a continuous period of at least four (4) months, and any dispute as to the Executive’s
incapacitation shall be resolved by an independent physician selected by the Board and reasonably acceptable to the Executive,
whose determination shall be final and binding upon both the Executive and the Company. In the event of the termination of employment
due to Executive’s death or Disability, Executive or his estate or legal representatives shall be entitled to receive:
(i) payment
for all accrued but unpaid Base Salary as of the date of Executive’s termination of employment;
(ii) reimbursement
for expenses incurred by the Executive pursuant to Sections 5(b) hereof up to and including the date on which employment is terminated;
(iii) any
earned benefits to which the Executive may be entitled as of the date of termination pursuant to the terms of any compensation
or benefit plans to the extent permitted by such plans (with the payments described in subsections (i) through (iii) above collectively
called the “Accrued Payments”);
(iv) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(v) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by the total annual business days) determined and paid based on actual performance achieved for that fiscal year against the performance
goals for that fiscal year; and
(b)
Termination
For Cause
. The Company may, by providing written notice to Executive, terminate Executive’s employment for Cause. The
term “Cause” for purpose of this Agreement shall mean:
(i) Executive’s
conviction of, or entrance of a plea of guilty or nolo contendere to, a felony under federal law or state law; or
(ii) fraudulent
conduct by Executive in connection with the business affairs of the Company; or
(iii) theft,
embezzlement, or other criminal misappropriation of funds by Executive (other than good faith expense account disputes or de minimis
amounts); or
(iv) Executive’s
willful refusal to materially perform his executive duties hereunder; or
(v) Executive’s
willful misconduct, which has, or would have if generally known, a materially adverse effect on the business or reputation of the
Company; or
(vi) The
Executive’s willful breach of any material employment policy of the Company, including, but not limited to, conduct relating
to falsification of business records, violation of the Company’s Code of Business Conduct and Ethics, harassment, creation
of a hostile work environment, excessive absenteeism, insubordination, violation of the Company’s policy on drug and alcohol
use, or violent acts or threats of violence; or
(vii) Executive’s
material breach of a covenant, representation, warranty or obligation of Executive under this Agreement.
For purposes of this
Section 6(b), an act or failure to act shall be considered “willful” only if done or omitted to be done without a good
faith reasonable belief that such act or failure to act was in the best interests of the Company.
Any determination of
Cause by the Company will be made by a resolution approved by a majority of the members of the Board, provided that no such determination
may be made until Executive has been given written notice detailing the specific event constituting such Cause and a period of
thirty (30) days following receipt of such notice to cure such event (if susceptible to cure), and, if such event is not curable
or is not cured, an opportunity to appear before the Board (with legal counsel if so requested in writing by Executive) to discuss
the specific circumstances alleged to give rise to the Cause event. Subject to Executive’s right to cure and/or appear before
the Board, if Executive’s employment is terminated for Cause, the termination shall take effect on the effective date of
such termination as specified in the written notice of such termination delivered to Executive.
In the event of the
termination of Executive’s employment hereunder by the Company for Cause, then Executive shall be entitled to receive payment
of the Accrued Payments.
If the Company attempts
to terminate Executive’s employment pursuant to this Section 6(b) and it is ultimately determined that the Company lacked
Cause, the provisions of Section 6(c) or Section 6(d) (as applicable) shall apply and Executive shall be entitled to receive the
payments set forth under Section 6(c) or Section 6(d) (as applicable).
(c)
Termination
without Cause or for Good Reason
. The Company may terminate Executive’s employment hereunder without Cause at any time,
by providing Executive 30 days’ prior written notice of such termination. Such notice shall specify the effective date of
the termination of Executive’s employment. The Executive may terminate his employment for Good Reason by providing 30 days’
prior written notice to the Company. In the event of the termination of Executive’s employment under this Section 6(c) without
Cause or by the Executive for Good Reason, in each case prior to or more than 12 months following a Change-in-Control (as defined
in the Company’s Equity Plan), then Executive shall be entitled to:
(i) payment
of the Accrued Payments;
(ii) a
separation allowance, payable in equal installments in accordance with normal payroll practices over a 12 month period beginning
immediately following the date of termination, equal to one (1) times the sum of (x) Executive’s then Base Salary and (y)
the Executive’s then Target Bonus;
(iii) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(iv) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by total the annual business days) determined and paid based on actual performance achieved for such fiscal year against the performance
goals for that fiscal year;
(v) the
Company shall arrange for the Executive to continue to participate (through COBRA or otherwise), on substantially the same terms
and conditions as in effect for the Executive (including any required contribution) immediately prior to such termination, in the
medical, dental, disability and life insurance programs provided to the Executive pursuant to Section 5(a) hereof until the earlier
of (i) the end of the 12 month period beginning on the effective date of the termination of Executive’s employment hereunder,
or (ii) such time as the Executive is eligible to be covered by comparable benefit(s) of a subsequent employer. The foregoing of
this Section 6(c)(v) is referred to as “Benefits Continuation”. The Executive agrees to notify the Company promptly
if and when he begins employment with another employer and if and when he becomes eligible to participate in any benefit or other
welfare plans, programs or arrangements of another employer;
(vi) all
of Executive’s then-outstanding equity awards in any Equity Plan will vest in full.
For purposes of this
Agreement, the term “Good Reason” means, without Executive’s written consent:
(i) a
reduction by the Company in Executive’s Base Salary or Target Bonus as in effect from time to time; or
(ii) the
Board materially reduces (including as a result of any co-sharing of responsibilities arrangement), other than during any period
of illness or incapacity, Executive’s authority, responsibilities. or duties such that Executive no longer has the title
of, or serves or functions as the Chief Technology Officer and Chief Operating Officer of the Company (provided that it is understood
that a Change-in-Control or going private event will not constitute Good Reason); or
(iii) the
Company requiring Executive to be based at a location in excess of fifty (50) miles from the location of the Company’s principal
executive office as of the effective date of this Agreement, except for required travel on Company business; or
(iv) the
Company fails to obtain the written assumption of its obligations under this Agreement by a successor not later than the consummation
of a merger, consolidation or sale of the Company; or
(v) a
material breach by the Company of its obligations under this Agreement, which, in each of subsections (i) through (v) above, is
not remedied by the Company within 30 days of receipt of written notice of such event or breach delivered by Executive to the Company;
provided, that the Executive may only exercise his right to terminate this Agreement for Good Reason within the 120 day period
immediately following the occurrence of any of the events described in subsections (i) through (v) above.
(d)
Termination
of Employment without Cause or for Good Reason following a Change-in-Control
. If the Company terminates Executive’s employment
without Cause upon 30 days’ prior written notice or Executive terminates his employment for Good Reason by providing 30 days’
prior written notice to the Company, in each case within 12 months following a Change-in-Control (as defined in the Company’s
Equity Plan), the Company will provide to Executive:
(i) payment
of the Accrued Payments;
(ii) a
lump sum separation allowance equal to two (2) times the sum of (x) Executive’s then Base Salary and (y) Executive’s
then Target Bonus;
(iii) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(iv) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by the total annual business days) determined and paid based on actual performance achieved for such fiscal year against the performance
goals for that fiscal year;
(v) Benefit
Continuation until the earlier of 24 months after termination of employment or such time as Executive is eligible to be covered
by comparable benefit(s) of a subsequent employer. The Executive agrees to notify the Company promptly if and when he begins employment
with another employer and if and when he becomes eligible to participate in any benefit or other welfare plans, programs or arrangements
of another employer;
(vi) all
of Executive’s then-outstanding equity awards in any Equity Plan will vest in full.
(e)
Voluntary
Termination by the Executive without Good Reason
. In the event Executive terminates his employment without Good Reason, he
shall provide 90 days’ prior written notice of such termination to the Company. Upon such voluntary termination, the Executive
will be entitled to the Accrued Payments. Without limiting all other rights and remedies of the Company under this Agreement, a
termination of employment by the Executive without Good Reason will not constitute a breach by the Executive of this Agreement.
(f)
Resignation
from all Boards
. Upon any termination or cessation of Executive’s employment with the Company, for any reason, Executive
agrees immediately to resign, and any notice of termination or actual termination or cessation of employment shall act automatically
to effect such resignation, from any position on the Board and on any board of directors of any subsidiary or affiliate of the
Company.
(g)
Release
of Claims as Condition
. The Company’s obligation to pay the separation allowance and provide all other benefits and rights
referred to in this Section 6 and in Section 4(d) above shall be conditioned upon the Executive having delivered to the Company
an executed full and unconditional release (that is not subject to revocation) of claims against the Company, its parent entities,
affiliates, employee benefit plans and fiduciaries, officers, employees, directors, agents and representatives satisfactory in
form and content to the Company’s counsel.
(h)
No
Mitigation
. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder
be reduced by any compensation earned by Executive as a result of subsequent employment.
(a) Provided
that the Executive has not been terminated for “Cause” as defined herein, the Company shall indemnify, defend and hold
the Executive harmless, to the maximum extent permitted by law, against all judgments, fines, amounts paid in settlement and all
reasonable expenses, including attorneys’ fees incurred by the Executive, in connection with the defense of, or as a result
of, any action or proceeding (or any appeal from any action or proceeding) in which the Executive is made or is threatened to be
made a party by reason of the fact that the Executive is or was an officer or director of the Company, regardless of whether such
action or proceeding is one brought by or in the right of the Company. Each of the parties hereto shall give prompt notice to the
other of any action or proceeding from which the Company is obligated to indemnify, defend and hold harmless the Executive of which
it or he (as the case may be) gains knowledge.
(b) The
Company agrees that the Executive shall be covered and insured up to the full limits provided by all directors’ and officers’
insurance which the Company then maintains to indemnify its directors and officers (and to indemnify the Company for any obligations
which it incurs as a result of its undertaking to indemnify its officers and directors), subject to applicable deductibles and
to the terms and conditions of such policies.
It is the intention
of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public
policies of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification
to conform with such laws or public policies) of any provisions hereof, shall not render unenforceable or impair the remainder
of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter
the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible.
This Agreement is personal
in nature to the Company and the rights and obligations of the Executive under this Agreement shall not be assigned or transferred
by the Executive. This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties
hereto and their successors (including successors by merger, consolidation, sale or similar transaction, permitted assigns, executors,
administrators, personal representatives, heirs and distributees).
|
|
10.
|
NON-DISCLOSURE; NON-SOLICITATION; COOPERATION
.
|
(a) The
Executive shall not, at any time during or following the period of employment, disclose, use, transfer or sell, except in the course
of such employment, any confidential information or proprietary data of the Company or its affiliates so long as such information
or data remains confidential and has not been disclosed or is not otherwise in the public domain, except as required by law or
pursuant to legal process or in connection with an administrative proceeding before a governmental agency. The Company and the
Executive agree that the Executive’s obligations under this Section 10 (a) shall not apply if (1) any disclosure by the Executive
is made with the express written permission of the Company or (2) if the Executive can show by legal evidence that it was lawfully
received by the Executive from a third party who is not or was not bound, at the time the information was conveyed to Executive,
by any confidential relationship or obligation to the Company.
(b) The
Executive agrees that, for a period of twelve (12) months after the termination or cessation of the Executive’s
employment with the Company for any reason, the Executive will not:
(i) directly
or indirectly solicit, attempt to hire, or hire any employee of the Company (or any person who may have been employed by the Company
during the last year of the Executive’s employment with the Company), or assist in such hiring by any other person or business
entity or encourage, induce or attempt to induce any such employee to terminate his or her employment with the Company; or
(ii) take
action intended to encourage any vendor or supplier of the Company to cease to do business with the Company or materially reduce
the amount of business the vendor or supplier does with the Company; or
(iii) materially
disparage the Company.
(c) Executive
agrees to cooperate with the Company, during the term of this Agreement and at any time thereafter (including following Executive’s
termination of employment for any reason), by making himself reasonably available to testify on behalf of the Company in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, in any such action,
suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives
or counsel to the Company, as requested; provided, however that it does not materially interfere with his then current professional
activities. The Company agrees to reimburse Executive for all reasonable expenses actually incurred in connection with his provision
of testimony or assistance.
|
|
11.
|
NON-COMPETITION AGREEMENT
.
|
The Executive agrees
that throughout the term of his employment, and for a period of twelve (12) months after termination or cessation of employment
for any reason, he will not engage in, participate in, carry on, own, or manage, directly or indirectly, either for herself or
as a partner, stockholder, investor, officer, director, employee, agent, independent contractor, representative or consultant of
any person, partnership, corporation or other enterprise, in any “Competitive Business” in any jurisdiction in which
the Company actively conducts business. For purposes of this Section 11, “Competitive Business” means “Any and
all Therapeutic Devices treating various skin disorders such as skin cancer, keloids and psoriasis.”
The Executive’s
engaging in the following activities will not be deemed to be engaging or participating in a Competitive Business: (i) passive
ownership of less than 2% of any class of securities of a company; and (ii) engaging or participating solely in a noncompetitive
business of an entity which also separately operates a business which is a “Competitive Business”.
The Executive acknowledges,
with the advice of legal counsel, that he understands the foregoing provisions of this Section 11 and that these provisions are
fair, reasonable, and necessary for the protection of the Company’s business.
(a) All
payments to be made to and on behalf of the Executive under this Agreement will be subject to required withholding of federal,
employment and excise taxes, and to related reporting requirements.
(b)
Limitation
on Parachute Payments
. In the event that the payment and other benefits provided for in this Agreement or otherwise payable
to Executive (i) constitute "parachute payments" within the meaning of Section 280G of the Code and (ii) but for this
Section 12(b), would be subject to the excise tax imposed by Section 4999 of the Code, then Executive's payments and benefits will
be either:
(i) delivered
in full, or
(ii) delivered
as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section
4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes
and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest amount of
severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the
Code.
If a reduction in severance
and other payments and benefits constituting "parachute payments" is necessary so that benefits are delivered to a lesser
extent, reduction will occur in the following order: (i) reduction of cash payments; (ii) cancellation of awards granted "contingent
on a change in ownership or control" (within the meaning of Code Section 280G), (iii) cancellation of accelerated vesting
of equity awards, and (iv) reduction of employee benefits. Within any such category of payments and benefits (that is, (i), (ii),
(iii) or (iv)), a reduction shall occur first with respect to amounts that are not Deferred Payments and then with respect to amounts
that are. In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting
will be cancelled in the reverse order of the date of grant of Executive's equity awards.
Any determination required
under this Section 12(b) will be made in writing by the Company’s independent public accountants engaged by the Company for
general audit purposes immediately prior to the Change in Control (the "Accountants"), whose good faith determination
will be conclusive and binding upon Executive and the Company for all purposes. If the independent registered public accounting
firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in
Control, or if such firm otherwise cannot perform the calculations, the Company shall appoint a nationally recognized independent
registered public accounting firm to make the determinations required hereunder. For purposes of making the calculations required
by this Section 12(b), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely
on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive
will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination
under this Section. The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated
by this section.
(c)
Section
409A
. If any provision of this Agreement (or any award of compensation or benefits provided under this Agreement) would cause
Executive to incur any additional tax or interest under Section 409A of the Code, the Company shall reform such provision to comply
with Section 409A and agrees to maintain, to the maximum extent practicable without violating Section 409A of the Code, the original
intent and economic benefit to Executive of the applicable provision. The Company shall not accelerate the payment of any deferred
compensation in violation of Section 409A of the Code and, to the extent required under Section 409A, the Company shall delay the
payment of any deferred compensation for six months following Executive's termination of employment. When used in connection with
any payments subject to Section 409A required to be made hereunder, the phrase "termination of employment" and correlative
terms shall mean separation from service as defined in Section 409A. Unless such payments are otherwise exempt from Section 409A,
any reimbursements or in-kind benefits provided under this Agreement shall be administered in accordance with Section 409A, such
that: (a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during one year shall not affect the
expenses eligible for reimbursement or the in-kind benefits provided in any other year; (b) reimbursement of eligible expenses
shall be made on or before December 31 of the year following the year in which the expense was incurred; (c) Executive's right
to reimbursement or in-kind benefits shall not be subject to liquidation or to exchange for another benefit; and, (d) if the payment
of any deferred compensation shall be payable at any time within a period that overlaps two calendar years, payment shall be made
in the second of the two years. For purposes of Section 409A, Executive's right to receive any installment payments pursuant to
this Agreement shall be treated as a right to receive a series of separate and distinct payments..
Anything in Section
6 hereof to the contrary notwithstanding, the provisions of Section 7 through 15 shall survive the expiration or termination of
this Agreement, regardless of the reasons therefor.
|
|
14.
|
NO CONFLICT: REPRESENTATIONS AND WARRANTIES
.
|
The Executive represents
and warrants that (i) the information (written and oral) provided by the Executive to the Company in connection with obtaining
employment with the Company or in connection with the Executive’s former employments, work history, circumstances of leaving
former employments, and educational background, is true and complete, (ii) he has the legal capacity to execute and perform this
Agreement, (iii) this Agreement is a valid and binding obligation of the Executive enforceable against him in accordance with its
terms, (iv) the Executive’s execution, delivery or performance of this Agreement will not conflict with or result in a breach
of any agreement, understanding, order, judgment or other obligation to which the Executive is a party or by which he may be bound,
written or oral, and (v) the Executive is not subject to or bound by any covenant against competition, non-disclosure or confidentiality
obligation, or any other agreement, order, judgment or other obligation, written or oral, which would conflict with, restrict or
limit the performance of the services to be provided by him hereunder. The Executive agrees not to use, or disclose to anyone within
the Company, at any time during his employment hereunder, any trade secrets or any confidential information of any other employer
or other third party. Executive has provided to the Company a true copy of any non-competition obligation or agreement to which
he may be subject.
(a)
Notices
.
All notices hereunder shall be given in writing, by personal delivery, nationally-recognized overnight courier (such as UPS or
Federal Express), or prepaid registered or certified mail, return receipt requested, to the addresses of the proper parties as
set forth below:
TO THE EXECUTIVE:
Kalman Fishman
Sensus Healthcare, Inc.
851 Broken Sound Parkway NW #215
Boca Raton, FL 33487
TO THE COMPANY:
Sensus Healthcare, Inc.
851 Broken Sound Parkway NW #215
Boca Raton, FL 33487
Attention: Chief Executive Officer
Any notice given as
set forth above will be deemed given on the business day sent when delivered by hand during normal business hours, on the business
day after the business day sent if delivered by a nationally recognized overnight courier, or on the third business day after the
business day sent if delivered by registered or certified mail, return receipt requested.
(b)
Law
Governing
. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable
to contracts made and to be wholly performed in that state without regard to its conflicts of laws provisions or principles.
(c)
Jurisdiction
.
(i) In any suit, action or proceeding seeking to enforce any provision of this Agreement or for purposes of resolving any dispute
arising out of or related to this Agreement, the Company and the Executive each hereby irrevocably consents to the exclusive jurisdiction
of any federal court located in the State of Florida, Palm Beach County, or any of the state courts of the State of Florida located
in Palm Beach County; (ii) the Company and the Executive each hereby waives, to the fullest extent permitted by applicable law,
any objection which it or he may now or hereafter have to the laying of venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum; (iii) process
in any such suit, action or proceeding may be served on either party anywhere in the world, whether within or without the jurisdiction
of such court, and, without limiting the foregoing, each of the Company and the Executive irrevocably agrees that service of process
on such party, in the same manner as provided for notices in Section 15(a) above, shall be deemed effective service of process
on such party in any such suit; action or proceeding; (iv) WAIVER OF JURY TRIAL: EACH OF THE COMPANY AND THE EXECUTIVE HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT; and (v) Limitation on Damages: the parties agree that there will be no punitive damages payable
as a result of or in connection with any claim, matter or breach under or related to this Agreement or the transactions contemplated
by this Agreement, and each of the parties agrees not to request punitive damages. Notwithstanding the foregoing of this Section,
each of the parties agrees that prior to commencing any claims for breach of this Agreement (except to pursue injunctive relief)
to submit, for a period of sixty (60) days, to voluntary mediation before a jointly selected neutral third party mediator under
the auspices of JAMS, Miami, Florida, Resolutions Center (or any successor location), pursuant to the procedures of JAMS Mediation
Rules conducted in the State of Florida (however, such mediation or obligation to mediate shall not suspend or otherwise delay
any termination or other action of the Company or affect the Company’s other rights).
(d)
Headings
.
The Section headings contained in this Agreement are for convenience of reference only and are not intended to determine, limit
or describe the scope or intent of any provision of this Agreement.
(e)
Number
and Gender
. Whenever in this Agreement the singular is used, it shall include the plural if the context so requires, and whenever
the feminine gender is used in this Agreement, it shall be construed as if the masculine, feminine or neuter gender, respectively,
has been used where the context so dictates, with the rest of the sentence being construed as if the grammatical and terminological
changes thereby rendered necessary have been made.
(f)
Entire
Agreement
. This Agreement contains the entire agreement and understanding between the parties with respect to the subject matter
hereof and supersedes any prior or contemporaneous understandings and agreements, written or oral, between and among them respecting
such subject matter.
(g)
Counterparts
.
This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which taken together shall
constitute one instrument.
(h)
Amendments
.
This Agreement may not be amended except by a writing executed by each of the parties to this Agreement.
(i)
No
Waiver
. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board, No waiver
by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
IN WITNESS WHEREOF,
the parties hereto have duly executed this Agreement as of the date first written above.
|
KALMAN FISHMAN
|
|
SENSUS HEALTHCARE, INC.
|
|
|
|
|
|
|
/s/ Kalman Fishman
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
|
Name:
|
Joseph C. Sardano
|
|
Date: February 8, 2016
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
Date: February 8, 2016
|
Exhibit 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement
(this “Agreement”) is made as of February 8, 2016, between Sensus Healthcare, Inc., a Delaware corporation (together
with its subsidiaries, the “Company”) and Arthur Levine (the “Executive”).
WHEREAS, the Company
desires to employ the Executive and the Executive desires to be employed by the Company, on the terms and conditions provided below;
and
WHEREAS, this Agreement
shall govern the employment relationship between Executive and the Company and supersedes all previous agreements and understandings
with respect to such employment relationship.
The parties agree as
follows:
1.
ENGAGEMENT
.
The Company agrees
to employ the Executive, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement, unless
and until such employment shall have been terminated as provided in this Agreement.
2.
TITLE
AND DUTIES
.
During his employment
by the Company, the Executive shall render his services as the Chief Financial Officer of the Company, reporting directly to the
Chief Executive Officer, shall perform duties consistent with this position as the Board shall request, shall abide by Company
policies in effect from time to time, and shall devote his full business time and best efforts to his duties hereunder and the
business and affairs of the Company (except during vacation periods and periods of illness or other incapacity). The Executive
may engage in such other pursuits, including, without limitation, personal legal and personal financial affairs, as shall not interfere
with the proper performance of his duties and obligations hereunder, provided the Executive shall not serve on any other board
of directors of a public or private “for profit” company without the prior consent of the Board. Executive will be
based at the Company’s principal headquarters facility currently located in Boca Raton, Florida, subject to customary travel
and business requirements.
3.
TERM
.
(a) This
Agreement shall commence as of February 8, 2016 and shall continue in effect up through and including the last day of the Company’s
2020 fiscal year (currently expected to be on or about December 31, 2020); provided that the term of this Agreement shall automatically
be extended for additional successive one (1) year renewal terms unless at least six (6) months prior to the expiration of the
then current term, the Company or the Executive shall have given written notice to the other party that this Agreement shall not
be extended beyond the then current term.
(b) It
is acknowledged and agreed that if this Agreement is not renewed by the Company pursuant to Section 3(a) above, and not as a result
of Executive’s death, Disability, or Cause pursuant to Section 6(a) or 6(b) below, such non-renewal by the Company will be
deemed a termination without Cause pursuant to Section 6(c) or 6(d) below (as applicable). In the event that Executive’s
employment with the Company ceases at the end of any term because Executive (and not the Company) has given a non-renewal notice
set forth in Section 3(a) above, and not as a result of the occurrence of Good Reason pursuant to Section 6(c) or 6(d) below, then
such termination of employment shall be treated as a voluntary termination by Executive without Good Reason.
4.
COMPENSATION
.
(a)
Base
Salary
. Executive’s base salary as it may be increased from time to time (“Base Salary”) shall be paid in
accordance with the Company’s normal payroll practices in effect from time to time. Executive’s Base Salary shall initially
be $200,000 per annum. Base Salary may be increased during the term but may not be decreased, and the Board or the Compensation
Committee of the Board (the “Compensation Committee”) shall consider, on an annual basis, the nature, extent and advisability,
if any, of an increase in the Executive’s Base Salary.
(b)
Annual
Incentive Bonus
. For each fiscal year of the Company that ends during the term, Executive will be eligible to participate in
the Company’s annual incentive plan established and developed by the Compensation Committee, as it may then be in effect
(the “AIP”). Executive’s target annual bonus opportunity (“Target Bonus”) will be $50,000 which Target
Bonus may be increased but not decreased from time to time in the Compensation Committee’s sole discretion. Annual
incentive payments will be based on achievement against goals established for the senior executive officer group including Executive
by the Compensation Committee, in consultation with Executive.
(c)
Executive
Stock Based Incentive Plan
.
(i)
Genera
l.
The Executive shall be eligible to participate in and receive such equity incentive compensation as may be granted by the Compensation
Committee from time to time pursuant to the Company’s Executive Stock Based Incentive Plan as such plan may then be in effect
and as it may be amended or superseded from time to time (the “Equity Plan”) and any other long-term incentive plan
for senior Company executives that the Board or Compensation Committee may adopt in consultation with Executive.
(d)
Other
.
Future annual-cycle equity awards (which may include performance conditions) to be granted to Executive under the Equity Plan will
be determined by the Compensation Committee in its discretion.
5.
BENEFITS
.
(a)
Employer
Benefit Plans
. During the term, Executive will be eligible to participate, on terms which are generally available to the other
senior executives of the Company and subject to the eligibility requirements of the applicable Company plans as in effect from
time to time, in the Company’s, deferred compensation, medical, dental, vacation, and disability programs, and other benefits,
including a car allowance, generally available to the Company’s senior executives from time to time.
(b)
Business
Expenses
. The Executive is authorized to incur and the Company shall either pay directly or reimburse the Executive for ordinary
and reasonable expenses in connection with the performance of his duties hereunder, including, without limitation, expenses for
(A) transportation, (B) business meals, (C) travel and lodging, and (D) similar items. The Executive agrees to comply with Company
policies with respect to reimbursement and record keeping in connection with such expenses.
6.
TERMINATION
OF EMPLOYMENT
.
The employment of the
Executive hereunder may be terminated by the Company at any time, subject to the company providing the compensation and benefits
in accordance with the terms of this Section 6, which shall constitute the Executive’s sole and exclusive remedy and legal
recourse upon any such termination of employment (and the Executive hereby waives and releases any and all other claims against
the Company and its parent entities, affiliates, officers, directors and employees in such event).
(a)
Termination
Due To Death Or Disability
. In the event of the Executive’s death, Executive’s employment shall automatically cease
and terminate ‘as of the date of death. If Executive becomes Disabled, the Company may terminate Executive’s employment
upon thirty (30) days written notice to Executive. For purposes of this Agreement, the terms “Disabled” or “Disability”
means Executive’s inability, because of physical or mental illness or injury, substantially to perform his duties hereunder
as a result of physical incapacity for a continuous period of at least four (4) months, and any dispute as to the Executive’s
incapacitation shall be resolved by an independent physician selected by the Board and reasonably acceptable to the Executive,
whose determination shall be final and binding upon both the Executive and the Company. In the event of the termination of employment
due to Executive’s death or Disability, Executive or his estate or legal representatives shall be entitled to receive:
(i) payment
for all accrued but unpaid Base Salary as of the date of Executive’s termination of employment;
(ii) reimbursement
for expenses incurred by the Executive pursuant to Sections 5(b) hereof up to and including the date on which employment is terminated;
(iii) any
earned benefits to which the Executive may be entitled as of the date of termination pursuant to the terms of any compensation
or benefit plans to the extent permitted by such plans (with the payments described in subsections (i) through (iii) above collectively
called the “Accrued Payments”);
(iv) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(v) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by the total annual business days) determined and paid based on actual performance achieved for that fiscal year against the performance
goals for that fiscal year; and
(b)
Termination
For Cause
. The Company may, by providing written notice to Executive, terminate Executive’s employment for Cause. The
term “Cause” for purpose of this Agreement shall mean:
(i) Executive’s
conviction of, or entrance of a plea of guilty or nolo contendere to, a felony under federal law or state law; or
(ii) fraudulent
conduct by Executive in connection with the business affairs of the Company; or
(iii) theft,
embezzlement, or other criminal misappropriation of funds by Executive (other than good faith expense account disputes or de minimis
amounts); or
(iv) Executive’s
willful refusal to materially perform his executive duties hereunder; or
(v) Executive’s
willful misconduct, which has, or would have if generally known, a materially adverse effect on the business or reputation of the
Company; or
(vi) The
Executive’s willful breach of any material employment policy of the Company, including, but not limited to, conduct relating
to falsification of business records, violation of the Company’s Code of Business Conduct and Ethics, harassment, creation
of a hostile work environment, excessive absenteeism, insubordination, violation of the Company’s policy on drug and alcohol
use, or violent acts or threats of violence; or
(vii) Executive’s
material breach of a covenant, representation, warranty or obligation of Executive under this Agreement.
For purposes of this
Section 6(b), an act or failure to act shall be considered “willful” only if done or omitted to be done without a good
faith reasonable belief that such act or failure to act was in the best interests of the Company.
Any determination of
Cause by the Company will be made by a resolution approved by a majority of the members of the Board, provided that no such determination
may be made until Executive has been given written notice detailing the specific event constituting such Cause and a period of
thirty (30) days following receipt of such notice to cure such event (if susceptible to cure), and, if such event is not curable
or is not cured, an opportunity to appear before the Board (with legal counsel if so requested in writing by Executive) to discuss
the specific circumstances alleged to give rise to the Cause event. Subject to Executive’s right to cure and/or appear before
the Board, if Executive’s employment is terminated for Cause, the termination shall take effect on the effective date of
such termination as specified in the written notice of such termination delivered to Executive.
In the event of the
termination of Executive’s employment hereunder by the Company for Cause, then Executive shall be entitled to receive payment
of the Accrued Payments.
If the Company attempts
to terminate Executive’s employment pursuant to this Section 6(b) and it is ultimately determined that the Company lacked
Cause, the provisions of Section 6(c) or Section 6(d) (as applicable) shall apply and Executive shall be entitled to receive the
payments set forth under Section 6(c) or Section 6(d) (as applicable).
(c)
Termination
without Cause or for Good Reason
. The Company may terminate Executive’s employment hereunder without Cause at any time,
by providing Executive 30 days’ prior written notice of such termination. Such notice shall specify the effective date of
the termination of Executive’s employment. The Executive may terminate his employment for Good Reason by providing 30 days’
prior written notice to the Company. In the event of the termination of Executive’s employment under this Section 6(c) without
Cause or by the Executive for Good Reason, in each case prior to or more than 12 months following a Change-in-Control (as defined
in the Company’s Equity Plan), then Executive shall be entitled to:
(i) payment
of the Accrued Payments;
(ii) a
separation allowance, payable in equal installments in accordance with normal payroll practices over a 12 month period beginning
immediately following the date of termination, equal to one (1) times the sum of (x) Executive’s then Base Salary and (y)
the Executive’s then Target Bonus;
(iii) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(iv) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by total the annual business days) determined and paid based on actual performance achieved for such fiscal year against the performance
goals for that fiscal year;
(v) the
Company shall arrange for the Executive to continue to participate (through COBRA or otherwise), on substantially the same terms
and conditions as in effect for the Executive (including any required contribution) immediately prior to such termination, in the
medical, dental, disability and life insurance programs provided to the Executive pursuant to Section 5(a) hereof until the earlier
of (i) the end of the 12 month period beginning on the effective date of the termination of Executive’s employment hereunder,
or (ii) such time as the Executive is eligible to be covered by comparable benefit(s) of a subsequent employer. The foregoing of
this Section 6(c)(v) is referred to as “Benefits Continuation”. The Executive agrees to notify the Company promptly
if and when he begins employment with another employer and if and when he becomes eligible to participate in any benefit or other
welfare plans, programs or arrangements of another employer;
(vi) all
of Executive’s then-outstanding equity awards in any Equity Plan will vest in full.
For purposes of this
Agreement, the term “Good Reason” means, without Executive’s written consent:
(i) a
reduction by the Company in Executive’s Base Salary or Target Bonus as in effect from time to time; or
(ii) the
Board materially reduces (including as a result of any co-sharing of responsibilities arrangement), other than during any period
of illness or incapacity, Executive’s authority, responsibilities. or duties such that Executive no longer has the title
of, or serves or functions as the Chief Financial Officer of the Company (provided that it is understood that a Change-in-Control
or going private event will not constitute Good Reason); or
(iii) the
Company requiring Executive to be based at a location in excess of fifty (50) miles from the location of the Company’s principal
executive office as of the effective date of this Agreement, except for required travel on Company business; or
(iv) the
Company fails to obtain the written assumption of its obligations under this Agreement by a successor not later than the consummation
of a merger, consolidation or sale of the Company; or
(v) a
material breach by the Company of its obligations under this Agreement, which, in each of subsections (i) through (v) above, is
not remedied by the Company within 30 days of receipt of written notice of such event or breach delivered by Executive to the Company;
provided, that the Executive may only exercise his right to terminate this Agreement for Good Reason within the 120 day period
immediately following the occurrence of any of the events described in subsections (i) through (v) above.
(d)
Termination
of Employment without Cause or for Good Reason following a Change-in-Control
. If the Company terminates Executive’s employment
without Cause upon 30 days’ prior written notice or Executive terminates his employment for Good Reason by providing 30 days’
prior written notice to the Company, in each case within 12 months following a Change-in-Control (as defined in the Company’s
Equity Plan), the Company will provide to Executive:
(i) payment
of the Accrued Payments;
(ii) a
lump sum separation allowance equal to two (2) times the sum of (x) Executive’s then Base Salary and (y) Executive’s
then Target Bonus;
(iii) any
annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the employment termination
date;
(iv) if
employment termination occurs prior to the end of any fiscal year, a pro rata annual incentive bonus for such fiscal year in which
employment termination occurs (based on actual business days in such fiscal year prior to such employment termination, divided
by the total annual business days) determined and paid based on actual performance achieved for such fiscal year against the performance
goals for that fiscal year;
(v) Benefit
Continuation until the earlier of 24 months after termination of employment or such time as Executive is eligible to be covered
by comparable benefit(s) of a subsequent employer. The Executive agrees to notify the Company promptly if and when he begins employment
with another employer and if and when he becomes eligible to participate in any benefit or other welfare plans, programs or arrangements
of another employer;
(vi) all
of Executive’s then-outstanding equity awards in any Equity Plan will vest in full.
(e)
Voluntary
Termination by the Executive without Good Reason
. In the event Executive terminates his employment without Good Reason, he
shall provide 90 days’ prior written notice of such termination to the Company. Upon such voluntary termination, the Executive
will be entitled to the Accrued Payments. Without limiting all other rights and remedies of the Company under this Agreement, a
termination of employment by the Executive without Good Reason will not constitute a breach by the Executive of this Agreement.
(f)
Resignation
from all Boards
. Upon any termination or cessation of Executive’s employment with the Company, for any reason, Executive
agrees immediately to resign, and any notice of termination or actual termination or cessation of employment shall act automatically
to effect such resignation, from any position on the Board and on any board of directors of any subsidiary or affiliate of the
Company.
(g)
Release
of Claims as Condition
. The Company’s obligation to pay the separation allowance and provide all other benefits and rights
referred to in this Section 6 and in Section 4(d) above shall be conditioned upon the Executive having delivered to the Company
an executed full and unconditional release (that is not subject to revocation) of claims against the Company, its parent entities,
affiliates, employee benefit plans and fiduciaries, officers, employees, directors, agents and representatives satisfactory in
form and content to the Company’s counsel.
(h)
No
Mitigation
. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder
be reduced by any compensation earned by Executive as a result of subsequent employment.
7.
INDEMNIFICATION
.
(a) Provided
that the Executive has not been terminated for “Cause” as defined herein, the Company shall indemnify, defend and hold
the Executive harmless, to the maximum extent permitted by law, against all judgments, fines, amounts paid in settlement and all
reasonable expenses, including attorneys’ fees incurred by the Executive, in connection with the defense of, or as a result
of, any action or proceeding (or any appeal from any action or proceeding) in which the Executive is made or is threatened to be
made a party by reason of the fact that the Executive is or was an officer or director of the Company, regardless of whether such
action or proceeding is one brought by or in the right of the Company. Each of the parties hereto shall give prompt notice to the
other of any action or proceeding from which the Company is obligated to indemnify, defend and hold harmless the Executive of which
it or he (as the case may be) gains knowledge.
(b) The
Company agrees that the Executive shall be covered and insured up to the full limits provided by all directors’ and officers’
insurance which the Company then maintains to indemnify its directors and officers (and to indemnify the Company for any obligations
which it incurs as a result of its undertaking to indemnify its officers and directors), subject to applicable deductibles and
to the terms and conditions of such policies.
8.
ENFORCEABILITY
.
It is the intention
of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public
policies of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification
to conform with such laws or public policies) of any provisions hereof, shall not render unenforceable or impair the remainder
of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter
the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible.
9.
ASSIGNMENT
.
This Agreement is personal
in nature to the Company and the rights and obligations of the Executive under this Agreement shall not be assigned or transferred
by the Executive. This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties
hereto and their successors (including successors by merger, consolidation, sale or similar transaction, permitted assigns, executors,
administrators, personal representatives, heirs and distributees).
10.
NON-DISCLOSURE;
NON-SOLICITATION; COOPERATION
.
(a) The
Executive shall not, at any time during or following the period of employment, disclose, use, transfer or sell, except in the course
of such employment, any confidential information or proprietary data of the Company or its affiliates so long as such information
or data remains confidential and has not been disclosed or is not otherwise in the public domain, except as required by law or
pursuant to legal process or in connection with an administrative proceeding before a governmental agency. The Company and the
Executive agree that the Executive’s obligations under this Section 10 (a) shall not apply if (1) any disclosure by the Executive
is made with the express written permission of the Company or (2) if the Executive can show by legal evidence that it was lawfully
received by the Executive from a third party who is not or was not bound, at the time the information was conveyed to Executive,
by any confidential relationship or obligation to the Company.
(b) The
Executive agrees that, for a period of twelve (12) months after the termination or cessation of the Executive’s
employment with the Company for any reason, the Executive will not:
(i) directly
or indirectly solicit, attempt to hire, or hire any employee of the Company (or any person who may have been employed by the Company
during the last year of the Executive’s employment with the Company), or assist in such hiring by any other person or business
entity or encourage, induce or attempt to induce any such employee to terminate his or her employment with the Company; or
(ii) take
action intended to encourage any vendor or supplier of the Company to cease to do business with the Company or materially reduce
the amount of business the vendor or supplier does with the Company; or
(iii) materially
disparage the Company.
(c) Executive
agrees to cooperate with the Company, during the term of this Agreement and at any time thereafter (including following Executive’s
termination of employment for any reason), by making himself reasonably available to testify on behalf of the Company in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, in any such action,
suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives
or counsel to the Company, as requested; provided, however that it does not materially interfere with his then current professional
activities. The Company agrees to reimburse Executive for all reasonable expenses actually incurred in connection with his provision
of testimony or assistance.
11.
NON-COMPETITION
AGREEMENT
.
The Executive agrees
that throughout the term of his employment, and for a period of twelve (12) months after termination or cessation of employment
for any reason, he will not engage in, participate in, carry on, own, or manage, directly or indirectly, either for herself or
as a partner, stockholder, investor, officer, director, employee, agent, independent contractor, representative or consultant of
any person, partnership, corporation or other enterprise, in any “Competitive Business” in any jurisdiction in which
the Company actively conducts business. For purposes of this Section 11, “Competitive Business” means “Any and
all Therapeutic Devices treating various skin disorders such as skin cancer, keloids and psoriasis.”
The Executive’s
engaging in the following activities will not be deemed to be engaging or participating in a Competitive Business: (i) passive
ownership of less than 2% of any class of securities of a company; and (ii) engaging or participating solely in a noncompetitive
business of an entity which also separately operates a business which is a “Competitive Business”.
The Executive acknowledges,
with the advice of legal counsel, that he understands the foregoing provisions of this Section 11 and that these provisions are
fair, reasonable, and necessary for the protection of the Company’s business.
12.
TAXES
.
(a) All
payments to be made to and on behalf of the Executive under this Agreement will be subject to required withholding of federal,
employment and excise taxes, and to related reporting requirements.
(b)
Limitation
on Parachute Payments
. In the event that the payment and other benefits provided for in this Agreement or otherwise payable
to Executive (i) constitute "parachute payments" within the meaning of Section 280G of the Code and (ii) but for this
Section 12(b), would be subject to the excise tax imposed by Section 4999 of the Code, then Executive's payments and benefits will
be either:
(i) delivered
in full, or
(ii) delivered
as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section
4999 of the Code,
whichever of the foregoing
amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the Code.
If a reduction in severance
and other payments and benefits constituting "parachute payments" is necessary so that benefits are delivered to a lesser
extent, reduction will occur in the following order: (i) reduction of cash payments; (ii) cancellation of awards granted "contingent
on a change in ownership or control" (within the meaning of Code Section 280G), (iii) cancellation of accelerated vesting
of equity awards, and (iv) reduction of employee benefits. Within any such category of payments and benefits (that is, (i), (ii),
(iii) or (iv)), a reduction shall occur first with respect to amounts that are not Deferred Payments and then with respect to amounts
that are. In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting
will be cancelled in the reverse order of the date of grant of Executive's equity awards.
Any determination required
under this Section 12(b) will be made in writing by the Company’s independent public accountants engaged by the Company for
general audit purposes immediately prior to the Change in Control (the "Accountants"), whose good faith determination
will be conclusive and binding upon Executive and the Company for all purposes. If the independent registered public accounting
firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in
Control, or if such firm otherwise cannot perform the calculations, the Company shall appoint a nationally recognized independent
registered public accounting firm to make the determinations required hereunder. For purposes of making the calculations required
by this Section 12(b), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely
on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive
will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination
under this Section. The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated
by this section.
(c)
Section
409A
. If any provision of this Agreement (or any award of compensation or benefits provided under this Agreement) would cause
Executive to incur any additional tax or interest under Section 409A of the Code, the Company shall reform such provision to comply
with Section 409A and agrees to maintain, to the maximum extent practicable without violating Section 409A of the Code, the original
intent and economic benefit to Executive of the applicable provision. The Company shall not accelerate the payment of any deferred
compensation in violation of Section 409A of the Code and, to the extent required under Section 409A, the Company shall delay the
payment of any deferred compensation for six months following Executive's termination of employment. When used in connection with
any payments subject to Section 409A required to be made hereunder, the phrase "termination of employment" and correlative
terms shall mean separation from service as defined in Section 409A. Unless such payments are otherwise exempt from Section 409A,
any reimbursements or in-kind benefits provided under this Agreement shall be administered in accordance with Section 409A, such
that: (a) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during one year shall not affect the
expenses eligible for reimbursement or the in-kind benefits provided in any other year; (b) reimbursement of eligible expenses
shall be made on or before December 31 of the year following the year in which the expense was incurred; (c) Executive's right
to reimbursement or in-kind benefits shall not be subject to liquidation or to exchange for another benefit; and, (d) if the payment
of any deferred compensation shall be payable at any time within a period that overlaps two calendar years, payment shall be made
in the second of the two years. For purposes of Section 409A, Executive's right to receive any installment payments pursuant to
this Agreement shall be treated as a right to receive a series of separate and distinct payments..
13.
SURVIVAL
.
Anything in Section
6 hereof to the contrary notwithstanding, the provisions of Section 7 through 15 shall survive the expiration or termination of
this Agreement, regardless of the reasons therefor.
14.
NO
CONFLICT: REPRESENTATIONS AND WARRANTIES
.
The Executive represents
and warrants that (i) the information (written and oral) provided by the Executive to the Company in connection with obtaining
employment with the Company or in connection with the Executive’s former employments, work history, circumstances of leaving
former employments, and educational background, is true and complete, (ii) he has the legal capacity to execute and perform this
Agreement, (iii) this Agreement is a valid and binding obligation of the Executive enforceable against him in accordance with its
terms, (iv) the Executive’s execution, delivery or performance of this Agreement will not conflict with or result in a breach
of any agreement, understanding, order, judgment or other obligation to which the Executive is a party or by which he may be bound,
written or oral, and (v) the Executive is not subject to or bound by any covenant against competition, non-disclosure or confidentiality
obligation, or any other agreement, order, judgment or other obligation, written or oral, which would conflict with, restrict or
limit the performance of the services to be provided by him hereunder. The Executive agrees not to use, or disclose to anyone within
the Company, at any time during his employment hereunder, any trade secrets or any confidential information of any other employer
or other third party. Executive has provided to the Company a true copy of any non-competition obligation or agreement to which
he may be subject.
15.
MISCELLANEOUS
.
(a)
Notices
.
All notices hereunder shall be given in writing, by personal delivery, nationally-recognized overnight courier (such as UPS or
Federal Express), or prepaid registered or certified mail, return receipt requested, to the addresses of the proper parties as
set forth below:
TO THE EXECUTIVE:
Arthur Levine
Sensus Healthcare, Inc.
851 Broken Sound Parkway NW #215
Boca Raton, FL 33487
TO THE COMPANY:
Sensus Healthcare, Inc.
851 Broken Sound Parkway NW #215
Boca Raton, FL 33487
Attention: Chief Executive Officer
Any notice given as
set forth above will be deemed given on the business day sent when delivered by hand during normal business hours, on the business
day after the business day sent if delivered by a nationally recognized overnight courier, or on the third business day after the
business day sent if delivered by registered or certified mail, return receipt requested.
(b)
Law
Governing
. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable
to contracts made and to be wholly performed in that state without regard to its conflicts of laws provisions or principles.
(c)
Jurisdiction
.
(i) In any suit, action or proceeding seeking to enforce any provision of this Agreement or for purposes of resolving any dispute
arising out of or related to this Agreement, the Company and the Executive each hereby irrevocably consents to the exclusive jurisdiction
of any federal court located in the State of Florida, Palm Beach County, or any of the state courts of the State of Florida located
in Palm Beach County; (ii) the Company and the Executive each hereby waives, to the fullest extent permitted by applicable law,
any objection which it or he may now or hereafter have to the laying of venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum; (iii) process
in any such suit, action or proceeding may be served on either party anywhere in the world, whether within or without the jurisdiction
of such court, and, without limiting the foregoing, each of the Company and the Executive irrevocably agrees that service of process
on such party, in the same manner as provided for notices in Section 15(a) above, shall be deemed effective service of process
on such party in any such suit; action or proceeding; (iv) WAIVER OF JURY TRIAL: EACH OF THE COMPANY AND THE EXECUTIVE HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT; and (v) Limitation on Damages: the parties agree that there will be no punitive damages payable
as a result of or in connection with any claim, matter or breach under or related to this Agreement or the transactions contemplated
by this Agreement, and each of the parties agrees not to request punitive damages. Notwithstanding the foregoing of this Section,
each of the parties agrees that prior to commencing any claims for breach of this Agreement (except to pursue injunctive relief)
to submit, for a period of sixty (60) days, to voluntary mediation before a jointly selected neutral third party mediator under
the auspices of JAMS, Miami, Florida, Resolutions Center (or any successor location), pursuant to the procedures of JAMS Mediation
Rules conducted in the State of Florida (however, such mediation or obligation to mediate shall not suspend or otherwise delay
any termination or other action of the Company or affect the Company’s other rights).
(d)
Headings
.
The Section headings contained in this Agreement are for convenience of reference only and are not intended to determine, limit
or describe the scope or intent of any provision of this Agreement.
(e)
Number
and Gender
. Whenever in this Agreement the singular is used, it shall include the plural if the context so requires, and whenever
the feminine gender is used in this Agreement, it shall be construed as if the masculine, feminine or neuter gender, respectively,
has been used where the context so dictates, with the rest of the sentence being construed as if the grammatical and terminological
changes thereby rendered necessary have been made.
(f)
Entire
Agreement
. This Agreement contains the entire agreement and understanding between the parties with respect to the subject matter
hereof and supersedes any prior or contemporaneous understandings and agreements, written or oral, between and among them respecting
such subject matter.
(g)
Counterparts
.
This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which taken together shall
constitute one instrument.
(h)
Amendments
.
This Agreement may not be amended except by a writing executed by each of the parties to this Agreement.
(i)
No
Waiver
. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board, No waiver
by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
IN WITNESS WHEREOF,
the parties hereto have duly executed this Agreement as of the date first written above.
|
ARTHUR LEVINE
|
|
SENSUS HEALTHCARE, INC.
|
|
|
|
|
|
|
/s/ Arthur Levine
|
|
By:
|
/s/ Joseph C. Sardano
|
|
|
|
Name:
|
Joseph C. Sardano
|
|
Date: February 8, 2016
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
Date: February 8, 2016
|
Exhibit 10.13
Manufacturing
Agreement
July 20, 2010
Operations Function
Company Confidential © 2010 – All
Rights Reserved
Do Not Copy or Distribute Without a Written
Permission from Sensus Healthcare, LLC.
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 1 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
MANUFACTURING
AGREEMENT
THIS
MANUFACTURING AGREEMENT
(the "Agreement")
is made as of this 20
th
day of July, 2010 (the "Effective Date"), by and between
Sensus Healthcare, LLC,
a Delaware limited liability company, hereinafter called "CLIENT", and
RbM Services, LLC,
a Tennessee limited
liability company, hereinafter called the "MANUFACTURER".
RECITALS:
WHEREAS, the CLIENT is
engaged in the business of developing, marketing and selling medical devices and products relating to the treatment of skin cancer,
information technology and oncology segments; and
WHEREAS upon and subject
to the terms and conditions of this Agreement, CLIENT has retained the services of MANUFACTURER to provide manufacturing services
for the SRT-100 (the "Product").
NOW, THEREFORE, for good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
MANUFACTURER, through its manufacturing facilities,
shall manufacture, package, label, pack for shipment, warehouse and tender to carriers, and CLIENT shall purchase from MANUFACTURER,
the Product pursuant to the Product specifications described on
Schedule I
attached hereto, and such other procedures, standards,
requirements, drawings, schematics and other specifications as provided to MANUFACTURER by CLIENT (collectively, the "Product
Specifications"), pursuant to purchase orders submitted by or on behalf of CLIENT to MANUFACTURER from time to time (a "Purchase
Order"). The Product shall be manufactured and purchased in such quantities and at such times as are specified in the Purchase
Orders.
In the event that MANUFACTURER decides to change
the manufacturing location of the Product from the manufacturing facility used by MANUFACTURER as of the date of this Agreement,
MANUFACTURER shall notify CLIENT of such change as soon as practicable, but in any event at least sixty (60) days prior to effecting
such change.
This is a non-exclusive license to manufacture
the Product. CLIENT may have others manufacture the Product. MANUFACTURER shall not manufacture products for or on behalf of any
third parties that are identical or similar to the Product. MANUFACTURER shall manufacture the Product only pursuant to a Purchase
Order from CLIENT.
This Agreement shall commence on the Effective
Date, and shall continue for an initial term of three (3) years. This Agreement shall automatically be renewed for successive years
unless either party notifies the other party in writing, at least sixty (60) days prior to the anniversary
date
of this Agreement that it will not renew the Agreement. (The initial term and any renewal term shall be collectively referred to
as the "Term").
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 2 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
CLIENT will provide an annual twelve (12) month
Product sales forecast and a monthly six (6) month rolling Product sales forecast to MANUFACTURER. This Section may be modified
from time to time by an addendum and information provided herein shall be treated as Confidential Information as under Section
14. Product sale forecasts are estimates only and CLIENT is not obligated to purchase any minimum quantities hereunder.
4.1 MANUFACTURER is authorized to purchase
materials using standard purchasing practices including, but not limited to, acquisition of material recognizing Economic Order
Quantities, and long lead time component management in order to meet the forecasted requirements of CLIENT. MANUFACTURER will exercise
reasonable business judgment in managing suppliers, including the establishment of a redundant supplier pool for critical parts,
and mitigate lead times for each item in order to meet CLIENT'S forecasting and order fulfillment and delivery dates.
4.2 All unused materials shall be stored
in MANUFACTURER'S warehouse. MANUFACTURER shall notify CLIENT immediately of any significant loss of materials and MANUFACTURER
shall be responsible for all losses of materials.
|
|
5.
|
PURCHASE ORDER; INVENTORY.
|
5.1 CLIENT shall issue a Purchase Order for
each Product purchased, and MANUFACTURER shall fulfill the order within the standard lead time of 120 days per unit from date of
Purchase Order issuance. The Purchase Order shall set forth the quantity, price and any other specifications pertaining to such
Purchase Order. No manufacturing of Product shall begin until a Purchase Order is issued by CLIENT. The MANUFACTURER will procure
long lead items based on forecasts, and CLIENT will reimburse the MANUFACTURER for such components, and the MANUFACTURER will credit
the CLIENT in the first invoice for the system order. CLIENT shall have the authority to revise or cancel a Purchase Order for
Product and may also eliminate a component from a Product, provided, however, if any revision or cancellation of a Purchase Order,
or elimination of a component or revision of a downward forecast by CLIENT causes excess inventory, MANUFACTURER shall identify
all potential liability of CLIENT for material on order, material on hand, work in process, and finished goods and parties shall
cooperate to mitigate excess inventory. MANUFACTURER shall undertake commercially reasonable efforts to minimize charges to CLIENT
by canceling all applicable material purchase orders and diverting materials for different or alternate Product.
5.2 MANUFACTURER
will report its finished device and system work in process (WIP) inventory position to CLIENT on a monthly basis.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 3 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
5.3 MANUFACTURER represents and warrants
to CLIENT that it has sufficient capacity to supply the Product on a timely basis as shall be specified in each Purchase Order
issued by CLIENT.
CLIENT shall pay for production of the Product
in accordance with the Pricing Schedule attached herein as Schedule II. CLIENT shall pay MANUFACTURER for such Product in accordance
with the times provided on Schedule II, within thirty (30) days from date of receipt of invoice that is properly supported by complete
documentation.
|
|
7.
|
WARRANTY, NONCONFORMING PRODUCT & SERVICE CONTRACTS.
|
7.1 MANUFACTURER warrants and represents
that it has the requisite and necessary experience, all necessary licenses and permits, insurances, equipment, facilities, and
personnel to properly perform the manufacturing services in accordance with the Product Specifications, in a timely manner and
in compliance with all applicable laws, ordinances, rules and regulations. MANUFACTURER further represents, warrants and declares
the capabilities and compliance with the provisions of Schedule III, attached hereto. MANUFACTURER warrants that it will have,
and transfer to CLIENT, good and marketable title to all Product sold to CLIENT, free and clear of all liens and other encumbrances,
and that all Product sold to CLIENT will strictly conform with all Product Specifications, will comply with all laws, rules and
regulations applicable to the manufacture, packing for shipment, sale and delivery of the Product, will be of merchantable quality,
will be free from all defects in material and workmanship. MANUFACTURER warrants for a period of twelve (12) months from shipment
(the "Warranty Period") that all Product sold to CLIENT shall be free from any defects in materials and workmanship,
and shall conform to Product Specifications. This warranty will cover labor and material, but does not include travel or material
replacement shipment costs.
7.2
NONCONFORMING PRODUCT.
The total
costs, including, but not limited to, raw materials, manufacturing, shipping, packaging supplies, packing charges and proper disposal
costs, relating to Product manufactured by MANUFACTURER that do not strictly comply with the applicable laws and regulations, the
Product Specifications and this Agreement shall be the sole financial responsibility and obligation of MANUFACTURER.
7.3 MANUFACTURER has taken the steps necessary
to duly authorize this Agreement, has the corporate and legal right to enter into this Agreement and is not a party to any other
Agreement that would in any way conflict with, or restrict, its ability to perform the manufacturing services.
7.4 MANUFACTURER shall have no responsibility
or obligation to CLIENT under warranty claims with respect to Product that have been subjected to abuse, misuse, accident, alteration,
neglect or unauthorized repair.
7.5 THE WARRANTIES CONTAINED IN THIS SECTION
ARE IN LIEU OF, AND MANUFACTURER EXPRESSLY DISCLAIMS AND CLIENT WAIVES ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED,
STATUTORY OR ARISING BY COURSE OF DEALING OR PERFORMANCE, CUSTOM, USAGE IN THE TRADE OR OTHERWISE, INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE AND FITNESS FOR A PARTICULAR USE.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 4 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
7.6 Service contracts may be sold by CLIENT
to CLIENT'S customers on such terms as provided on Schedule II and as may be mutually agreed by the parties hereto from time to
time. Proceeds from service contracts shall be equally split between CLIENT and MANUFACTURER, and CLIENT shall pay the cost of
replacement parts and/or components and MANUFACTURER shall pay the cost of labor. Labor costs shall also include all travel costs
incurred by MANUFACTURER to work at CLIENT'S customer location if so required. Unless otherwise specified, travel costs are only
covered with domestic US sites.
Warranty repair services shall be provided
at either CLIENT'S customer location, or MANUFACTURER'S manufacturing facilities in Oak Ridge, Tennessee, as best determined and
diagnosed by MANUFACTURER. MANUFACTURER shall triage and respond to CLIENT'S customer defective unit within twenty four (24) hours.
MANUFACTURER shall within one (1) week of receipt of returned Product and/or components provide a report to CLIENT detailing those
Product and/or components accepted under warranty and any that are not accepted under warranty due to physical damage or improper
use. MANUFACTURER will use its best efforts to repair defective Product as quickly as possible with "turnaround time"
(time for repair after receipt of units) to be no more than one (1) week from receipt at the MANUFACTURER facility. All shipping
costs of the Product from CLIENT'S customer location to CLIENT or MANUFACTURER and of the repaired or replaced warranted Product
to CLIENT'S customer location shall be at the expense of MANUFACTURER. Shipment of the repaired or replaced non-warranted Product
shall be at the expense of CLIENT'S customer. MANUFACTURER shall provide CLIENT with technical information necessary and a case
summary report for any repairs being performed by MANUFACTURER. In the event a Product modification shall become necessary, MANUFACTURER
shall make such modifications, as approved by CLIENT, at a separate cost borne by CLIENT. For non-warranted repairs, MANUFACTURER
shall report to CLIENT an estimated time and parts cost to repair failed units, and shall not proceed with repairs until such time
that CLIENT has provided approval for said repairs. For problems due to incorrect use of the Product, or factors external to the
Product, or repairs for unwarranted units, MANUFACTURER shall repair at a separate cost borne by CLIENT, at a billing rate as defined
in Schedule II. MANUFACTURER shall repair or exchange, and ship to CLIENT'S customer, the returned Product within one (1) week
of receipt of Product by MANUFACTURER.
9.1 All CLIENT production tooling/equipment
furnished to MANUFACTURER or paid for by CLIENT in connection with this Agreement shall be clearly marked and remain the personal
property of CLIENT and MANUFACTURER shall keep such tooling and equipment free of all liens and encumbrances. CLIENT shall maintain
a list of all such tooling and equipment.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 5 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
9.2 Unless otherwise agreed, MANUFACTURER
is responsible for the general and periodic maintenance of CLIENT'S tooling/equipment.
|
|
10.
|
REGULATORY RESPONSIBILITY; TRADEMARKS.
|
10.1
REGULATORY APPROVALS.
CLIENT
shall undertake and be responsible for the procurement of any and all regulatory approvals and/or registrations and customs approval
necessary for sale of the Product.
10.2
SAFETY INSPECTIONS AND CERTIFICATIONS.
Periodic safety certification audits by the notified body, i.e. UL/TUV, are perfomed at the MANUFACTURERS site, and such inspection
and certification fees shall be charged to the CLIENT with a 10% handling and billing fee.
10.3
STATE RADIATION CERTIFICATION.
Should
the need for state radiation registration certification arise, the CLIENT will bear the cost plus a 10% handling and billing fee.
10.4
MANUFACTURER'S QUALIFICATIONS.
MANUFACTURER
is currently ISO 9001 certified and MANUFACTURER shall maintain such certification during the Term of this Agreement. MANUFACTURER
shall notify CLIENT within three (3) days of any change to that status during the term of this Agreement. Should MANUFACTURER lose
its status as ISO 9001 certified, it shall have a period of 30 days to have the certification reinstated and if not reinstated
within this cure period, CLIENT shall have the right to immediately terminate this Agreement.
10.5
TRADEMARKS.
The MANUFACTURER
shall for and on behalf of the CLIENT, apply CLIENT'S trademarks, trade and brand names, logos, etc. (collectively "Marks")
on the said Product and/or the labels and/or the packaging which are to be supplied to CLIENT pursuant to this Agreement. Such
usage of the Marks shall be in accordance of the directions of the CLIENT. MANUFACTURER shall not use, nor shall have the right
to use the Marks in connection with or in relation to any other product of any nature except for the Product supplied to the CLIENT.
The MANUFACTURER hereby warrants that it shall not use the said Marks in any manner which may jeopardise the significance, distinctiveness,
or validity of the Marks. Nothing herein shall at any time during the terms of this Agreement or after the expiry or earlier determination
give or shall be intended to give or confer upon the MANUFACTURER any right, title, interest or claim in or to the said Marks which
shall continue to vest solely and absolutely in favor of the CLIENT. Each party (the "indemnifying party") shall defend,
indemnify, and hold harmless the other party from any claims by a third party of infringement of intellectual property resulting
from the acts of the indemnifying party pursuant to this Agreement, provided that the other party (i) gives the indemnifying party
prompt notice of any such claims, (ii) renders reasonable assistance to the indemnifying party thereon, and (iii) permits the indemnifying
party to direct the defense of the settlement of such claims.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 6 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
11.1
NOTICE OF PRODUCT LIABILITY CLAIMS.
Each party shall notify the other party hereto promptly in writing of any product liability claim brought with respect to the
Product based on alleged defects in the design, manufacture, packaging, or labeling of the Product or other adverse claim regarding
the Product. Upon receiving such written notice, CLIENT shall assume and have sole control of the defense of any such claim, including
the power to conduct and conclude any and all negotiations, compromises or settlements. MANUFACTURER shall promptly comply with
all reasonable requests from CLIENT for information, materials or assistance with respect to the conduct of such defense.
11.2
NOTICE OF INVESTIGATION.
MANUFACTURER
and CLIENT shall promptly notify each other of any potential or actual investigation or governmental activity relating to the Product.
11.3 MANUFACTURER agrees to reimburse CLIENT
for any and all monies paid to MANUFACTURER by CLIENT for inventory which is lost or damaged due to a natural disaster which destroys
inventory owned by CLIENT at MANUFACTURER'S facility.
|
|
12.
|
DELIVERY, SHIPMENT AND INSTALLATION.
|
Time of delivery by MANUFACTURER is of the
essence. The delivery of each order shall be within the time specified in the Purchase Order. Delivery lead times will be within
the pre-agreed upon lead time of one hundred twenty (120) days or less. If MANUFACTURER can meet a shorter lead time for Purchase
Order fulfillment and shipment, the Product shall be shipped ahead of schedule upon approval and coordination with CLIENT. Delivery
transport and delivery insurance charges will be borne by the CLIENT. MANUFACTURER is not responsible for loss of equipment once
it has left MANUFACTURER'S facility.
CLIENT and MANUFACTURER will mutually work
together to successfully mitigate and resolve any import/export coding and taxation issues in a timely fashion, that may arise
in the course of business.
Upon learning of any potential delivery delays,
MANUFACTURER will notify CLIENT as to the cause and extent of such delay. If MANUFACTURER fails to make deliveries at the specified
time and such failure is caused by MANUFACTURER, MANUFACTURER will, at no additional cost to CLIENT, employ accelerated measures
such as material expediting fees, premium transportation costs, or labor overtime required to meet the specified delivery schedule
or minimize the lateness of deliveries.
12.1
INSPECTION.
Upon reasonable
advance written notice to MANUFACTURER, CLIENT shall have the right during MANUFACTURER'S normal business hours to inspect MANUFACTURER'S
manufacturing facility where the Product is made, including, but not limited to, those areas where materials used to manufacture
and package the Product is handled, processed, or stored, and to observe the manufacture, packaging, storage, inspection and shipping
of the Product.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 7 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
12.2
AUDIT
. MANUFACTURER shall keep
complete and accurate accounts, records, books, journals, ledgers and data relating to MANUFACTURER'S performance under this Agreement
(the "Records"). CLIENT and its representatives shall have the right, at all reasonable times, to inspect, copy and audit
the Records and such other documents and computer records as may be reasonably necessary to verify MANUFACTURER'S performance of
its obligations under this Agreement. MANUFACTURER shall retain all Records during the term of this Agreement and for at least
three (3) years thereafter and make the same available to CLIENT and its representatives within five (5) business days after receipt
of a written request for such Records from CLIENT.
12.3
PACKAGING.
MANUFACTURER shall
package the Product pursuant to the instructions provided by CLIENT.
12.4
INSTALLATION.
MANUFACTURER will
perform system installation and validation at CLIENT customers site per the terms described in Schedule II.
|
|
13.
|
ENGINEERING AND SPECIFICATION CHANGES.
|
13.1 CLIENT shall have the right to, upon
advance notice, submit engineering changes for incorporation into the Product. This notification shall include documentation of
the change to effectively support an investigation of the impact of the engineering change. MANUFACTURER shall review the engineering
change and report to CLIENT within fourteen (14) days of receiving such a notice for change. If any such change affects the price,
delivery, or quality performance of said Product, an adjustment will be negotiated between MANUFACTURER and CLIENT prior to implementation
of the change.
13.2 MANUFACTURER shall not undertake process
changes, design changes, or process step discontinuance affecting the functionality, performance and/or mechanical form and fit
of the Product without prior written notification and concurrence of the CLIENT.
|
|
14.
|
CONFIDENTIAL INFORMATION.
|
14.1
CONFIDENTIAL INFORMATION.
During
the Term and for a period of no less than five (5) years thereafter, each party shall keep confidential and not disclose to others
or use for any purpose, other than as authorized by this Agreement, all "Confidential Information" which was provided
to it by the other party or their respective officers, directors, employees or representatives. For purposes of this Agreement,
the term "Confidential Information" means all know how, trade secrets, formulae, data, inventions, patents, Technology
(as defined below), plans, drawings and other information, including financial information, related to the manufacture, sale or
marketing of the Product. The restrictions of this Section shall not apply to any Confidential Information which (a) is already
known to the recipient at the time of disclosure; (b) is or becomes public knowledge through no fault of the recipient; (c) is
received from a third party having the lawful right to disclose the information; or (d) is required by law to be disclosed.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 8 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
14.2
TECHNOLOGY.
"Technology" means all methods, processes, designs, data, technology, apparatus, devices, techniques, formulae, flow
charts, systems, sketches,
compositions of matter, discoveries, inventions, works of authorship, information, algorithms,
procedures, notes, summaries, descriptions, results and conclusions, whether or not the foregoing is protected or not under the
copyright, patent or trademark laws, in each case related to the manufacture, sale or marketing of the Product.
14.3
RETURN OF CONFIDENTIAL INFORMATION
.
This Agreement does not constitute the conveyance of ownership with respect to or a license to any Confidential Information or
proprietary information. Upon the expiration or termination of this Agreement for any reason, MANUFACTURER agrees to return to
the CLIENT all documentation or other tangible evidence or embodiment of Confidential or Proprietary Information belonging to the
CLIENT.
14.4
CONFIDENTIALITY
OF THIS AGREEMENT.
Each party shall keep confidential and not disclose to others the existence or terms of this Agreement,
including the Schedules hereto, except for such disclosures as may be required by law.
14.5 Subject to the terms herein and the
proprietary rights of the parties, MANUFACTURER and CLIENT agree that the know-how, process technologies, standards and specifications
disclosed or communicated to MANUFACTURER by the CLIENT in relation to the manufacture of the said Product pursuant to this Agreement
shall at all times remain and be the sole and exclusive property of the CLIENT and the MANUFACTURER shall neither have nor claim
any right, title or interest therein or thereto either during the continuance of this Agreement or after the expiry or earlier
determination thereof.
14.6 The MANUFACTURER hereby agrees, undertakes
and declares that it shall not disclose to third parties or directly or indirectly use the said know-how standards or specifications
or any part thereof at any time for any purpose other than for the manufacture of the said Product for making supplies to the CLIENT
in accordance with this Agreement.
15.1 If either party fails to meet any one
or more of the terms and conditions as stated in either this Agreement, Schedules or any addenda, MANUFACTURER and CLIENT agree
to negotiate in good faith to resolve such default. If the defaulting party fails to cure such default or submit an acceptable
written plan to resolve such default within thirty (30) days following notice of default, the non-defaulting party shall have the
right to terminate this Agreement by furnishing the defaulting party with ten (10) days written notice of termination.
15.2 This Agreement shall immediately terminate
should either party; (i) become insolvent; (ii) enter into or file a petition, or proceeding seeking an order for relief under
the bankruptcy laws of its respective jurisdiction; (iii) enter into a receivership of any of its assets or; (iv) enter into a
dissolution of liquidation of its assets or an assignment for the benefit of its creditors.
15.3 Either MANUFACTURER or CLIENT may terminate
this Agreement without cause by giving ninety (90) days advance written notice to the other party.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 9 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
It is the intent of the parties that any dispute
be resolved promptly through good faith negotiation between MANUFACTURER and CLIENT. Either party may initiate negotiation proceedings
by written notice to the other party describing the particulars of the dispute. The parties agree to meet in good faith to jointly
define the scope and a method to remedy the dispute. Should any disputes remain existent between the parties after any good faith
negotiation process set forth above, then the parties shall promptly submit any dispute to binding arbitration in accordance with
the arbitration rules of the American Arbitration Association (AAA), as provided by their respective jurisdiction.
|
|
17.
|
LIMITATION OF LIABILITY.
|
IN NO EVENT, WHETHER AS A RESULT OF BREACH
OF CONTRACT, WARRANTY, OR TORT(INCLUDING NEGLIGENCE), STRICT LIABILITY, PRODUCT LIABILITY, OR OTHERWISE, SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY DAMAGES OF ANY KIND WHETHER OR NOT EITHER PARTY WAS ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE.
The MANUFACTURER shall at its cost take a comprehensive
insurance policy to cover all the raw and packaging materials, stocks in process and finished Product against theft, fire, riots,
civil commotion, natural calamities, including floods if the manufacturing facility is in a flood zone.
MANUFACTURER shall keep in force throughout
the term of this Agreement and for nine (9) months following the termination of this Agreement, adequate commercial general liability
insurance written on an occurrence basis, including products liability and contractual liability coverages as respects this Agreement,
with coverage of at least US$1,000,000 per occurrence. In addition, MANUFACTURER shall keep in force during the term of this Agreement
adequate Workers' Compensation insurance. MANUFACTURER shall provide CLIENT a certificate of insurance ("COI") from a
financially responsible insurance company satisfactory to CLIENT, certifying such coverages, naming CLIENT as an additional insured
and requiring at least thirty (30) days prior written notice to CLIENT of any cancellation or material change thereof.
|
|
19.
|
RELATIONSHIP BETWEEN CLIENT AND THE MANUFACTURER.
|
MANUFACTURER is an independent contractor and
is not an agent or employee of CLIENT and is not authorized to act on behalf of CLIENT. While CLIENT is entitled to provide MANUFACTURER
with general guidance to assist MANUFACTURER in completing the scope of work to CLIENT'S satisfaction, nevertheless MANUFACTURER
is ultimately responsible for directing and controlling the performance of the task comprising the scope of work, in accordance
with the terms and conditions of this Agreement.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 10 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
MANUFACTURER
hereby agrees that he will not, during the term of this Agreement, and for a period of two (2) years following termination hereof,
(a) directly or indirectly engage in any
Competitive Business (as defined below), whether such engagement shall be as a
manufacturer, designer, employer, officer, director, owner, employee, partner or in any other capacity, (b) assist others in engaging
in any Competitive Business or (c) develop, enhance, produce, market, promote or support, or render consulting or other services
to a third party with respect to, a Similar Application (as defined below). "Competitive Business" shall mean a business
providing Products or services similar to, or competitive with, those provided by CLIENT during the term of this Agreement, and
"Similar Application" shall mean a Product having substantially similar functionality to the Product.
MANUFACTURER acknowledges and agrees that the
obligations and promises of MANUFACTURER under this Agreement are of a unique, intellectual nature giving them particular value.
MANUFACTURER further acknowledges and agrees that MANUFACTURER'S breach of any of the promises or agreements contained in this
Agreement, including but not limited to, i) non-disclosure of necessary and requisite information to CLIENT regarding manufacturing
and enhancement of PRODUCT and ii) failure of responding to CLIENT'S communication and queries regarding Product development for
thirty (30) calendar days, will result in irreparable and continuing damage to CLIENT for which there will be no adequate remedy
at law and, in the event of such breach, CLIENT, in addition to its rights of termination set forth herein, will be entitled to
seek injunctive relief, or a decree of specific performance, or both, and such other and further relief as may be proper including
monetary damages if appropriate.
22.1
AMENDMENTS.
No amendment, modification
or supplement to this contract shall be binding unless it is in writing, signed by an authorized representative of each party.
22.2
NOTICES.
Any notices required
or permitted to be given to a Party hereunder:
(a) shall be in writing;(b) shall be delivered
or sent to such Party at its address given below:
if to MANUFACTURER:
RbM Services, LLC
101 Valley Ct
Oak Ridge TN 37830-8001
if to CLIENT:
Sensus Healthcare, LLC
851 Broken Sound Pkwy NW #215
Boca Raton, FL 33487
or such other address as such Party may hereafter
specify; and (c) shall be deemed given (i) when personally delivered to such Party; (ii) when transmitted by facsimile and receipt
of such transmission is confirmed by facsimile; (iii) after air courier service confirm the receipt via an established air courier
service; or (iv) if mailing via certified airmail, after receipt is confirmed.
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 11 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
22.3
NO PUBLICITY.
MANUFACTURER will
not release information about the existence of this Agreement, including its value, or its terms and conditions, through any media
including but not limited to, the issuance of any news release, announcement, denial, or confirmation. MANUFACTURER must obtain
prior written authorization from CLIENT for any exceptions to this subsection. Nothing in this Agreement implies that CLIENT will
agree to any publicity.
22.4
ATTORNEYS' FEES.
In the event
of any litigation, arbitration, judicial reference or other legal proceeding involving the Parties to this Agreement to enforce
any provision of this Agreement, to enforce any remedy available upon default under this Agreement, or seeking a declaration of
the rights of either Party under this Agreement, the prevailing Party shall be entitled to recover from the other such attorneys'
fees and costs as may be reasonably incurred, including the costs of reasonable investigation, preparation and professional or
expert consultation incurred by reason of such litigation, arbitration, judicial reference, or other legal proceeding.
22.5
GOVERNING LAW.
The provisions
of this Agreement shall be governed by the laws of the state of Florida, regardless of conflict of laws.
22.6
WAIVE OF BREACH.
No waiver by
either party of any breach of any of the covenants or conditions herein contained, performed by the other party, shall be construed
as a waiver of any succeeding breach of the same or of any other covenant or condition.
22.7
ASSIGNMENT, SUCCESSORS AND ASSIGNS.
Neither party shall delegate, assign or transfer its rights or obligations under this Agreement, whether in whole or part,
without the written consent of the other party provided, however, upon prior written notice to MANUFACTURER, CLIENT may assign
or transfer its rights. This Agreement shall be binding on and shall inure to the benefit of the parties and their successors in
interest and assigns.
22.8
SURVIVAL.
No termination of
this Agreement, either with or without cause, shall release any party from their obligations of this Agreement.
22.9
ENTIRE AGREEMENT AND CONFLICT.
This
Agreement (including the Schedules hereto) constitute the entire Agreement with respect to the subject matter hereof or thereof
and supersede any previous agreement, including a Purchase Order's general terms and conditions, whether written or oral, between
the parties relating to the subject matter of this Agreement. In the event of any conflict, the terms and conditions of this Agreement
shall prevail over the terms and conditions of any purchase order or other shipping, delivery, receiving, billing or other document
used directly or indirectly by either party in performing this Agreement.
22.10
FURTHER ACTIONS.
Parties warrant
and agree that they will undertake whatever further action is necessary to help and assist the other party in fulfilling it legal
obligations and any obligation arising from this Agreement. To this end, they each also agree to execute any and all other documents
that may be reasonably necessary in order to allow the discharge of the obligations under this Agreement
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 12 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
22.11
CONSTRUCTION.
This Agreement
has been submitted to the scrutiny of, and has been negotiated by, all parties hereto and their counsel, and shall be given a fair
and reasonable interpretation in accordance with the terms hereof, without consideration or weight being given to its having been
drafted by any party hereto or its counsel.
22.12
COUNTERPARTS.
This Agreement
may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one
and the same instrument. Additionally, this Agreement may be executed and transmitted by one party to the other via electronically,
and upon affixing all the necessary signatures, shall become a valid and enforceable Agreement.
IN WITNESS WHEREOF,
the parties hereto
have executed this Agreement as of the date first written above.
|
SENSUS HEALTHCARE, LLC
|
RBM SERVICES, LLC
|
|
By:
|
/s/ Kal Fishman
|
|
By:
|
/s/ Clif Moyers
|
|
Print Name:
|
Kal Fishman
|
|
Print Name:
|
Clif Moyers
|
|
Title:
|
COO
|
|
Title:
|
President
|
|
Date:
|
7/22/2010
|
|
Date:
|
7/22/10
|
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 13 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
SCHEDULE I
Product Specifications
|
Generator
Type - Constant Potential HV
Input Line – 120 – 230 VAC
Standard wall socket
X-Ray Tube
Metal Ceramic
Water -cooled
Tungsten Target
End grounded
Rating
100kV/10mA
40kV/30mA
1000 watts continuous dissipation
Base Unit Assembly
Base Space Requirements – 30" by
30"
VerticalArmRange: 57"
HorizontalArm Range: 49"
X-Ray Tube Movement – V&H 180
degrees
Integrated Modular Components –
Input power, HV Generator,
Heat Exchanger
Operator Control Console
Can be located up to 100' (30meters) from base unit
Service mode for system set-up and calibration – key
entry
Three Treatment Techniques
100kV @ 8mA, 2.1 mm Al. HVL
70kV @ 10mA, 1.1mm Al. HVL
50kV @10mA, 0.4 mm Al. HVL
X-Ray output is 600 cGy @ 15 cm SSD
Automatic Filter Changer (Patented)
2.1 mm Al. HVL
1.1 mm Al. HVL
0.4 mm Al. HVL
Pb X-ray Block
Automatic Warm Up procedures
Automatically activated from time of last exposure
Pre-programmed sequences
Pb lead blocker automatically placed over x-ray tube port
RAD Check (Patented)
Direct radiation measurement of output
Pre-treatment verification
System Weight
350 lbs. (160 kg)
Standard Size Treatment Applicators
1.5cm, 2cm, 2.5cm, 3cm, 4cm and 5cm
Diameter @ 15cm SSD & 10 cm Diameter @ 25cm SSD
Replaceable Safety Contact Shields
Applicator size specific
Visibility of treated area
|
|
|
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 14 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
SCHEDULE II
Pricing
CLIENT shall pay MANUFACTURER $[***] per
unit for labor, plus the cost of goods sold ("COGS"), which is total cost for all parts of the Product.
The price of $[***] + COGS includes MANUFACTURER'S
12 month warranty on parts and labor and Product installation. CLIENT is responsible for shipping costs through their direct customers
who shall cover the shipping fees and tariffs. MANUFACTURER shall drop-ship Product to CLIENT'S direct customer per the instructions
and terms provided in CLIENT'S Purchase Order.
CLIENT currently estimates COGS rates at $[***],
per the procurement billing information provided by the original SRT-100 manufacturer, Topex Medical. This should bring the total
price for Product paid by CLIENT to $[***]. COGS to be reviewed and adjusted periodically.
MANUFACTURER and CLIENT shall cooperate on
an ongoing basis to mitigate parts procurement costs through quality order management, supplier sourcing productivity, and supplier
pool redundancy.
Service contract pricing to CLIENT'S customer
is at a rate of $[***] annually, which will be equally split between MANUFACTURER and CLIENT for domestic sites. CLIENT will be
responsible to provide parts and material coverage and MANUFACTURER will be responsible to all labor and travel coverage for the
provided warranty and service contract coverage period for domestic sites. CLIENT will split service revenue with local International
dealers, where CLIENT will be responsible for parts and local dealers will provide service and labor. MANUFACTURER may be contracted
by International dealers to provide backup service, training, and service spare parts for non-service contract customers
Payment terms: CLIENT shall pay MANUFACTURER
as follows:
|
|
·
|
[***] upon issuance of the Purchase Order;
[***] upon completion of system final test and DHR creation.
|
|
|
·
|
MANUFACTURER will pack and crate the system
for a price of $[***] including crate and labor.
|
MANUFACTURER will perform installations at
the following rate:
|
|
·
|
US Eastern sites (all sites in eastern
and central time zones) $[***] + travel expenses
|
|
|
·
|
US Western sites (all sites in mountain
and pacific time zones) $[***] + travel expenses
|
|
|
·
|
International sites will be performed
on a case by case basis.
|
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 15 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
MANUFACTURER Labor and Finished Goods
Storage Rates
There will be situations where MANUFACTURER
will perform services for CLIENT that are not directly related to manufacturing the product. These may include ECN preparation
and closure, engineering changes, testing and characterization of new features, regulatory consulting, manufacturing process instruction
(MPI) creation, review and release, etc. These activities will be tracked by MANUFACTURER and labor will be billed to the CLIENT
at the rates below. Material purchased during these activities will be charged to the CLIENT at a 10% markup to the MANUFACTURERS
cost.
Labor
:
|
|
·
|
Documentation- $[***]/hr
|
|
|
·
|
Manufacturing Engineering- $[***]/hr
|
|
|
·
|
Field Service Rate, customer - $[***]/hr
(Mon-Fri 8am-5pm)
|
|
|
·
|
Field Service rate, customer - $[***]/hr
(after hours and weekends)
|
|
|
·
|
Field Service rate, Sensus - $[***]/hr
|
|
|
·
|
Quality and Regulatory- $[***]/hr
|
|
|
·
|
Research and Development Technician- $[***]/hr
|
|
|
·
|
Research and Development Engineering-
$[***]/hr
|
RbM shall provide Sensus with a written estimate
of the proposed labor charges, indicating the labor qualification level that shall be used to perform the services, which estimate
shall be subject to Sensus written approval.
Finished Goods Storage and Insurance
:
|
|
·
|
Up to [***] Systems in inventory -
$[***]/quarter
|
|
|
·
|
Additional Systems beyond [***]
during the quarter - $[***]/system/quarter
|
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 16 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
SCHEDULE III
Scope of Work & Services
MANUFACTURER is declaring of the following
capabilities and compliance to provide work and services to CLIENT:
|
|
·
|
Manufacturing of the SRT 100 compliant
with all FDA CGMP regulations.
|
|
|
·
|
Implement a Quality System compliant with
FDA regulations and the International Standard Organizations utilizing Standard Operating Procedures (SOPs) and Forms.
|
|
|
·
|
ISO 9001 and ISO 13485 certified for medical
devices.
|
|
|
·
|
Procurement of components and assemblies
according to approved SOP's, including Supplier Qualification and Validation.
|
|
|
·
|
Inspection of incoming material and proper
disposition of non-conforming material.
|
|
|
·
|
Segregation of non-conforming Product
with work-in-process (WIP) and Finished Goods Inventory.
|
|
|
·
|
Anti-static work stations for testing
and troubleshooting electronic circuitry.
|
|
|
·
|
Calibrated equipment and calibration log
record retention.
|
|
|
·
|
Testing and retention of all test records.
|
|
|
·
|
Documented packing and shipping procedures.
|
|
|
·
|
CAPA (Corrective And Preventive Action)
System for documentation of issues
|
|
|
·
|
ECN (Engineering Change Notice) System
to properly document and track engineering changes.
|
|
|
·
|
Creation and Maintenance of DHR (Device
History) Records.
|
|
|
·
|
Creation and Maintenance of the European
CE Mark Technical File.
|
|
|
·
|
Design and/or make crates (to original
specs) for drop shipping systems from our location.
|
|
|
·
|
A one year parts and labor warranty for
manufacturing defects.
|
|
|
Company
Confidential © 2010 – All Rights Reserved
|
Page 17 of 17
|
Confidential
Material. Specific
terms in this exhibit have been redacted because Confidential treatment has been requested. These redacted terms have been marked
with three asterisks [***]. An unredacted version of this Exhibit has been separately filed with the Securities and Exchange Commission.
Exhibit 21.1
SUBSIDIARIES
None.
Exhibit 23.1
Independent
Registered Public Accounting Firm’s Consent
We consent to the inclusion in this Registration
Statement of Sensus Healthcare, Inc. on Form S-1 [FILE NO. 333-____] of our report dated February 9, 2016, with respect to our
audits of the financial statements as of December 31, 2015 and 2014 and for each of the years in the three-year period ended December
31, 2015, which report appears in the Prospectus, which is part of this Registration Statement. We also consent to the reference
to our Firm under the heading “Experts” in such Prospectus.
/s/ Marcum
llp
West Palm Beach, FL
February 9, 2016
![[GRAPHIC MISSING]](https://content.edgar-online.com/edgar_conv_img/2016/02/10/0001144204-16-080141_V427757_IMG1.JPG)
![[GRAPHIC MISSING]](https://content.edgar-online.com/edgar_conv_img/2016/02/10/0001144204-16-080141_V427757_IMG2.JPG)
![[GRAPHIC MISSING]](https://content.edgar-online.com/edgar_conv_img/2016/02/10/0001144204-16-080141_V430231_IBC.JPG)